On March 22, 2013, the New York State Senate introduced the S4362 Proposal which, through a “bounty,” gives financial awards to whistleblowers who provide original information to the Department of Financial Services (DFS) regarding violations of New York banking, insurance and financial services laws. The Proposal’s bounty program is largely modeled after the programs codified in the securities (Section 922) and commodities (Section 748) whistleblower provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank). Moreover, the Proposal contains anti-retaliation protections similar to those in Dodd-Frank’s securities, commodities and financial services (Section 1057) whistleblower protection provisions. This post discusses the scope of the Proposal’s coverage, as well as the breadth of its bounty program and anti-retaliation protections.
The Proposal defines “whistleblower” to mean any individual, or two or more individuals acting jointly, who provide information relating to a violation of the banking, insurance or financial services laws (and any rules or regulations promulgated thereunder). The definitions of whistleblower in Dodd-Frank Sections 922 and 748 are similar in form to the Proposal, but only concern the violation of securities and commodities laws, respectively. (Section 1057 of Dodd-Frank does not as explicitly define the term as it relates to financial services.) The degree to which the Proposal’s coverage overlaps with that of the Dodd-Frank whistleblower provisions is a matter of interpretation and, therefore, not entirely clear. It is fair to say, though, that the Proposal’s definition is quite vague.
Mirroring Sections 922 and 748 of Dodd-Frank, the Proposal defines “original information” to mean information: (a) derived from the independent knowledge or analysis of a whistleblower and, unless the whistleblower is the source of the information; (b) unknown to the DFS from any other source; and (c) not exclusively derived from an allegation made in a judicial or administrative hearing, government report, hearing, audit or investigation, or from the news media.
Determination of Awards
Whistleblowers are eligible under the Proposal to receive in the aggregate an award ranging from 10% to 30% of the monetary sanctions imposed in any covered judicial or administrative action initiated by the DFS or related actions brought by another state agency and/or federal regulator or law enforcement agency with whom the DFS shares jurisdiction. The Proposal notes that, if a “related action” results in monetary recovery, but the DFS does not receive a share or its share amounts to less than $1M, the DFS would have no obligation to provide the whistleblower with a reward. Sections 922 and 748 of Dodd-Frank afford the same range of monetary awards.
The Superintendent of the DFS has the sole discretion to determine the amount of an award (including whether, to whom or in what amount to make awards), much like the Securities Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have under Sections 922 and 748 of Dodd-Frank, respectively. Analogously, in making the determination, the Superintendent would consider the following factors:
The significance of the information provided by the whistleblower to the success of the covered judicial or administrative action;
The degree of assistance provided by the whistleblower and his or her legal representative in a covered judicial or administrative action;
The interest of the DFS in deterring violations of the banking, the insurance or financial services laws; and
Such additional relevant factors as the Superintendent may establish by rule or regulation.
Exceptions to Receiving Awards
Similar to Sections 922 and 748 of Dodd-Frank, under the Proposal a whistleblower is not eligible for an award if the Superintendent determines that the whistleblower:
Is, or was at the time he or she acquired the original information submitted to the DFS, a member, officer or employee of the DFS, any agency or self-regulatory agency regulating banking, insurance or financial services products, or a federal, state or local law enforcement organization;
Was convicted of a criminal violation related to the covered judicial or administrative action for which he or she otherwise could receive an award;
Failed to submit information to the DFS in such form as it may require; or
Knowingly and willfully made false, fictitious or fraudulent statements or representations, or knowingly used any false writing or document, unless such statements or entries were not made by the whistleblower and reflect the conduct and violations of law that he or she is disclosing or has disclosed to the DFS.
Procedures for Claiming an Award
The Proposal contains other provisions nearly identical to those found in Sections 922 and 748 of Dodd-Frank, including that:
Any whistleblower making a claim for an award may be represented by counsel, with counsel required: for any whistleblower who makes a claim anonymously and submits the information upon which the claim is based; and before the payment of an award, to disclose the identity of the whistleblower and provide such other information as the DFS may require, including evidence showing that the whistleblower was represented by counsel in accordance with the Proposal.
No contract with the DFS would be necessary for any whistleblower to receive an award, unless otherwise required by rule or regulation.
The Superintendent’s determination would be subject to challenge in accordance with Article 78, provided that such challenge would be brought within 45 days of the date of the determination (Sections 922 and 748 of Dodd-Frank limit the appeal period to 30 days).
As noted, Sections 922, 748 and 1057 of Dodd-Frank contain anti-retaliation protections. The Proposal similarly would prohibit an employer from retaliating against a whistleblower because of any lawful act done by the whistleblower in: providing information to the DFS in accordance with the Proposal; and initiating, testifying or assisting in any investigation or judicial or administrative action of the DFS.
Under the Proposal, any current or former employee, contractor or agent of any private or public employer subject to retaliation would be entitled to relief including but not be limited to:
An injunction to restrain continued discrimination;
Hiring, contracting or reinstatement to the position such person would have had but for the discrimination or to an equivalent position;
Reinstatement of full fringe benefits and seniority rights;
Payment of double back pay, plus interest; and
Compensation for any special damages sustained as a result of the discrimination, including litigation costs and reasonable attorneys’ fees.
Notably, under New York’s existing financial services law, the Superintendent may levy a civil penalty in addition to any civil or criminal liability provided by law.
As with the confidentiality provisions in Sections 922 and 748 of Dodd-Frank, under the Proposal the DFS (and any of its officers or employees) would not be permitted to disclose any information, including information provided by a whistleblower to the DFS, which reasonably could be expected to reveal the identity of a whistleblower, unless the Superintendent decided that releasing such information would serve the ends of justice and public advantage.
Moreover, akin to Dodd-Frank whistleblower provisions, the rights and remedies provided for in the Proposal could not be waived by any agreement, policy form or condition of employment, including by a pre-dispute arbitration agreement, which would not be valid or enforceable if it required arbitration of a dispute arising under the Proposal.
Unique to the Proposal, the employer may not recoup salary or wages earned by the whistleblower during his or her employment, or any consideration provided to the whistleblower in connection with his or her severance pay from such employment, related to original information or the covered judicial or administrative action.
Employers subject to the banking, insurance, and financial services laws of New York should closely monitor the Proposal in the coming months as it makes its way through the Senate. Although such employers may be subject to similar prohibitions and penalties under any one of the Dodd-Frank whistleblower protection provisions, if the Proposal becomes law it will create the specter of potentially duplicative bounties and stiffer penalties. Accordingly, it is imperative that such employers review and strengthen their whistleblower compliance policies.