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New Whistle Blowing Regulations: Dodd-Frank Act 2010 Essay

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Updated: Sep 11th, 2022

Introduction

The new whistle blowing regulations, also known as the Dodd-Frank Act in respect to their sponsors in Congress, were signed into law in 2010 by president Barrack Obama (Allen 2). These new regulations were because of the intensive reforms on financial regulations. These regulations were passed after the US was hit hard by the economic crunch that left many institutions in deep financial crisis, begging help from the federal government to prevent their collapse and closure.

These financial regulations were the most effective and radicalizing reforms on financial institutions since the Great Depression and are aimed at safeguarding financial institutions from unlawful malpractices. The Act affects and brings various changes on Federal agencies on finance and the whole service delivery industry on finance (Kohn 18). The recession was the main mover of the Act but the act came to cover wide spectrum, issuing various employees protections from their employers, encouraging whistle blowing by the employees if the actions of the employers are deemed to cause major financial crisis or employs tactics that are not consistent with the business ethics.

The Act’s protection on employees

It has been observed that lawsuits against employers by employees have been on the rise because of the various unethical and unconventional treatment accorded to employees. The Act strengthens the employees’ confidence and urges them to be always cautious and on the look out in case the employers were deemed to be committing or engaged in wrongdoings. This also offered them the privilege to retaliate every time they were put in compromising situations or incurred loses because of the employers using negative employment action on them.

The signing of the Act by the president was not only the first step seen to address the root causes of the financial crisis but also was very significant in addressing the employees’ security, as the Act provided protection for employees who suffer retaliation from employers, after reporting alleged malpractices and wrongdoings (Zuckerman 2) The new regulations provides alternative avenues for disgruntled employees to channel their grievances and consequently pursue those employers believed to be retaliating on them after reporting or alerting the necessary authority of violation of federal law and thus financial institutions are saved from the exploitation by the management while others are saved from unlawful competition tactics (Renner 4).

More protection has boosted the employee’s confidence as the new laws provide incentives and cash rewards to those employers who provide first hand information that is crucial and leads to a binding and successful enforcement action. According to the Act, a whistleblower could refer to any person or persons who provide authentic and reliable information relating to the violation or non-observation of the various securities laws.

This information should be provided to the Securities and Exchange Commission (SEC) for consideration and the initiation of further measures. The Act has also been very important in boosting the employees’ confidence to come out and report the various malpractices by employers. Employers are also prohibited from retaliating on whistleblowers. Securities laws violations were the major causes of the recession (Ambler 14).

Those that should not be retaliated on, are those who provide information to the SEC, testify or aid the investigators in certifying the information provided, make disclosures that are necessary or, have been protected under the Sarbanes Oxley Act (SOX). An employee can also directly initiate an action against the employer in a federal court without filing an administrative complaint.

The time for an employee to take action against the employer has also been extended to six years from the day the retaliation action was taken as opposed to 180 days as had been earlier provided in SOX. Any employee who successfully lodges a complaint is entitled to full reinstatement, double backdated payment unlike the single payment in the SOX, is also entitled to interests, and should be fully compensated for all litigation costs and other cumulative costs involving the case like the attorney’s fees.

The Act in its effort to make sure employees are protected in all ways possible has created a bureau that protects financial services employees. This new body created will not only have laws affecting large and complex national banking institutions, but will also affect community banks, property appraisers, and debt collectors, loan brokers and all other financial institutions or companies that are engaged in the sector of providing a consumer finance product of service.

New financial laws drafting mandate will be delegated to this bureau. The Act has provided guidelines that stipulate all employees who disclose any information to the relevant authority reporting wrongful conduct in financial product service, be protected. These employees are also protected from retaliation for not partaking or refusing to cooperate in any violation act they are convinced to contradict the consumer finance law.

Amendment of the SOX

The Dodd-Frank Act has also taken into consideration the SOX whistleblower provision with the various amendments being made. Rather than the ninety days that had been earlier provided, employees proceeding under SOX and also claiming that retaliation on them for having reported securities crime, have now one hundred and eighty days from the effective date of finding out the alleged violation, to go ahead and file administrative complaint. It has also been made clear that employees proceeding as had been stipulated under SOX have a right to a jury trial, under SOX the matter remained a contentious issue, as it had not been clearly stated. Employers unlike in the past will no longer have the mandate to compel employees to negotiate the various disputes.

The Dodd-Frank Act also effectively amended SOX to have the ability to cover with effectiveness, the subsidiaries that were not publicly traded and those numerous affiliations of the diverse publicly traded companies. Employees who report to the authorities the alleged securities violations yet they are part of the workface of subsidiaries of publicly traded companies have been given immunity and cannot be persecuted thus protected.

Employee’s protection has thus been broadened with clarity of contentious issues being made something that is aimed at encouraging employees not to hesitate in reporting wrongdoings by the employers. The wrongdoings of employers are the major cause of financial crisis and since the SOX whistleblower provision had been addressing the issues, the Dodd-Frank Act came to strength the SOX thus promoting it.

New proposition for the Dodd-Frank Act for employers

The Dodd- Frank Act has resulted in several companies publicly expressing their dissatisfaction with the Act. Employers have categorically stated that the rules are grounds for baseless complains aimed at extorting money from a company, and some of its proposition is not applicable with effective business orientation mentality. For example, employers have raised the concern that the legal authenticity of commissions on monetary sanctions will not only result in rapidly shooting up of invalid and baseless complaints with SEC, but will also result in the decrease of possibilities of concerned employees looking for internal solutions by filing internal complaints. Internal complaints would enable a company to immediately, take effective and appropriate action to rectify a situation, and prepare adequately for a defence of a pending SEC investigation.

