Provides for securities fraud whistleblower incentives and protections

Section 1 also would add a new section three hundred fifty three-a to the GBL entitled "Securities Fraud Whistleblower Incentives and Protections." This section would provide for monetary awards to be granted to "whistleblowers" who voluntarily provide "original information" concerning a violation of the securities fraud article (GBL Art. 23-A) to the Attorney General. The awards would be paid out of "monetary sanctions," obtained in "covered enforcement actions" that result in monetary sanctions exceeding one million dollars in the aggregate, brought by the Attorney General (or "related actions" by other agencies) as a result of the information provided by the whistleblowers. Qualifying whistleblowers would generally be entitled to ten to thirty percent of the monetary sanctions obtained by the Attorney General.

A new GEL section 353-a(l) would define critical terms, including "covered enforcement action," "monetary sanctions," "original information," "related action" and "whistleblower."

A new GBL section 353-a(2)(a)-(f) would set forth the criteria that the Attorney General, in his or her discretion, shall use to determine the amount that a qualifying whistleblower should receive, and would impose certain other limitations on whistleblower recoveries.

A new GBL section 353-a(2)(g)-(i) would address other aspects of the whistleblower program, including: clarifying that a contract is not needed to make an award to a whistleblower; adding provisions to preserve the confidentiality of the whistleblower; and adding provisions for law enforcement cooperation.

A new GBL section 353-a(3) would make it unlawful for any current or prospective employer, contractor or agent to retaliate against any person for providing information or other assistance to the Attorney General regarding a violation of GBL Article 23-A, or for reporting a violation of such Article to another government entity, a direct supervisor or a compliance officer, and would allow such person to initiate a civil action for damages and other relief.

A new GBL section 353-a(4) would provide that the provisions of the whistleblower program shall not preempt, limit or restrict the authority or discretion of the Attorney General under GBL Article 23-A or any powers granted elsewhere.

Bill sections 2 and 3 would add new paragraphs 6, 7, 8, 9 and 10 to subsection (a) of section 104 of the Financial Services Law ("FSL"), and add new sections 410 and 411 to the FSL, to create a Financial Services Whistleblower Awards program administered by the New York State Department of Financial Services through the discretion of the Superintendent of the Department of Financial Services.

The new program would provide for monetary awards to be granted to whistleblowers who voluntarily provide "original information" concerning violations of the Banking Law, Insurance Law or Financial Services Law to the Department of Financial Services. The awards would be paid out of "monetary sanctions" obtained in successful judicial or administrative actions, where such monetary sanctions exceed one million dollars in the aggregate, brought by the Department of Financial Services (or "related actions" by other agencies) as a result of the information provided by the whistleblowers. Qualifying whistleblowers would generally be entitled to ten to thirty percent of the monetary sanctions obtained by the Department.

This program would generally operate in the same manner and under the same parameters as the Securities Fraud Whistleblower Program established by section 1 of the bill.

Section 3 of the bill also would enact provisions, in a new FSL section 411 ("Retaliation Protections"), that would make it unlawful for any current or prospective employer, contractor or agent to retaliate against any person for providing information or assistance to the Department of Financial Services regarding violations of the Insurance Law, Banking Law or Financial Services Law, and would allow such person to initiate a civil action for damages and other relief.

Sections 4 and 5 of the bill would amend provisions of the State Finance Law (section 4(11)(b)) and Executive Law (section 63(16)(b)), which provisions were enacted as part of the 2014 State Budget, to ensure that whistleblower award monies can be paid to whistleblowers by the Attorney General and the Superintendent of the Department of Financial Services directly from "monetary sanctions" obtained in "covered enforcement actions" brought by the Attorney General and "covered judicial or administrative actions" brought by the Superintendent.

Section 6 of the bill would provide that the Act shall take effect 90 days after it shall have become a law.

Existing law

There is no existing state law that provides for a whistleblower program involving securities and other financial frauds. (The False Claims Act, Article 13 of the State Finance Law, which allows qui tam actions against those who defraud the State or a local government, is not impacted by this legislation.)

The federal government has adopted whistleblower programs that reward and protect whistleblowers who provide information to the United States Securities and Exchange Commission and the United States Commodities Futures Trading Commission. The legislation proposed here would complement those programs.

Justification

Providing monetary incentives and strong anti-retaliation protections for potential whistleblowers will help the Attorney General and the Department of Financial Services find and stop large financial frauds against the public, and help minimize the damage caused by ongoing frauds to individuals, companies and the government. This bill would increase the number of securities law, banking law and insurance law violators that are caught and held accountable for their conduct.

The rewards paid to whistleblowers under the bill are generated only out of recoveries and penalties forfeited by the defendants, and not out of State funds, making this a cost-free way to enhance the government's ability to detect frauds and obtain more recoveries for the State.

Legislative history

This is a new bill.

Fiscal implications for state and local governments

The bill would result in increased fiscal recoveries to the State from an increased number of enforcement actions resulting in fines and forfeitures to the State.

Effective date

The Act would take effect on the 90th day after it shall have become a law.