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Attorney General Eric T. Schneiderman announced today that he would propose legislation in Albany to protect and reward employees who report information about illegal activity in the banking, insurance, and financial services industries. Currently, no law exists in New York State to protect or incentivize whistleblowers who report securities and other financial frauds. Attorney General Schneiderman’s bill – the Financial Frauds Whistleblower Act – would provide financial compensation to whistleblowers who voluntarily report fraud in their industry, and whose tips lead to more than $1 million in penalties or settlement proceeds. The bill would also guarantee the confidentiality of the whistleblower’s information, and make it illegal for any employer to retaliate in response. The rewards paid to whistleblowers will be drawn from monetary recoveries paid by those who commit wrongdoing, and not out of state funds, making this a cost-free way to increase the government’s ability to detect frauds and obtain recoveries.
“From holding the banks accountable for the collapse of the housing market, to taking on unfair advantages for high-frequency traders, this office has committed to promoting fairness and a level playing field for all investors. And yet, a valuable tool for building these cases is rarely at our disposal,” said Attorney General Schneiderman. “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.”
Providing incentives and protections for people to report financial frauds to the Attorney General is essential for detecting and prosecuting a wide array of financial frauds. Monetary rewards and anti-retaliation protections for whistleblowers will help authorities find and stop large financial frauds against the public, and minimize the damage caused by ongoing frauds to individuals, companies and the government.
In 2010, the New York State False Claims Act was amended to include incentives and protections for whistleblowers who report abuses of taxpayer funded state expenditures. Since then, financial recoveries in cases brought to the office’s Taxpayer Protection Bureau by whistleblowers have paid out 80% more than cases that originated from other investigative means within the same Bureau.
While New York State law gives the Attorney General broad powers through the Martin Act, it does not provide direct monetary incentives for industry insiders to come forward and aid in investigations. The Financial Fraud Whistleblower Act will, for the first time, enable New York State to provide financial compensation to whistleblowers who voluntarily report fraud in the banking, securities, insurance, and financial services industries, and provide whistleblowers with explicit legal protection from retaliation by current or prospective employers.
Among other provisions, the Attorney General’s 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.
- 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.
