Missouri House Representative Steven Weber is sponsoring House Bill 1480 (“HB 1480”) which proposes to amend the Missouri Securities Act to include provisions that establish a whistleblower program.
HB 1480 defines whistleblower as a person who, under the whistleblower program, discloses information regarding a violation or potential violation of securities law or a rule adopted or order issued under securities laws. The whistleblower must be employed by or associated with the following: (1) a broker dealer; (2) an issuer; or (3) a person that receives compensation for advising others of the value of securities or the advisability of investing, purchasing, or selling securities or issues or promulgates analyses or reports relating to securities as a regular part of their business.
Since many whistleblower programs would not be as effective without the promise of anonymity, HB 1480 permits the Commissioner of Securities to collaborate with the Attorney General or other appropriate prosecuting attorney to implement procedures to ensure the confidentiality of the whistleblower. However, the actual language of the bill states, “The ‘Whistleblower Program’ is created to receive information or records from whistleblowers and, in the discretion of the Commissioner, to maintain the confidentiality of whistleblowers.” Thus, while it appears that maintaining the confidentiality of a whistleblower is a goal of the program, it is not guaranteed.
In line with the notion that the identities of whistleblowers should remain anonymous, records maintained by the Commissioner as a part of the program are not public records unless the Commissioner finds that disclosure is necessary or appropriate in the public interest or for the protection of investors. The records can also be disclosed through the legal process if they are subject to a subpoena or court order.
The Bill would also provide whistleblowers with a cause of action against an employer for retaliation if adverse action is taken against the employee for participation in the whistleblower program. Whistleblowers are afforded one year to bring such claims and can request the following relief: (1) reinstatement to their position without loss of seniority; (2) back pay; (3) punitive damages; and (d) costs and reasonable attorneys’ fees. However, whistleblowers are prevented from obtaining relief if their employer proves the employee participated in the violation, was criminally convicted for the violation, or the action is clearly frivolous or vexatious.
Whistleblower programs also exist for federal violations of securities law. In 2010, the Dodd-Frank Act amended the Securities Act of 1934 to add a section titled, “Securities Whistleblower Incentives and Protection.” Under this program, individuals who voluntarily provide the SEC with original information that leads to successful enforcement actions resulting in monetary sanction over $1,000,000 may be eligible to receive an award from 10 – 30% of the monies collected by the SEC. The program also prohibits retaliation from employers.
In January, the SEC issued its 2013 report to Congress on the Dodd-Frank Whistleblower Program. The report noted that Fiscal Year 2013 was historic for the SEC’s Office of the Whistleblower (“OWB”), paying $14,831,965 to whistleblowers whose information contributed to the success of enforcement actions. Of the 3,238 tips received in 2013, 17.2% concerned corporate disclosures and financials, 17.1% concerned offering fraud, and 16.2% concerned manipulation, with the most over-all tips coming from California, New York, Florida, and Texas. Missouri ranked 26th on the number of reported tips with only 31. Whistleblower submissions were also received from individuals from fifty-five foreign countries.
Since the program’s creation, six individuals have received awards, four of them occurring in 2013. The report also indicates that the program paid its largest award of over $14 million to one whistleblower whose information led to the recovery of substantial investor funds. Thus, the awards given to the other three individuals in 2013 were much less substantial.
Dodd-Frank’s Whistleblower Program prompted Utah to pass a similar Act in 2011 that also allows for payment to a whistleblower for voluntarily providing information that leads to the successful enforcement of a judicial or administrative action.
Unlike Dodd-Frank’s or Utah’s Whistleblower Programs, the HB 1480 doesn’t provide for any payment for information that assists in the prosecution of securities violations. Should this bill pass, the likelihood of the program’s success remains to be seen since there is no financial incentive to report potential wrongdoings, the anonymity of the whistleblower doesn’t appear to be guaranteed, and Missouri residents are less active in submitting tips under Dodd-Frank’s program.
Currently, HB 1480 has been introduced and referred to the Missouri House Financial Institutions Committee. We will keep you updated on the Bill’s progress.