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DAN HARGROVE Waters & Kraus, LLP The Vogue Building 600 Navarro St., Floor 5 San Antonio, Texas 78205 (210) 349-0515 (210) 349-3666 (f) dhargrove@waterskraus.com www.waterskraus.com www.govtfraudlawyer.blogspot.com
State Bar of Texas 21st ANNUAL ADVANCED EMPLOYMENT LAW COURSE January 17 - 18, 2013 Dallas CHAPTER 11
Mr. Hargrove represents whistleblowers. Prior to private practice, Mr. Hargrove served six years on active duty with the U.S. Army JAG Corps (10th Mountain Division (Light Infantry) and deployed to the Middle East with the 82nd Airborne Division). Mr. Hargrove served as an Assistant Professor of Law at the U.S. Army JAG School from 2003 to 2011. He continues to serve in the Reserves, with the rank of Lieutenant Colonel. Mr. Hargrove was awarded the 2004 San Antonio Young Lawyer of the Year. He was selected as a 2012 Super Lawyer (government contracts) by Texas Monthly.
Admitted: Supreme Court of the United States U.S. Court of Appeals, Fifth Circuit All U.S. District Courts in Texas U.S. District Court, District of Colorado Court of Federal Claims Court of Appeals for the Armed Forces All Texas courts Practice Areas: FALSE CLAIMS ACT (qui tam) Health Care Fraud Federal Government Contracts
Organizations: Taxpayers Against Fraud Federal Bar Association (San Antonio chapter Board Member) Texas Biomedical Research Institute, Founder’s Council Reserve Officers Association Association of Military Surgeons of the United States
Education: U.S. Army JAG School, LLM (Federal Procurement Law) 2003 St. Mary’s University School of Law, JD 1994 Texas A&M University, BS 1991 (Honors Program; Corps of Cadets; ROTC Scholarship) Rotary International Exchange Student (Sweden) 1986 dhargrove@waterskraus.com www.waterskraus.com www.govtfraudlawyer.blogspot.com
Waters & Kraus, LLP (San Antonio office) The Vogue Building 600 Navarro St., Floor 5 San Antonio, Texas 78205 (210) 349-0515 (210) 349-3666 (f)
NOTABLE PUBLICATIONS & RECENT PRESENTATIONS Author, INVESTIGATING HEALTH CARE FRAUD, Association of Certified Fraud Examiners (forthcoming) Author & Presenter, Blowing the Dodd-Frank Act Whistle, State Bar of Texas Advanced Employment Law Course, Dallas (Jan. 2012) Presenter, Compliance and the Corporate Lawyer, In-House Counsel Conference, South Texas College of Law, Houston (July 2011) Author & Presenter, Whistleblowers in the Age of Stimulus, State Bar of Texas Advanced Employment Law Course, Austin (Jan. 2011) Author, Soldiers of Qui Tam Fortune -- Are Servicemembers Proper Plaintiffs Under the False Claims Act, 34 GEORGE WASH. U. SCHOOL OF LAW PUBLIC CONTRACT LAW JOURNAL 45 (Fall 2004) Author, Employment Protections for the Citizen-Soldier, Employment Law Strategist, Vol. 11, No. 8 (Dec. 2003)
RECENT INDIVIDUAL QUI TAM CASES:
State of Texas ex rel. Dr. Ellis v. All Smiles et al., Cause No. D-1-GV-12-000863, 126th Judicial District, Travis County, Texas (the State of Texas intervened in Dr. Ellis’ qui tam Medicaid fraud lawsuit in which the defendants billed Medicaid approximately $160,000,000 for dental and orthodontic services). Click here for a press release. United States ex rel. Dr. Black & Dr. Montiel v. Novo Nordisk Inc. (D. Ct. Md.) (Novo Nordisk Inc., a Danish pharmaceutical manufacturer, agreed to pay $25 million plus attorney’s fees to resolve its civil liability arising from the illegal promotion of its drug, NovoSeven). Click here for the DoJ press release (June 10, 2011). United States ex rel. Dr. Good v. Treehouse Clinics et al. (W.D. Tex.) (The Treehouse Clinics agreed to pay $1.4 million plus attorney’s fees for submitting false claims to TRICARE involving the treatment of special needs children). Click here for the DoJ press release (Sep. 21, 2011). RECENT QUI TAM CASES BY WATERS & KRAUS, LLP: State of Texas ex rel. Allen Jones v. Johnson & Johnson (the Texas Medicaid fraud case settled in early 2012 for $158 million, making it Texas' largest Medicaid fraud recovery to date. It was also the first Risperdal settlement and thus had tremendous impact on other state and federal claims against Janssen. The United States Department of Justice remains in discussions to settle the federal case, and, as reported by the press, for an amount in excess of $2.2 billion). Click here for a press release on the State case. Click here for a story on the federal case.
Whistleblowers in the Age of Stimulus
TABLE OF CONTENTS I. INTRODUCTION ............................................................................................................................................. 1 A. New Developments and on the Horizon ............................................................................................... 1 B. Overview of this Article........................................................................................................................ 1 2012 UPDATE: THE WHISTLEBLOWER PROTECTION ENFORCEMENT ACT (Protection for Federal Employee Whistleblowers) .......................................................................................... 2 A. WPEA Amends the WPA ..................................................................................................................... 2 B. Protections to Federal Employees ......................................................................................................... 3 THE DODD-FRANK ACT OF 2010 ................................................................................................................ 4 A. 2012 Update .......................................................................................................................................... 4 1. Kramer v. Trans-Lux Corp. (D. Conn. Sep. 25, 2012) ............................................................ 4 2. SEC Annual Report on the Dodd-Frank Whistleblower Program ........................................... 5 3. First payment made to a whistleblower ................................................................................... 5 B. Overview of the Dodd-Frank Act’s Bounty Programs and Protections for Whistleblowers Against Reprisal .................................................................................................................................... 5 C. The SEC Whistleblower (Bounty) Incentive Program.......................................................................... 6 1. Introduction to the SEC Incentive Program (Section 922) ...................................................... 6 2. Who may File an SEC Bounty Claim ...................................................................................... 6 3. Who is Precluded from being Paid an Award .......................................................................... 7 4. No Amnesty ............................................................................................................................. 8 5. The SEC’s Administrative Process .......................................................................................... 8 6. No Right to Judicially Appeal an SEC Bounty Determination ................................................ 8 C. Interplay of SEC Whistleblower Program and Company Internal Compliance Processes ................... 8 D. New Reprisal Cause of Action for SEC Whistleblowers ...................................................................... 9 E. Resources -- Dodd-Frank Act’s SEC Bounty Programs and Protections for Whistleblowers Against Reprisal ............................................................................................................................................... 10 F. Funding of the SEC Whistleblower Program...................................................................................... 10 G. The Commodity Futures Trading Commission (CFTC) Whistleblower Bounty Program and AntiReprisal Protections for Whistleblowers............................................................................................. 10 1. Introduction to the CFTC Incentive (Bounty) Program (Section 748) .................................. 11 2. Who may File a CFTC Bounty Claim ................................................................................... 11 3. Who is Precluded from being Paid a CFTC Bounty Claim ................................................... 12 4. No Amnesty ........................................................................................................................... 12 5. The CFTC Administrative Process ........................................................................................ 12 6. Whistleblower can Judicially Appeal the Commission’s Bounty Determination .................. 13 H. Interplay of the Whistleblower Award Program and Company Internal Compliance Processes ....... 13 I. New Reprisal Cause of Action for CFTC Whistleblowers ................................................................. 13 1. Whistleblowers Protected Against Reprisal (no exhaustion of administrative remedies required) ................................................................................................................. 13 2. Arbitration Agreements Void................................................................................................. 13 J. Resources – Dodd-Frank Act’s CFTC Bounty Programs and Protections for Whistleblowers Against Reprisal .................................................................................................................................. 14 K. New Reprisal Cause of Action for Whistleblowers in the “Financial Services Industry” (Section 1059 of the Dodd-Frank Act) .............................................................................................................. 14 1. Introduction to Section 1057 of the DODD-FRANK ACT ........................................................ 14 2. Who is Covered...................................................................................................................... 14 a. Employee .................................................................................................................. 14 b. Employer ................................................................................................................... 14 3. What is Protected ................................................................................................................... 14 4. The Process (employee must exhaust administrative remedies before filing lawsuit)........... 14 a. Administrative .......................................................................................................... 14 b. Judicial ...................................................................................................................... 15 c. Burden of Proof ........................................................................................................ 15 5. Remedies ................................................................................................................................ 15
6. Arbitration Agreements Void.......................................................................................................... 15 Strengthening the Sarbanes-Oxley Act’s Whistleblower Protections ................................................. 15 1. Introduction to the Existing SOX Whistleblower Protections ............................................... 15 2. Sections 922 and 929A of the DODD-FRANK ACT “clarify” the SOX Whistleblower Claim...................................................................................................................................... 15
THE PATIENT PROTECTION AND AFFORDABLE CARE ACT OF 2009 .............................................. 16 A. Overview of the Health Care Act ........................................................................................................ 16 B. Section 1558 – Protections for Whistleblowers .................................................................................. 16 1. Introduction to Section 1558 - Scope of Coverage and Protections ...................................... 16 2. Procedure and Limitations ..................................................................................................... 16 3. Remedies ................................................................................................................................ 17 4. Arbitration Agreements Void................................................................................................. 17 C. Reporting Requirements for Federally Funded Long-Term Care Facilities – The ELDER JUSTICE ACT ..................................................................................................................................................... 17 1. Timing .................................................................................................................................... 17 2. Penalties ................................................................................................................................. 17 THE AMERICAN RECOVERY AND REINVESTMENT ACT OF 2009 (THE “RECOVERY ACT”) ..... 17 A. Introduction ......................................................................................................................................... 17 B. Retaliation Cause of Action for Whistleblowers ................................................................................ 18 1. Who is Covered...................................................................................................................... 18 2. What is Protected ................................................................................................................... 18 3. Administrative Process .......................................................................................................... 18 4. Judicial Process ...................................................................................................................... 18 5. Arbitration Agreements Void................................................................................................. 18 6. Remedies ................................................................................................................................ 18 7. Employee-Favorable Burden of Proof ................................................................................... 18 C. Additional Matters .............................................................................................................................. 19 THE CONSUMER PRODUCT SAFETY COMMISSION REFORM ACT OF 2008 ................................... 19 A. Protections for the Consumer Safety Whistleblower .................................................................................. 19 B. Who is Covered ........................................................................................................................................... 19 C. What is Protected......................................................................................................................................... 19 D. Statute of Limitations .................................................................................................................................. 19 E. Remedies ..................................................................................................................................................... 19 F. Process ......................................................................................................................................................... 19 G. Resources .................................................................................................................................................... 20 AMENDMENTS TO THE FALSE CLAIMS ACT ....................................................................................... 20 A. The Fraud Enforcement and Recovery Act of 2009.................................................................................... 20 1. Expanding protections to the retaliation cause of action (31 U.S.C. §3730(h)) .................... 20 B. The Healthcare Act...................................................................................................................................... 21 C. Section 1079A(b) of the Dodd-Frank Act ................................................................................................... 22 THE IRS WHISTLEBLOWER REWARD PROGRAM ............................................................................... 22 A. Introduction to the IRS Whistleblower Reward Program ................................................................... 26 B. Filing an IRS Informant Reward Claim .............................................................................................. 22 1. 7623(b) Awards ..................................................................................................................... 23 2. 7623(a) Claims ....................................................................................................................... 23 3. Full Disclosure ....................................................................................................................... 23 4. Eligibility to File a Claim for Award ..................................................................................... 23 5. Identity of the Whistleblower ................................................................................................ 23 C. Appealing to the U.S. Tax Court......................................................................................................... 23 D. Resources ............................................................................................................................................ 23 UNIQUE ISSUES FACING FEDERAL GOVERNMENT CONTRACTORS .............................................. 24
Introduction ........................................................................................................................................ 24 Whistleblower Protections for Contractor Employees ........................................................................ 24 1. Who and What is Protected.................................................................................................... 24 2. Procedure ............................................................................................................................... 25 3. Remedies, Enforcement, and Review .................................................................................... 25 Recent Changes to the Federal Acquisition Regulation Require Contractors to Disclose.................. 25 The Federal Awardee Performance and Integrity Information System .............................................. 25
CONCLUSION ................................................................................................................................................ 26
APPENDIX .................................................................................................................................................... Appendix 1 A. Major False Claims Act cases settled in 2010 Resolved in Fiscal Years 2010 and 2011 ..................................................................... Appendix 2 – 11 Resolved in Fiscal Year 2010 ..................................................................................... Appendix 12 - 15 B. New Anti-Retaliation Legislation that Voids Arbitration Agreements.............................. Appendix 16 C. IRS Form 211 ..................................................................................................................... Appendix 17 D. SEC Form WB-APP .......................................................................................................... Appendix 20 E. CFTC Form TCR, TIP, Complaint or Referral .................................................................. Appendix 24 F. Excerpts from the SEC Whistleblower Program Report.................................................... Appendix 30
WHISTLEBLOWERS IN THE AGE OF STIMULUS – BLOWING THE DODD-FRANK WHISTLE
I. INTRODUCTION A. New Developments and on the Horizon The period from 2007 to 2011 was a sea change for whistleblower law. The storm started in 2007 with the passage of the IRS whistleblower program and then peaked in August of 2011 with SEC’s publication of the DODD-FRANK ACT’S (DFA) Whistleblower Program regulations. For the most part, 2012 was period a relative calm on the whistleblower front. But there was some movement in 2012. On November 27, 2012, the President signed into law the WHISTLEBLOWER PROTECTION ENHANCEMENT ACT (WPEA), which provides significant protections to federal employees who report waste, fraud, and abuse. Overall, though, no significant statutory or regulatory changes occurred in the field of whistleblower law in 2012. This calm on the statutory and regulatory front will mostly likely persist through at least through 2014. Any significant changes in the law will come through the courts as the case level develops for the new whistleblower laws. On the legislative horizon are two pending whistleblower bills, both of which stand a good chance of becoming enacted. On the federal level, U.S. Senators Charles Grassley and Patrick Leahy recently introduced the CRIMINAL ANTITRUST ANTIRETALIATION ACT (CAARA), which has been referred to the Senate Judiciary Committee for review. 1 CAARA would amend THE ANTITRUST CRIMINAL PENALTY ENHANCEMENT AND REPORT ACT OF 2004, codified at 15 U.S.C. §1. CAARA would extend whistleblower protection to employees of companies engaged in criminal antitrust conduct. An employee who reports to the U.S. Department of Justice Antitrust Division any act or omission that the employee reasonably believes to be a violation of the antitrust laws is protected against retaliation by his employer. CAARA would also protect a whistleblower that reported other violations committed either in conjunction with an antitrust violation, or during an investigation by the Antitrust Division. Actionable retaliatory action includes discharge, demotion, suspension, threatening, harassing or discriminating in any other manner in the terms of employment. In contrast with other whistleblower laws (e.g., DODD-FRANK ACT), employees involved in an antitrust or related violation would be precluded from invoking the protections to
CAARA. On the state level, Texas State Senator Jose R. Rodriguez, filed Senate Bill 121 (83rd Leg.), which, if enacted, would expand the protections for governmental employees who blow the whistle. It’s interesting that the recent movement towards providing greater protections for whistleblowers is directed at government employees. The laws enacted from 2007 to 2011 have begun to bear fruit, at least for a few whistleblowers. For example, in September of 2012, the IRS paid a former UBS banker $104 million who helped uncover a massive tax fraud scheme in which Switzerland’s largest bank helped its American clients avoid paying their U.S. taxes. Interestingly, the USB whistleblower spent about two years in prison for crimes that may have contributed to the tax fraud, yet he nevertheless collected a huge bounty from the IRS. On August 2012, the SEC issued its first payment under the DFA Whistleblower Program. Compared with the IRS whistleblower reward, the DODD-FRANK ACT whistleblower reward was chicken scratch ($50,000). These payments signify that the IRS and SEC whistleblower programs are for real. Finally, consistent with recent history, whistleblowers using the qui tam provision of the FALSE CLAIMS ACT recovered billions of dollars for the United States Government. Overview of this Article This article surveys those whistleblower laws that have been enacted since 2007, most of which are related to financial fraud. This article is not a comprehensive survey of all whistleblower laws. For full disclosure, I represent whistleblowers, primarily in the fields of health care and military procurement fraud. These whistleblower laws can be divided into two categories. On one side of the ledger are the laws that protect whistleblowers from acts of reprisal by employers. An example of such a law is Section 1057 of the DODD-FRANK ACT, which protects financial services industry employees who report certain violations of the law. On the other side of the ledger are the laws, commonly called “bounty” or “informer” laws, that reward informers who presents evidence of fraud to the Government. The IRS Whistleblower Reward Program and the DODD-FRANK ACT Whistleblower Incentive Program are examples of recently enacted bounty laws. Among all of the laws surveyed in this article, the FALSE CLAIMS ACT is unique in that it is the only statute that has a qui tam provision, which permits a whistleblower to sue for himself and the Government with the entitlement to be awarded a percentage of what the Government recovers. While it may come as a surprise to many, the Federal Government has insufficient legal and B.
