The new federal whistleblower law is proving a hot item for many plaintiff law firms. Attorneys say that tipsters with visions of becoming millionaires are flooding their offices with calls.
"In the last three weeks, I've had many, many more whistleblowing calls than I had in the last three years," said Rebecca Katz, a partner at Bernstein Liebhard in New York. Katz is a former senior counsel in the enforcement division of the Securities and Exchange Commission, where she served from 1990 to 1998.
"Will the complaints come to anything?" Katz asked. "Some will. But the number is just unbelievable."
The new law, the Dodd-Frank Wall Street Reform and Consumer Protection Act (pdf), went into effect in July. It authorizes the SEC to reward those who expose fraud at public companies with from 10 to 30 percent of the amount it recovers over $1 million.
Critics have called it a "bounty" provision, and complain that it will encourage bogus claims against companies.
No law firms wanted to divulge specific numbers about callers. But Erika Kelton, partner at the plaintiffs' powerhouse Phillips & Cohen in Washington, D.C., agreed that the outpouring is huge.
"We're inundated with calls," Kelton said, adding that many of the tips "appear to be good cases" and not bogus reports.
Kelton was the lead attorney for a whistleblower suit against Pfizer Inc., which paid a record-setting $2.3 billion in mid-2009 to settle civil and criminal charges for using illegal sales tactics. Of that amount, $70 million went to Kelton's whistleblowing client, a former Pfizer salesman.
Asked to compare the surge of tipster calls since passage of Dodd-Frank to what she saw in the past, Kelton said, "It's not only a different ballpark, it's an entirely different galaxy."
And it's not just the plaintiffs who are doing the dialing. Outside counsel for corporations are also fielding a lot of calls about the law, according to Fred Rivera, who co-chairs the financial services litigation and investigations group at Perkins Coie in Seattle.
Rivera said general counsel are asking "what is this act and how will it affect me?" Responding to the inquiries, he said his firm has put out several bulletins and is planning a series of seminars for corporate clients.
The SEC has also begun implementing the law. It has set up a whistleblower web page, explaining how to file a complaint either by phone or on its online form.
The agency has already received "some very high quality tips," Stephen Cohen, an aide to SEC chief Mary Schapiro, told The Wall Street Journal this week.
Agency spokesman John Heine wouldn't divulge the number of tips so far, but said the SEC is expecting "a significant increase in complaints."
Types of securities fraud that can be reported include manipulation of a security's price or volume, Ponzi schemes, insider trading, theft, bribery of foreign officials, and more.
Once a tip is received, attorneys in the enforcement division evaluate the information and decide if enforcement action is necessary. The exact process -- including a definition of exactly who can be a whistleblower -- is yet to be worked out.
Under the law, the SEC has nine months from passage to implement rules governing the process. And the new law is a far-ranging one containing many important financial reforms beyond whistleblowing that have to be dealt with.
Though it has yet to formulate any rule, the agency's web site is already inviting experts and members of the public to comment on potential regulation.
But whistleblowers don't have to wait for the rules. The law itself provides that information received prior to rulemaking will be included in the reward program. And that's why the lawyers' phones are ringing off their hooks.