Monday, May 30, 2011

Proposed Changes Threaten Integrity of Dodd-Frank Act

In 2010, the U.S. Government passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) in response to the economic meltdown caused by the financial sector. The industry, namely big banks and corporate giants, literally needed an "overhaul." The Dodd-Frank Act's Section 922(a) amended the Securities Exchange Act of 1934 by adding a new section 21F entitled "Securities Whistleblower Incentives and Protection." The Dodd-Frank Act was passed to protect, encourage, and incentivize whistleblowers to come forward, a tactic that may have spared the economy's failure had it been in place prior to 2010.

Similar to the outlines of the False Claims Act, whistleblowers under the Dodd-Frank Act who voluntarily provide original information about potential securities law violations that lead to sanctions of $1 million or more could be eligible for awards of 10 to 30 percent. The new Section 21F also prohibits employers from discharging, demoting, suspending, threatening, harassing (directly or indirectly), or otherwise discriminating against an employee who attempts to report the fraud.

Key Factor in Passing Dodd-Frank

Perhaps the key factor in the passage of the Dodd-Frank Act was whistleblower Harry Markopolos, who uncovered Bernie Madoff's Ponzi scheme some 10 years before the rest of the world learned of the biggest financial crime in history. Mr. Madoff was a prominent Wall Street figure and the former chairman of NASDAQ who was cheating thousands of individuals out of their savings and investments. During the course of many years, Mr. Markopolos worked tirelessly to get the Securities and Exchange Commission (SEC) to do something about Mr. Madoff by providing them, not only with information, but with countless supporting documents. Unfortunately, by the time the SEC decided to act, millions of dollars were already long gone.

Even though the Dodd-Frank Act has been passed, procedural rules have not been finalized and powerhouse financial organizations have been lobbying to delay finalization of the law and to hollow out key provisions. Big banks and companies claim that the Dodd-Frank Act will significantly heighten the risks that employers already face and complicate internal procedures. Politicians aligned with big business aim to chip away at the Dodd-Frank Act by proposed regulatory subversion.

Proposed Changes

One of the proposed changes would require individuals alleging corporate wrongdoing to first inform their employers, by following internal compliance programs, before reporting information to the SEC. Another proposed change would give the SEC greater leeway to deny rewards to people who otherwise meet the program's requirements. For example, awards would be banned for people who participated in wrongdoing even if they were not convicted of a crime. In another effort to discourage whistleblowers from coming forward, the big business lobby wants to ban attorneys representing whistleblowers from working on a contingency-fee basis.

The Risks

The current proposals defer too much to big business and violate the intent of the Dodd-Frank Act that established serious consequences for Wall Street and corporate misbehavior. The SEC's job is to protect investors and individuals, not corporations, from potential harm caused by fraud and abuse of the financial system. The SEC came under fire for failing to catch Bernard Madoff's massive Ponzi scheme and dismissing whistleblowers complaints about him. By entertaining limitations to the Dodd-Frank Act proposed by those who stand to benefit from their passage, the SEC is again placing the economy at risk.


*****************
Joanna A. Hojdus is an attorney in Dallas, Texas. Joanna focuses her practice on qui tam (whistleblower) cases and is licensed to practice law in Florida and Texas.

No comments:

Post a Comment