S. 3462, 112th Cong. (2012). 1
investigative resources to enforce the laws it passes and protect programs such as Medicare and Medicaid. Given this reality, Congress is increasingly turning to whistleblowers to root out and report fraud. The FALSE CLAIMS ACT, originally enacted during the Civil War, 2 has proven to be the Government’s most powerful and effective fraud-fighting tool. It has been hugely successful, recovering over $25 billion for the Government since 1986 (when major amendments were made to the Act). Some of the recoveries have been astronomical. On September 2, 2009, the Department of Justice announced that Pfizer agreed to settle a qui tam case for $2.3 billion, from which six whistleblowers were awarded payments of more than $102 million. In October 2010, GlaxoSmithKline settled with the Department of Justice for $750 million in a qui tam case, from which the whistleblower will receive $96 million. The FALSE CLAIMS ACT, which primarily relies upon whistleblowers to bring evidence of fraud to the Government, 3 has two powerful weapons in its arsenal. First, the FALSE CLAIMS ACT allows a private person to prosecute a qui tam 4 action for
himself and on behalf of the Government against persons who commit fraud against the Government. 31 U.S.C. §§3729 et seq. The whistleblower, called a relator 5, is entitled to be rewarded between ten to thirty percent of any amounts recovered by the Government plus attorney fees and costs. 31 U.S.C. §3730(d). Second, recognizing that a whistleblower acts at his peril, the FALSE CLAIMS ACT protects whistleblowers in their employment by providing a cause of action for acts of reprisal by an employer. 31 U.S.C. §3730(h). The success of the FALSE CLAIMS ACT has encouraged Congress to place additional reliance upon whistleblowers to ensure compliance with other laws. A number of statutes have recently been enacted that allow the Government to pay a “bounty” to a whistleblower. II. 2012 UPDATE: THE WHISTLEBLOWER PROTECTION ENFORCEMENT ACT (Protection for Federal Employee Whistleblowers) A. WPEA Amends the WPA The WHISTLEBLOWER PROTECTION ENFORCEMENT ACT (WPEA) was signed into law on November 27, 2012. S. 743, Public Law No: 1121999 (112th Congress). WPEA was passed with overwhelming bipartisan support. The White House
given to the king, to the poor, or to some public use, and the other part to the informer or prosecutor, and then the suit is called a qui tam action, because it is brought by a person, “qui tam pro domino rege quam pro se ipso in hac parte sequitur.” If the king therefore himself commences this suit, he shall have the whole forfeiture. But if any one hath begun a qui tam, or popular action, no other person can pursue it; and the verdict passed upon the defendant in the first suit is a bar to all others, and conclusive even to the king himself. Qui tam enlists the public in the recovery of civil penalties and forfeitures. It rewards with a portion of the recovered proceeds those who sue in the government’s name. Qui tam lives on in federal law only in the FALSE CLAIMS ACT and in two minor examples found in patent and Indian protection laws. In Vermont Agency of Natural Resources v. United States ex rel. Stevens, the Supreme Court identified four contemporary federal qui tam statutes: the FALSE CLAIMS ACT, the PATENT ACT, and two Indian protection laws. 529 U.S. 765, 768-69 n.1 (2000), referring to 31 U.S.C. §§3729-3733; 35 U.S.C. §292; 25 U.S.C. §81; and 25 U.S.C. §201, respectively. A fifth, not identified, 26 U.S.C. §7341 (sale of untaxed, taxable property), appears to have been rarely used. One of the Indian protection statutes, 25 U.S.C. §81, has since been amended so that it no longer authorizes a qui tam action. 2
For a history of the FALSE CLAIMS ACT, see Dan L. Hargrove, Soldiers of Qui Tam Fortune: Do Military Service Members Have Standing to File Qui Tam Actions Under the False Claims Act?, 34 PUB. CONT. L.J. 45, 51-53 (2004). For the purposes of this article, “Government” means the United States Government, as opposed to other governments such as the State of Texas. While many states, Texas included, have qui tam statutes, this article focuses on federal law. See, e.g., THE TEXAS MEDICAID FRAUD PREVENTION LAW, TEX. HUM. RES. CODE §§36.00136.117 (providing for citizen qui tam actions as it relates to fraud committed against the Texas Medicaid program). “Qui tam (often shortened to Q.T.) is short for the Latin phrase qui tam pro domino rege quam pro se ipso in hac parte sequitur, which means ‘who pursues this action on our Lord the King’s behalf as well as his own.’” Vermont Agency of Natural Res. v. United States ex rel. Stevens, 529 U.S. 765, 769 n.1 (2000) (citing 3 W. BLACKSTONE, COMMENTARIES ON THE LAW OF ENGLAND 160 (1768)). A “qui tam action” is “an action brought under a statute that allows a private person to sue for a penalty, part of which the government or some specified public institution will receive; also termed “popular action.” BLACKS’S LAW DICTIONARY 1262 (7th ed. 1999). Blackstone explained qui tam as follows: More usually, these forfeitures created by statute are given at large, to any common informer; or, in other words, to any such person or persons as will sue for the same: and hence such actions are called popular actions, because they are given to the people in general. Sometimes one part is
states WPEA “amends whistleblower protections for Federal employees by: clarifying the scope of protected disclosures; tightening requirements for non-disclosure agreements; expanding the penalties imposed for violating whistleblower protections; and establishing a Whistleblower Protection Ombudsmen in certain agencies . . .” WPEA, effective December 28, 2012, amends the WHISTLEBLOWER PROTECTION ACT, 5 U.S.C §§2301(b) et seq. B. Protections to Federal Employees According the Government Accountability Project, a proponent behind the enactment of the bill, WPEA does the following: Expanded Protection for Government Wrongdoing • Disclosures of
Expanded Coverage and Fair Processes • Suspends the Federal Circuit Court of Appeals' sole jurisdiction on appellate review of the WPA in light of its consistent track record of narrowing the law's protections. (The Court has a 3-226 record from October 1994 – May 2012 against whistleblowers for decisions on the merits), restoring all-Circuit review for a two-year experiment as mandated in the original 1978 Civil Service Reform Act and the Administrative Procedures Act. (Sec. 108) Establishes explicit whistleblower protections for Transportation Security Administration employees. (Sec. 109) Overturns an unusual Merit Systems Protection Board (MSPB) practice that allows agencies in some cases to present their defense first and allows the MSPB to rule on the case prior to the whistleblowers' presenting their evidence of retaliation. (Sec. 114) Requires that the President's exercise of his discretionary power to impose national security exemptions that deprive employees of Title 5 whistleblower rights must be done prior to the challenged personnel action. (Sec. 105) Provides compensatory damages for prevailing whistleblowers under WPA cases that prevail after an administrative hearing, (Sec. 107(b)), including retaliatory investigations (Sec. 104(c)).
Closes judicially-created loopholes that had removed protection for the most common whistleblowing scenarios and left only token rights (e.g. only providing rights when whistleblowers are the first to report misconduct, and only if it is unconnected to their job duties). (Sec. 101, 102) Clarifies that whistleblowers are protected for challenging the consequences of government policy decisions. (Sec. 101, 102) Cancels the 1999 precedent that translates "reasonable belief" to require irrefragable proof ("undeniable, uncontestable, or incontrovertible proof") before they are eligible for protection. (Sec. 103) Protects government scientists who challenge censorship. (Sec. 110) Codifies and provides a remedy for the "Anti-Gag" Statute – a rider in the Appropriations bill for the past 24 years – that requires a statement notifying employees that agency restrictions on disclosures are superseded by statutory rights to communicate with Congress, whistleblower rights, and other statutory rights and obligations. (Sec. 104(a), (b) and 115) Clarifies that protection of critical infrastructure information does not override WPA protection. (Sec. 111)
Administrative Authorities • Provides the Office of Special Counsel (OSC) with authority to file friend-of-thecourt briefs to support employees appealing MSPB rulings. (Sec. 113) Makes it easier for OSC to discipline those responsible for illegal retaliation by modifying the burdens of proof (Sec. 106(b)), and by ending OSC liability for attorney fees of government managers, if the OSC does not prevail in a disciplinary action (Sec. 107(a)).
Requires the designation of Whistleblower Protection Ombudsmen in Inspectors General Offices to educate agency personnel about whistleblower rights. (Sec. 117) Requires the MSPB to report on the outcomes of whistleblower cases, from the administrative judge through the Board appeal, in its annual reports. (Sec. 116(b)) Requires the Government Accountability Office (GAO) to study the impact and feasibility of changes in the number and outcome of cases before the MSPB, the Federal Circuit, or any other court; and to provide recommendations to Congress regarding whether the MSPB should be granted summary judgment authority and whether district courts should have jurisdiction over some WPA cases. (Sec. 116)
III. THE DODD-FRANK ACT OF 2010 A. 2012 Update Further below I discuss the whistleblower provisions of the DODD-FRANK ACT and the SEC’s Whistleblower Program regulations, which were published on August 12, 2011. Immediately below I discuss more recent developments, which are: 1) the first judicial opinion interpreting the DODD-FRANK ACT’s whistleblower provision has been published; 2) the SEC published its first Annual Report; and 3) the SEC has made its first payment to a whistleblower. Kramer v. Trans-Lux Corp. (D. Conn. Sep. 25, 2012) Facts: On September 25, 2012, District Court for the District of Connecticut denied a motion to dismiss and rejected a narrow interpretation of the whistleblower protection provision of the DODDFRANK ACT, 15 U.S.C. §78u-6(h), and held that the DODD-FRANK ACT protects an individual who makes disclosures required or protected under the SARBANES-OXLEY ACT (SOX) or the SECURITIES EXCHANGE ACT OF 1934, as well as to those who provide information to the SEC. Kramer v. Trans-Lux Corp., No. 3:11cv1424 (D. Conn. Sept. 25, 2012). The facts: Mr. Kramer served as Trans-Lux Corporation’s VP of Human Resources and as a member of its pension plan committee. Although, the pension plan required at least three members on the committee, the committee was comprised of only Kramer and a second employee, who was Trans-Lux’s 1.
Chief Financial Officer (CFO). Kramer repeatedly told the CFO that the plan committee was required to have at least three members, which were ignored. Between 2008 and 2011, Trans-Lux failed to abide by the terms of the pension plan and amended its pension plan four times. On two of those occasions, the two-person committee approved the amendments even though the plan required approval by a three-person committee. In addition, the CFO failed to bring the 2009 amendments to the board of directors for approval as required by the plan and failed to file the 2009 amendments with the SEC. In 2011, the CFO ordered Kramer not to file a Form 10 with the Pension Benefit Guaranty Corporation notifying it of a missed contribution to the plan. This notification would have resulted in an immediate penalty to Trans-Lux. Kramer notified Trans-Lux executives of his concerns about Trans-Lux’s failure to adhere to the pension plan and failure to submit the required documents to the SEC. Kramer also contacted the board of directors’ audit committee and sent a letter to the SEC. Shortly thereafter, Trans-Lux reprimanded Kramer, subjected him to an internal investigation, removed his responsibilities, and finally terminated his employment. Kramer filed suit alleging that Trans-Lux violated DODD-FRANK ACT’S antiretaliation provision. Outcome: In its motion to dismiss, Trans-Lux argued that Kramer did not report Trans-Lux’s alleged violations in the manner required by the SEC and, therefore, did not meet the statutory definition of “whistleblower” under DODD-FRANK ACT. In response, Kramer argued for a broader definition of “whistleblower”, which would cover any individual who makes a disclosure required or protected under SOX or the SECURITIES EXCHANGE ACT OF 1934. Relying on a final rule promulgated by the SEC on August 12, 2011, the Court agreed with Kramer. The Court explained that applying a narrow reading of the DODD-FRANK ACT’S anti-retaliation provision would eviscerate the protections available to potential whistleblowers. Such a reading would be inconsistent with the stated goal of the DODD-FRANK ACT, which is “to improve the accountability and transparency of the financial system” and “create new incentives and protections for whistleblowers.” The court concluded that Kramer’s disclosures were protected under SOX because they related to violations of federal securities laws. Thus, Kramer was protected from retaliation under the DODD-FRANK ACT regardless of the manner in which he submitted his concerns to the SEC. The Court also rejected Trans-Lux’s argument that the SEC’s final rule on which the court based its decision was impermissibly broad in that it allowed potential plaintiffs to pursue under DODD-FRANK ACT retaliation claims that would otherwise be barred by
the Sarbanes-Oxley Act’s shorter 180-day statute of limitations. The court determined that because DoddFrank was intended to expand the protections found in SOX, the SEC’s final rule was consistent with the stated purpose of DODD-FRANK ACT and not impermissibly broad. Keep in mind that is just the first judicial opinion interpreting the whistleblower provisions of the DODD-FRANK ACT. We can expect several more opinions to be issued in 2013. 2. SEC Annual Report on the Dodd-Frank Whistleblower Program On November 15, 2012, the SEC published its first annual report on the Dodd-Frank Whistleblower Program. Some of the notable takeaways include: • The SEC made its first award under the new program to a whistleblower who helped the SEC stop an ongoing multimillion dollar fraud. The whistleblower received an award of 30 percent of the amount collected in the SEC's enforcement action, which is the maximum percentage payout allowed by law. The SEC received 3,001 tips, complaints, and referrals from whistleblowers from individuals in all 50 states, the District of Columbia, and the U.S. territory of Puerto Rico as well as 49 countries outside of the United States. The most common complaints related to corporate disclosures and financials (18.2 percent), offering fraud (15.5 percent), and manipulation (15.2 percent). There were 143 enforcement judgments and orders issued during fiscal year 2012 that potentially qualify as eligible for a whistleblower award. The Office of the Whistleblower provided the public with notice of these actions because they involved sanctions exceeding the statutory threshold of more than $1 million.
amount collected in an SEC enforcement action against the perpetrators of a fraud scheme, the maximum percentage payout allowed by the whistleblower law. Click here for the SEC press release. Overview of the DODD-FRANK ACT’S Bounty Programs and Protections for Whistleblowers Against Reprisal On July 21, 2010, President Obama signed into law the DODD-FRANK WALL STREET REFORM AND CONSUMER PROTECTION ACT (DODD-FRANK ACT) 73, Pub. L. No. 111-203, 124 Stat 1841, 111th Congress (July 21, 2010). The DODD-FRANK ACT is massive in scope and significantly changes the law as it relates to rewarding and protecting whistleblowers. It strengthens existing whistleblower protections and attempts to close “loop-holes” for employees in the financial services industry. Of significance is the creation of bounty programs, new anti-reprisal causes of action that can be filed against employers that retaliate against employers, and a new administrative process for the adjudication of some of those bounty and reprisal claims. The bounty provisions are not specifically qui tam actions, but do allow the Government to pay an award to an informer who presents information that leads to a financial recovery by the Government. The DODD-FRANK ACT whistleblower programs intend to shed light on company violations by providing incentives for employees to report those violations. Significantly, these programs do not require most employees to first use or to exhaust internal compliance reporting processes to receive a bounty award or protection from reprisal. Some types of employees, however, are excluded being awarded a bounty. In May and August 2011, respectively, the Securities and Exchange Commission (SEC or the “Commission”) and Commodity Futures Trading Commission (CTFC) adopted final rules to implement these whistleblower programs. Furthermore, the SEC’s new Office of the Whistleblower has launched and started listing successful enforcement actions from which whistleblowers can make claims for awards. 6 B.
