New York Attorney General Proposes Bill to Reward and Protect Whistleblowers

New York Attorney General Eric Schneiderman has proposed the Financial Frauds Whistleblower Act, which would both protect and reward employees who voluntarily report information about illegal activity in the banking, insurance, and financial services industries. The bill would be a first of its kind in New York, where currently there is no law to incentivize or protect whistleblowers who report securities and other financial frauds.

In the official release, Attorney General Schneiderman states, “New York has a unique opportunity to set the gold standard for states seeking to expose and hold individuals accountable for financial crimes. This law will be the strongest, most comprehensive in the nation, and is long overdue for a state with the world’s most important financial markets.”

If the bill is passed, it would guarantee the confidentiality of the whistleblower’s personal information and make it illegal for any employer to retaliate in response. In addition, the rewards paid for the information would be drawn from the funds of those who committed the fraud or wrongdoing, as opposed to state funds, making this a cost free initiative for the government to detect frauds and obtain recoveries.

Among the provisions, the bill would do the following:

• Provide monetary rewards to individuals who voluntarily provide original information, not previously known to the Attorney General, which leads to monetary sanctions for financial fraud or misconduct in the securities industry. Whistleblowers would receive 10-30 percent of the money obtained in a securities fraud case;
• Preserve the confidentiality of the whistleblower;
• Create a Financial Services Whistleblower Awards program within the state’s Department of Financial Services to reward whistleblowers for tips to that agency; and
• Strengthen existing labor protections to make it explicitly unlawful for employers to discharge, demote, suspend, or otherwise harass employees who report suspicious or fraudulent activity to supervisory or internal compliance staff.

If you have any questions pertaining to employee protections please contact Philip S. Mortensen. If you would like further information on securities regulations, please contact Kevin S. Koplin.