House Bill 1370 — State of Washington, 68th Legislature, 2023 Regular Session (Department of Financial Institutions)

Summary

House Bill 1370 of the 68th Legislature, 2023 Regular Session, State of Washington, by Representatives Reeves, Corry, Reed, Morgan, Ramel, Pollet and Leavitt, by request of Department of Financial Institutions, read first time 01/17/23 and referred to the Committee on Consumer Protection & Business. The act relates to payment of awards to whistleblowers who report violations of state or federal securities laws, amends RCW 42.56.400 and 43.320.115, and may be cited as the whistleblower award and protection act. Its definitions include monetary sanction, original information, securities administrator and securities division.

Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used

Full text

     Z-0015.3

                                HOUSE BILL 1370


     State of Washington       68th Legislature           2023 Regular Session

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

     Read first time 01/17/23.       Referred     to   Committee   on   Consumer
     Protection & Business.




1        AN ACT Relating to the payment of awards to whistleblowers who
2    report violations of state or federal securities laws and providing
3    protection to whistleblowers and internal reporters; amending RCW
4    42.56.400 and 43.320.115; and adding a new chapter to Title 21 RCW.


5    BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:


 6       NEW SECTION.   Sec. 1.   This act may be known and cited as the
 7   whistleblower award and protection act.


 8       NEW SECTION.    Sec. 2.    The definitions in this section apply
 9   throughout   this  chapter   unless  the   context  clearly  requires
10   otherwise.
11       (1) "Monetary sanction" means any moneys, including penalties,
12   disgorgement, and interest, ordered to be paid as a result of an
13   administrative or judicial action.
14       (2) "Original information" means information that is:
15       (a) Derived from the independent knowledge or analysis of a
16   whistleblower;
17       (b) Not already known to the securities administrator or the
18   securities division from any other source, unless the whistleblower
19   is the original source of the information;


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 1       (c) Not exclusively derived from an allegation made in an
 2   administrative or judicial hearing, in a government report, hearing,
 3   audit, or investigation, or from the news media, unless the
 4   whistleblower is the source of the information; and
 5       (d) Provided to the securities division for the first time after
 6   the effective date of this section.
 7       (3) "Securities administrator" means the administrator of the
 8   securities act of Washington, chapter 21.20 RCW, designated pursuant
 9   to RCW 21.20.460.
10       (4) "Securities division" means the division of the department of
11   financial institutions that administers the securities act of
12   Washington, chapter 21.20 RCW.
13       (5) "Whistleblower" means an individual who, alone or jointly
14   with others, provides the state or other law enforcement agency with
15   information pursuant to the provisions set forth in this chapter, and
16   the information relates to a possible violation of state or federal
17   securities laws, including any rules or regulations thereunder, that
18   has occurred, is ongoing, or is about to occur.


19       NEW SECTION. Sec. 3. Subject to the provisions of this chapter,
20   the securities administrator may award an amount to one or more
21   whistleblowers who voluntarily provide original information in
22   writing, and in the form and manner required by the securities
23   administrator, to the securities division that leads to the
24   successful enforcement of an administrative or judicial action under
25   chapter 21.20 RCW.


26       NEW SECTION.   Sec. 4.    Any individual who anonymously makes a
27   claim must be represented by counsel. Prior to the payment of an
28   award, a whistleblower shall disclose their identity and provide such
29   other information as the securities division may require, directly or
30   through counsel, for the whistleblower.


31       NEW SECTION. Sec. 5. If the securities administrator determines
32   to make one or more awards under section 3 of this act, the aggregate
33   amount of awards that may be awarded in connection with an
34   administrative or judicial action may not be less than 10 percent nor
35   more than 30 percent of the monetary sanctions imposed and collected
36   in the related administrative or judicial action.


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 1       NEW SECTION.   Sec. 6.   The determination of the amount of an
 2   award made under this chapter shall be in the discretion of the
 3   securities administrator consistent with sections 5 and 7 of this
 4   act.


 5       NEW SECTION.   Sec. 7.   Any whistleblower awards paid under this
 6   chapter shall be paid from the securities prosecution fund
 7   established in RCW 43.320.115.