The Appendices to the SEC Report are interesting and are attached at Appendix F of this article. First payment made to a whistleblower On August 21, 2012, the SEC made its first payment to a whistleblower. The SEC paid a whistleblower $50,000, which was 30 percent of the
See SEC OFFICE OF THE WHISTLEBLOWER, Claim An Award, (November 8, 2011), available at http://www.sec.gov/about/offices/owb/owb-awards.shtml
C. The SEC Whistleblower Incentive (Bounty) Program 1. Introduction to the SEC Whistleblower Incentive Program (Section 922) Section 922 of the DODD-FRANK ACT, entitled “Whistleblower Protection,” amended the SECURITIES EXCHANGE ACT of 1934 7 (SEC ACT) by creating a bounty program (the “Securities Whistleblower Incentives and Protection” program) for whistleblowers who voluntarily provide “original information” to the SEC about securities violations that result in the imposition of monetary sanctions greater than $1,000,000. 8 The bounty amount can range between ten to thirty percent of the money collected. Rather than being a qui tam action, it is a whistleblower bounty program. Congress created and has funded the SEC Investor Protection Fund to make such awards. SEC ACT at §21f(g)(1). The SEC is to use the fund for “paying awards to whistleblowers as provided.” Id. at §21f(g)(2). In addition, Section 922 enhances existing protections to whistleblowers under the SARBANESOXLEY ACT (H.R. 3763, Pub. L. 107-204, 116 Stat 745, 107th Congress July 30, 2002). Finally, Section 922 creates an entirely new whistleblower antireprisal cause of action that an employee can file in U.S. District Court against employers. The SEC’s final rules implementing Section 922 became effective on August 12, 2011. The rules define important terms and outline procedures for applying for awards and making decisions on bounty claims. Before adopting the Final Rules, the SEC considered comments from “individuals, whistleblower advocacy groups, public companies, corporate compliance personnel, law firms and individual lawyers, academics, professional associations, nonprofit organizations and audit firms” 9 One significant change based upon comments related to employee use of internal compliance processes. Although not required to use such processes, employees who first report violations through those
processes are allowed to receive additional bounty incentives. See infra. Who may File an SEC Whistleblower Bounty Claim A “whistleblower” who “voluntarily” provides “original information” may file an SEC bounty claim. SEC ACT at §21f(a)(6) (stating “’whistleblower’ means any individual who provides, or 2 or more individuals acting jointly who provide, information relating to a violation of the securities laws to [the] Commission, in a manner established by rule or regulation by the Commission.”); see also 17 C.F.R. §240.21F-2(a) (stating “[a] company or another entity is not eligible to be a whistleblower.”). A whistleblower must “voluntarily” submit original information. 17 C.F.R. §240.21F-4(a) provides that the whistleblower must submit information before a request for information to the whistleblower (or whistleblower’s representative) is made by the Commission, Congress or other authorized authority. Likewise, a whistleblower who has a legal to duty to report original information to the Commission, Congress, or other authorized authority does not “voluntarily” submit original information. Id. at §240.21F-4(a)(3). 10 The definition of “original information” 11 is important because it weeds out whistleblowers who do not base their bounty claim on first-hand or original source information. “Original information” is defined in the statute to mean information that: (A) is derived from the independent knowledge or analysis of a whistleblower; (B) is not known to the Commission from any other source, unless the whistleblower is the original source of the information; and (C) is not exclusively derived from an
To meet this $1,000,000 threshold, the SEC may also aggregate two smaller actions that arise from the same nucleus of operative facts. See 17 C.F.R. §240.21FSECURITIES AND EXCHANGE COMMISSION, FINAL RULE: IMPLEMENTATION OF THE WHISTLEBLOWER PROVISIONS OF SECTION 21F OF THE SECURITIES EXCHANGE ACT OF1934, SEC Release No. 34-64545; File No. S7-33-10 (adopted May 25, 2011) [hereafter Adopting Release]. 6
The SEC clarified that the employee (and not the employer) must have a duty to report information to preclude a whistleblower from eligibility (for failure to meet the voluntariness requirement). Furthermore, an employer cannot preclude employees from whistleblower eligibility by requiring all of them to sign a contract stating they will report violations to an authorized authority. See Adopting Release, supra note 11 at 35-36.
4(d)(2).
The term “original information” or “original source” is important to bounty statutes. For example, the FALSE CLAIMS ACT precludes certain whistleblowers from acting as qui tam relators unless they qualify as an “original source.” Such a limitation is a mechanism to weed out parasitical bounty claims or actions of which the Government has prior knowledge.
allegation made in a judicial or administrative hearing, in a governmental report, hearing, audit, or investigation, or from the news media, unless the whistleblower is a source of the information.” 12 SEC ACT at §21F(a)(3). So long as a person voluntarily provides “original information,” any person (not just an employee or insider) may file an SEC bounty claim. Id.; see also 17 C.F.R. §240.21F-8 (stating that a whistleblower must also “give the Commission information in the form and manner it requires. The procedures for submitting information and making a claim for an award are described in §240.21F-9 through §240.21F-11”) A whistleblower can file a claim pro se or with counsel; however, a whistleblower may file a bounty claim anonymously only if represented by counsel. 17 C.F.R. § 240.21F-7(b)(1). Before an award is paid, the whistleblower’s identity shall be revealed to the SEC and the SEC shall be provided any requested information about the whistleblower. Id. at §240.21F79(b)(3). Failure to do so authorizes the SEC to not pay the claim. As a practical matter and in order to be successful, most whistleblowers will want to reveal their identity in order to work hand-in-hand with the SEC. The bounty amount to be awarded is at the discretion of the SEC and should not be influenced by the balance in the Investor Protection Fund. However, the SEC is required to consider the following four factors that would increase the amount to be awarded to an SEC whistleblower. (1) the significance of the information provided by the whistleblower to the success of the covered judicial or administrative action; (2) the degree of assistance provided by the whistleblower and any legal representative of the whistleblower in a covered judicial or administrative action; (3) the programmatic interest of the Commission in deterring violations of the securities laws by making awards to whistleblowers who provide information that lead to the successful enforcement of such laws; and (4) such additional relevant factors as the Commission may establish by rule or regulation.
SEC ACT at §21F(c)(1) (“Determination of Amount of Award”). 17 C.F.R. §240.21F-6 adds additional relevant factors to the consideration of award amount. Section 240.21F-6(a) restates and further explains the criteria in the statute but also adds “participation by whistleblower in internal compliance systems” to the list. On the other hand, a whistleblower award may be reduced if the following factors are indicated: 1. 2. 3. Culpability of the whistleblower; Unreasonable reporting delay by the whistleblower; and Interference with internal compliance and reporting systems by the whistleblower.
Id. at §240.21F-6(b)(1)-(3). Finally, while not explicitly stated in the Act or its implementing regulations, the SEC is very much interested in deterring future violations. Small recoveries paid by offenders may not sufficiently deter future wrongdoing. If offenders merely get a “slap on the wrist”, then they may not be deterred from committing future bad acts. 3. Who is Precluded from being Paid an Award So long as ”original information” is voluntarily provided, any natural person may file an SEC bounty claim. However, Congress restricts the SEC from paying an award to certain people. SEC ACT at §21F(c)(2). The SEC is not authorized to pay a claim to any whistleblower who: (A) is, or was at the time the whistleblower acquired the original information submitted to the Commission, a member, officer, or employee of— (i) (ii) (iii) (iv) an appropriate regulatory agency; the Department of Justice; a self-regulatory organization; the Public Company Accounting Oversight Board; or (v) a law enforcement organization; (B) is convicted of a criminal violation related to the judicial or administrative action for which the whistleblower otherwise could receive an award under this section; (C) gains the information through the performance of an audit of financial statements required under the securities laws and for whom such submission would be contrary to the requirements of section 10A of the Securities Exchange Act of 1934 (15 U.S.C. 78j–
17 C.F.R. §240. 21F-4(b) further defines “independent knowledge” and “independent analysis.” 7
1); or (D) fails to submit information to the Commission in such form as the Commission may, by rule, require. Id. at §21F(c)(2). The SEC is also precluded from paying an award to a whistleblower who “knowingly and willfully makes any false, fictitious, or fraudulent statement or representation; or . . . uses any false writing or document knowing the writing or document contains any false, fictitious, or fraudulent statement or entry.” Id. at §21F(i). No Amnesty Although whistleblowers who engage in culpable conduct could be eligible for a bounty award, the whistleblower provisions do not provide amnesty or immunity to individuals who provide information to the SEC. Thus, the SEC may still bring an enforcement action against a whistleblower based on conduct in connection with violations of federal securities laws. 17 C.F.R. §240.21F-15. Regarding paying a whistleblower who has dirty hands, the SEC will consider the degree of culpability. The SEC Claim Procedures and Administrative Process The SEC rules provide procedures for submitting original information (17 C.F.R. §240.21F-9) and making a claim based on a successful SEC action (17 C.F.R. § 240.21F-10). The whistleblower can submit original information electronically or can mail or fax “Form TCR” (Tip, Compliant or Referral) to the SEC Office of the Whistleblower. 17 C.F.R. §240.21F-9. If there is a successful SEC action based on the whistleblower’s information, the SEC puts out a “Notice of Covered Action” on the SEC website. Id. at § 240.21F-10. The whistleblower then has 90 days to make a claim for award based on the successful commission action by filing a “Form WB-APP.” Id. After the covered action has completely concluded, the SEC evaluates bounty submissions 13 and makes a Preliminary Determination about an award. Id. at §240.21F-10(d). The whistleblower has 60 days to contest the award determination; otherwise, the preliminary determination becomes the Final Order of the SEC. Id. at §240.21F-10(h). 14
No Right to Judicially Appeal an SEC Bounty Determination Unlike the CFTC Whistleblower Incentive Program, see infra, an SEC whistleblower has no right to appeal to a U.S. District Court the denial or amount of an award by the SEC. See DODD-FRANK ACT at §922, amending SEC ACT at §21F(f) (stating “[a]ny determination made under this section, including whether, to whom, or in what amount to make awards, shall be in the discretion of the Commission.”). C. Interplay of SEC Whistleblower Program and Company Internal Compliance Processes Before adopting its final rules, the SEC received many public comments encouraging it to require that whistleblowers first report violations internally to qualify for an award. 15 Ultimately, the SEC did not include this requirement in its final rules. The SEC recognized, however, that internal compliance programs play a significant role in achieving compliance with securities laws. 16 To better incentivize whistleblowers to use internal compliance processes, the SEC made a number of changes to its final rules. These changes provide benefits to whistleblowers who first report violations internally: 1. The “Amount of Award” Benefit: A whistleblower’s voluntary participation in an entity’s internal compliance and reporting systems is a factor that can increase the amount of the (bounty) award. Conversely, a whistleblower’s interference with internal compliance and reporting is a factor that can decrease the amount of the (bounty) award. See 17 C.F.R. §240.21F-6. The “Full Credit” Benefit: If a whistleblower reports a violation internally, and that entity reports that information to the SEC, then all of the information provided by the entity to the Commission will be attributed to whistleblower in determining the award amount. See 17 C.F.R. §240.21F4(c)(3). The “Look-back Period” Benefit: A whistleblower who first reports to an entity’s internal compliance program of a possible securities law violation, and within 120 days reports to the SEC, could be an eligible whistleblower whose submission is
The SEC may request additional information relating to eligibility or satisfaction of conditions for the award. 17 C.F.R. §240.21F-10(d). If the Whistleblower objects, the Claims Review Staff will evaluate WB submission and objections and prepare a proposed final determination. Unless, any commissioner requests full review of the decision, the proposed final 8
§240.21F-10(h).
determination will be the Final Order. 17 C.F.R. See Adopting Release, supra note 10. See Adopting Release, supra note 10 at 32-34.
measured as if it had been made at the earlier internal reporting date. See 17 C.F.R. § 240.21F-4(b)(7) (this look-back period is significant for determining which whistleblower provided “original information). D. New Reprisal Cause of Action for SEC Whistleblowers that can be filed in U.S. District Court (no exhaustion of administrative remedies required) Congress created an anti-reprisal cause of action to protect whistleblowers who provide information to or assist the SEC in an investigation or judicial or administrative action that is based upon the whistleblower’s bounty claim and other protected disclosures (e.g., reports of violations of law that the SEC enforces). See DODD-FRANK ACT at §922, 17 adding Section 21F(h)(1) to the SEC ACT. The coverage of the action is broad. This provision applies to all employers, prohibits “harassment” and other acts of reprisal, permits a non-Governmental employee to file in U.S. District Court, requires no administrative pre-suit filing, and voids 18 arbitration agreements. SEC ACT at §21f(h)(1)(A). 19
The anti-reprisal protections apply to whistleblowers whether or not they qualify for an award. 17 C.F.R. § 240.21F-2(b)(ii). However, a whistleblower must have a “reasonable belief” that the information he or she provides relates to a possible securities violation to qualify for anti-reprisal protections. Id. at § 240.21F-2(b)(i). The SEC included this “reasonable belief” standard to alleviate concerns that employees could submit bad faith or frivolous claims merely to obtain protection from termination.20 Employers may not require employees to waive or limit their anti-retaliation rights under Section 21F. In its adopting release, the SEC stated “because Section 21F is codified in the Exchange Act, it is covered by Section 29(a) of the Exchange Act, which specifically provides that “[a]ny condition, stipulation, or provision binding any person to waive compliance with any provision of this title or any rule or regulation thereunder . . . shall be void.” 21 The statute of limitations for whistleblowers who allege reprisal is long. 22 A whistleblower may bring
(e) NONENFORCEABILITY OF CERTAIN PROVISIONS WAIVING RIGHTS AND REMEDIES OR REQUIRING ARBITRATION OF DISPUTES.— (1) WAIVER OF RIGHTS AND REMEDIES.—The rights and remedies provided for in this section may not be waived by any agreement, policy form, or condition of employment, including by a predispute arbitration agreement. (2) PREDISPUTE ARBITRATION AGREEMENTS.—No predispute arbitration agreement shall be valid or enforceable, if the agreement requires arbitration of a dispute arising under this section.
§922 of the DODD-FRANK ACT amends Section 21F(h) of the SEC ACT, which provides: PROTECTION OF WHISTLEBLOWERS.—(1) PROHIBITION AGAINST RETALIATION.— (A) IN GENERAL.—No employer may discharge, demote, suspend, threaten, harass, directly or indirectly, or in any other manner discriminate against, a whistleblower in the terms and conditions of employment because of any lawful act done by the whistleblower— (i) in providing information to the Commission in accordance with this section; (ii) in initiating, testifying in, or assisting in any investigation or judicial or administrative action of the Commission based upon or related to such information; or (iii) in making disclosures that are required or protected under the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7201 et seq.), the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.), including section 10A(m) of such Act (15 U.S.C. 78f(m)), section 1513(e) of title 18, United States Code, and any other law, rule, or regulation subject to the jurisdiction of the Commission. §922(c) of the DODD-FRANK ACT added 18 U.S.C. §1412A(e), which voids arbitration agreements. Here is the new statutory language: 9
§922(h)(B)(i) provides: (B) ENFORCEMENT.— (i) CAUSE OF ACTION.—An individual who alleges discharge or other discrimination in violation of subparagraph (A) may bring an action under this sub section in the appropriate district court of the United States for the relief provided in subparagraph (C). See Adopting Release, supra note 10 at 16. See Adopting Release, supra note 10 at 19-20. §922(c)(B)(iii) of the DODD-FRANK ACT provides: STATUTE OF LIMITATIONS.— (I) IN GENERAL.—An action subsection may not be brought— under this
the action up to six years after the violation of the law (SEC ACT, SARBANES-OXLEY ACT, among other laws) or three years after the date when “facts material to the right of action are known or reasonably should have been known” by the whistleblower. SEC ACT at §21F(h)(1)(B)(iii)(I). However, no action may be brought more than ten years after the date of the violation. Id. at §21F(h)(1)(B)(iii)(II). The recoverable remedies include reinstatement with seniority, back pay with interest, and compensation for any special damages sustained as a result of the discharge or discrimination, including litigation costs, expert witness fees, and reasonable attorney fees. SEC ACT at §21F(h)(1)(C). 23 E. Resources -- DODD-FRANK ACT’S SEC Bounty Programs and Protections for Whistleblowers Against Reprisal • SEC OFFICE OF THE WHISTLEBLOWER, Claim An Award, (November 8, 2011), available at http://www.sec.gov/about/offices/owb/owbawards.shtml Securities and Exchange Commission, Final Rule: Implementation of the Whistleblower Provisions of Section 21F of the Securities Exchange Act of1934, SEC Release No. 3464545; File No. S7-33-10 (adopted May 25, 2011) (available at
(aa) more than 6 years after the date on which the violation of subparagraph (A) occurred; or (bb) more than 3 years after the date when facts material to the right of action are known or reasonably should have been known by the employee alleging a violation of subparagraph (A). (II) REQUIRED ACTION WITHIN 10 YEARS.— Notwithstanding sub clause (I), an action under this subsection may not in any circumstance be brought more than 10 years after the date on which the violation occurs.
http://www.sec.gov/rules/final/2011/3464545.pdf) U.S. Security and Exchange Commission, Annual Report on Whistleblower Program (Nov. 2011) Office of Whistleblower website, available at www.sec.gov/whistleblower
Funding of the SEC Whistleblower Program As of September 30, 2011, the Fund was fully funded, with an ending balance of $452,788,043.74.
Balance of Fund at beginning of preceding fiscal year Amounts deposited into or credited to Fund during preceding fiscal year Amount of earnings on investments during preceding fiscal year Amount paid from Fund during preceding fiscal year to whistleblowers Amount disbursed to Office of the Inspector General during preceding fiscal year Balance of Fund at end of the preceding fiscal year
$451,909,854 $0.00
$451,909,854
$990,562 $0 ($112,372)
$452,788,043
§922(h)(C) provides: (C) RELIEF.—Relief for an individual prevailing in an action brought under subparagraph (B) shall include— (i) reinstatement with the same seniority status that the individual would have had, but for the discrimination; (ii) 2 times the amount of back pay otherwise owed to the individual, with interest; and (iii) compensation for litigation costs, expert witness fees, and reasonable attorneys’ fees. 10
G. The Commodity Futures Trading Commission (CFTC) Whistleblower Bounty Program and Anti-Reprisal Protections for Whistleblowers Congress established the Commodity Futures Trading Commission (CFTC) as an independent agency in 1974. The CFTC has jurisdiction to regulate commodity futures and option markets, which, over the years, have expanded from agriculture products to a much broader bundle of commodities such as the energy, agriculture, metals, financial, and livestock industries. Five commissioners, appointed by the President and approved by the Senate, administer the CFTC. Title VII (Wall Street Transparency and Accountability), Part II (Regulation of Swap Markets) of the DODD-FRANK ACT contains provisions to provide incentives and protections for another class of whistleblowers. Section 748 of the DODD-FRANK ACT amends the COMMODITY EXCHANGE ACT by adding section 23, titled “Commodity Whistleblower Incentives and Protection.” DODD-FRANK ACT at §748, Pub. L. No. 111-203, 124 Stat. 1841 (2010). As amended, Section 23 of the COMMODITY EXCHANGE ACT directs that the CFTC must pay awards, subject to certain limitations and conditions, to
whistleblowers who voluntarily provide it with original information about a violation of the COMMODITY EXCHANGE ACT, f that information leads to a successful enforcement action brought by the CFTC resulting in monetary sanctions exceeding $1,000,000. 24 The CTFC’s final rules for implementing the whistleblower provisions became effective on October 24, 2011. The Commission received more than 635 comment letters 25 addressing issues such as internal compliance programs, exclusion of certain individuals from the program, procedures for submitting and making claims, and the anti-retaliation provisions. 26 In adopting its final rules, the CFTC stated that, where appropriate and consistent with its statutory mandate, it had considered the SEC’s whistleblower rulemaking and “endeavored to harmonize” the two sets of rules. 27 As a result, many of the final rules are the same or similar to the SEC rules. Introduction to the CFTC Incentive (Bounty) Program (Section 748) Section 748 of the DODD-FRANK ACT amends the COMMODITY EXCHANGE ACT 28 and creates a bounty program for whistleblowers who provide original information to the CFTC that results in the imposition of monetary sanctions greater than $1 million. As with the SEC Whistleblower Program, the CFTC program is not a qui tam action; it is a whistleblower bounty program. The CFTC program provides: In any covered judicial or administrative action, or related action, the Commission, under regulations prescribed by the Commission and subject to subsection (c), shall pay an award or awards to 1 or more whistleblowers who voluntarily provided original information to the Commission that led to the successful enforcement of the covered judicial or administrative action, or related action, in an aggregate amount equal to— 1.
