In addition to a targeted overhaul of Wall Street, a financial reform bill which is scheduled to be signed by President Obama next week will also implement two significant changes to whistleblower laws.

H.R. 4173, the Restoring American Financial Stability Act (more commonly known as the Financial Reform bill) was passed by Congress on Thursday following a 60-39 Senate vote.  (Note that the seat occupied by former Senator Robert Byrd (D-W. Va. is still vacant).  In addition to implementing a reporting and reward provision for SEC and Commodities whistleblowers, the Act will also amend the federal False Claims Act’s (FCA) whistleblower provision.

False Claims Act Amendments

31 U.S.C. §3731 sets out a cause of action for any “employer, contractor, or agent” who engages in certain protected conduct.  However, since the FCA’s whistleblower protection provision does not explicitly set out a statute of limitations period, the United States Supreme Court held in Graham County Soil & Water Conservation Dist. V. United States ex rel. Wilson that the statute of limitations for such actions should be the same as the most closely analogous state statute of limitations.  This, in turn, led to confusion and a wide disparity in statute of limitations from state to state, as some state laws provide for a 90 day statute of limitations (such as Michigan and others for up to six years (such as Maine).

Under the financial reform bill, the statute of limitations for 3730(h) is now set at 3 years.  Once the statute takes effect, uniformity will be achieved in federal FCA whistleblower litigation.

The Financial Stability Act also redefines “protected conduct” for 3730(h) claims.  Currently, “protected conduct” is defined as “lawful acts done… in furtherance of other efforts to stop 1 or more violations of this subchapter.”  This imposed an affirmative duty on whistleblowers to actually try and stop the alleged fraud.  Now, whistleblowers are protected for engaging in “lawful acts done… in furtherance of a [FCA action] or other efforts to stop 1 or more violations of this subchapter.”

SEC/Commodities Whistleblower Provisions

The Financial Stability Act also provides a mechanism for insiders who are aware of SEC/commodities fraud to come forward with such information in order to protect investors.  The SEC whistleblower provision has some similarities to the federal FCA; for example, both statutes offer whistleblowers financial incentives for bringing forward “original information” about fraud, based on a percentage of what the government collects as a result of the whistleblower’s disclosures.

There are some differences between the statutes, however.  The SEC whistleblower provision provides for whistleblower rewards only where the monetary sanctions collected from the defendant exceed $1 million.  There are also restrictions on who can report under the SEC act – for example, if a whistleblower gains knowledge of the fraud through the course of his or her job duties, they are not eligible to report.  Finally, there is no private cause of action – in other words, if the government elects not to move forward with a SEC claim, the whistleblower cannot proceed absent government intervention.

For additional information about whistleblower laws, please contact Mercedes Varasteh Dordeski at (248) 952-0400.