 8       NEW SECTION.   Sec. 8.    In determining the amount of an award
 9   under this chapter, the securities administrator shall consider:
10       (1) The significance of the original information provided by the
11   whistleblower to the success of the administrative or judicial
12   action;
13       (2) The degree of assistance provided by the whistleblower in
14   connection with the administrative or judicial action;
15       (3) The programmatic interest of the securities administrator in
16   deterring violations of the securities laws by making awards to
17   whistleblowers who provide original information that leads to the
18   successful enforcement of such laws; and
19       (4) Any other factors the securities administrator considers
20   relevant.


21       NEW SECTION.    Sec. 9.   The securities administrator shall not
22   provide an award to a whistleblower under this section if the
23   whistleblower:
24       (1)   Is   convicted  of   a   felony   in  connection   with the
25   administrative or judicial action for which the whistleblower
26   otherwise could receive an award;
27       (2) Acquires the original information through the performance of
28   an audit of financial statements required under the securities laws
29   and for whom providing the original information violates 15 U.S.C.
30   78j-1;
31       (3) Fails to submit information to the securities division in
32   such form as the securities administrator may prescribe;
33       (4) Knowingly or recklessly makes a false, fictitious, or
34   fraudulent statement or misrepresentation as part of, or in
35   connection   with,   the   original   information   provided   or the
36   administrative or judicial proceeding for which the original
37   information was provided;
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 1       (5) In the whistleblower's submission, the whistleblower's other
 2   dealings with the securities administrator, or in the whistleblower's
 3   dealings with another authority in connection with a related action,
 4   knowingly and willfully makes any false, fictitious, or fraudulent
 5   statement or representation, or uses any false writing or document
 6   knowing that it contains any false, fictitious, or fraudulent
 7   statement or entry with intent to mislead or otherwise hinder the
 8   securities administrator or another authority;
 9       (6) Knows that, or has a reckless disregard as to whether, the
10   original information provided is false, fictitious, or fraudulent;
11       (7) Has a legal duty to report the original information to the
12   securities administrator or securities division;
13       (8) Is, or was at the time the whistleblower acquired the
14   original information submitted to the securities division, a member,
15   officer, or employee of the department of financial institutions, the
16   securities and exchange commission, any other state securities
17   regulatory authority, a self-regulatory organization, the public
18   company   accounting  oversight   board,   or  any   law   enforcement
19   organization;
20       (9) Is, or was at the time the whistleblower acquired the
21   original information submitted to the securities division, a member,
22   officer, or employee of a foreign government, any political
23   subdivision, department, agency, or instrumentality of a foreign
24   government, or any other foreign financial regulatory authority as
25   that term is defined in 15 U.S.C. 78c(a)(52);
26       (10) Is the spouse, parent, child, or sibling of the securities
27   administrator or an employee of the department of financial
28   institutions, or resides in the same household as the securities
29   administrator or an employee of the department of financial
30   institutions; or
31       (11) Directly or indirectly acquires the original information
32   provided to the securities division from a person:
33       (a) Who is subject to subsection (2) of this section, unless the
34   information is not excluded from that person's use, or provides the
35   securities division with information about possible violations
36   involving that person;
37       (b) Who is a person described in subsection (8), (9), or (10) of
38   this section; or
39       (c) With the intent to evade any provision of this chapter.


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 1       NEW SECTION.      Sec. 10.     (1) No employer may directly or
 2   indirectly terminate, discharge, demote, suspend, threaten, harass,
 3   or in any other manner retaliate against, an individual because of
 4   any lawful act done by the individual:
 5       (a) In providing information to the state or other law
 6   enforcement agency concerning a possible violation of state or
 7   federal   securities   laws,   including  any  rules   or  regulations
 8   thereunder, that has occurred, is ongoing, or is about to occur;
 9       (b)   In   initiating,   testifying  in,  or   assisting  in   any
10   investigation or administrative or judicial action of the securities
11   administrator, securities division, or other law enforcement agency
12   based upon or related to such information;
13       (c) In making disclosures that are required or protected under
14   the Sarbanes-Oxley act of 2002, 15 U.S.C. 7201 et seq.; the
15   securities act of 1933, 15 U.S.C. 77a et seq.; the securities
16   exchange act of 1934, 15 U.S.C. 78a et seq.; 18 U.S.C. 1513(e); any
17   other law, rule, or regulation subject to the jurisdiction of the
18   securities and exchange commission; or chapter 21.20 RCW or a rule
19   adopted thereunder; or
20       (d) In making disclosures to a person with supervisory authority
21   over the employee, or such other person working for the employer who
22   has the authority to investigate, discover, or terminate misconduct,
23   regarding matters subject to the jurisdiction of the securities
24   administrator, securities division, or the securities and exchange
25   commission.
26       (2) Notwithstanding subsection (1) of this section, an individual
27   is not protected under this section if:
28       (a) The individual knowingly or recklessly makes a false,
29   fictitious, or fraudulent statement or misrepresentation;
30       (b) The individual uses a false writing or document knowing that,
31   or with reckless disregard as to whether, the writing or document
32   contains false, fictitious, or fraudulent information; or
33       (c) The individual knows that, or has a reckless disregard as to
34   whether, the disclosure is of original information that is false or
35   frivolous.
36       (3) An individual who alleges any act of retaliation in violation
37   of subsection (1) of this section may bring an action for the relief
38   provided in subsection (6) of this section in the court of original
39   jurisdiction for the county or state where the alleged violation


