Stinson Leonard Street Dodd Frank

MAKING SENSE OF DODD-FRANK

The Dodd-Frank Act has broad and deep implications that will touch every corner of financial services and multiple other industries. This site, developed and maintained by attorneys at Stinson Leonard Street, is dedicated to making sense of this complex legislation and helping businesses understand how it will affect them specifically. Our Bloggers »

Dodd-Frank

CFTC Publishes Final Whistleblower Rules

by   |   August 16, 2011

The CFTC has published its final whistleblower rules as required by the Dodd-Frank Act.  The CFTC received more than 635 comment letters.  Over 600 of these comments, sent by or on behalf of different individuals and entities, were variations of the same form letter.  The form letters provide no specific comments or requested revisions regarding the proposed rules.  These letters: express concern that the “corporate lobby will have undue influence on the final rules to protect whistleblowers;” allege that “[t]he SEC proposed rules completely undermine efforts to protect employees who risk their careers to expose fraud;” and opine that “the CTFC should not blindly follow any of the SEC’s recommendations and should instead write rules will encourage whistleblowers to report commodities fraud.”

A significant issue discussed in the proposed rules was the impact of the whistleblower program on company systems for internal reporting of potential misconduct.  With respect to the criteria for determining the amount of an award, the final rules provide that while the amount of an award is within the CFTC’s discretion, the CFTC will consider:

  • a whistleblower’s report of information internally to an entity’s whistleblower, compliance or legal system as a factor that potentially can increase the amount of an award; and
  • a whistleblower’s interference with such internal systems is a factor that can potentially decrease the amount of an award.

The CFTC did not propose a requirement that a whistleblower must report his information internally to an entity to be eligible for an award, and commenters were sharply divided on the issues raised by this topic. Upon consideration of the comments, the CFTC determined that it is inappropriate to require whistleblowers to report violations internally to be eligible for an award.

The CFTC did, however, recognize that internal compliance and reporting systems ought to contribute to the goal of detecting, deterring and preventing misconduct, including Commodity Exchange Act violations, and does not want to discourage employees from using such systems when they are in place. Accordingly, the Commission has tailored the final rules so that a whistleblower may be eligible for an award for reporting original information to an entity’s internal compliance and reporting systems if the entity later reports information to the CFTC that leads to a successful CFTC action or related action. Under this provision, all of the information provided by the entity to the CFTC will be attributed to the whistleblower, which means the whistleblower will get credit—and potentially a greater award—for any information provided by the entity to the CFTC in addition to the original information reported by the whistleblower.

Check dodd-frank.com frequently for updates on the Dodd-Frank Act and other important securities law matters.