New efforts by states to incentivize whistleblowers financially underscore the importance of comprehensive corporate compliance programs that effectively address all internal reports of potential misconduct that may constitute violations of state or federal securities laws.
The North American Securities Administrators Association (“NASAA”) recently released two proposed Model Acts—a Model Whistleblower Award and Protection Act (“Model Act”) and a Model Act to Create a Restitution Assistance Fund for Victims of Securities Violations (“Model Restitution Fund Act”)—for adoption by the 48 states that have not yet enacted such programs. According to NASAA, the intent of the Model Act “is to incentivize individuals who have knowledge of potential securities law violations to report it to state regulators in the interest of investor protection.”
The Model Act closely tracks the whistleblower award programs established by the Securities and Exchange Commission (“SEC”) and Commodities Futures Trading Commission (“CFTC”) under the Dodd‑Frank Wall Street Reform and Consumer Protection Act of 2010. Like those programs, the Model Act provides incentives to, and protections for, individuals who report potential violations of state securities laws. Both Dodd‑Frank and the Model Act authorize awards ranging from 10% to 30% of the total monetary sanctions imposed by regulators to individuals who provide original information leading to a successful enforcement action. However, the Model Act differs from Dodd‑Frank in several important ways. First, a whistleblower under Dodd‑Frank is not eligible for a financial award unless the amount recovered in a successful enforcement action exceeds $1 million while the Model Act contains no such minimum threshold. Second, the Model Act withholds retaliation protections from whistleblowers who knowingly provide state agencies with false information. Finally, unlike the federal programs that permit an individual to remain eligible for whistleblower status so long as they provide the information to the SEC or CFTC within 120 days of their internal report, the Model Act encourages potential whistleblowers to proceed directly to state authorities.Read more here.