The bill would give whistleblowers up to 30% of the money obtained in a securities fraud case.

New York Attorney General Eric Schneiderman said Thursday that he would propose legislation in Albany to protect and reward employees who report information about illegal activity in the banking, insurance and financial services industries.

As it stands now, New York does not have a law to protect or incentivize whistleblowers who report securities and other financial frauds.

Schneiderman’s bill,  the Financial Frauds Whistleblower Act, would provide financial compensation to whistleblowers who voluntarily report fraud in their industry and whose tips lead to more than $1 million in penalties or settlement proceeds.

“From holding the banks accountable for the collapse of the housing market, to taking on unfair advantages for high-frequency traders, this office has committed to promoting fairness and a level playing field for all investors. And yet, a valuable tool for building these cases is rarely at our disposal,” Schneiderman said in a statement.

New York, he continued, “has a unique opportunity to set the gold standard for states seeking to expose and hold individuals accountable for financial crimes. This law will be the strongest, most comprehensive in the nation, and is long overdue for a state with the world’s most important financial markets.”

Schneiderman’s announcement comes a day after the Securities and Exchange Commission is probing whether companies are muzzling corporate whistleblowers.

The Wall Street Journal reported Wednesday that in recent weeks the agency has sent letters to a number of companies asking for years of nondisclosure agreements, employment contracts and other documents, according to people familiar with the matter and an agency letter viewed by The Journal. “The inquiries come as SEC officials have expressed concern about a possible corporate backlash against whistleblowers,” The Journal says.

Schneiderman’s bill would also guarantee the confidentiality of the whistleblower’s information, and make it illegal for any employer to retaliate in response.

“The rewards paid to whistleblowers will be drawn from monetary recoveries paid by those who commit wrongdoing, and not out of state funds, making this a cost-free way to increase the government’s ability to detect frauds and obtain recoveries,” he said.

The bill would also do the following:

  • Provide monetary rewards to individuals who voluntarily provide original information, not previously known to the attorney general, which leads to monetary sanctions for financial fraud or misconduct in the securities industry. Whistleblowers would receive 10%-30% of the money obtained in a securities fraud case.
  • Create a Financial Services Whistleblower Awards program within the state’s Department of Financial Services to reward whistleblowers for tips to that agency.
  • Strengthen existing labor protections to make it explicitly unlawful for employers to discharge, demote, suspend or otherwise harass employees who report suspicious or fraudulent activity to supervisory or internal compliance staff.

— Check out Former American Realty Executive Drops Whistleblower Lawsuit on ThinkAdvisor.