Experts have also raised concerns that the Act not only gives protection to the employee for factual reports but also for reports that are seen as also potential violations that could culminate to securities law violation (Murex 2). No legal body that has been given the mandate to verify whether protection is worthy warranting given. This could be misused or used by unproductive employees to sabotage a company in retaining their services. The act also forbids employers from restricting employees from communicating or contacting the SEC about the possibilities of potential securities violation, this jeopardizes the activities of a company, as employees will always be making false accusations, hoping the accusations will materialize for them to be paid for the leading information (Kroszner 2).

The employers have proposed that regulations, which are still under discussion, interpreting the Act should be cautious and should not seem to be discriminatory. To allow employees and employers to tackle companies’ problem together without division, employers have been required to make sure they review their employee handbooks letting there be room and channels available for internal complaints.

The policies regarding internal complaints should on normal conditions, permit both disclosures that cite potential violations of various laws law and fair, effective, objective investigations should be conducted to verify whether there is any case worthy further scrutiny. For corporations and organizations with different geographical locations or have a complex system incorporating various departments in one building, emphasis must be focused on the accessibility and the convenience employees have to contact the person in charge of the investigation (U.S. Securities and Exchange Commission 2).

For management in far areas away from the central business, employers have been called upon to ensure the respective managers are well trained on handling complaints. There is need for action to be always taken promptly with cooperation being initiated with other departments. It is very essential for the management to seek counsel on the issue to make sure that such action is not retaliatory (McFarlin 4).

The vital aspect in ensuring wholesome compliance and streamlined risk management especially in the contentious topic of bounty-hunter provision has to be the initiation and implementation of an organization’s own internal investigation procedure. This procedure has to be structured in a way that accommodates all sorts of complaints, encouraging participation from all departments, at the same making sure there is fair and prompt investigation that cannot be manipulated, swayed or altered (Standard-Times 4).

For the incentive-based compensation, the Dodd-Frank Act requires that public companies facilitate the implementation of the ‘‘clawback’’ policy (Gayzel 1). It has been proposed that if the policy has to be effected, the policy should provide assurance. Companies demand this assurance should cover losses from managerial individuals who had received compensation from the company. This assurance must be provided when the company is authorized to restate and come up with modified financial statements because of not materially complying with any requirements of financial reports as stipulated and provided by the securities laws (Anand 7).

The Dodd- Frank Act has changed the outlook of many companies as well of that of the employees. Employers are being required to disclose, their once considered confidential proxy statements showing whether the listed employees or directors have been permitted to possess financial instruments (Cooley 3). The Act has also covered additional employees of non- publicly traded subsidiaries that have links or are owned by the companies held by the public.

Initially these employees were not under protection and were prone to retaliation by employers. The new regulations provide luring incentives to employees, who in turn ignore the corporate mechanism instituted to enhance compliance, and decide to report to the their observations direct to SEC (Curtis 11). The Act has also corrupted the minds some employees who instead of reporting their observations to the company they report directly to SEC so they can claim the reward awarded for primary information. Employees are supposed to direct all their efforts towards the improvement of a company and once they backtrack on their roles their loyalty is subjected to suspicion (Weisenthol 3).

Conclusion

The Dodd-Frank laws Act, has had a great impact on the US financial institutions (Harding 5). The protection of employees from employer’s retaliation has created financial institutions that are more open to employees’ plea and observation. Employees now have the courage and willingness to volunteer information to SEC which if confirmed true has ensured that the markets especially securities markets are fair and free from manipulation (Skeel 3).

Financial institutions have become cautious not to initiate actions that negatively affect whistleblowers, as it could be punishable and the company could lose financially, as a successful case would result in backdated payments. The Act is essential in ensuring that there will be no recession in the future because of financial institutions engaging in unlawful acts as employees would have already reported the cases (Paletta 2).

Works Cited

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Ambler, Diane. ‘‘The Impact of the Dodd-Frank Act on Registered Investment Company.’’ K&L Gates, 2010. Web.

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Cooley, Thomas, and Richardson Mathew. Regulating Wall Street. Hoboken: John-Wiley & Sons, 2011.

Curtis, Verschoot. ‘‘Increased Motivation for Whistleblowing.’’ Strategic Finance, 2010. Web.

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Podgor, Ellen. ‘‘Talk About the Dodd-Frank Act.” White Collar Crime Prof Blog, 2010. Web.

Renner, Richard. ‘‘Dol issues new regulations for whistleblowers’’. Whistleblower protection Blog, 2010. Web.

Samaad, Michelle. “Dodd-Frank Act May Boost Already Growing Retail Deposits.” Credit Union Times, 2011. Web.

Skeel, David, and Cohan William. The New Financial Deal. Hoboken: John Wiley & Sons, 2011.

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Wallison, Peter. “The Dodd- Frank Act: Creative Destruction, Destroyed.” Wall Stret Journal, 2010. Web.

Weisenthol, Joe ‘‘Here Are The Key Points You Need To Know About Today’s Big Financial Regulation Agreement’’. Business Insider, 2010. Web.

Zuckerman, Jason. ‘‘New Developments in Whistleblower Law and Effective Strategies for Prosecuting Whistleblower Retaliation Claims’’ The Employment Law Group. Web.

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