(A) not less than 10 percent, in total, of what has been collected of the monetary sanctions imposed in the action or related actions; and (B) not more than 30 percent, in total, of what has been collected of the monetary sanctions imposed in the action or related actions. See DODD-FRANK ACT at §748, to be codified at 7 U.S.C. § 23(b)(1). 29 Payments are made from the CFTC Protection Fund. Id., to be codified at 7 U.S.C. §§23(a)(2) and (g). The CFTC has the discretion to set the award amount, but the DODD-FRANK ACT lists the criteria that the CFTC should consider: • • • • The significance of the whistleblower’s information to the success of the action against the wrongdoer; The degree of the whistleblower’s assistance (as well as counsel); The CFTC’s programmatic interest in deterring violations of the COMMODITY EXCHANGE ACT; and Additional relevant factors as established by CFTC’s regulations.
Id., to be codified at 7 U.S.C. §23(c)(1)(B)(i). The CFTC “shall not take into consideration the balance of the Fund” when deciding how much to award the whistleblower. Id., to be codified at 7 U.S.C. §§23(c)(1)(B)(ii). The CTFC final rules clarify and expand on the list of criteria that the CTFC will consider in making an award. As with the SEC final rules, the CTFC added “participation in internal compliance systems” to the list of criteria that the CFTC would consider in determing whether to raise the bounty amount. 17 C.F.R. §165.9. Likewise, the rules include factors that will decrease the amount of the whistleblower’s award including: interference with internal compliance and reporting systems, culpability, and unreasonable reporting delay. Id. Who may File a CFTC Bounty Claim A “whistleblower”, who voluntarily provides “original information”, may file a bounty claim. See DODD-FRANK ACT at §748, amending §23(a)(7) of COMMODITY EXCHANGE ACT (defining
All citations are to the COMMODITY EXCHANGE ACT, which was amended by §748 of the DODD-FRANK ACT to create the CFTC whistleblower bounty program, to be codified at 7 U.S.C. §§1 et seq., 11
To meet this $1,000,000 threshold, the CTFC may also aggregate two smaller actions “that arise from the same nucleus of operative facts.” 17 C.F.R. §165.2( a)(1).
Public comments are available at http://comments.cftc.gov/PublicComments/CommentList.as px?id=916 17 C.F.R. Part 165, Background and Summary. Id. 7 U.S.C. §§1 et seq.
‘‘WHISTLEBLOWER.—The term ‘whistleblower’ means any individual who provides, or 2 or more individuals acting jointly who provide, information relating to a violation of this Act to the Commission, in a manner established by rule or regulation by the Commission.”). The limitations of “original information” 30 is important, and is defined by the COMMODITY EXCHANGE ACT at Section 23(a)(4) as information that: (A) is derived from the independent knowledge or analysis of a whistleblower; (B) is not known to the CFTC from any other source, unless the whistleblower is the original source of the information; and (C) is not exclusively derived from an allegation made in a judicial or administrative hearing, in a governmental report, hearing, audit, or investigation, or from the news media, unless the whistleblower is a source of the information. 17 C.F.R.§165.2(o)(1) provides that original information is voluntary if made prior to any request from the CFTC, Congress or any other authorized authority. Likewise, information cannot be voluntary if the whistleblower is under a pre-existing legal or contractual duty to report the violations that are the subject of whistleblower’s information. Id. at §165.2(o)(2). A Whistleblower can file a claim pro se or with counsel. Id., to be codified at 7 U.S.C. §23(d)(1). The ACT permits a whistleblower to file a bounty claim anonymously, but only if represented by counsel. Id., to be codified at 7 U.S.C. §23(d)(2)(A). Before an award is paid, the whistleblower’s identify and any other requested information shall be revealed to the CFTC. Id., to be codified at 7 U.S.C.§23(d)(2)(B). 3. Who is Precluded from being Paid a CFTC Bounty Claim Although anyone can file a bounty claim, Congress restricts the CFTC from paying an award to certain people. Id., to be codified at 7
U.S.C.§23(c)(2). No award under subsection (b) shall be made to any whistleblower who: (A) is, or was at the time the whistleblower acquired the original information submitted to the CFTC, a member, officer, or employee of— an appropriate regulatory agency; the Department of Justice; a registered entity; a registered futures association; a self-regulatory organization as defined in section 3(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)); or (vi) a law enforcement organization; (B) is convicted of a criminal violation related to the judicial or administrative action for which the whistleblower otherwise could receive an award under this section; (C) submits information to the CFTC that is based on the facts underlying the covered action submitted previously by another whistleblower; (D) fails to submit information to the CFTC in such manner deemed appropriate or required by the CFTC. No Amnesty Similar to the SEC rules, the CTFC rules clarify that the Commodity Whistleblower Incentives and Protections Program does “not provide individuals who provide information to the Commission with immunity from prosecution.” 17 C.F.R. §165.16. Thus, a whistleblower who provides false information to the CFTC may expose himself to criminal prosecution. Id., to be codified at 7 U.S.C. §23(m) (citing 18 U.S.C. §1001). Nevertheless, whistleblowers who engage in culpable conduct are not restricted from obtaining an award. The CFTC Claim Procedures and Administrative Process To submit original information to the CFTC, a whistleblower must complete a “Form TCR” and submit it online, or by fax or mail. 17 C.F.R. §165.3(a)(1)-(2). Once there is a (final) judicial or administrative action resulting in sanctions more than $1,000,000 the CFTC publishes a “Notice of Covered Action” on its website. Id. at §165.7(a). The CTFC clarifies that it “will not contact claimants directly”; thus, claimants must monitor the CFTC’s website to see if they are eligible for an award. Id. To claim an award the whistleblower must file Form WB-APP with the CTFC within 90 days. Id. 5. 4. (i) (ii) (iii) (iv) (v)
The term “original information” or “original source” is important to bounty statutes. For example, the FALSE CLAIMS ACT precludes certain whistleblowers from acting as qui tam relators unless they qualify as an “original source.” Such a limitation is a mechanism to weed out parasitical bounty claims or actions of which the Government has prior knowledge. 12
In the process of evaluating whistleblower claims and bounty amounts, the CFTC may ask for additional information from the whistleblower. Following its evaluation, the Commission sends a Final Order to the whistleblower setting forth whether claim is allowed and the award percentage. This Final Order is judicially appealable. Id. at §165.7(d). Whistleblower can Judicially Appeal the CFTC’s Bounty Determination The CFTC has the sole discretion to determine “whether, to whom, or in what amount to make awards.” Id., to be codified at 7 U.S.C.§23(f)(1). But the whistleblower may appeal that decision “to the appropriate court of appeals of the United States not more than 30 days after the determination is issued by the Commission.” Id. at §23(f)(2). The right to appeal is in direct contrast with the SEC Whistleblower program, 31 which does not permit whistleblower appeals as to amounts. H. Interplay of the Whistleblower Award Program and Company Internal Compliance Processes: In adopting its Final Rules, the CTFC also clarified that it would incentivize whistleblowers to use company internal compliance processes. The CTFC harmonized these incentives with those of the SEC. In particular, it repeated incentives offered by the SEC: 1. Amount of Award Benefit: The CTFC will consider use of internal compliance processes as a factor that positively affects the amount of the award. Conversely, the CFTC will consider interference with internal compliance processes as a factor that negatively affects the amount of the award. 17 C.F.R. §169.9(b)(4), (c)(3) The “Full Credit” Benefit: If a whistleblower reports original information internally, and that entity later reports that information to the CFTC, all of the information provided by entity to the CFTC will be attributed to the whistleblower. Id at §165.2(i)(3). 6.
or assist the CFTC in an investigation or judicial or administrative action that is based upon the whistleblower’s bounty claim. See DODD-FRANK ACT at §748, amending §23(h) of COMMODITY EXCHANGE ACT. The coverage of the action is broad. This provision applies to all employers, prohibits “harassment” and other acts of reprisal, permits a nonGovernmental employee to file in U.S. District Court, and requires no administrative pre-suit filing. Id., to be codified at 7 U.S.C. §§23(h)(1)(A) and (B). The scope of the activity protected is also large. 32 A whistleblower must bring the action no later than two years after the date of adverse personnel action. Id., to be codified at 7 U.S.C. §23(h)(1)(B)(iii). The recoverable remedies include reinstatement with seniority, back pay with interest, and compensation for any special damages sustained as a result of the discharge or discrimination, including litigation costs, expert witness fees, and reasonable attorney fees. Id. , to be codified at 7 U.S.C. §23(h)(1)(C). Similar to the SEC program, the anti-reprisal protections apply whether or not the whistleblower qualifies for an award. Likewise, to limit potential abuse, the protections apply only if the whistleblower maintains a “reasonable belief” that the information provided relates to a possible securities violation. 17 C.F.R. §165.2 (p)(2)(i). 2. Arbitration Agreements Void Section 23(h) of the COMMODITY EXCHANGE ACT and 17 C.F.R.§165.19 provide that “the rights and remedies provided for in this Part 165 [whistleblower protections] of the Commission’s regulations may not be waived by any agreement, policy, form, or condition of employment including by a predispute arbitration agreement. No predispute arbitration agreement shall be valid or enforceable, if the agreement requires arbitration of a dispute arising under this Part.”
As amended, Section 23(h)(1) of the COMMODITY EXCHANGE ACT provides: No employer may discharge, demote, suspend, threaten, harass, directly or indirectly, or in any other manner discriminate against, a whistleblower in the terms and conditions of employment because of any lawful act done by the whistleblower— (i) in providing information to the Commission in accordance with subsection(b); or (ii) in assisting in any investigation or judicial or administrative action of the Commission based upon or related to such information. 7 U.S.C. §23(h)(1). 13
New Reprisal Cause of Action for CFTC Whistleblowers 1. Whistleblowers Protected Against Reprisal (no exhaustion of administrative remedies required) Congress created an anti-reprisal cause of action to protect whistleblowers who provide information to
DODD-FRANK ACT at §922.
Resources -- DODD-FRANK ACT’S CFTC Bounty Programs and Protections for Whistleblowers against Reprisal • Commodity Futures Trading Commission 17 C.F.R. Part 165 (available at: http://www.cftc.gov/ucm/groups/public/@lrf ederalregister/documents/file/201120423a.pdf)
industries ranging from credit agencies to the banking to the mortgage industries. b. Employer Section 1057 covers employers who engage in the offering or provision of a consumer financial product or service. The scope of coverage also encompasses affiliates who provide a related material service to the employer. 3. What is Protected Section 1057(a)(1)-(4) lists the employee’s acts that will be protected. An employer may not terminate or discriminate against an employee (or the employee’s representative) who, whether in the scope of his employment duties or outside of those duties, engages in the following: • “provided, caused to be provided, or is about to provide or cause to be provided, information to the employer, the Bureau, or any State, local, or Federal, government authority or law enforcement agency relating to any violation of, or any act or omission that the employee reasonably believes to be a violation of [any law or regulation that is subject to the Bureau’s jurisdiction]; testified or will testify in any proceeding resulting from the administration or enforcement of any provision of [any law or regulating that is subject to the Bureau’s jurisdiction]; filed, instituted, or caused to be filed or instituted any proceeding under any Federal consumer financial law; or objected to, or refused to participate in, any activity, policy, practice, or assigned task that the employee reasonably believed to be in violation of [any law or regulating that is subject to the Bureau’s jurisdiction].”
K. New Reprisal Cause of Action for Whistleblowers in the “Financial Services Industry” (Section 1057 of the DODD-FRANK ACT) Title X of the DODD-FRANK ACT created the Bureau of Consumer Financial Protection (the “Bureau”). DODD-FRANK ACT at §1011. The Bureau has broad powers to “regulate the offering and provision of consumer financial products or services under the Federal consumer financial laws.” Id. Congress obviously felt so strongly about the importance of such regulation that the Bureau was bestowed the status of an executive agency. Id. Introduction to Section 1057 of the DODDFRANK ACT Section 1057 of the DODD-FRANK ACT creates a whistleblower cause of action for employees of the financial services industry. Among other things, this section protects employees who provide information reasonably believed to be a violation of the CONSUMER FINANCIAL PROTECTION ACT OF 2010 (Title X of the DODD-FRANK ACT) or any other law subject to jurisdiction of the Bureau to their employers or to the government . Section 1057 requires an employee to file a complaint with the Department of Labor (DoL) for administrative adjudication. The DoL has the authority to order broad remedies, which ultimately could be enforced by the DoL. The employee has a right to file a civil action in U.S. District Court. As with the other newly enacted whistleblower claims, Section 1057 provides a burden-shifting mechanism favorable for employees. However, Section 1057 has no qui tam or bounty provision—it is merely an antireprisal cause of action. Who is Covered Employee Section 1057(b) defines a “covered employee” to mean “any individual performing tasks related to the offering or provision of a consumer financial product or service.” As of the end of 2011, the Bureau had not published its regulations to further refine that statutory definition. Regardless, the plain language of the statute protects a broad spectrum of employees in
DODD-FRANK ACT at 1057(a)(1)-(4). The Process (employee must exhaust administrative remedies before filing lawsuit) a. Administrative An employee is required to file an administrative complaint with the Department of Labor (DoL) within 180 days after the date on which the discriminatory act occurred. DODD-FRANK ACT at §1057(c)(1)(A). The DoL is then required to investigate the complaint and notify the employer of the complaint and process. Id. at §1057(c)(1)(B). The employer then must be afforded an opportunity to respond to the complaint. But no later than 60 day after the complaint was filed, 4.
the DoL is required to issue a determination of whether the complaint has merit. Id. at §1057(c)(2)(A). A preliminary order for relief can be issued by the DoL if it determines that a violation occurred. Within 30 days of that order, either party may request a DoL hearing. Id. at §1057(c)(2)(C). Within 120 days of that hearing, the DoL is required to issue a final order and can assess the penalties discussed in a later section b. Judicial If the DoL has failed to issue a final order 210 days after complaint was filed, or within 90 days after the date of a preliminary order, the employee—but not the employer—may file a civil action in U.S. District Court seeking a de novo review. Id. at §1057(c)(4)(D). If the case is removed for such a review, either party may request a jury trial. No later than 60 days after the DoL issues a final order, either party may file a petition for review with the circuit court of appeals. Id. at §1057(c)(4)(E). Burden of Proof The employee has the initial burden of proving that his protected behavior was a “contributing factor in the unfavorable personnel action” taken against him. Id. at §§1057(c)(3)(A) and (C). The burden then shifts to the employer to prove, by clear and convincing evidence, that the same unfavorable personnel action would have been taken in the absence of the employee’s protected behavior. Id. at §1057(c)(3)(B) and (C). 5. a. Remedies The Department of Labor has the authority to assess the following penalties against the employer: • • • reinstatement of the employee to his former position, with back pay, and restore the terms and conditions of his employment; compensatory damages; and attorney fees and costs (to include expert witness fees). DODD-FRANK ACT at §1057(c)(4)(B). c.
fees. DODD-FRANK §1057(c)(4)(D)(ii). 6.
