Higher CFTC Fines Proposed in Derivatives Protection Act

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Senator Warren and two other Congressional members proposed the Derivatives Oversight and Taxpayer Protection Act into Congress at the end of June in order to allow self-funding of the CFTC and increase its authority for civil penalties, among other things.

One Year Anniversary of Amtrak Derailment

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Today is the one year anniversary of the derailment of Amtrak Train 188 at the Frankford Curve in Philadelphia. Sarah Feinberg, the Administrator of the Federal Railroad Administration, called it the “most deadly rail accident we’ve had in a very long time.” We thought we would take a look at some of the changes that have been made since the accident and some of the news that is expected in the next week or so.

SEC and CFTC Push Congress for More Funding

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The annual battle over the funding of securities and derivatives regulators by Congress took a step forward today as a Senate panel heard from the chair of the SEC and the CFTC concerning their Fiscal Year 2017 budget request. Combined, the SEC and CFTC are seeking funding for the hiring of more than 400 additional staff members.

New Bill for Bank Whistleblowers in Congress

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Last week, Representative Elijah E. Cummings and Senator Tammy Baldwin proposed a bill to modify several financial industry laws including the Dodd-Frank Act and Sarbanes Oxley Act to enhance and extend whistleblower rewards and anti-retaliation protections for bank and Wall Street whistleblowers. For those looking to follow the legislation in the House of Representatives, the Whistleblower Augmented Reward and Non-Retaliation Act of 2016 (WARN Act) is H.R. 4619.

President Obama Calls for SEC, CFTC Budgets to Double

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One of the key aspects of President Obama’s proposed Fiscal Year 2017 budget has been an early push for the budgets of Wall Street regulators to double over the next five years. If accepted without changes, the budget for the Securities and Exchange Commission would increase 11% to $1.8 billion and the Commodity Futures Trading Commission budget would get a 32% increase to $330 million in fiscal 2017.

SEC Continues Pursuit of EB-5 Fraud as Congress Considers Program Renewal

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As the House and Senate consider extending the EB-5 program into 2019, the SEC has filed a civil enforcement action against a California developer for investor fraud in the visa program. An article in the Los Angeles Times about the filing notes the increase in these types of cases, as the securities regulator has filed five this year versus a total of three in the previous two years.

IRS Proposes Rules to Curb Corporate Tax Inversions

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The Internal Revenue Service and its parent, the Treasury Department, have adopted new rules to block companies from moving abroad for lower taxes. The new rules, as well as additional strategies still under consideration to block corporate inversions, are a stopgap measure by the Treasury Department until Congress decides to take legislative action.

Whistleblower Law Updates: Ag Gag, CAARA, VA

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A few different updates regarding whistleblower legislation around the country:

Idaho’s Ag Gag Law was Ruled Unconstitutional

A U.S. District Court Judge invalidated Idaho’s anti-whistleblower law on First Amendment grounds. Idaho State Senator Jim Patrick, the Republican who sponsored the bill, believes the decision will likely be appealed.

The “ag-gag” law passed in 2014 and was signed by the Idaho Governor. The law banned covert filming of animal abuse on farms. Seven other states have passed similar laws recently. The Idaho law is the first to be ruled unconstitutional.

CAARA Passes Senate

A few weeks after Senator Grassley and Patrick Leahy reintroduced the Criminal Antitrust Anti-Retaliation Act into the Senate, it was approved by unanimous consent after a few minor changes. The legislation will now go to the House.

The bill protects covered individuals against employer retaliation for lawfully providing information to the federal government that the individual reasonably believes is a violation of the antitrust laws.

It does not offer incentives like the Dodd-Frank whistleblower programs. The U.S. Government has previously expressed concern that it will have a difficult time meeting the higher burden of proof in a criminal trial if the defendant can argue that the informant is biased by monetary incentives. The U.S. already has an immunity program in order to incentivize members of cartels to come forward and report their activity in violation of antitrust law.

It is the second whistleblower law to be passed by the Senate and waiting for action by the House of Representatives. Previously, the Senate unanimously passed the Thune-Nelson Motor Vehicle Safety Whistleblower Act which provides incentives to whistleblowers working in the auto industry.

Houses Passes VA Accountability Act

The U.S. House of Representatives passed a bill last week that would give additional protections to whistleblowers within the Department of Veterans Affairs in the wake of the scandal about patient scheduling that came to light last year. We haven’t talked about this here on the blog before because we generally don’t represent government whistleblowers unless they are reporting corporate misconduct.

However, it is worth noting the potential new protections. The bill would require disclosures of wrongdoing to be passed up the chain of command as well as impose mandatory discipline on any employee who retaliates against a whistleblower. The bill still faces opposition in the Senate and President Obama has threatened to veto it because of the impact it would have on the due process rights of federal employees.

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MNC Tax Overhaul on Government’s Agenda

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The White House and top lawmakers are discussing an overhaul for taxation of multinational corporations, according to the Wall Street Journal. The tax reform talks are happening as part of an effort to find funding for the highway bill and address various issues that have developed as US businesses earn cash overseas.

Overseas cash has become an increasing problem as corporations earnings are sitting offshore. If the businesses repatriate the cash into the United States, it will be taxed at a higher tax rate. Hundreds of billions are reportedly parked offshore to avoid paying U.S. taxes.

Additionally, cross-border reverse mergers during major acquisitions have become more popular in order to lower the tax rate of the resulting entity. They received the nickname corporate inversion. Until the IRS changed the rules to make them tougher and less profitable, they were going like gangbusters.

