Senate Bill Report: HB 1370 (Securities-law whistleblower awards and protection)

Summary

A Senate Bill Report on HB 1370, an act relating to awards to whistleblowers who report violations of state or federal securities laws and protection for whistleblowers and internal reporters, prepared as of March 14, 2023 for the Senate Committee on Business, Financial Services, Gaming & Trade. It records that the bill passed the House on March 3, 2023 by a vote of 96-0 and was requested by the Department of Financial Institutions. The background describes securities regulation by DFI, the Securities Prosecution Fund and the NASAA Model Whistleblower Award and Protection Act. The summary of the bill describes awards of between 10 percent and 30 percent of monetary sanctions collected, exclusions from awards, anti-retaliation protections and court remedies, an increase in the fund balance from $350,000 to $1 million, and a Public Records Act exemption for whistleblower identities.

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SENATE BILL REPORT
HB 1370

As of March 14, 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 -l- 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 felon or who provides false
information. An award cannot go to 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.

The award shall come from the Securities Protection Fund. The balance of the fund is

Senate Bill Report -2- HB 1370
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:
* areinstatement 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

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