Arbitration Agreements Void Section 1057(d) makes void any agreement that requires arbitration for disputes under Section 1057, except for those that are part of a collective bargaining agreement. Finally, an employee may not waive the rights and remedies of Section 1057. Strengthening the SARBANES-OXLEY ACT’S Whistleblower Protections 1. Introduction to the Existing SOX Whistleblower Protections When enacted in 2002, the SARBANES-OXLEY ACT (SOX) contained a cause of action for whistleblowers against their employers. 18 U.S.C. §1514A. Among other areas of protection, whistleblowers were protected for reporting violations of SEC rules and regulations, federal crimes involving securities and fraud. To gain the protected status, the whistleblower was required to make a report to a federal regulatory or law enforcement agency, member of Congress, or person with supervisory authority over the whistleblower. The whistleblower had to file an administrative complaint with OSHA within 90 days after he became aware of violation. If the Department of Labor issued no final decision within 180 days, the whistleblower was permitted to file a lawsuit in U.S. District Court. For many reasons, however, few whistleblowers were actually prevailed in these actions. In an attempt to encourage whistleblowers to report SEC rules violations, Congress “clarified” the SOX antiretaliation cause of action. Sections 922 and 929A of the Dodd-Frank Act “clarifies” the SOX Whistleblower Claim In Section 929A of the DODD-FRANK ACT, Congress clarified the SOX reprisal claim by expanding the scope of coverage to employees of privately-held subsidiaries of publicly traded corporations. 33 Many SOX retaliation claims were dismissed because the publicly traded corporation actually subject to SOX regulations employed few employees. Many employees who suffered retaliation after blowing the whistle were employed by privately33
A district court has the authority to grant: • • • reinstatement with the same seniority status that the employee would have had, but for the discharge; back pay with interest; and compensation for “special damages sustained as a result of the discharge or discrimination” and litigation costs (which include attorneys fees and expert witness
Section 929A of the DODD-FRANK ACT provides: Section 1514A of title 18, United States Code, is amended by inserting ‘‘including any subsidiary or affiliate whose financial information is included in the consolidated financial statements of such company’’ after ‘‘the Securities Exchange Act of 1934 (15 U.S.C. 78o(d))’’.
held entities that were not subject to SOX. Moreover, Section 922(b) further expands SOX coverage to employees of nationally recognized statistical ratings organizations, such as Moody’s Investors Service Inc., A.M. Best Company Inc., and Standard & Poor’s Ratings Service. DODD-FRANK ACT at §922(c), amending 18 U.S.C. §1514A(a). In addition, the DODD-FRANK ACT extended the SOX reprisal claim statute of limitations from 90 to 180 days. DODD-FRANK ACT at §922(c)(1), amending 18 U.S.C. §1514A(b)(2). Whistleblowers may remove their claims to U.S. District Court and have the right to a jury trial. Id. Finally, arbitration agreements that waive the rights and remedies afforded to SOX whistleblowers are void and a court is not authorized to enforce waivers of a whistleblower’s rights under SOX. DODD-FRANK ACT §922(c), amending 18 U.S.C. §1514A(e) IV. THE PATIENT PROTECTION AND AFFORDABLE CARE ACT OF 2009 A. Overview of the HEALTH CARE ACT 2012 Update: The Supreme Court upheld the PATIENT PROTECTION AND AFFORDABLE CARE ACT. The justices’ ruling in National Federation of Independent Business v Sebelius leaves intact nearly all of the provisions of the law (with the exception of an expansion of the Medicaid program), including a series of amendments to the FALSE CLAIMS ACT that entailed both procedural and substantive changes to the statute that favored whistleblower. THE PATIENT PROTECTION AND AFFORDABLE CARE ACT OF 2009 (HEALTH CARE ACT or ACT) is a massive piece of legislation. Pub. L. No. 111-148, 124 Stat. 119 (Mar. 21, 2010). In enacting this Act, Congress continued its recent trend of relying upon whistleblowers to enforce compliance of the laws it passes. Section 1558 creates a robust whistleblower cause of action that protects employees against reprisal by employers. Section 6703 is interesting in that it makes whistle blowing mandatory for employees to report crimes committed against residents of federally funded long-term care facilities. Unlike the DODD-FRANK ACT or the IRS Whistleblower Program, however, Congress did not create a new bounty program for whistleblowers in the health care arena—more than likely because the qui tam provisions of the FALSE CLAIMS ACT have proven to be extremely effective in combating health care fraud. Section 1558 – Protections for Whistleblowers Introduction to Section 1558 - Scope of Coverage and Protections Section 1558 prohibits an employer from retaliating against an employee who blows the whistle about violations of Title I of the ACT. (Title I is B. 1.
expansive in its coverage, ranging from denial of health care insurance due to pre-existing conditions to failure to rebate excess premiums.) An employer may not “discharge or in any manner discriminate against any employee with respect to his or her compensation, terms, conditions, or other privileges of employment because the employee . . . [makes a protected report].” HEATH CARE ACT. at §1558, amending §18C(a)(2) of the FAIR LABOR STANDARDS ACT OF 1938. Protected reports include internal reports to an employer, the Federal Government, or a state attorney general about “any violation of, or any act or omission the employee reasonably believes to be a violation of [Title I of the ACT].” Id. In addition to these internal and external reports, the ACT protects an employee who “testified or is about to testify in a proceeding” related to violations of Title I of the ACT. Id. at §18C(a)(3). The ACT also protects an employee who participates or assists another in a proceeding related to violations of Title I of the ACT. Id. at §18C(a)(4). Finally, the ACT protects an employee who objects or refuses to participate in “any activity, policy, practice, or assigned task that the employee (or other such person) reasonably believed to be in violation of [the ACT] or any order, rule, regulation, standard, or ban under [the ACT]. Id. at §18C(a)(5). As it relates to this last protected activity, an employee need only show that he had a reasonable belief, even if mistaken, that a violation of Title I of the Act and its subsequent regulations and policies occurred. Procedure and Limitations Section 1558 simply incorporates the procedures, burden-shifting framework, remedies and statute of limitations set forth in the CONSUMER PRODUCT SAFETY IMPROVEMENT ACT OF 2008. Pub. L. No. 110-314 (Aug. 14, 2008), codified at 15 U.S.C. §2087(b). An employee must first exhaust his administrative remedies by filing a complaint with the Occupational Safety and Health Administration (OSHA) within 180 days of the employee becoming aware of the employer’s act of reprisal. OSHA is required to investigate the complaint and has authority to order preliminary relief, including reinstatement. Either party can appeal OSHA’s determination to the Department of Labor (DoL) for a de novo review by a DoL administrative law judge. A DoL judge does not have the authority, however, to stay an OSHA order of reinstatement. Either side can appeal the DoL judge’s decision to the DoL Administrative Review Board, and either party can appeal that decision to the circuit court of appeals in which the adverse action took place. In the alternative, if the DoL fails to issue a final decision within 120 days of the filing of the employee’s complaint, or within 90 days of receiving a written determination from OSHA, the employee can remove the claim to U.S. district court for a de 2.
novo review, and either party can request trial by jury. 15 U.S.C. §2087(b)(4). 3. Remedies An employer can be ordered to reinstate the employee and possibly be required to pay back pay with interest, “special damages,” attorney fees, litigation costs, and expert witness fees. Front (or advance) pay can be awarded where reinstatement is not feasible. THE PATIENT PROTECTION AND AFFORDABLE CARE ACT OF 2009 at §1558, incorporating 15 U.S.C. §2087(b)(4) (CONSUMER PRODUCT SAFETY IMPROVEMENT ACT OF 2008). Arbitration Agreements Void Consistent with the recent trend of voiding arbitration agreements, the HEALTH CARE ACT explicitly makes void arbitration agreements. HEALTH CARE ACT at §1558, amending §18C(b)(2) of the FLSA (providing “[t]he rights and remedies in this section may not be waived by agreement, policy, form, or condition of employment.”). C. Reporting Requirements for Federally Funded Long-Term Care Facilities – The ELDER JUSTICE ACT The ELDER JUSTICE ACT, set out in Section 6703 of the HEALTH CARE ACT, requires whistle blowing for certain activities. 34 See HEALTH CARE ACT at §6703, amending Part A of title XI of the SOCIAL SECURITY ACT. The owner or operator of a covered entity must educate its employees of their whistle blowing duties in the event of crimes committed against the facility’s residents. Specifically, for this section, a covered entity is a long-term care facility that receives at least $10,000 in federal funds per year . In turn, the facility’s employees are required to report to the Secretary of Health and Human Services and to local law enforcement “any reasonable suspicion of a crime (as defined by the law of the applicable political subdivision) against any individual who is a resident of, or is receiving care from, the facility.” Id. 4.
Timing If the events that raise suspicion result in serious bodily injury, the suspected crime must be reported immediately and not more than “2 hours after forming the suspicion.” All other suspected crimes must be reported within 24 hours. Id. at § 1150B(b)(2). Penalties Failure to report a suspected crime can expose an employee, manager, or contractor to a civil penalty of up to $300,000. Id. at § 1150B(c)(2)(A). In addition, the ELDER JUSTICE ACT prohibits retaliation against an employee “because of lawful acts done by the employee.” Id. at § 1150B(d)(1)(A). If a long-term elderly care facility were to discharge, threaten, harass, or otherwise retaliate against an employee for making or helping to make a report about a crime being committed against residents of the facility, the facility would face a civil monetary penalty of up to $200,000 or being excluded from any federal healthcare program for two years. Id. at §1150B(d)(2). V. THE AMERICAN RECOVERY AND REINVESTMENT ACT OF 2009 (THE “RECOVERY ACT”) A. Introduction The AMERICAN RECOVERY AND REINVESTMENT ACT OF 2009 (the “RECOVERY ACT”) 35 is a unique piece of legislation for many reasons. Pub. L 111-5, (February 17, 2009). In addition to the hundreds of billions of dollars in appropriations, Congress also created perhaps the most robust whistleblower protections ever. Section 1553 of the RECOVERY ACT, called the “McCaskill Amendment,” covers all persons who or entities (including state and local governments) that receive funds under the RECOVERY ACT, protects employee internal disclosures, has a burden-shifting mechanism favorable for employees, and allows for significant remedies that can be prosecuted in federal court. But the McCaskill Amendment has a limited shelf life because the RECOVERY ACT was a one-time appropriation. It should be noted that the RECOVERY ACT has no qui tam or bounty provision; such an incentive was unnecessary because the qui tam provisions of the FALSE CLAIMS ACT can be used when suing those 36 who or that submit false claims as they relate to RECOVERY ACT funds.
Such mandatory whistle blowing appears to be the trend. For example, the FEDERAL ACQUISITION REGULATION was amended, effective December 12, 2008, to require federal government contractors to disclose credible evidence of certain criminal acts and violations of the False Claims Act committed by its employees or subcontractors. See FEDERAL ACQUISITION REGULATION at ¶3.1003(a)(2) (mandating self-disclosure and providing for suspension and debarment for failure to self-disclose). See Part VIII of this article, supra. 17
Pub. L. 111-5.
States and their governmental subdivisions are immune from the FALSE CLAIMS ACT. They are, however, subject to the McCaskill Amendment and can be sued for acts of reprisal taken against their employees.
Retaliation Cause of Action for Whistleblowers 1. Who is Covered The McCaskill Amendment applies to any nonfederal employer who receives funds under the RECOVERY ACT. RECOVERY ACT at §1553(g)(4). Covered employers include contractors, subcontractors, grantees, state and local governments, and basically all other non–Federal employers who receive a contract, grant, or other payment appropriated or made available by the RECOVERY ACT. A covered employee is “an individual performing services on behalf of the employer” but does not include any federal employee or military service member. RECOVERY ACT at §1553(g)(3). 2. What is Protected Protected conduct includes a disclosure to a person with supervisory authority over the employee (i.e., internal disclosures), a State or Federal regulatory or law enforcement agency, a member of Congress, a court or grand jury, the head of a Federal agency, or an inspector general about information that the employee reasonably believes evidences: • • • • • Gross mismanagement of an agency contract or grant relating to stimulus funds; A gross waste of stimulus funds; A substantial and specific danger to public health or safety related to the implementation or use of stimulus funds; An abuse of authority related to the implementation or use of stimulus funds; or A violation of a law, rule, or regulation that governs an agency contract or grant related to stimulus funds.
retaliation claim no later than 180 days after receipt of the complaint. RECOVERY ACT at §§1553(b)(1) and (2). Within 30 days of receiving an IG’s investigative findings, the head of the appropriate agency shall determine whether there has been a violation, in which event the agency head can award the employee certain remedies. Judicial Process If an agency head has denied relief in whole or in part or has failed to issue a decision within 210 days of the filing of a complaint, the employee can bring a de novo action in federal court, which shall be tried by a jury at the request of either party. RECOVERY ACT at §1553(c)(3). Arbitration Agreements Void The McCaskill Amendment explicitly states that pre–dispute arbitration agreements do not apply to RECOVERY ACT whistleblower claims, unless such waivers are part of a collective bargaining unit. RECOVERY ACT at §§1553(d)(2) & (3). Moreover, an employee may not waive his rights and remedies provided in the McCaskill Amendment, again, unless such waivers are part of a collective bargaining unit. RECOVERY ACT at §§1553(d)(1) & (3). Remedies At the administrative level, the agency head has authority to order the employer to make whole the employee. Such an order can include: (1) reinstatement; (2) back pay; (3) compensatory damages; and (4) attorney fees and litigation costs. RECOVERY ACT at §1553(c)(2). If the employee’s action is prosecuted in federal court, then he can be awarded the same remedies. RECOVERY ACT at §1553(c)(3). Where an agency files an action in federal court to enforce an order of relief for a prevailing employee, the court may also award exemplary or punitive damages. RECOVERY ACT at §1553(c)(4). Employee-Favorable Burden Of Proof To prevail in a whistleblower action under the McCaskill Amendment, an employee need not show that the protected conduct was a significant or motivating factor in the reprisal, but instead must merely prove that the protected conduct was a “contributing factor” to the reprisal. RECOVERY ACT at §1553(c)(1). An employee need not present direct evidence of retaliatory motive by the employer, but instead can establish the “contributing factor” element through temporal proximity or by demonstrating that the decision maker knew of the protected disclosure. RECOVERY ACT at §1553(c)(1)(A)(i) and (ii). An employer can avoid liability by demonstrating the high evidentiary burden of “clear and convincing 7. 6. 5. 4.
RECOVERY ACT at §1553(a). The McCaskill Amendment specifically protects so–called “duty speech” whistleblowing such as disclosures made by employees in the ordinary course of performing their job duties. Administrative Process The employee who believes he has been improperly retaliated against must file a complaint with the inspector general (IG) for the agency that is administering the stimulus funds. RECOVERY ACT at §1553(b)(1). For example, if the Department of Transportation (DoT) is administering the funds, then the employee would file his complaint with the DoT’s IG. Unless the IG determines the action is frivolous, does not relate to covered funds, or has been resolved in another Federal or State administrative proceeding, the IG must conduct an investigation and make a determination on the merits of the whistleblower
evidence,” that the same action would have been taken in the absence of the employee engaging in protected conduct. RECOVERY ACT at §1553(c)(1)(B). C. Additional Matters 1. Section 3.907 of the FEDERAL ACQUISITION REGULATION was amended to incorporate the McCaskill Amendment, and applies to all RECOVERY ACT contracts funded in whole or in part by that Act. Contracting officers are instructed to use and include clause 52.203-15, Whistleblower Protections under the American Recovery and Reinvestment Act of 2009, in all solicitations and contracts funded in whole or in part with Recovery Act funds. The RECOVERY ACT web page is at http://www.recovery.gov/Pages/default.aspx The Federal Acquisition Regulation is at https://www.acquisition.gov/Far/.
a permanent or temporary household or residence, a school, in recreation, or otherwise. 15 U.S.C. §2052(5). C. What is Protected An employer may not discharge or in any other manner retaliate against an employee who provided, caused to be provided or was about to provide or cause to be provided to the employer, the federal government, or the attorney general of a state information relating to any violation of, or any act or omission that the employee reasonably believed to be a violation of, the CPSC ACT or any other Act enforced by the CPSC, or any order, rule, regulation, standard or ban under any such Acts. 15 U.S.C. §2087(a)(1). In addition, an employer may not discharge or in any manner retaliate against an employee for testifying, participating, or assisting in a proceeding under the laws, orders, rules, regulations, standards or bans enforced by the CPSC. Also, an employer may not discharge or in any manner retaliate against an employee who objected to or refused to participate in, any activity, policy, practice, or assigned task that he reasonably believed to be in violation of any provision of the CPSC ACT or any other Act enforced by the CPSC, or any order, rule, regulation, standard or ban under any such Acts. 15 U.S.C. §2087(a)(2-4). D. Statute of Limitations A complaint setting forth the facts and identifying the responsible party must be filed with the Secretary of Labor no later than 180 days after the date on which the violation occurs. 15 U.S.C. §2087(b)(1). Remedies A prevailing employee is entitled to: (1) reinstatement; (2) back pay; (3) compensatory damages; and (4) attorney fees and litigation costs, to include expert witness fees. 15 U.S.C. §2087(b)(3). F. Process The employee must file a complaint with the Department of Labor (DoL) within 180 days of the employee first becoming aware of the retaliatory adverse action. The Occupational Safety and Health Administration (OSHA) will investigate the claim and can order preliminary relief, including reinstatement. Either party can appeal OSHA’s determination by requesting a de novo hearing before a DoL administrative law judge. Either party may seek review of the administrative law judge’s decision before the DoL’s Administrative Review Board. Either party can appeal the Board’s decision to the appropriate circuit court of appeals. 15 US.C. § 2087(b)(5). If there is no final order issued by the E.