                                     p. 5                          HB 1370
 1   occurs, the individual resides, or the person against whom the action
 2   is filed resides or has a principal place of business.
 3       (4) A subpoena requiring the attendance of a witness at a trial
 4   or hearing conducted under subsection (3) of this section may be
 5   served at any place in the United States, in compliance with
 6   applicable court rules and the law of the other jurisdiction.
 7       (5) An action under subsection (3) of this section may not be
 8   brought:
 9       (a) More than six years after the date on which the violation of
10   subsection (1) of this section occurred; or
11       (b) More than three years after the date when facts material to
12   the right of action are known or reasonably should have been known by
13   the employee alleging a violation of subsection (1) of this section.
14   Notwithstanding the above limitations, an action under subsection (3)
15   of this section may not in any circumstance be brought more than 10
16   years after the date on which the violation occurs.
17       (6) A court may award as relief for an individual prevailing in
18   an action brought under this section:
19       (a) Reinstatement with the same compensation, fringe benefits,
20   and seniority status that the individual would have had, but for the
21   retaliation;
22       (b) Two times the amount of back pay otherwise owed to the
23   individual, with interest;
24       (c) Compensation for litigation costs, expert witness fees, and
25   reasonable attorneys' fees;
26       (d) Actual damages;
27       (e) An injunction to restrain a violation; or
28       (f) Any combination of these remedies.
29       (7) Information that could reasonably be expected to reveal the
30   identity of a whistleblower is exempt from public disclosure under
31   chapter 42.56 RCW. This subsection does not limit the ability of any
32   person to present evidence to a grand jury or to share evidence with
33   potential witnesses or defendants in the course of an ongoing
34   criminal investigation.
35       (8) No person may take any action to impede an individual from
36   communicating directly with the securities division staff about a
37   possible   securities   law   violation,   including  enforcing,  or
38   threatening to enforce, a confidentiality agreement with respect to
39   such communications, except with respect to:


                                     p. 6                          HB 1370
 1       (a) Agreements concerning communications covered by the attorney-
 2   client privilege, unless disclosure of that information would
 3   otherwise be permitted by an attorney under applicable state attorney
 4   conduct rules or otherwise; and
 5       (b) Information obtained in connection with legal representation
 6   of a client on whose behalf an individual or the individual's
 7   employer or firm are providing services, and the individual is
 8   seeking to use the information to make a whistleblower submission for
 9   the individual's own benefit, unless disclosure would otherwise be
10   permitted by an attorney pursuant to applicable state attorney
11   conduct rules or otherwise.
12       (9) The rights and remedies provided for in this chapter may not
13   be waived by any agreement, policy form, or condition of employment,
14   including by a predispute arbitration agreement.
15       (10) Nothing in this section shall be deemed to diminish the
16   rights, privileges, or remedies of any individual under any federal
17   or state law, or under any collective bargaining agreement.


18       NEW SECTION.   Sec. 11.   The securities administrator may adopt
19   such rules and regulations as may be necessary or appropriate to
20   implement the provisions of this chapter consistent with its purpose.


