New York Securities Lawyers Blog

Today, the SEC's new whistleblower program under the Dodd-Frank Act becomes effective, and is on the minds of many New York securities lawyers. These new rules were devised in such a way to provide an incentive for would-be whistleblowers to come forward and assist the SEC with investigations of possible securities law violations. Under these new rules, if an individual provides the SEC with original information about possible federal securities laws violations, and that information leads to a recovery by the SEC of $1 million or more, that individual would be entitled to receive up to 30% of the sanctions received by the SEC.

Under the new rules, internal reporting is encouraged, but it is not required. Individuals may instead go directly to the SEC. However, the value of internal compliance programs is addressed in the release, and there are incentives in place in the new rules to urge whistleblowers to report internally first.

There are also a few groups of individual who, for public policy reasons, are excluded from participation under the new rules. These include: compliance and internal audit personnel; officers, directors, trustees and partners who only discover the violations as a result of internal compliance procedures; public auditors who learn of the violations in the course of an engagement. However, these people may be eligible under certain circumstances, such as: they reasonably believe that disclosure is necessary to prevent the company from causing substantial injury to the property or financial interests of the company or investors; they reasonably believe that the company is impeding an investigation of the misconduct; or at least 120 days have passed since the initial internal report. Attorneys are also excluded, provided that they learned of the violations directly from attorney-client communications.

The new rules also provide substantial protection for individuals who do come forward, in order to prevent retaliation from their employer. Even if a whistleblower's tip only relates to possible violations and the SEC investigation is unsuccessful, that individual is now protected from retaliation by a new express private right of action. Whistleblowers may sue their employer and seek remedies including two times their back pay and reinstatement. However, this protection is only for individuals who go directly to the SEC, not for those who report only internally.

Given these new rules, it is now much safer for individuals who have information about suspected federal securities law violations to come forward, and whistleblowers now have the opportunity to be compensated for their efforts in aiding the SEC. Yet it is important for potential whistleblowers to ensure that they proceed through the appropriate channels. For that reason, individuals who wish to contact the SEC to report securities violations should consult with an attorney before doing so to ensure that their rights are protected.

Continue reading "New SEC Whistleblower Rules Become Effective" »

Investment News reports that FINRA has authorized its staff to propose a new rule that would ban "collective action" employment claims under the Fair Labor Standards Act or the Age Discrimination in Employment Act from arbitration. This rule would have to be approved by the SEC before it could take effect, but it has potential longterm significance for New York securities lawyers and the American workforce at large.

Collective action claims differ from class actions in that a potential plaintiff must choose to "opt in" to the lawsuit, while class actions have the effect of automatically including covered plaintiffs, but allow individuals to opt out.

FINRA has maintained that its rules do not allow for collective or class actions in its dispute resolution system, but FINRA rules only mention class actions. Federal courts have repeatedly ordered that collective action wage and hour cases be heard in FINRA arbitrations.

A recent such ruling in February may have been the impetus for FINRA to authorize this new rule proposal. FINRA and the SEC have long held the belief that the courts are the superior venue for handling class actions. But with Federal courts closing their doors to these cases, many of these cases had to be refilled in state court and stripped of their FLSA claims.

If passed, this new rule would have the effect of opening up the federal courts to brokers seeking to pursue class action employment claims. Pursuing these actions in courts would provide a boost to employees of major brokerage firms who are seeking various employment claims such as wage-and-and hour issues and overtime violations.