Many states have enacted their own versions of the False Claims Act (FCA) to enlist whistleblower assistance in preventing fraud on state government. But surprisingly, most states do not have similar statutes mirroring the federal whistleblower protection of the Dodd-Frank Act. In fact, Utah and Indiana are the only states that currently have a whistleblower program aimed at identifying securities law violations.
Many whistleblowers have helped federal securities regulators identify and prosecute wrongdoers at the federal level. Therefore, it is no surprise that states are beginning to enact similar programs. In Utah, people providing information leading to the collection of at least $50,000 from a violator can receive up to 30 percent of those proceeds as a reward. Indiana allows state officials to award up to 10 percent of monetary sanctions received in an enforcement action to a person who provided original and significant information that led to the case.
The main benefit of these programs is that they encourage people to identify wrongdoing in real time, not after a fraud has occurred and restitution is unlikely. When people make complaints well after the crime has been committed, it is much more difficult to freeze assets and get the victims’ money back. Whistleblower programs help get people in the door sooner because the anonymity provided to whistleblowers allows people to come forward without fear of reprisals from powerful financial institutions.
In August of this year, for example, an informant was awarded $95,000 (10 percent of the $950,000 settlement) for helping Indiana securities regulators bring an enforcement action against JPMorgan Chase for failing to disclose certain conflicts of interest to clients about the way the bank invested their money and steering clients to in-house funds that carried higher costs or generated greater fees to the bank. Utah’s program has similarly resulted in 15 successful prosecutions, the first of which occurred in 2014 when an investment advisor tipped off state officials to approximately $150,000 in questionable transactions he had seen when analyzing an elderly client’s holdings. Utah followed up by bringing a securities fraud case and recovering the money; the whistleblower was awarded $20,000.
Both of these programs took effect within the last five years (Utah in 2011, Indiana in 2012). Therefore, this may be something we will see other states replicating in the future. In fact, the topic of possibly expanding state whistleblower programs came up at a recent meeting of the North American Securities Administrators Association, the state securities regulators group. These programs are viewed as a tool that both state and federal securities regulators could use to improve enforcement and deter financial fraud, because they allow states to leverage their limited resources to crack down on fraud they otherwise would not have been able to see. Overall, these are good programs to help state governments put an end to securities fraud, and to protect and reward those who are willing to speak out against such fraud.
Not only do lawyers who are on Beasley Allen’s whistleblower litigation team file cases on behalf of whistleblowers under federal and state False Claims Act, but they are now filing complaints alleging securities fraud violations. Any of the lawyers on the team would be happy to work with individuals in pursuit of any whistleblower claims they might have. We are also working with other lawyers on whistleblower claims.
Source: The New York Times
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