Fifteen years ago, in response to the serial misconduct and regulatory failures that culminated in the 2007-08 financial crisis, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act. Designed to protect investors and restore public faith and stability in the markets, a centerpiece of Dodd-Frank was the SEC Whistleblower Program.
Recognizing that enforcement authorities needed early and actionable intelligence to tackle increasingly complex fraud schemes, the legislation empowered individuals to report violations of federal securities law by offering significant financial incentives, employment protections, and the ability to report misconduct anonymously.
At its core, the SEC program effectively deputized individuals to be the government’s eyes and ears.
The program has been an unmitigated success. On this National Whistleblower Appreciation Day, and in the wake of Dodd-Frank’s 15th anniversary, it’s worth reflecting on how far we’ve come, what challenges remain, and why whistleblowers are more important than ever.
The Dodd-Frank Act: Congress’s Answer to Global Catastrophe
From Enron, Madoff and Lehman Brothers to unregulated financial instruments and an inflated housing market, the 2008 financial crisis exposed deep flaws in the U.S. financial markets. Worse, it revealed the serious limitations of federal law enforcement to protect investors when the discovery of fraudulent schemes was just too little too late.
Dodd-Frank enacted the most sweeping financial reforms since the Great Depression. New regulations, reforms, and compliance requirements stabilized the markets and established a new era of corporate accountability.
It created new watchdog agencies such as the Consumer Financial Protection Bureau and the Financial Stability Oversight Council. And, central to our practice, among its many landmark initiatives, the Act established the SEC Whistleblower Program.
The first-of-its-kind program introduced major financial rewards — between 10-30% of sanctions collected in actions with a recovery over $1 million — for individuals who tip the Commission to suspected violations of the federal securities laws. In addition, recognizing the importance of information from company insiders, the program provides robust employment protections and the ability for whistleblowers to report anonymously if they work with an attorney.
Since its inception, the SEC Whistleblower Program has been one of the sharpest tools in the enforcement arsenal. The numbers are astonishing: The program has returned billions of dollars to harmed investors, awarded more than $2.2 billion to whistleblowers, and stopped massive fraud schemes targeting vulnerable populations. Critically, whistleblower awards are paid from a replenishing purse funded by monetary sanctions, not taxpayer dollars.
Corporate America: Doth it Protest Too Much?
During the rulemaking process, powerful corporate lobbies and market participants vehemently opposed the whistleblower program. Critics argued that by incentivizing truthtellers to report to the SEC, the program would undermine internal compliance.
Heeding the call, program architects addressed this in the statute by factoring into the award consideration a whistleblower’s efforts to work through internal compliance programs.
Was it necessary? Probably not. Most corporate whistleblowers — 75% in 2021 — continue to first report their concerns to their employers, turning to the SEC only after their concerns are ignored, or worse, they face retaliation.
So, were the strident and vocal program critics truly concerned about an employer’s ability to cure the ill? Or were they just concerned that the penalties might be a tough pill to swallow?
Are Employee Whistleblowers Truly Safe?
Even with Dodd-Frank’s aggressive reforms, the numbers still suggest an ethical and compliance gap in the financial sector.
Most whistleblowers who receive SEC awards are company insiders — last year a full 62%. That figure likely would climb even higher if employees didn’t worry about corporate blowback.
Indeed, a 2024 study by Ethisphere found that 48% of employees who observed perceived misconduct cite fear of retaliation as their reason for staying silent. A similar percentage did not report because they didn’t believe their employer would take corrective action.
Dodd-Frank got it right by making employment protections a hallmark of the SEC’s program.
In short, employers may not demote, suspend, terminate, harass, or discriminate against a whistleblower who, in earnest, reports a suspected violation of the federal securities laws. The statute also gives whistleblowers who experience retaliation the ability to file a private action in federal court seeking double back pay with interest, reinstatement, attorneys’ fees and certain litigation costs.
The statute further makes it unlawful for an employer to impede an individual’s ability to report misconduct to the SEC. Employees cannot be silenced through any restrictive language or agreements, including employment and separation agreements, training manuals, and codes of conduct. Employees never waive the right to report securities law violations to the SEC and never waive the right to secure a reward for doing so.
The ability to report anonymously is another signature component of the SEC’s program and the best defense against the unethical employer. Whistleblowers who work with an attorney can tip the SEC without revealing their identity, which provides a tremendous source of security for the employee whistleblower.
Looking Ahead: Fighting Fraud in America
Despite Dodd-Frank’s successes, there’s still work to do. Fraudsters are creative. They adapt. And as technology evolves, so too do the tools of deception.
Artificial intelligence is already being used to generate fake documents, manipulate data, and mislead investors at scale. We may not have seen the full impact of AI-facilitated fraud yet, but it’s coming.
The crypto market is another frontier. Fifteen years ago, it barely existed. Today, it’s a hotbed of innovation, and with that comes potential for abuse. As new and underregulated financial products emerge, regulators, whistleblowers, and the public alike must stay vigilant to detect and deter increasingly sophisticated scams.
Dodd-Frank gave us a framework for whistleblower advocacy and protection. Now we need to maintain its principles to meet the challenges of the next 15 years.
It is right to set aside a day to celebrate those courageous individuals who see something and say something, even in the face of real personal risk. It is a privilege to advocate for corporate whistleblowers, using the full weight of law and practice to safeguard our clients’ interests.
When whistleblowers are protected, incentivized, and taken seriously, everyone wins: investors, markets, and the public at large.
Everyone except fraudsters, that is.