21       Sec. 12. RCW 42.56.400 and 2022 c 8 s 2 are each amended to read
22   as follows:
23       The following information relating to insurance and financial
24   institutions is exempt from disclosure under this chapter:
25       (1) Records maintained by the board of industrial insurance
26   appeals that are related to appeals of crime victims' compensation
27   claims filed with the board under RCW 7.68.110;
28       (2) Information obtained and exempted or withheld from public
29   inspection by the health care authority under RCW 41.05.026, whether
30   retained by the authority, transferred to another state purchased
31   health care program by the authority, or transferred by the authority
32   to   a  technical   review  committee   created   to  facilitate   the
33   development, acquisition, or implementation of state purchased health
34   care under chapter 41.05 RCW;
35       (3) The names and individual identification data of either all
36   owners or all insureds, or both, received by the insurance
37   commissioner under chapter 48.102 RCW;
38       (4) Information provided under RCW 48.30A.045 through 48.30A.060;
                                     p. 7                          HB 1370
 1       (5) Information provided under RCW 48.05.510 through 48.05.535,
 2   48.43.200 through 48.43.225, 48.44.530 through 48.44.555, and
 3   48.46.600 through 48.46.625;
 4       (6)   Examination   reports and   information  obtained   by  the
 5   department of financial institutions from banks under RCW 30A.04.075,
 6   from savings banks under RCW 32.04.220, from savings and loan
 7   associations under RCW 33.04.110, from credit unions under RCW
 8   31.12.565, from check cashers and sellers under RCW 31.45.030(3), and
 9   from securities brokers and investment advisers under RCW 21.20.100,
10   information that could reasonably be expected to reveal the identity
11   of a whistleblower under section 10 of this act, and information
12   received under RCW 43.320.190, all of which are confidential and
13   privileged information;
14       (7) Information provided to the insurance commissioner under RCW
15   48.110.040(3);
16       (8) Documents, materials, or information obtained by the
17   insurance commissioner under RCW 48.02.065, all of which are
18   confidential and privileged;
19       (9) Documents, materials, or information obtained or provided by
20   the insurance commissioner under RCW 48.31B.015(2) (l) and (m),
21   48.31B.025, 48.31B.030, 48.31B.035, and 48.31B.036, all of which are
22   confidential and privileged;
23       (10) Data filed under RCW 48.140.020, 48.140.030, 48.140.050, and
24   7.70.140 that, alone or in combination with any other data, may
25   reveal the identity of a claimant, health care provider, health care
26   facility, insuring entity, or self-insurer involved in a particular
27   claim or a collection of claims. For the purposes of this subsection:
28       (a) "Claimant" has the same meaning as in RCW 48.140.010(2).
29       (b) "Health care facility" has the same meaning as in RCW
30   48.140.010(6).
31       (c) "Health care provider" has the same meaning as in RCW
32   48.140.010(7).
33       (d)   "Insuring  entity"   has  the   same  meaning   as  in   RCW
34   48.140.010(8).
35       (e) "Self-insurer" has the same meaning as in RCW 48.140.010(11);
36       (11) Documents, materials, or information obtained by the
37   insurance commissioner under RCW 48.135.060;
38       (12) Documents, materials, or information obtained by the
39   insurance commissioner under RCW 48.37.060;


                                     p. 8                          HB 1370
 1       (13) Confidential and privileged documents obtained or produced
 2   by the insurance commissioner and identified in RCW 48.37.080;
 3       (14) Documents, materials, or information obtained by the
 4   insurance commissioner under RCW 48.37.140;
 5       (15) Documents, materials, or information obtained by the
 6   insurance commissioner under RCW 48.17.595;
 7       (16) Documents, materials, or information obtained by the
 8   insurance commissioner under RCW 48.102.051(1) and 48.102.140 (3) and
 9   (7)(a)(ii);
10       (17) Documents, materials, or information obtained by the
11   insurance commissioner in the commissioner's capacity as receiver
12   under RCW 48.31.025 and 48.99.017, which are records under the
13   jurisdiction and control of the receivership court. The commissioner
14   is not required to search for, log, produce, or otherwise comply with
15   the public records act for any records that the commissioner obtains
16   under chapters 48.31 and 48.99 RCW in the commissioner's capacity as
17   a receiver, except as directed by the receivership court;
18       (18) Documents, materials, or information obtained by the
19   insurance commissioner under RCW 48.13.151;
20       (19) Data, information, and documents provided by a carrier
21   pursuant to section 1, chapter 172, Laws of 2010;
22       (20) Information in a filing of usage-based insurance about the
23   usage-based component of the rate pursuant to RCW 48.19.040(5)(b);
24       (21) Data, information, and documents that are submitted to the
25   office of the insurance commissioner by an entity providing health
26   care coverage pursuant to RCW 28A.400.275;
27       (22) Data, information, and documents obtained by the insurance
28   commissioner under RCW 48.29.017;
29       (23) Information not subject to public inspection or public
30   disclosure under RCW 48.43.730(5);
31       (24) Documents, materials, or information obtained by the
32   insurance commissioner under chapter 48.05A RCW;
33       (25) Documents, materials, or information obtained by the
34   insurance commissioner under RCW 48.74.025, 48.74.028, 48.74.100(6),
35   48.74.110(2) (b) and (c), and 48.74.120 to the extent such documents,
36   materials, or information independently qualify for exemption from
37   disclosure as documents, materials, or information in possession of
38   the commissioner pursuant to a financial conduct examination and
39   exempt from disclosure under RCW 48.02.065;