VI. THE CONSUMER PRODUCT SAFETY COMMISSION REFORM ACT OF 2008 A. Protections for the Consumer Safety Whistleblower Given the concerns about the safety of products intended for children, Congress enacted the CONSUMER PRODUCT SAFETY COMMISSION REFORM ACT (CPSC ACT). Pub. L. No. 110-314 (Aug. 14, 2008), codified at 15 U.S.C. § 2051 et seq. Congress created new whistleblower protections for employees of manufacturers, private labelers, distributors, or retailers of consumer products. See 15 U.S.C. §2087. Covered employees are protected from discharge or any other form of retaliation resulting from the employee’s report to the employer, the Federal Government, or a state attorney general of information relating to any violation of statutes or regulations enforced by the U.S. Consumer Product Safety Commission (CPSC). Who is Covered The CPSC regulates about 15,000 types of consumer products used in the home, schools and recreation. THE CPSC ACT covers employees of consumer product manufacturers, importers, private labelers (owners of a brand or trademark on the private label of a consumer product), distributors, and retailers. 15 U.S.C. §2087(a). A "consumer product," as defined under the CONSUMER PRODUCT SAFETY ACT, generally means any article, or component part thereof, produced or distributed: (i) for sale to a consumer for use in or around a permanent or temporary household or residence, a school, in recreation, or otherwise, or (ii) for the personal use, consumption or enjoyment of a consumer in or around B.
Secretary of Labor within 210 days from the date the complaint was filed, then the employee can remove the case to U.S. District Court. 15 U.S.C. § 2087(b)(4). The CPSC ACT whistleblower must prove, by a preponderance of the evidence, that (1) he engaged in protected conduct; (2) the employer knew that the employee had engaged in protected conduct; (3) the employer took adverse action against the employee; and (4) the protected conduct contributed to the employer’s decision to take an adverse action. 15 U.S.C. § 2087(b)(2)(B). G. Resources • • The CPSIA web page: http://www.cpsc.gov/about/cpsia/cpsia.html The U.S. Department of Labor, OSHA, The Whistleblower Protection Program web page, is at: https://iforms.oshaslc.gov/dep/oia/whistleblower/consumerproduct-industry-employees.html The OSHA office for Texas is in Dallas, phone number (972) 850-4145.
discovery tools, 40 the FALSE CLAIMS ACT is the Federal Government’s most effective fraud fighting tool. Since 2009, Congress has amended the FALSE CLAIMS ACT in three separate pieces of legislation. The most significant change to the FALSE CLAIMS ACT occurred in 2009 with the enactment of THE FRAUD ENFORCEMENT AND RECOVERY ACT of 2009. Then, in 2010, using the HEALTH CARE ACT, Congress modified the “public disclosure bar” which was causing many meritorious qui tam cases to be dismissed on jurisdictional grounds. In October 2010, Congress used the DODD-FRANK ACT to provide for a three-year statute of limitations for anti-retaliation claims. A. THE FRAUD ENFORCEMENT AND RECOVERY ACT of 2009 1. Expanding Protections to the Anti-Retaliation Cause of Action (31 U.S.C. §3730(h)) THE FRAUD ENFORCEMENT AND RECOVERY ACT OF 2009 (FERA) amended the retaliation cause of action of the FALSE CLAIMS ACT. S. Res. 386, 111th Cong., Pub. L. No. 111-21, 123 Stat. 1620-25 (enacted), codified at 31 U.S.C. §3730(h). Most importantly, amendments to Section 3730(h) widen the scope of protected conduct and expand the zone of protected individuals. Prior to FERA, an employee had to prove his employer retaliated against him because he was taking steps in furtherance of a qui tam action. 41 Merely reporting fraud or violations of the FALSE CLAIMS ACT was insufficient to establish a retaliation claim. Section 3730(h) now protects an employee who is taking steps to stop fraud by, for example, making internal reports or refusing to participate in the misconduct that leads to fraud, false claims, or violations of the FALSE CLAIMS ACT. A whistleblower is no longer required to prove he was actually pursuing a qui tam action to prosecute a relation claim. Additionally, prior to FERA, courts frequently concluded that the FALSE CLAIMS ACT did not cover associational discrimination 42 and subcontractor retaliation because the parties involved did not meet the technical definition of “employees.” FERA amended Section 3730(h) to explicitly protect the
VII. RECENT AMENDMENTS TO THE FALSE CLAIMS ACT With its qui tam37 provision, 38 protections for whistleblowers, 39 and powerful investigative
See notes 3 and 4, supra. 31 U.S.C. §3730(b)-(e). 31 U.S.C. §3730(h) provides: Any employee who is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment by his or her employer because of lawful acts done by the employee on behalf of the employee or others in furtherance of an action under this section, including investigation for, initiation of, testimony for, or assistance in an action filed or to be filed under this section, shall be entitled to all relief necessary to make the employee whole. Such relief shall include reinstatement with the same seniority status such employee would have had but for the discrimination, two times the amount of back pay, interest on the back pay, and compensation for any special damages sustained as a result of the discrimination, including litigation costs and reasonable attorneys’ fees. An employee may bring an action in the appropriate district court of the United States for the relief provided in this subsection. 20
31 U.S.C. §3733 (authorizing the Attorney General, or his delegate [U.S. Attorney] to issue civil investigative demands).
See, e.g., United States ex rel. Yesudian v. Howard University, 153 F.3d 731 (D.C. 1998) (listing elements for a retaliation claims).
For example, retaliation against the family members and colleagues of those who have blown the whistle.
whistleblower’s colleagues and family members as well as contractors and agents from retaliation. Below is a redline version of the changes to Section 3730(h) made by the FERA (the blue font is new statutory language; the red font is the repealed statutory language; the black font is the language that remains the same): 31 U.S.C. §3730(h) RELIEF FROM RETALIATORY ACTIONS.—
(1) IN GENERAL.—Any employee, contractor, or agent shall be entitled to all relief necessary to make that employee, contractor, or agent whole, if that employee, contractor, or agent is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment by his or her employer because of lawful acts done by the employee, contractor, or agent on behalf of the employee or, contractor, or agent or associated others in furtherance of an action under this section, including investigation for, initiation of, testimony for, or assistance in an action filed or to be filed under this section, shall be entitled to all relief necessary to make the employee whole. Such relief other efforts to stop 1 or more violations of this subchapter. (2) RELIEF.—Relief under paragraph (1) shall include reinstatement with the same seniority status such that employee, contractor, or agent would have had but for the discrimination, 2 times the amount of back pay, interest on the back pay, and compensation for any special damages sustained as a result of the discrimination, including litigation costs and reasonable attorneys’ fees. An employee may bring an action under this subsection may be brought in the appropriate district court of the United States for the relief provided in this subsection. THE HEALTH CARE ACT Amended the “Original Source” Definition of the FALSE CLAIMS ACT THE PATIENT PROTECTION AND AFFORDABLE CARE ACT (HEALTH CARE ACT) amended the FALSE CLAIMS ACT’S definition of “original source.” H.R. 3590, 111th Cong., Pub. L. 111–148, 124 Stat. 901902, §10104(j)(2) (amending 31 U.S.C. §3730(e)(4)) (enacted on Mar. 23, 2010). This amendment expands the scope of the “original source” exception to the
“public disclosure bar” and shifts the “public disclosure bar” from a jurisdictional prohibition to a more flexible standard, with discretionary power held by the Department of Justice. Under the former language, most courts held that a qui tam case had to be dismissed if the allegations were based upon a “public disclosure” because courts considered the public disclosure bar to be jurisdictional. 43 Sources of a public disclosure were many, ranging from records requests under the FREEDOM OF INFORMATION ACT, to State criminal or civil actions, and even to news media stories. Consequently, many meritorious qui tam actions were dismissed because they were based on a “public disclosure”, as that term had been construed by the courts. Congress sought to amend the language of the public disclosure bar to prevent courts from dismissing meritorious qui tam cases under the public disclosure bar, which was jurisdictional. The amendment to Section 3730(e)(4) also narrows the definition of what constitutes publicly disclosed information and expands the scope of the original source exception. The new language expands the definition of “original source” by removing the requirement that a qui tam relator have "direct" knowledge of the facts underlying the allegations. It is now sufficient for a qui tam relator to simply have "knowledge that is independent of and materially adds to the publicly disclosed allegations . . . ." A qui tam relator's allegations can now be based on indirect or secondhand information, provided those allegations add to whatever information is already contained in the public domain. The amendment to Section 3730(e)(4) also means that a “public disclosure” resulting from a government report, hearing, audit or investigation must be from a federal government source to bar a qui tam relator's claim. Public disclosures in state or local government reports or proceedings will no longer trigger the jurisdictional bar. Finally, despite inclusion in a health care statute, the FALSE CLAIMS ACT amendment applies to all qui tam cases, not simply those involving federal health care programs. Below is the new language of Section 3730(e)(4) made by the HEALTH CARE ACT: (A) The court shall dismiss an action or claim under this section, unless opposed by the Government, if substantially the same allegations or transactions as alleged in the
See, e.g., United States ex rel. Quinn v. Springfield Terminal Ry., 14 F.3d 645 (D.C. Cir. 1994) (concluding a court would not have jurisdiction over a qui tam case where the allegations were based upon a public disclosure).
action or claim were publicly disclosed--(i) in a Federal criminal, civil, or administrative hearing in which the Government or its agent is a party; (ii) in a congressional, Government Accountability Office, or other Federal report, hearing, audit, or investigation; or (iii) from the news media, unless the action is brought by the Attorney General or the person bringing the action is an original source of the information. (B) For purposes of this paragraph, “original source'” means an individual who either (i) prior to a public disclosure under subsection (e)(4)(a), has voluntarily disclosed to the Government the information on which allegations or transactions in a claim are based, or (2) who has knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions, and who has voluntarily provided the information to the Government before filing an action under this section. C. Section 1079A(b) of the DODD-FRANK ACT Amended the FALSE CLAIMS ACT by Explicitly Providing a Three-year Statute of Limitations to bring a Retaliation Claim Section 1079A of the DODD-FRANK ACT established a three-year statute of limitations in which to file retaliation lawsuit. H.R. 4173, 111th Cong., Pub. L. No. 111-203, 124 Stat. 2079 (§1079A) (enacted), amending 31 U.S.C. §3730(h). This explicit statute of limitation brings much-needed clarity in the wake of the Supreme Court’s decision in Graham County Soil & Water Conservation Dist. v. U.S. ex rel. Wilson, 545 U.S. 409 (2005), which held that the most closely analogous state statute of limitations applies to a FALSE CLAIMS ACT retaliation claim. Finally, Section 1079A of the DODD-FRANK ACT clarified what appears to be a grammatical error in the FERA amendments. Section 3730(h) of the FALSE CLAIMS ACT now provides an employee will be protected for “lawful acts done by the employee, contractor, or agent or associated others in furtherance of an action under this section or other efforts to stop 1 or more violations of [False Claims Act].” This was a minor change. For additional information about the False Claims Act, visit www.govtfraudlawyer.com and www.govtfraudlawyer.blogspot.com.
THE IRS WHISTLEBLOWER REWARD PROGRAM A. Introduction to the IRS Whistleblower Reward Program The TAX RELIEF AND HEALTH CARE ACT of 2006 (ACT), signed into law on December 20, 2006, amended the INTERNAL REVENUE CODE to provide rewards for turning in tax cheats. 26 U.S.C. §7623. According to the IRS, the “primary purpose behind the Act was to provide incentives for people with knowledge of significant tax noncompliance to provide that information to the IRS.” 44 The new program generally requires the IRS to pay rewards to whistleblowers if the information presented substantially contributes to the collection of money by the IRS. The law created the IRS Whistleblower Office to receive, evaluate, and to determine whether to pay the whistleblower an award. It is interesting to note that the IRS has possessed the authority to pay awards to tax whistleblowers for almost a century and a half. What is now Section 7623(a) of Title 26 had its origins in an 1867 law. The original law allowed the Treasury Secretary “to pay such sums as he deems necessary for detecting and bringing to trial and punishment [a] person guilty of violating the internal revenue laws or conniving at the same.” When the law was enacted, such awards were discretionary; now such rewards are required to be paid. The IRS has funded a robust IRS Whistleblower Program. The new program focuses on cases that involve over $2 million of taxes, penalties, and interest. If the case involves an individual taxpayer, he or she must have $200,000+ of taxable income in any year at issue in the claim. The reward is from fifteen to thirty percent of the amount collected, depending upon the extent to which the whistleblower contributed to the collection. If the IRS determines that the whistleblower’s information was not the original source of information, but still contributed to the collection, the IRS can award up to ten percent of the amount collected. Informants have the right to petition the Tax Court within 30 days of receiving the IRS’s reward determination. Unlike the FALSE CLAIMS ACT, however, the whistleblower is not authorized to prosecute a claim in court if the federal government chooses to not do so. B. Filing an IRS Informant Reward Claim A whistleblower, with or without counsel, must submit his claim on an IRS Form 211 (“Application
IRS Whistleblower Office, Annual Report to Congress on the Use of Section 7623 at 2 (2009) (on file with the author). 22
for Award for Original Information). The IRS then makes a determination whether the claim meets the criteria of a Section 7623(b) whistleblower claim or, if not, if the claim meets the criteria of a Section 7623(a) detection of underpayment or fraud claim. 7623(a) claims are sent to Ogden, Utah, for determination. IRC 7623(b) claims are determined at the IRS Whistleblower Office in Washington, D.C. 7623(b) Awards: To qualify for a whistleblower award under section 7623(b), the information must: • Relate to a tax noncompliance matter in which the tax, penalties, interest, additions to tax and additional amounts in dispute exceed $2,000,000; and Relate to a taxpayer, and in the case of an individual taxpayer, one whose gross income exceeds $200,000 for at least one of the tax years in question. 1.
ability. The IRS also instructs whistleblowers to provide substantiating documentation. Eligibility to File a Claim for Award Almost any person, other than certain present or former federal employees, is eligible to file a claim for reward. See 26 C.F.R. §301.7623-1(b)(1) and (2). Those former and current employees that are barred from filing a claim include an “officer or employee of the Department of the Treasury at the time the individual came into possession of information relating to violations of the internal revenue laws, or at the time the individual divulged such information.” Id. However, “any other current or former federal employee is eligible to file a claim for reward if the information provided came to the individual's knowledge other than in the course of the individual's official duties.” Id. Finally, the claim survives the death of the whistleblower. 26 C.F.R. §301.76231(b)(3). Identity of the Whistleblower By regulation, the IRS is not allowed to reveal of the identity of the whistleblower. 26 C.F.R. §301.7623-1(e). C. Appealing to the U.S. Tax Court The TAX RELIEF AND HEALTH CARE ACT of 2006 authorized the whistleblower to appeal the IRS Whistleblower Program’s determination regarding an award to Tax Court. 26 U.S.C. §7623(b)(4). Such appeals must be filed within 30 days of the IRS Whistleblower Program’s determination. Id. In mid2010, the Tax Court held that it had jurisdiction to review a Tax Whistleblower Office decision to decline to pursue a whistleblower’s claim for a reward. See Cooper v. Commissioner, 135 T.C. No. 4 (July 9, 2010). D. Resources • The IRS Whistleblower – Informant Program web page: (http://www.irs.gov/compliance/article/0,,id =180171,00.html ) IRS Notice 2008-4 (available on the web page cited above) IRS Form 211 (available on the web page cited above or click on the link) IRS Whistleblower Office, Annual Report to Congress on the Use of Section 7623 Whistleblower – Information Regulations were codified at 26 CFR 301.7623-1. www.taxwhistleblowerblog.com Joel D. Hesch, Reward: Collecting Millions for reporting Tax Evasion (Your Complete 5. 4.
Id. at § 7623(b)(5). If the information meets the above criteria and substantially contributes to a decision by the IRS to take administrative or judicial action that results in the collection of tax, penalties, interest, additions to tax and additional amounts, then the IRS will pay an award of at least fifteen percent, but not more than thirty percent of what the IRS collects. 26 U.S.C. at § 7623(b)(1). However, similar to the original source doctrine of the FALSE CLAIMS ACT, the IRS has authority to reduce the award to ten percent if the claim is based upon specific allegations disclosed in certain public information (e.g., government audit reports). Id. at § 7623(b)(2). The IRS also has the authority to reduce the award or not give an award if the whistleblower planned and initiated the actions that led to the tax underpayment. Id. at § 7623(b)(3). 7623(a) Claims: If the whistleblower’s information submitted under the IRS Form 211 does not meet the criteria of Section 7623(b), the IRS Whistleblower Office will send the claim to Ogden, Utah, for processing as a potential Section 7623(a) claim, which relates to detection of underpayment of taxes and fraud. Full Disclosure If available information is withheld, the whistleblower bears the risk such information may not be considered by the Whistleblower Office in making any award determination. If documents or supporting evidence are known to the whistleblower but are not in his possession, the whistleblower must describe the documents and identify their location to the best of his
Guide to the IRS Whistleblower’s Reward Program) (ISBN 978-0-9819357-2-0 published by LU Books, available at Amazon.com) http://taxprof.typepad.com/
IX. UNIQUE ISSUES FACING FEDERAL GOVERNMENT CONTRACTORS A. Introduction Federal Government contracting (primarily military and NASA) has historically been big business for Texas. Texas has some of the most important and largest military installations in the Department of Defense’s inventory, all of which award billions of dollars in contracts. 45 Major defense contractors (such as Raytheon, AT&T, Halliburton, KBR, Valero, Texas Instruments, among dozens of others) are headquartered or have a substantial presence in Texas,. 46 These contractors employ thousands of Texans. Most recently, Texas did well in the latest round of Base Realignment and Closure (BRAC), resulting in tens of thousands of service members, civil service employees, and contractors and their employees relocating to various military installations and cities in Texas. Given the large presence of this industry in Texas, employment lawyers should be knowledgeable about the unique whistleblowing rules that apply to Government contractors. Government contractors are prohibited from retaliating against their employees who engage in whistleblowing. Perhaps most significant is that the FEDERAL ACQUISITION REGULATION was amended (effective December 12, 2008) to require Government contractors to self report to the Government certain crimes and violations of the FALSE CLAIMS ACT committed by their employees and subcontractors—a contractor’s failure to do so could be the basis for a ban from contracting with the Government. Moreover, the Government is now “keeping score.” The Government created a new database entitled the Federal Awardee Performance and Integrity Information System (FAPIIS). The
For example, El Paso has Fort Bliss. Killeen has Fort Hood (the world’s largest military installation). San Antonio, which calls itself “Military City USA,” has Fort Sam Houston (headquarters for military medicine), Lackland Air Force Base (the Air Force’s largest training base), and Randolph Air Force Base (headquarters for Air Education Training Center, one of the largest commands in the Air Force). Finally, Fort Worth is home to the U.S. Army Corps of Engineers – West.