An overhaul of the system could allow the government to fund spending on highway transportation by imposing a one time tax on the repatriation of overseas cash. Among the other proposals discussed are the elimination of corporate taxes for earnings outside the United States.

If you have questions about this or another aspect of the IRS whistleblower program, feel free to contact one of our tax whistleblower attorneys via our contact form or by calling 1-800-590-4116.

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The Upcoming Test of the Dodd Frank Whistleblower Programs

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It’s the 5 year anniversary of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was signed into law by President Obama on July 21, 2010. An important piece of the Dodd-Frank Act, the whistleblower programs at the Securities & Exchange Commission and the Commodity Futures Trading Commission, is primed for a test as the potential for turmoil in the financial markets is rising.

In the past thirty years, the U.S. Government has relied more on whistleblowers than ever before. They have helped the Department of Justice to recover billions in improper payments to health care providers, mortgage companies and government contractors. Congress has also encouraged whistleblowers to come forward by offering them protection from retaliation, such as when Congress added whistleblower protections in the Sarbanes-Oxley Act to help ward off another accounting debacle like Enron.

Prior to Dodd-Frank, there was economic turmoil both for investors and the public. The SEC was unable to stop the Ponzi scheme promoted by Bernie Madoff despite warnings about problems, including the repeated attempts by Harry Markopolos to draw the Government’s attention to the fraud. And bank excesses led the government and investors to purchase billions of dollars in Commercial Mortgage Backed Securities that weren’t what they expected.

The law aims to stop these sorts of problems. In the Dodd-Frank Act, Congress recognized that an employee considering telling the truth risks career suicide and as a result added rewards for whistleblowers to encourage them to come forward with information about violations of the securities laws. Sean McKessy, head of the SEC’s Office of the Whistleblower, has said that ultimately what the program is all about is getting whistleblowers to provide assistance to stop “potential fraud in its tracks so that no future investors are harmed.” Given that the SEC mission is to protect investors, facilitate capital formation, and maintain fair and efficient markets, it is obvious the potential beneficial role that whistleblowers could play.

Since opening the program, whistleblowers have helped the SEC fine companies more than $100 million for misconduct. With thousands of tips a year flowing into the securities regulator with information about potential violations, it is only a matter of time before there are more success stories. There was one just last week, in which a corporate insider was paid $3 million for assistance stopping fraud against investors.

For the past five years, the SEC and the whistleblower program has been operating in fairly calm waters. The economic problems of the Tech Bubble and the Great Recession seemed behind us. The economy is growing, unemployment is down and the stock market has achieved relatively steady year over year gains. The CFTC was also able to fine banks billions for manipulating LIBOR and the FOREX market.

Yet, there are seeds sprouting that warn about trouble in the world again. China, Greece, Puerto Rico and the bond market are all potential problems that have been at the head of the news this year. Let’s look at each one individually.

Chinese stocks had been tearing it up but these shares are now in free fall. At the start of June, the one year gain for the Shanghai Composite Index was over 100%. However, the market fell by more than 30% from its highs and the media started talking about the Chinese Bear Market. Even if the market has stabilized and is on the mend, the instability that led to the evaporation of $3 trillion in wealth in under a month can’t be good.

During the Great Recession, a bailout saved Greece from defaulting on debts owed to creditors. This summer, Greece was once again in trouble. After battling to avoid leaving the eurozone, it looks like the “Grexit” has been avoided. Nevertheless, the potential problems may have only been pushed farther into the future and the spillover effects on financing by other countries, such as Italy, Spain and Portugal, are still up in the air.

Puerto Rico’s Governor recently announced that the territory was unable to pay its debts and it needed to renegotiate their terms with creditors. Public entities there have more than $72 billion in debt and do not have the ability to file for bankruptcy as a municipality in the United States would have. Puerto Rico has been in a sustained economic recession and nearly half of its population lives below the poverty line. The effect of this debt crisis in the United States, either due to losses in bonds held by mutual funds or a spill over to the $3.7 trillion municipal bond market, is unknown.

The final area of concern right now is bond market liquidity. With the Federal Reserve poised to start reversing historically low interest rates, bond prices will be under pressure. For a large set of reasons, experts including Nouriel Roubini, Robert Schiller, and Bill Gross have warned about potential problems finding bond buyers in a crisis. In the worst case scenario, falling bond prices could spread problems to other areas of the American economy given that the $37 trillion bond market significantly exceeds the size of the US stock market.

None of these problems directly implicate the whistleblower programs of the SEC and the CFTC of course. However, if there is economic turmoil, corporate wrongdoing will be exposed and other individuals will violate federal law in order to attempt to keep the Wall Street gravy train flowing. The former happened following the Tech Bubble, when accounting fraud was discovered at Enron and Worldcom. The latter happened in investment banking during the Great Recession, as banks packaged problematic mortgages for sale and traders manipulated markets to stem losses on financial assets.

The next downturn will be a key test for the whistleblower programs and Dodd-Frank. The fifth anniversary is simply too soon to judge a law that is still being implemented. Will the SEC and CFTC be able to sift through the tips and put a stop to securities fraud before billions of dollars in investments are lost due to misconduct this time around? Let’s hope so. If it does, it will definitely have been worth it.

If you have evidence of corporate wrongdoing in violation of federal securities laws, contact one of our SEC whistleblower attorneys. An attorney can be reached by our contact form or calling 1-800-590-4116.

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