DEFINITION of Investor Protection Act
The Investor Protection Act is a component of the Wall Street Reform and Consumer Protection Act of 2009 designed to expand the powers of the Securities and Exchange Commission (SEC). The act established a whistleblower reward for reporting financial fraud, increased liability for aiding and abetting and doubled funding to the SEC over a five-year period. The act was part of regulators' attempt to prevent some of the problems that caused the financial crisis of 2008-2009 from reoccurring in the future.
BREAKING DOWN Investor Protection Act
The Wall Street Reform and Consumer Protection Act of 2009 was created to improve accountability and transparency in the financial system. It included a Consumer Financial Protection Agency that would regulate mortgages, auto loans and credit cards.
The Investor Protection Act, also known as the Investor Protection Act of 2009, established the Investor Advisory Committee to consult with the SEC. The committee advises on such topics as regulatory priorities and issues that surround new financial products, fee structures and trading strategies. It also provides consultation on initiatives to protect investor interest and to promote investor confidence in the market’s integrity.
Powers Granted to Regulators by the Investor Protection Act
The legislation gave additional powers to the SEC that included authorization to gather information, communicate with investors and the public and launch programs for the protection of investors.
The Investor Protection Act increased safeguards and rights for whistleblowers. This included granting the SEC the authority to recommend granting whistleblowers monetary rewards of up to 30% of sanctions that exceed $1 million. The law also established the SEC’s Investor Protection Fund, which pays awards to whistleblowers. The fund also supports investor education initiatives.
Further whistleblower protections offered through the act include prohibitions on employers from demoting, suspending, firing, threatening or otherwise discriminating against employees or agents who provide information to the SEC or assist in investigations. A whistleblower is authorized to take legal action if such issues take place.
False or fraudulent statements made by would-be whistleblowers are subject to prosecution under the act. The act includes amendments to prior legislation that includes the Securities Investor Protection Act of 1970 (SIPA) and the Sarbanes-Oxley Act of 2002.
The changes to SIPA include an increase to the minimum assessment paid by Securities Investor Protection Corporation members from a flat $150 per year to 0.02% percent of the member's gross revenues from the securities business. The borrowing limit on U.S. Treasury loans was also increased from $1 billion to $2.5 billion.
An amendment to Sarbanes-Oxley added brokers and dealers to the Public Company Accounting Oversight Board’s sphere of oversight.