                                     p. 9                          HB 1370
 1       (26) Nonpublic personal health information obtained by, disclosed
 2   to, or in the custody of the insurance commissioner, as provided in
 3   RCW 48.02.068;
 4       (27) Data, information, and documents obtained by the insurance
 5   commissioner under RCW 48.02.230;
 6       (28) Documents, materials, or other information, including the
 7   corporate annual disclosure obtained by the insurance commissioner
 8   under RCW 48.195.020;
 9       (29) Findings and orders disapproving acquisition of a trust
10   institution under RCW 30B.53.100(3);
11       (30) All claims data, including health care and financial related
12   data received under RCW 41.05.890, received and held by the health
13   care authority; and
14       (31) Contracts not subject to public disclosure under RCW
15   48.200.040 and 48.43.731.


16       Sec. 13. RCW 43.320.115 and 2003 c 288 s 2 are each amended to
17   read as follows:
18       (1) The securities prosecution fund is created in the custody of
19   the state treasurer and shall consist of all fines received by the
20   division of securities under RCW 21.20.400(2), 21.20.110, and
21   21.20.395 and all undistributed funds from orders of disgorgement and
22   restitution under RCW 21.20.110(8) and 21.20.390(6). No appropriation
23   is required to permit expenditures from this fund, but the account is
24   subject to allotment procedures under chapter 43.88 RCW.
25       (2) Expenditures from this fund may be used solely for
26   administering the fund ((and)), for payment of costs, expenses, and
27   charges incurred in the preparation, initiation, and prosecution of
28   criminal charges for violations of chapters 21.20, 21.30, 19.100, and
29   19.110 RCW, and for making an award to a whistleblower under section
30   3 of this act. Only the director or the director's designee may
31   authorize expenditures from the fund.
32       (3) ((Applications)) Except for an award to a whistleblower under
33   section 3 of this act, applications for fund expenditures must be
34   submitted by the attorney general or the proper prosecuting attorney
35   to the director. The application must clearly identify the alleged
36   criminal violations identified in subsection (2) of this section and
37   indicate the purpose for which the funds will be used. The
38   application must also certify that any funds received will be
39   expended only for the purpose requested. Funding requests must be
                                     p. 10                         HB 1370
 1   approved by the director prior to any expenditure being incurred by
 2   the requesting attorney general or prosecuting attorney. At the
 3   conclusion of the prosecution, the attorney general or prosecuting
 4   attorney shall provide the director with an accounting of fund
 5   expenditures, a summary of the case, and certify his or her
 6   compliance with any rules adopted by the director relating to the
 7   administration of the fund.
 8       (4) If the balance of the securities prosecution fund reaches
 9   ((three hundred fifty thousand dollars)) $1,000,000, all fines
10   received by the division of securities under RCW 21.20.400(2),
11   21.20.110, and 21.20.395 and all undistributed funds from orders of
12   disgorgement and restitution under RCW 21.20.110(8) and 21.20.390(6)
13   shall be deposited in the financial services regulation fund until
14   such time as the balance in the fund falls below ((three hundred
15   fifty thousand dollars)) $1,000,000, at which time the fines received
16   by the division of securities under RCW 21.20.400(2), 21.20.110, and
17   21.20.395 and all undistributed funds from orders of disgorgement and
18   restitution under RCW 21.20.110(8) and 21.20.390(6) shall be
19   deposited to the securities prosecution fund until balance in the
20   fund once again reaches ((three hundred fifty thousand dollars))
21   $1,000,000.


22       NEW SECTION.    Sec. 14.    Sections 1   through   11   of   this   act
23   constitute a new chapter in Title 21 RCW.

                                  --- END ---




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