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In an ongoing effort by the federal government to encourage Wall Street whistleblowers, U.S. Attorney General Eric Holder has called for greater awards for those who report financial fraud. Speaking on Wednesday at the New York University School of Law, Holder stressed that limits on the amount a whistleblower receives could be preventing many individuals from reporting illegal activities.
Specifically, Holder called for the removal of the award cap under the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA). The FIRREA currently limits to $1.6 million the total award any whistleblower receives. While the FIRREA is rarely used, the Justice Department recently relied on this law to prosecute financial institutions accused of committing fraud against themselves. “In an industry in which, last year, the collective bonus pool rose above $26 billion, and median executive pay was $15 million and rising,” Holder explained, $1.6 million is a “paltry sum.”
Holder therefore called for the FIRREA incentives to be similar to those under the False Claims Act (FCA), which applies to fraud involving government-funded programs. Holder cited a strong whistleblower amendment to the FCA, which allows citizens who provide evidence of fraud to receive, in some cases, an un-capped award of up to a third of the funds recovered by the government, as the reason for many of the recoveries. According to Holder, “[t]his could significantly improve the Justice Department’s ability to gather evidence of wrongdoing while complex financial crimes are still in progress – making it easier to complete investigations and to stop misconduct before it becomes so widespread that it foments the next crisis.” Holder also called for providing the FBI with the necessary resources to conduct white collar investigations and “usher in a new era of aggressive enforcement that keeps pace with a rapidly changing industry.” A complete copy of Holder’s speech can be found here.
Holder’s push for changes to the FIRREA demonstrates the Justice Department’s belief that higher so-called “bounty awards” will properly incentivize current and former employees to report suspected fraud to appropriate government agencies. Qualified whistleblowers proceeding under the Dodd-Frank Act are already entitled to recover between 10 and 30% of certain fines over $1 million. Indeed, in October 2013, the Securities and Exchange Commission issued a whistleblower award of over $14 million to an individual who reported investment fraud. The commission refused, however, to identify the company involved, or state which statute it proceeded under. The Attorney General’s speech could also signal that the Justice Department will be pursuing more claims under this statute in the near future.