SUGARMAN The Personal Injury Law Firm

Dodd-Frank Act and Whistleblower Claims

Posted by Benjamin R. Zimmermann

Benjamin R. Zimmermann
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Ben litigates personal injury cases, with an emphasis in the areas of defective products, medical malpractice, construction site accidents, and premises liability. Ben’s case wins have been upheld all the way to the Massachusetts Supreme Judicial Court. Meet Benjamin


In July 2010, Congress passed, and the President signed, the "Dodd-Frank Wall Street Reform and Consumer Protection Act" ("The Dodd-Frank Act").  The Dodd-Frank Act was passed in response to the country's near financial meltdown in 2008, in an effort to protect the consumers and the country from the perils of unlawful financial practices by individuals and financial institutions.  Among other protections, the Dodd-Frank Act contains a section entitled "Securities Whistleblower Incentives and Protection."

This relatively new whistleblower law (a) requires the Securities and Exchange Commission ("SEC") to pay substantial awards to eligible "whistleblowers" who voluntarily provide the SEC with information leading to successful enforcement of the securities laws; and (b) prohibits retaliation by employers of such whistleblowers.

A whistleblower's right to recovery depends upon meeting certain requirements of the Dodd-Frank Act and related SEC rules.  The requirements for recovery by the whistleblower include:

-  the information reported by the whistleblower must be "original information", which generally speaking means that the information must be based on the whistleblower's independent knowledge or independent analysis, and the SEC must not have known about the information from any other source;

-  the enforcement by the SEC results in a sanction greater than $1,000,000; and
-  the individual reporting must meet the statutory definition of a "whistleblower," and must not fall under any of the exclusions.

Under the Dodd-Frank Act, the SEC set up the "Office of the Whistleblower" to handle tips and complaints, and assist in determining the financial award afforded to a successful whistleblower. If the criteria is met, whistleblowers are entitled to an award of 10-30% of the monetary sanctions collected as a result of the information provided by the whistleblower. Types of violations that can give rise to an award include:

- Theft/misappropriation (advanced fee fraud, lost or stolen securities, hacking of account);

- Misrepresentation/Omission (false/misleading marketing, sales, and disclosures);

- Offering fraud (ponzi/pyramid scheme, other offering fraud);

- Registration violations (unregistered securities offering);

- Trading violations (after hours trading, algorithmic trading, front running, insider trading, manipulation of securities/prices, market timing, inaccurate quotes/pricing information, program trading, short selling, trading suspensions);

- Fees/mark-ups/commissions (excessive fees or commissions, failure to disclose fees, inadequate notice of fees, excessive mark-ups/mark-downs, improper spreads);

- Corporate disclosure/reporting violations;

- Sales and advisory practices;

- Operational violations;

- Improper handling of customer accounts.

Importantly, while the Dodd-Frank Act does set up protections against retaliation by employers of whistleblowers, the SEC expressly allows a whistleblower to remain anonymous by submitting a claim through an attorney.

If you have questions regarding a potential whistleblower case under either federal or Massachusetts law, please fill out a Contact Form, call Benjamin Zimmermann or David McCormack at 617-542-1000 or e-mail Benjamin Zimmermann or David McCormack.

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