FAPIIS keeps records to determine whether contractors are “responsible” and therefore eligible for future government awards. Violations of the FALSE CLAIMS ACT or other specified statutes (including those that protect whistleblowers) is the type of information that the Government keep in the FAPIIS and uses to determine whether contractors are “responsible.” Whistleblower Protections for Contractor Employees 1. Who and What is Protected The FEDERAL ACQUISITION REGULATION (FAR) regulates some aspects of the employment relationship between a federal Government contractor and its employees. FAR protection for whistleblowers implements 10 U.S.C. §2409 and 41 U.S.C. §265, as amended by Sections 6005 and 6006 of the FEDERAL ACQUISITION STREAMLINING ACT OF 1994 (Pub. L. 103-355). It is not always clear, however, if the FAR applies to a particular employment situation. Some companies, for example, do only Government work. In that scenario, the FAR and its protections for whistleblowers will likely apply to the contractor, depending on its size or contracts. Other contractors do business with the Government and the private sector. In that scenario, it is not always clear if the FAR regulates the employment relationship between the contractor and all of its employees. Regardless, it should be assumed that the FAR protects employees of Government contractors who blow the whistle. The FAR provides that “Government contractors shall not discharge, demote or otherwise discriminate against an employee as a reprisal for disclosing information to a Member of Congress, or an authorized official of an agency47 or of the Department of Justice 48, relating to a substantial violation of law related to a contract (including the competition for or negotiation of a contract).” FAR 3.903. Internal disclosures are not protected. See 10 U.S.C. §2409; 41 U.S.C. §265. B.
FAR 3.901 defines “’Authorized official of an agency” [to mean] an officer or employee responsible for contracting, program management, audit, inspection, investigation, or enforcement of any law or regulation relating to Government procurement or the subject matter of the contract.” FAR 3.901 defines “’Authorized official of the Department of Justice’” [to mean] any person responsible for the investigation, enforcement, or prosecution of any law or regulation.” 24
See www.fedspending.org for searchable databases about individuals or organizations receiving federal contracts.
Procedure The FAR provides that an employee who believes he was discriminated against because of his protected whistleblowing may file a complaint with the Inspector General (IG) 49 of the agency that awarded the contract. FAR 3.904(a). In the complaint, the employee must identify the “substantial violation of law giving rise to the disclosure; the nature of the disclosure giving rise to the discriminatory act; and the specific nature and date of the reprisal.” FAR 3.904(b). Unfortunately, no statute of limitations is set out. If the IG determines the complaint merits further investigation, then the IG must conduct an investigation and issue a written report to the agency head. FAR 3.905(b). Both the contractor and employee are entitled to a copy of the report, and have 30 days to submit a written response to the head of the agency. FAR 3.904(c) and (d). Upon accepting the IG’s report, the agency head has authority to order the contractor to take certain actions. The employee, however, has no private cause of action that can be prosecuted in an administrative court or in U.S. District Court. Remedies, Enforcement, and Review An agency head who determines a contractor violated FAR 3.903 has the authority to: (1) Order the contractor to take affirmative action to abate the reprisal. (2) Order the contractor to reinstate the person to the position that the person held before the reprisal, together with the compensation (including back pay), employment benefits, and other terms and conditions of employment that would apply to the person in that position if the reprisal had not been taken. (3) Order the contractor to pay the complainant an amount equal to the aggregate amount of all costs and expenses (including attorney fees and expert witnesses’ fees) that were reasonably incurred by the complainant for, or in connection with, bringing the complaint regarding the reprisal. 3.
FAR 3.906(a). If the contractor fails to comply with the agency head’s order, then the agency head “shall request the Department of Justice to file an action for enforcement of such order in the United States district court.” FAR 3.906(b) (emphasis added). In such an action, the court may grant “appropriate relief, including injunctive relief and compensatory and exemplary damages.” Id. Within 60 days of the agency head’s order, either party “may obtain review of the order’s conformance with the law, and this subpart, in the United States Court of Appeals for a circuit in which the reprisal is alleged in the order to have occurred.” FAR 3.906(c). C. Recent changes to the Federal Acquisition Regulation Require Contractors to Disclose The FAR now requires, effective December 12, 2008, 50 federal Government contractors with a contract amounting to over $5,000,000 and lasting more than 120 days to timely disclose “to the Government . . . credible evidence of a violation of Federal criminal law involving fraud, conflict of interest, bribery, or gratuity violations found in Title 18 of the United States Code or a violation of the civil False Claims Act.” FAR 3.1003. A contractor’s failure to disclose can be the basis for a suspension or debarment. FAR 3.1003(a)(2). As reflected in the preamble to the FAR amendment, requiring contractors to self-report is a ”sea change” in the law. 51 One area that contractors may be required to report would be a violation of the anti-retaliation provision of the FALSE CLAIMS ACT (Section 3730(h)). As shown in Part VI of this article, the Section 3730(h) was amended to further enhance the protections for whistleblowers. To be protected, the whistleblower must merely be performing acts to stop a violation of the FALSE CLAIMS ACT. D. The Federal Awardee Performance and Integrity Information System The self-reported crimes and violations of the FALSE CLAIMS ACT made by contractors is collected by, and disseminated through, the Government Effective April 22, 2010, the FAR was amended to implement the Federal Awardee Performance and
The rule implements THE CLOSE THE CONTRACTOR FRAUD LOOPHOLE ACT, Pub. Law 110– 252, Title VI, Chapter 1. Fed. Reg. Vol. 73, No. 219 at 67069 (stating “[t]here is no doubt that mandatory disclosure is a ‘‘sea change’’ and ‘‘major departure’’ from voluntary disclosure, but DoJ and the OIGs point out that the policy of voluntary disclosure has been largely ignored by contractors for the past 10 years.”). 25
FAR ¶3.901 defines “’Inspector General’” [to mean] an Inspector General appointed under the Inspector General Act of 1978, as amended. In the Department of Defense, that is the DoD Inspector General. In the case of an executive agency that does not have an Inspector General, the duties shall be performed by an official designated by the head of the executive agency.”
Integrity Information System (FAPIIS). 75 Fed. Reg. 14059 (Mar. 23, 2010). The stated purpose of the FAPIIS is to enhance the Government’s ability to evaluate whether contractors are responsible and ethical. 52 There are four basic categories of information that a contractor must report: • Criminal Convictions: A contractor must provide information about whether it or any of its principals has, within the last five years, in connection with the award or performance of a federal contract or grant, been subject to a criminal proceeding—at the federal or state level—that resulted in a criminal conviction. Civil Liability: A contractor must provide information about whether it or any of its principals has, within the last five years, in connection with the award or performance of a federal contract or grant, been subject to a civil proceeding - at the federal or state level - that resulted in a finding of fault and liability and required payment of a monetary fine, penalty, reimbursement, restitution, or damages of $5000 or more. Administrative Proceedings: A contractor must provide information about whether it or any of its principals has, within the last five years, in connection with the award or performance of a federal contract or grant, been subject to an administrative proceeding—at the federal or state level— that resulted in a finding of fault and liability and required the payment of a monetary fine or penalty of $5,000 or more, or the payment of any reimbursement, restitution, or damages in excess of $100,000. An “administrative proceeding” is defined as a "non-judicial process that is adjudicatory in nature in order to make a determination of fault or liability." The following administrative proceedings are examples: Securities and Exchange Commission, Civilian Board of Contract Appeals, and Armed Services Board of Contract Appeals. But agency actions such as contract audits, site visits, corrective plans, or inspection of deliverables, are not administrative proceedings. Settlements: A contractor must provide information about whether, within the last five years, in connection with the award or
performance of a federal contract or grant, a federal or state criminal, civil, or administrative proceeding was disposed of by consent or compromise with an acknowledgment of fault by the contractor, if the proceeding could have led to any of the reportable events discussed above. X. CONCLUSION 2012 was a relatively tranquil period for the law regulating whistleblowing. It’s doubtful any significant changes to statutory or regulatory law will occur over the next few years. Most developments will occur through case law as the courts begin to interpret the statutes and regulations that were enacted from 2007 to 2011. The enactment of the bounty and anti-reprisal laws from 2007 through 2011 appears to be recognition by Congress that the Executive Branch cannot effectively enforce the law and protect entitlement programs from fraud such as Medicaid and Medicare. Congress is also concerned that too often individuals and businesses have run afoul of laws (such as the SECURITIES & EXCHANGE ACT) with impunity. The tremendous success of the FALSE CLAIMS ACT has encouraged Congress to further rely upon whistleblowers to ensure compliance with the law and to report fraud. Laws such as the DODDFRANK ACT and the HEALTH CARE ACT are massive in their scope. The full scope of the power and protection that the Government will bestow upon whistleblowers has yet to be determined. However, one thing is certain: Congress has unleashed whistleblowers in just about every industry. Because whistleblowers act at their peril, Congress has also sought to protect them. Most importantly, Congress has given a huge financial incentive to whistleblowers to blow the whistle by creating several bounty programs. The cocoon of protections that a whistleblower now enjoys, coupled with the financial carrot for reporting fraud, is sure to root out fraud. Perhaps the next Bernie Madoff will be turned in before it is too late, preventing the loss of many people’s life savings. Perhaps the next crooked physician who falsely bills Medicare will be stopped, saving taxpayer dollars. Whistleblowers will be a serious check and balance on malfeasance and fraud. Those organizations so inclined to commit fraud and break the law do so at their own peril with the threat that their employees have an incentive to blow the whistle on their nefarious acts.
THE DUNCAN HUNTER NATIONAL DEFENSE AUTHORIZATION ACT FOR FISCAL YEAR 2009 at §872. 26
Appendix A Major False Claims Act Cases Resolved in Fiscal Years 2010 and 2011
Company CSI Engineering, CSI Design Build, and company president Debdas Ghosal Saehan Bank Amount Date Nature of the Fraud used false statements to obtain contracts from several government agencies (HUBZone)
misrepresented or withheld information to induce the SBA to fund a loan under the SBA’s 504 loan $2,200,000.00 10/4/2010 program engaged in improper conduct with respect to six contracts between the College and the Veterans 10/4/2010 Affairs Medical Center in White River Junction, Vermont 10/6/2010 billed Medicare for ineligible costs and expenses and failed to disclose overpayments
Dartmouth College $275,000.00 Christus Health Systems $970,987.00 40 Pharmaceutical Companies Edward J. Quinn $395,000.00 McKesson Corporation
published inflated prices for prescription drugs, which caused the overpayment of millions of $82,000,000.00 10/6/2010 dollars in drug costs improperly billing Medicare for uncovered thoracic electrical bioimpedance tests
$24,000,000.00 10/18/2010 Quicksort, Inc., Quicksort LA Inc., and Quicksort Sacramento Inc. ELA Medical, Inc $10,000,000.00 10/25/2010 GlaxoSmithKline (and subsidiary SB Pharmco Puerto Rico Inc) Rocky Mountain Instrument Company (RMI),
$4,200,000.00 10/20/2010
$600,000,000.00 10/26/2010
caused prime defense contractors to submit false claims for payment to the Pentagon and engaged $1,000,000.00 10/29/2010 in the illegal export of sensitive technical data
knowingly submitted false claims to Medicare for chemical dependency and psychiatric patient $5,150,000.00 11/3/2010 services performed between 1991 and 1997 overbilled the U.S. government in connection with international contracts for work on behalf of $46,500,000.00 11/5/2010 the United States Agency for International Development (USAID) and the U.S. Department of Defense reported false and inflated prices to drug industry price reporting services $2,600,000.00 11/8/2010 violated the False Claims Act, the Anti-Kickback Act, and the Stark Law when it entered into a $22,000,000.00 11/9/2010 series of professional services contracts with MidAtlantic Cardiovascular Associates (MACVA) violated the competitive bidding rules of the Federal Communications Commission’s E-Rate $16,250,000.00 11/10/2010 Program used false statements to obtain a contract from the Department of Veterans Affairs. (HUBZone)
CFP Group and company president Roberto Clark Ameritox, Ltd
paid kickbacks to providers to induce them to $16,300,000.00 11/16/2010 refer Medicare business
Four student aid lenders violated the False Claims Act by improperly (Nelnet Inc. and Nelnet inflating their entitlement to certain interest rate Educational Loan subsidies from the U.S. Department of Education. Funding Inc.; Southwest Student Services Corp.; Brazos Higher Education Authority and Brazos $57,750,000.00 11/17/2010 Higher Education Service Corp.; Panhandle Plains Higher Education Authority and Panhandle Plains Management and Servicing Corp.) Surgical Monitoring improperly billed the Medicare program for an Systems, Inc. (dba excessive number of monitoring hours and for Sentient Medical $2,768,795.00 11/17/2010 services provided to multiple patients at the same Systems) and former time. CEO, Jeffrey H. Owen American Grocers, Inc. engaged in false or fraudulent conduct by and company owner shipping food products past or near their $13,200,000.00 11/19/2010 expiration dates to United States troops stationed Samir Itani in the Middle East.
John Carlo Inc. and Angelo Iafrate Construction Company Dr. Walter Janke, Lalita Janke, and Medical Resources LLC CDI Corporation
knowingly submitted false claims related to a federally funded construction project at Detroit $1,407,000.00 11/19/2010 Wayne County Metropolitan Airport submitted false diagnosis codes $22,600,000.00 11/24/2010 wrongfully charged employees’ labor costs to purchase orders that would be reimbursed by the $1,950,000.00 11/24/2010 U.S. military. reported inflated or bogus average wholesale prices on certain drugs used to treat asthma and $3,500,000.00 11/29/2010 chronic obstructive pulmonary disease illegally distributed misbranded and adulterated drugs.
Woodhaven Pharmacy Services, Inc. (dba Remedi Seniorcare) Lockheed Martin Corporation
$1,279,575.00 12/1/2010
safety issues associated with the multi-billion dollar Deepwater contract, which was intended to 12/2/2010 provide the United States Coast Guard with a reconfigured fleet of 123-foot patrol boats
Matthew Stevens, Michelle Dahlberg, their speech therapy businesses and three hospitals in Eastern Idaho Ronald T. Lim
used unqualified aides when delivering speech therapy services to outpatients of Eastern Idaho Regional Medical Center, Madison Memorial $2,425,000.00 12/2/2010 Hospital, and Idaho Falls Recovery Center. submitted or caused to be submitted claims for payment to Medicare and the California Medicaid 12/3/2010 Program for drugs that were not dispensed to beneficiaries
Abbott Laboratories Inc., knowingly reported false and inflated prices for B. Braun Medical Inc., numerous pharmaceutical products. Roxane Laboratories Inc. $421,000,000.00 12/7/2010 (Boehringer Ingelheim Roxane Inc.) and affiliated entities Kos Pharmaceuticals, (a knowingly caused the submission of false or subsidiary of Abbott fraudulent claims for payment to federal $41,000,000.00 12/7/2010 healthcare programs in association wcholesterol Laboratories) drugs Advicor and Niaspan Northrop Grumman Corporation $5,210,000.00 12/8/2010 failed to fully disclose cohesion problems with their Advance Topcoat System to the Air Force
$214,500,000.00 12/15/2010
Dey Inc., Dey Pharma reported false prices for Albuterol Sulfate, L.P. (formerly known as Albuterol MDI, Cromolyn Sodium and Dey, L.P.) and Dey L.P. $280,000,000.00 12/20/2010 Ipratropium Bromide Inc. Ray A. Silao, M.D $92,000.00 John D. Archbold Memorial Hospital Inc. Detroit Medical Center falsely billed Medicare for Thoracic Electrical Bioimpedance (TEB) tests by falsely representing 12/22/2010 that the patients receiving the tests met applicable Medicare coverage requirements made false representations to the Georgia Department of Community Health.
