SEC and CFTC Whistleblower Laws

More recently, both the Commodity Futures Trading Commission and the Security and Exchange Commission whistleblower offices were created as a result of the Dodd-Frank Legislation in order to help fight financial fraud.

Commodities and Securities fraud may be reported to these agencies and awards may be obtained by the whistleblower who provides information to these agencies. Neither the CFTC nor the SEC allows for private right of action as in the Federal False Claims Act.

Under these provisions a whistleblower may report fraud to these agencies and if either of these agencies takes an action against the defendants that whistleblower may be entitled to obtain an award, but they may not pursue an action against the defendant on their own for the underlying fraud. It is important for individuals to get the help of a skilled whistleblower lawyer when considering SEC and CFTC laws.

SEC Whistleblower Program

The SEC whistleblower program has become very popular and receives many tips from whistleblowers, but of course, not every kind of whistleblower law involves the defrauding of investors. The SEC whistleblower office is focused on the type of violation that creates damage to investors. That is their charge.

These challenges must be addressed and dealt with if the whistleblower’s claim is going to be successful. It can be frustrating for a whistleblower who feels strongly that they are telling the truth to come forward.

Applications of the Program

The SEC, has been forthright in its willingness and ability to protect whistleblowers, it allows for whistleblowers to file their cases anonymously, with counsel and it has protected the identity of anonymous whistleblowers even in the event of providing awards to those whistleblowers.

It is not always possible, even under the SEC whistleblower program, to keep a whistleblower anonymous forever, but generally, it is possible to file anonymously and initially and see if the government will act long before anyone finds out who the whistleblower is.

Because whistleblowers are often the target of retaliation, and most anti-retaliation provisions only allow for the right to sue for harm as opposed to actual protection, anonymity can be an important aspect of the SEC and CFTC procedures.

Such anonymity is usually more difficult to obtain in cases filed under the False Claims Act. However, The False Act has a unique filing procedure, requiring cases to be filed initially under seal. It is is not designed to protect the whistleblower per se but may in fact provide some time prior to anyone learning the identity of the whistleblower..

Government Contracting

Government contracting for defense is a huge business as well. Unlike Medicare, however, the government is usually in a more direct position with the producer of the goods and services or the provider of the services that are received in the defense program.

Therefore, proving that the government has been defrauded or did not know that misrepresentations were being made or did not agree to any changes the contractor may have made can add a lawyer of complexity to such cases.

Government knowledge is no longer on its own supposed to be a defense against fraud being committed against the government. However, it is problematic to assert that fraud has been committed against the government when the government is fully aware of all the conditions and everything that has been provided such as the provisions of services or the building of goods that are expected to up to the standard required under a contract between the government and a defense contractor.

Types of Fraud

There are many other kinds of fraud, which can be actionable under the False Claims Act. For example, there have been successful cases with respect to mortgage fraud.

One might not ordinarily think of mortgage fraud as being an area involving government funds, but the government ensures mortgages and can be involved in False Claims Act collections on occasion, including in regards to housing and urban development.

Any way that the government can be defrauded can also be the basis of a successful whistleblower case under the False Claims Act.

Case Size

On the other hand, the Securities and Exchange Commission and Commodity Futures Trading Commission Whistleblower offices are still relatively new so the range of successful cases to review is much smaller. However, there have been successful cases and awards under these whistleblower offices. Whistleblower attorneys look forward to seeing many more successful prosecutions when whistleblowers come forward to these agencies with appropriate information.

Generally, publicly traded companies would fit such jurisdiction for the SEC whistleblower office. A classic example of securities fraud involves selling securities that the seller knows were not worth anything, not disclosing risks to investors that are known at the time of the sale of the securities can also be an appropriate action for securities fraud under the SEC whistleblower law.

Filing Restrictions

In general, any person who sees wrongdoing can file under some whistleblower law. There are, of course, some exceptions. It is almost impossible for an attorney representing a client to successfully file a whistleblower action because of the problem of providing privileged material to the government and breaking that privilege. Military personnel cannot file a Federal False Claims Act case arising out of their service.

Each state law has restrictions as to who can file and obtain an award under their False Claims Act. It is important to check for such restrictions. Whistleblowers should check with counsel prior to filing any action so as to be able to put themselves in the strongest position to obtain an award under any whistleblower action.