Financial Reform Bill Creates Commodities Market Fraud Whistleblower Program

The financial reform bill passed in July 2010 is another example of whistleblowers’ increasing importance in fighting fraud and recovering ill-gotten gains.  The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) includes provisions to incentivize and protect whistleblowers who report commodity law violations to the government.

Under the new commodities whistleblower program, whistleblowers will receive awards of 10 to 30 percent of any amounts recovered as a result of “original information” they provide to the Securities Exchange Commission (SEC), as long as the total recovery is more than $1 million.  The law also protects whistleblowers from employer retaliation and explicitly provides that whistleblowers cannot waive their right to pursue whistleblower actions through any employment agreements or policies.

Unfortunately, though, the commodities whistleblower program is not as robust as the False Claims Act’s (FCA) whistleblower provisions.  While FCA whistleblowers can prosecute cases even if the government does not intervene, SEC whistleblowers cannot pursue enforcement actions independently if the government does not want to take the case.

The commodities whistleblower program is certainly a good first step to combat market fraud.  We hope and expect that the law will become even stronger once it starts being used by citizen-whistleblowers and their counsel.