$13,900,000.00 12/22/2010
violated the False Claims Act, the Anti-Kickback Statute and the Stark Statute, by engaging in $30,000,000.00 12/30/2010 improper financial relationships with referring physicians. improperly billed the federal health care programs for services were not medically $2,200,000.00 12/30/2010 necessary or covered. submitted false claims to Medicare. (kyphoplasty)
St. John's Mercy Health Care and St. John's Health System, Inc Seven Hospitals
$6,300,000.00 MSO Washington, Inc and Charles Plunkett
submitted claims to Medicare and Medicaid for reimbursement for medically unnecessary $565,000.00 1/7/2011 services; services lacking proper documentation; upcoded services; and services that were never rendered submitted false claims in connection with the General Services Administration’s Multiple $6,250,000.00 1/13/2011 Award Schedule program submitted false claims for Medicaid reimbursement after improperly inflating expense $18,000,000.00 1/18/2011 reports knowingly and intentionally used post-market studies and a patient registry as means to pay $16,000,000.00 1/20/2011 kickbacks to induce participating physicians to implant St. Jude pacemakers and implantable cardioverter defibrillators (ICDs) in their patients. conspired to submit false claims under a contract with the General Services Administration (GSA) $2,000,000.00 1/24/2011 in support of the Naval Oceanographic Major Shared Resource Center (NAVO MSRC) defective Zylon fiber $1,500,000.00 1/25/2011
Oracle America Inc $46,000,000.00 1/31/2011
violated the False Claims Act and the AntiKickback Act
CareSource, CareSource defrauded Medicaid by submitting false data and Management Group Co. by receiving reimbursements for health care $26,000,000.00 2/1/2011 services that were not provided and CareSource USA Holding Co Actavis Mid-Atlantic LLC and Actavls Elizabeth Senior Care Group Inc $953,375.00 Cheyenne Vision Clinic, P.C 2/10/2011 company improperly billed the federal government and the Wyoming Medicaid program 2/14/2011 for extended color vision exams inflated drug costs $2,500,000.00 2/18/2011 Catholic Healthcare West $9,100,000.00 2/18/2011 Alaska DigiTel LLC seven of its hospitals submitted false claims to Medicare overcharging the state Medicaid program $170,000,000.00 2/2/2011 defrauded the Medicare program
submitted false claims to the Federal Communications Commission’s (FCC) Low $1,556,075.00 2/22/2011 Income Support Program submitted false claims to Medicaid, through the Georgia Department of Community Health, for $13,000,000.00 2/22/2011 specialty services that were not provided denied nursing care coverage for sick children and fraudulently shifted the cost of this care to $25,000,000.00 2/24/2011 the state and federal Medicaid program submitted false claims seeking payment for phone system services to federal and state $16,500,000.00 3/4/2011 agencies...Avaya will pay $13.4 million and CIT Group will pay $3.1 million $68,500,000.00 3/10/2011 promoted its psychiatric drug Seroquel for unapproved uses
Innovative Resources Group, LLC (dba APS Healthcare Midwest) Blue Cross Blue Shield of Illinois
AstraZeneca Pharmaceuticals LP and AstraZeneca LP Medline Industries, Inc. and The Medline Foundation
paid kickbacks to hospitals and other health care providers that purchased company products under $85,000,000.00 3/11/2011 Medicare and Medicaid
$1,500,000.00 3/21/2011
employed unlicensed personnel to treat Medicare, Medicaid and Tricare patients
Occidental Petroleum knowingly underpaid royalties owed on natural Corporation, Occidental gas produced from federal leases Oil and Gas Corporation, $2,050,000.00 3/22/2011 and OXY USA Inc Rex Healthcare $1,900,000.00 Verizon Communications Inc. 4/4/2011 submitted false claims to Medicare
overcharged the General Services Administration (GSA) on invoices dealing with government$93,525,410.96 4/5/2011 wide voice and data telecommunications services contracts $9,100,000.00 billed the Army, under contracts to provide security at U.S. Army installations in Germany, 4/5/2011 for guard hours not actually worked improper billing to Medicare $380,000.00 4/11/2011 falsely represented and marketed shoe inserts for diabetic patients falsely billed Medicare for procedures for services not covered by the health care program
Rickey Kanter (Dr. Comfort) Kevin O'Brien
$27,000,000.00 4/11/2011
$98,000.00 CVS Pharmacy Inc
$17,500,000.00 4/15/2011 Cardinal Health Inc $8,000,000.00 4/21/2011 Norton Healthcare $782,842.00 Dyncorp International, LLC (and subcontractor The Sandi Group) Sunpower Inc. $1,233,829.00 4/22/2011 4/21/2011
submitted false claims related to a State Department civilian police training program in $8,700,000.00 4/22/2011 Iraq improperly billed NASA for unallowable organizational costs
improperly billed various federal health programs for services performed by resident staff exclusive $2,200,000.00 4/26/2011 of sufficient supervision by physicians false claims claims for leuprolide acetate (Lupron) injections
$447,776.00
Par Pharmaceutical Companies, Inc Duane Reade Inc.
inflated average wholesale pricing information $154,000,000.00 4/27/2011 submitted false claims to the New York Medicaid program and illegally paid doctors to prescribe 4/27/2011 more prescription drugs violated the Clean Water Act, the Hazardous Waste Management Act, and the Wetlands 5/3/2011 Protection Act misused security delay codes $8,000,000.00 5/3/2011 improperly disposed of contaminated sludge and waste water at its plants . also improperly treated 5/3/2011 and disposed of ash at its plants
$369,744.00 Innovative Resources Group, LLC (dba APS Healthcare Midwest) FedEx Corp.
Serono (Serono paid kickback to health care providers to induce Laboratories, Inc., EMD them to promote or prescribe Rebif Serono, Inc., Merck $44,300,000.00 5/4/2011 Serono S.A., and Ares Trading S.A.) Quest Diagnostics did not comply with California's "comparable charge" regulations. This resulted in $241,000,000.00 5/9/2011 overpayments by Medi-Cal, the state's Medicaid program, for laboratory testing services. Shell Oil Company $2,200,000.00 5/10/2011 Fresenius Medical Care AG (Renal Care Group, Renal Care Group Supply Company, and Fresenius Medical Care Holdings, Inc.) Areté Sleep LLC, Areté Sleep Therapy LLC and Areté Holdings LLC underpaid royalties owed on natural gas produced from federal leases
$82,600,000.00 5/26/2011
submitted false claims to Medicare $650,000.00 5/26/2011
$2,700,000.00 5/26/2011
billed Medicare for advertising costs and other related expenses that are not covered by the $12,500,000.00 6/1/2011 program fraudulently billed Medicare and Medicaid for medical services that he did not provide
Dr. Mark W. Izard $2,200,000.00 Ultralife Corporation $2,700,000.00 The City of Dallas $2,470,000.00 Midtown Imaging LLC $3,000,000.00 UCB Inc $34,000,000.00 6/9/2011 Novo Nordisk, Inc. $1,725,000.00 6/10/2011 Novo Nordisk, Inc. $25,000,000.00 6/10/2011 The Institute of International Education 6/1/2011
failed to provide current, accurate and complete cost and pricing data related to three contracts 6/2/2011 with the U.S. Army knowingly defrauded Medicare and the Texas Medicaid program by miscoding claims 6/7/2011 submitted to the programs ubmitted false claims to Medicare from 2000 through 2008 by entering into improper leasing 6/8/2011 and professional services agreements with certain referring physicians and physician groups illegal promotion of Keppra
submitted false claims for payment to the State Department in connection with the funding it $1,000,000.00 6/16/2011 received to administer the Fulbright Program knowingly submitted false claims and paid and received kickbacks relating to a contract to $4,000,000.00 6/17/2011 operate and manage mixed radioactive waste
Fluor Hanford Inc.,
Anadarko Petroleum knowingly underpaid royalties owed on natural Corporation, Kerrgas produced from federal and Indian leases McGee Corporation and $17,000,000.00 6/20/2011 their affiliates GlaxoSmithKline LLC and SB Pharmco Puerto Rico Inc. failed to comply with federal manufacturing guidelines in the production Kytril, Bactroban, $40,750,000.00 6/23/2011 Paxil and Avandamet
Pinelake Regional Hospital, LLC d/b/a Jackson Purchase Medical Center Dr. Rakesh Nathu
$998,770.74
inappropriately submitted additional charges to Medicare for certain inpatient admissions when, 6/27/2011 in fact, they should have been billed as outpatient admissions submitted false claims to federal health care programs for various radiation oncology service
$5,700,000.00 6/30/2011 Academy for Educational Development Armor Group North America Inc.and affiliates
submitted false claims to the United States Agency for International Development (USAID) 6/30/2011 in connection with contracts to provide aid in Afghanistan and Pakistan $7,500,000.00 7/7/2011 submitted false claims for payment involving a State Department contract
Major FALSE CLAIMS ACT cases settled in 2010
MAJOR FALSE CLAIMS ACT CASES RESOLVED IN FISCAL YEAR 2010 Company GlaxoSmithKline Amount $750 million Date 10/26/2010 Allegation Deceit related to product contamination and dosage irregularities at GSK’s manufacturing facility in Puerto Rico. Off-label marketing practices involving Botox
($225 million to resolve civil allegations and a $375 million criminal fine.)
($237.5 million to resolve civil allegations and a $185 million criminal fine)
($149 million to resolve civil claims, a $150 million criminal penalty, and $14 million in forfeiture).
Marketed Levothroid without FDA approval and unlawfully promoted Celexa and Lexapro for pediatric use
Improperly sold and marketed Zonegran
Inflated prices reported to Medicaid
Whistleblowers in the Age of Stimulus WellCare Health Plans $137.5 million 8/9/2010 Defrauded Medicare and Medicaid programs in several states
Mylan, AstraZeneca, and Ortho-McNeil
Companies improperly classified certain drugs to evade rebate obligations
Omnicare and IVAX Pharmaceuticals
Omnicare engaged in kickback schemes with several parties, including IVAX
Health Alliance of Greater Cincinnati and Christ Hospital
Kickbacks to doctors in exchange for referring cardiac patients to hospital
Qui Tam Actions, 2009 - 2010 53
433 new qui tam cases Over $1.95 billion recovered in settlements or judgments where the US intervened Over $33.7 million recovered in settlements or judgments where the US declined to intervene Relators recovered over $249 million where the US intervened Relators recovered over $9 million where the US declined to intervene
574 new qui tam cases Over $2.3 billion recovered in settlements or judgments where the US intervened Over $121 million recovered in settlements or judgments where the US declined to intervene Relators recovered over $385 million where the US intervened Relators recovered over $27.8 million where the US declined to intervene
The average relator award when DOJ intervened or otherwise pursued the case is between 16 and 17% of the federal portion of a FCA recovery. 54 Health and Human Services Qui Tam Actions, 2009-2010 55 The major focus of the USAO’s activities is the prosecution of health care fraud. At the end of FY 2010, 1,130 civil health care fraud matters were pending. Many of these, however, are settled without a complaint ever being filed. In FY 2010, the USAO filed or responded to 357 civil health care fraud cases, compared to 283 in the previous year. 56
279 new HHSC qui tam cases Over $1.36 billion recovered in settlements or judgments where the US intervened Over $30 million recovered in settlements or judgments where the US declined to intervene Relators recovered over $155 million where the US intervened Relators recovered over $8 million where the US declined to intervene
383 new HHSC qui tam cases Over $2 billion recovered in settlements or judgments where the US intervened Over $14 million recovered in settlements or judgments where the US declined to intervene Relators recovered over $330 million where the US intervened Relators recovered over $4 million where the US declined to intervene
http://www.justice.gov/civil/docs_forms/C-FRAUDS_FCA_Statistics.pdf http://www.taf.org/statistics.htm Id. These are actions where HHSC is “the primary client agency”
Department of Defense Qui Tam Actions, 2009-2010 57
52 new DOD qui tam cases Over $415 million recovered in settlements or judgments where the US intervened $140,000 recovered in settlements or judgments where the US declined to intervene Relators recovered over $64 million where the US intervened Relators recovered $26,600 where the US declined to intervene Non-HHS/DOD Qui Tam Actions, 2009-2010 58
56 new DOD qui tam cases Over $230 million recovered in settlements or judgments where the US intervened Over $9.19 million recovered in settlements or judgments where the US declined to intervene Relators recovered over $12 million where the US intervened Relators recovered over $2.7 million where the US declined to intervene
102 new qui tam cases Over $177 million recovered in settlements or judgments where the US intervened Over $3 million recovered in settlements or judgments where the US declined to intervene Relators recovered over $29.6 million where the US intervened Relators recovered $953,019 where the US declined to intervene
135 new qui tam cases Over $93 million recovered in settlements or judgments where the US intervened Over $73 million recovered in settlements or judgments where the US declined to intervene Relators recovered over $15.9 million where the US intervened Relators recovered over $20 million where the US declined to intervene
Boese, Civil False Claims and Qui Tam Actions, Appendix H. Boese, Civil False Claims and Qui Tam Actions, Appendix H. Appendix 14
NEW ANTI-RETALITION LEGISLATION THAT VOIDS ARBIRATION AGREEMENTS NEW LEGISLATION VOIDING ARBITRATION AGREEMENTS
DODD-FRANK ACT at §922(c) (Whistleblower Protection) DODD-FRANK ACT at §748 (Commodity Whistleblower Incentives and Protection) DODD-FRANK ACT at §1057(d) (Bureau of Consumer Financial Protection—Employee Protection for Whistleblowers) DODD-FRANK ACT at §922(c) THE PATIENT PROTECTION AND AFFORDABLE CARE ACT OF 2009 at §1558 AMERICAN RECOVERY AND REINVESTMENT ACT OF 2009 §1553 “McCaskill Amendment” (d)(1)-(3)
Amending 18 U.S.C. §1514A(e) Amending COMMODITY EXCHANGE ACT at §23(n); Proposed Rule 165.19 New law Amending 18 U.S.C. §1514A(e) - the SARBANESOXLEY ACT Amending §18C(b)(2) of the FAIR LABOR STANDARDS ACT] New law
Appendix C IRS Form 211
Appendix D SEC Form WB-APP Application for Award for Original Information Submitted Pursuant to Section 21F of the Securities Exchange Act of 1934
SEC Whistleblower Process for Determining Awards Based Upon A “Related Action”:
Appendix E CFTC Form TCR, TIP, Complaint or Referral Notice of Commodity Futures Trading Commission Proposed Rules to Implement the Whistleblower Incentives and Protections of Section 748 of the DODD-FRANK ACT
Appendix F (SEC Whistleblower Program Statistics)
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Espinosa, in Her Official Capacity as Secretary of the New Mexico Environment Department New Mexico Environment Department v. Roswell Tower, Inc. Ray Bell Leonard Talbert, 32 F.3d 491, 10th Cir. (1994)SEC Letter about Confidentiality of Documents in 9/11 Insider Trading InvestigationCommissioner Aguilar Speech on SEC Goals 2015 2.20.1510-01-31 Letter to SEC Chair Mary Schapiro Re Complaints Against Bank of America Corporation and Brian Moynihan sCybercrime Law, Cyber crime law, RA 10175Philippines_Executive Order 292 Instituting Administrative Code of 1987_1987_enUnited States v. Benjamin Lee, United States of America v. David Lee, 726 F.2d 128, 4th Cir. (1984)National Environmental Foundation v. Abc Rail Corporation, 926 F.2d 1096, 11th Cir. (1991)Salient Features of 9700All State Shops %26 Est. Acts Brief Summary (1)CASE 1Mobile Consortium of Ceta, Alabama v. United States Department of Labor, 745 F.2d 1416, 11th Cir. (1984)Administrative Code of the PhilippinesChapter 2 -Companies ActLotz Realty Co., Inc. And Paul K. Lotz v. United States Department of Housing and Urban Development Mr. William J. Pelle, Jr. Virginia Real Estate Commission Richard C. Kast, and Anti-Defamation League and Norman Olshansky, 717 F.2d 929, 4th Cir. (1983)Boarhead Corporation v. Edwin B. Erickson, Region Administrator, United States Environmental Protection Agency, Region III, 923 F.2d 1011, 3rd Cir. (1991)Dan Hargrove (SBOT 2013 Article) AboutBrowse booksSite directoryAbout ScribdMeet the teamOur blogJoin our team!Contact UsPartnersPublishersDevelopers / APIMembershipsJoin todayInvite FriendsGiftsSupportHelpFAQAccessibilityPressPurchase helpAdChoicesLegalTermsPrivacyCopyrightCopyright © 2017 Scribd Inc. .Terms of service.Accessibility.Privacy.Mobile Site.Site Language: English中文EspañolالعربيةPortuguês日本語DeutschFrançaisTurkceРусский языкTiếng việtJęzyk polskiBahasa indonesiaYou're Reading a Free PreviewDownloadAboutBrowse booksSite directoryAbout ScribdMeet the teamOur blogJoin our team!Contact UsSupportHelpFAQAccessibilityPressPurchase helpAdChoicesPartnersPublishersDevelopers / APILegalTermsPrivacyCopyrightMembershipsJoin todayInvite FriendsGiftsStay ConnectedCopyright © 2017 Scribd Inc. .Terms of service.Accessibility.Privacy.Mobile Site.Site Language: English中文EspañolالعربيةPortuguês日本語DeutschFrançaisTurkceРусский языкTiếng việtJęzyk polskiBahasa indonesiaAre you sure?This action might not be possible to undo. 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