Report - 2023 03 21 A31087 D258517 Bill Report 1370 Sbr Bfgt Ta 23

Summary

A Senate Bill Report on HB 1370, as of March 16, 2023, concerning awards to whistleblowers who report violations of state or federal securities laws, prepared by staff of the Senate Committee on Business, Financial Services, Gaming & Trade. The report records that the bill passed the House 96-0 and was requested by the Department of Financial Institutions. It states the bill establishes a DFI program paying awards of between 10 percent and 30 percent of monetary sanctions collected, lists who is ineligible, and raises the Securities Prosecution Fund balance threshold from $350,000 to $1 million. It also describes anti-retaliation protections, a statute of limitations, remedies including two times back pay, and an exemption from the Public Records Act for information identifying a whistleblower. The report closes with a summary of supporting testimony.

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                            SENATE BILL REPORT
                                  HB 1370

                                      As of March 16, 2023

Title: An act relating to the payment of awards to whistleblowers who report violations of state
     or federal securities laws and providing protection to whistleblowers and internal reporters.

Brief Description: Providing the payment of awards to whistleblowers who report violations of
     state or federal securities laws and providing protection to whistleblowers and internal
     reporters.

Sponsors: Representatives Reeves, Corry, Reed, Morgan, Ramel, Pollet and Leavitt; by request
    of Department of Financial Institutions.

Brief History: Passed House: 3/3/23, 96-0.
     Committee Activity: Business, Financial Services, Gaming & Trade: 3/16/23.


                                     Brief Summary of Bill
           • Establishes a program at the Department of Financial Institutions that
             provides monetary awards to whistleblowers who report violations of
             state securities laws and protects them from retaliation by their
             employers.
           • Exempts information that could identify a whistleblower from disclosure
             under the Public Records Act.


SENATE COMMITTEE ON BUSINESS, FINANCIAL SERVICES, GAMING & TRADE

     Staff: Kellee Gunn (786-7429)

     Background: Regulation of Securities. In Washington, the securities industry is regulated
     by the Department of Financial Institutions (DFI) through its Division of Securities. If a
     person is found to have violated the Securities Act of Washington, DFI may fine them up to
     $10,000 per violation.




     This analysis was prepared by non-partisan legislative staff for the use of legislative
     members in their deliberations. This analysis is not part of the legislation nor does it
     constitute a statement of legislative intent.

Senate Bill Report                              -1-                                         HB 1370
     The fines paid must be deposited into the Securities Prosecution Fund.

     If the balance of the Securities Prosecution Fund reaches $350,000, all additional fines
     collected by the Division of Securities, and all other additional funds received on the
     account, shall be deposited into the Financial Services Regulation Fund.

     Model Whistleblower Award and Protection Act. The North American Securities
     Administrators Association (NASAA) represents state and provincial securities regulators
     in the United States, Canada and Mexico. In 2020, NASAA approved the Model
     Whistleblower Award and Protection Act which establishes a state-level program that
     provides monetary awards to whistleblowers who report violations of state securities laws
     and protects such whistleblowers and internal reporters from retaliation by their employers.
     States which implemented state-level whistleblower programs include Indiana, Utah,
     Montana, and Vermont. Montana and Vermont's laws are based on NASAA model act.

     The Securities and Exchange Commission administers a similar whistleblower program
     under Sec. 922 of the Dodd-Frank Act.

     Summary of Bill:
     Whistleblower Award. A program is established at DFI that provides monetary awards to
     whistleblowers who report violations of state securities laws and protects them from
     retaliation by their employers.

     Whistleblowers who voluntarily provide original information in writing to DFI may receive
     an award. Original information is defined and means information derived from independent
     knowledge or analysis and is not otherwise known.

     A person who anonymously makes a claim must be represented by counsel and must
     disclose their identity, and other information, to the securities division before receiving an
     award.

     The award, or awards, must be between 10 percent and 30 percent of the monetary
     sanctions imposed and collected related to the administrative or judicial action. In
     determining the amount of the award, the securities administrator must consider certain
     aspects of the information provided including its significance in the success of a case, the
     assistance provided by the whistleblower, the programmatic interest of the securities
     division, and other relevant factors.

     An award shall not be given to a whistleblower who is:
        • a convicted felon;
        • a regulator or auditor, a person who directly or indirectly receives information from a
          regulator or auditor, or another person with a legal duty to report the original
          information to the securities division or administrator;


Senate Bill Report                             -2-                                        HB 1370
         • a person who fails to submit information to the securities division in a form the
           administrator prescribes;
         • a person who knowingly or recklessly provides false information; or
         • an employee of a foreign governments, or any other foreign financial regulatory
           authority.

     The award shall come from the Securities Prosecution Fund. The balance of the fund is
     increased from $350,000 to $1 million for deposits to then be made into the Financial
     Services Regulation Fund.

     The securities administrator at DFI may adopt rules to implement this program as necessary
     and appropriate.

     Retaliation. Employers may not directly or indirectly retaliate against an individual for
     providing information, or otherwise assisting in providing the information required and
     protected under federal and state law.

     Statute of Limitations. Within six years of the original violation, or within three years after
     the date of when facts should have been known to the employee, an action for relief may be
     brought. This may occur in the court of original jurisdiction where the alleged violation
     occurs, where the individual resides, or where the person whom the action is filed against
     resides or has a principal place of business.

     No action may be brought more than ten years after the date which the violation occurs.

     Remedies by the Court. A court may award relief to the prevailing individual:
        • a reinstatement with the same compensation, fringe benefits, and seniority status that
          the individual would have had but for the retaliation;
        • two times the amount of back pay otherwise owed, with interest;
        • compensation for litigation costs, and other fees;
        • actual damages;
        • an injunction to restrain a violation; or
        • any combination of those certain remedies.

     Exempt From Disclosure. Information that could reveal the identity of a whistleblower is
     exempt from disclosure under the Public Records Act.

     Appropriation: None.

     Fiscal Note: Available.

     Creates Committee/Commission/Task Force that includes Legislative members: No.

     Effective Date: Ninety days after adjournment of session in which bill is passed.


Senate Bill Report                              -3-                                        HB 1370
     Staff Summary of Public Testimony: PRO: This bill would authorize monetary awards to
     whistleblowers. This protects whistleblowers with a prohibition of retaliation. The NASAA
     model act was based off the SEC whistleblower law, as well as the laws already enacted in
     other states such as Utah. This will support whistleblowers, and ensure they are comfortable
     reporting. DFI is the cop on the beat for this. The vast majority of those in this industry are
     good actors. Just a few bad actors can taint the industry though, and really hurt consumers.
     The bill has three elements that are consistent with most other laws: confidentiality,
     protections against retaliation, and compensation for the whistleblower. The bill will not
     affect the general fund.

     Persons Testifying: PRO: Representative Kristine Reeves, Prime Sponsor; Drew Bouton,
     Department of Financial Institutions; Faith Anderson, Department of Financial Institutions.

     Persons Signed In To Testify But Not Testifying: No one.




Senate Bill Report                              -4-                                        HB 1370


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