Wall Street Reform Brings Flood of Federal Investigations

Wall Street Reform Brings Flood of Federal Investigations-Image via Wikipedia

When President Obama signed the Wall Street reform bill into law on July 21, he likely ushered in what might be called “the decade of the whistleblower”—an era marked by a flood of federal investigations sparked by bounty-hunting employees looking to cash in on rewards that, in some cases, could turn them into instant millionaires. Indeed, the Dodd-Frank bill became law just three months ago, but plaintiff’s firms already report an astronomical jump in calls from would-be whistleblowers, noted two LeClairRyan attorneys, who will explore the potentially far-reaching impact of the Dodd-Frank whistleblower provisions during an Oct. 29 webinar at www.LeClairRyan.com.

The free Webinar, which runs from noon to 1:30 p.m. EST, will be conducted by James P. Anelli, a veteran labor and employment attorney with decades of experience representing management, and Carlos F. Ortiz, a seasoned white-collar defense attorney who served as a federal prosecutor for more than 15 years. Both attorneys are shareholders in LeClairRyan, based in the firm’s Newark, N.J., office.

While the Dodd-Frank Act has been widely discussed, its extremely significant whistleblower provisions have gone nearly unnoticed, the attorneys said. And yet, under those provisions, whistleblowers that provide information that exposes SEC violations will get up to 30 percent of fines exceeding $1 million. “Bear in mind that recent fines involving violations of the Foreign Corrupt Practices Act (FCPA) have reached up to $100 million,” Ortiz noted.  “The fallout from these whistleblower provisions will be huge. This is an incredible incentive for employees who are looking to get rich to do all they can to gather information on, and report, potential violations by their employers. Why would they go through existing compliance hotlines when they can contact a plaintiff’s attorney and pursue such potentially lucrative payouts?”

Generally speaking, the scope of previous SEC whistleblower laws was limited to cases of insider trading. Dodd-Frank, which will be administered by the newly created Bureau of Consumer and Financial Protection, applies to all potential SEC and commodities-trading violations. For a variety of reasons, it will affect a broad swath of both private and public entities, Anelli noted. “In the old days, whistleblower laws applied to Wall Street traders using insider knowledge to swap ‘hot stock tips’ with each other, but the new framework is quite broad,” he explained. “It applies to virtually any company that deals with consumer credit, loans or property in any capacity, including mortgage brokers, financial advisors and credit-counseling services.”

During the webinar, Ortiz will describe the manifold ways in which public companies that do business overseas could be forced to deal with an upsurge in employee-generated complaints under FCPA. (The conduct of foreign intermediaries, for example, is already under close federal scrutiny.) But public companies are not the only ones that will be affected by the bounty-hunting provisions—their subsidiaries and privately-held competitors might also come under closer federal scrutiny.

“Let’s assume your company is privately owned and does business in Malaysia,” Ortiz said. “If your chief competitor in the market is a publicly-traded American company that, thanks to a whistleblower complaint, becomes the target of a federal investigation, the Department of Justice might launch a broader ‘industry probe.’  DOJ might say, in effect, ‘Now that we know Company X was bribing officials in Malaysia to get work, let’s investigate all of its competitors.'”

Moreover, Anelli added, the new whistleblower provisions apply to all of the subsidiaries of any public company. “A large public company might have 100 subsidiaries, and as long as the financial information of those subsidiaries is used in its consolidated financial statement, those entities are covered under this law,” he said. “The ‘Wall Street reforms’ actually have a reach that is far beyond the publicly-traded realm.”

How should companies protect themselves against bogus complaints filed by bounty-seeking employees? What specific practices and departments tend to be at highest risk of being cited for an SEC violation? How will the new anti-retaliation provisions—which include private causes of action for employees who suffer retaliation—affect the way managers should conduct themselves in the wake of a whistleblower complaint? During the webinar, Ortiz and Anelli will explore these and other questions. They will also offer advice on how companies can develop effective internal controls and document their efforts to maximize compliance.

The potential stakes, the attorneys note, are high: Federal enforcement actions have been increasingly aggressive in recent years, with approximately 150 companies already under investigation for FCPA violations and a growing number of individual executives being singled out for prosecution. “The reforms included a burden-shifting framework that is favorable to employees,” Anelli concluded. “Under this framework, employees in many instances will now be able to show that they meet the burden of proof that is required to recover their cut of the eventual fine. Because of the amounts involved, whistleblower cases are going to turn into big business for plaintiff’s law firms. As more whistleblowers start making big bounties—and headlines—the number of investigations will only grow. Careful preparation clearly is in order.”

To register for the webinar: (“Dodd-Frank Will Usher in the ‘Decade of the Whistleblower’ “) please visit https://leclairryanevents.webex.com. Registration deadline is 11:00 a.m. EST on Friday, Oct. 29.  HRCI credit for the webinar is pending

About LeClairRyan

Founded in 1988, LeClairRyan provides business counsel and client representation in corporate law and high-stakes litigation. With offices in California, Connecticut, Massachusetts, Michigan, New Jersey, New York, Pennsylvania, Virginia and Washington, D.C., the firm’s nearly 300 attorneys represent a wide variety of clients throughout the nation.  For more information about LeClairRyan, visit www.leclairryan.com.

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Carlos Ortiz


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