New York Considering Awards for Bank and Insurance Industry Whistleblowers

Whistleblowers at banks and insurance companies may have another option to receive compensation for reporting misconduct if legislation written by two New York State Senators is ultimately adopted. Last year, State Senators James Steward (R-Milford) and Joseph Griffo (R-Rome) introduced a bill, S4362, into the New York State Senate to compensate and protect individuals providing information to the New York State Department of Financial Services (DFS). It offers eligible whistleblowers between 10 and 30 percent of monetary sanctions imposed in a covered judicial, administrative or related action.

Details of the Legislation

The bill models the DFS program after the Securities and Exchange Commission program created by the Dodd-Frank Act. Unlike the procedure under New York’s False Claims Act, an individual would not need to file a qui tam lawsuit to become eligible for a reward. Instead, there would a tip submission procedure for informing DFS. Following a successful enforcement action based on the information, an award would be issued to an eligible individual upon submission of a valid claim form.

The legislation also takes steps to protect the identity of whistleblowers. It permits anonymous filing of claims for awards and does not allow the release of any information which could reasonably be expected to reveal the identity of a whistleblower “unless in the judgment of the superintendent the ends of justice and the public advantage will be served by release of such information.”

It prohibits retaliation against employees, contractors and agents. If discrimination happens, remedies for the individual include two times back pay and special damages such as litigation costs and attorneys’ fees. Perhaps more importantly, it explicitly includes hiring decisions by prospective employers in the future. If an employer refuses to hire an individual who has acted as a whistleblower under the law, they may be required to hire the employee to the position or an equivalent one.

The bill also limits attempts by companies to hamper the effectiveness and purpose of the program through employment agreements. It specifically bars waiver of whistleblower rights and remedies in pre-dispute arbitration agreements or in severance packages. It also eliminates efforts to clawback wages or consideration from the severance package. This has been an issue that has arisen from the Dodd-Frank Act because some have argued that only prospective waivers are limited, rather than existing claims.

Rewards for Violations at Financial Institutions

The bill is timely as DFS has been involved in several major enforcement actions, including BNP Paribas and Credit Suisse. The Department of Financial Services was created in 2011 when the functions and authority of the New York State Banking Department and the New York State Insurance Department were transferred to it. Given its role overseeing the conduct of banks operating in New York, the bill could lead to payouts for information in amounts rivaling the largest made by the United States government.

Significantly, it would provide individuals with information about financial institutions violating economic sanctions and anti-money laundering laws an opportunity to be compensated when New York sanctions them. The DFS has played a leading role in the investigation of BNP Paribas, the French bank that is accused of violating sanctions against Iran and may be fined up to $10 billion by U.S. authorities.

The legislation would provide another avenue for whistleblowers to report offshore tax evasion facilitated by a financial institution operating in New York. Currently, individuals who desire compensation report these cases to the Internal Revenue Service, which already has its own program for compensating informants. In the recent settlement by Credit Suisse, $715 million out of the $2.6 billion to be paid was earmarked for DFS.

Incentives for Reporting Violations of Insurance Laws

Employees in the insurance industry with operations in New York should take note, because DFS regulates conduct by insurance companies as well. The bill specifically includes enforcement actions that result from a company acting in violation of an insurance law. What types of insurance cases might the New York regulator be interested in if the law is passed?

DFS has pursued multiple enforcement actions recently where an insurance company was charging rates out of line with actual loss ratios. In 2013, New York settled with multiple force-placed insurance companies, including Assurant, QBE, Balboa and American Modern, for violating the state’s insurance law. Among the accusations was that actual loss ratios were far below the expected loss ratios filed with New York.

Force-placed insurance is not the only area where loss ratios come into play. DFS also fined Markel Insurance Co. nearly $1 million for overcharging students for health insurance. The student health plans failed to pay out at least 65 percent of the insurance premiums on medical care.

DFS also would be interested in information about an insurance company operating in the state without the appropriate license. It received a large settlement in 2014 from an enforcement action against MetLife for two subsidiaries that inappropriately sold insurance in the state. American Life Insurance Co. (ALICO) and Delaware American Life Insurance (DelAm) violated the law while they were subsidiaries of AIG, prior to their acquisition by MetLife. MetLife agreed to pay $60 million to settle the charges.

Chances of Passage

There hasn’t been much coverage of this bill since it was introduced. Still, the leadership role taken by the Department of Financial Services in prominent enforcement actions could create momentum for the bill to aid in the discovery of other companies breaking the law. Enforcement.