With the implementation of potentially rich whistleblower bounties under the Dodd-Frank Act, there have been concerns that the incentives will  not only lead to increased numbers of reports and increased enforcement activity, but that the regulatory action will in turn generate follow-on civil litigation. A securities class action lawsuit filed this past week against Bank of New York Mellon give a glimpse of how heightened whistleblower activity could lead to increased follow- on civil litigation.


As reflected in their press release (here), on December 14, 2011, plaintiffs’ lawyers initiated a lawsuit in the Southern District of New York against the Bank of New York Mellon, twenty of its directors and officers, and its offering underwriters. According to the press release, the plaintiff’s complaint, which can be found here, alleges that the defendants “misled investors regarding the Company’s financial condition by reporting inflated revenue and concealing risks attributable to BNY Mellon’s participation in a scheme to fraudulently overcharge its custodial clients for foreign currency ("FX") trades.”


According to the complaint, the details about the bank’s alleged practices first surfaced in January 2011 when two whistleblower lawsuits (in the form of qui tam actions) against BNY Mellon in Virginia and Florida were unsealed. Among other things, the whistleblower suits alleged that BNY Mellon manipulated FX rates, which were selected to maximize the company’s fees. As a result of publicity surrounding these allegations, the Virginia attorney general filed a complaint in intervention relating to the company’s foreign currency. In October 2011, the New York Attorney General and the U.S Department of Justice each filed civil actions against BNY Mellon. The securities lawsuit complaint alleges that the company is also the subject of an SEC investigation.


The regulatory actions against BNY Mellon all followed in the wake of the initial whistleblower allegations, which in turn led to the various civil actions against the company, now including the securities class action lawsuit.


The qui tam actions that the initial whistleblower filed against the BNY Mellon are not directly related to the whistleblower provisions of the Dodd-Frank Act. (However, as noted in a November 16, 2011 Wall Street Journal article, here, BNY’s foreign currency practices are also the subject of whistleblower reports to the SEC.) The train of events that the BNY Mellon whistleblower allegations set in motion shows how the revelation of whistleblower allegations can lead not only to significant regulatory action but also to significant follow on civil litigation.


The whistleblower provisions of the Dodd-Frank Act have only recently been implemented and the SEC’s program is only in its earliest stages. It remains to be seen exactly where the program will lead. But given the substantial bounties provided for in the Act it seems likely there will be increased numbers of reports to the SEC, which in turn could mean increased levels of enforcement activity. Along with all other concerns these possibilities present, there is also the concern that the increased number of reports and increased enforcement activity could, following the same sequence illustrated in connection with the BNY Mellon, lead to a surge in follow-on civil litigation. As we head into 2012, we will have to watch whether increased whistleblowing lead to increased follow-on civil litigation, similar to the suit with which BNY Mellon was just hit.


A View from a Window: In those days, the car ferry traversed the Cook Strait twice daily, in the morning heading south from Wellington, on the Southern end of the North Island of New Zealand, and in the evening heading north from Picton, on the Northern end of the South Island. (There are more ferries now, and the crossings more frequent.)


After the ferry leaves Picton, the first hour of the northward journey runs through the Queen Charlotte Sound, winding through sea-drowned valleys and steeply sloped channels. Where the Sound finally opens up into the Strait, a single white house sits on a huge bluff, standing alone against a stark landscape.


Sometimes when I am having trouble falling asleep, I picture myself standing in the window of the house, in the evening, just as the ferry passes below. A few sounds from the ship drift up to house – a bit of conversation, the clink of a glass, a few notes of music. But the ship moves quickly and it soon disappears into the gathering night. The white foam from the ship’s wake quickly dissipates as well, and all is quiet, in a place remote from the troubles and worries of the world.


I watch for a time as the unfamiliar stars of the Southern sky emerge. I turn from the window and slide into bed. And then gentle Sleep envelops me in her warm, soothing embrace, and I drift away, dreaming dreams of serenity and contentment.  


The essay question on one of my son’s college applications supplied only the brief prompt: “You are looking out of a window.” For some reason, I felt compelled to respond to this odd prompt. Strangely, my son was uninterested in my brief essay, and uninterested in showing me what he came up with as his response, as well.