Whistleblower in the United States
- 1 Whistleblower in the United States
- 2 False Claim
Introduction to Whistleblower Law
“Whistleblower” laws prohibit employers from retaliating against employees who turn in their employers for breaking the law. They may also include “qui tam” actions, which allow whistleblowers, to sue on behalf of the government. Typically the defendant is a government contractor and the whistleblower is a current or former employee.
In the U.S., the Federal government and most states have whistleblower laws. You can find cites to the state laws in the Employment Law Yearbook, Appendix 14B (Practicing Law Institute) and the National Survey of State Laws. The state laws themselves are available in each states statutes, and they are compiled in the Appendix to John T. Boese’s Civil False Claims and Qui Tam Actions (Aspen Publishers).
Environmentally-related whistleblower laws are usually enforced by the United States Department of Labor.
John T. Boese’s Civil False Claims and Qui Tam Actions (Aspen Publishers) is a leading whistleblower treatise.
Whistleblower Law and the SEC
by Thomas Brom (2011)
The Securities and Exchange Commission’s proposed whistleblower rules have businesses steamed–but the commission’s spotty enforcement record shows it needs all the help it can get.
In November 2010, the SEC proposed rules implementing section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub. L. 111-203), which added section 21F to the Securities Exchange Act of 1934. A brief comment period followed, during which hundreds of businesses scorched the Internet with lists of horrible outcomes should the rules become permanent.
Under the new section, the SEC could provide an award for tips related to any administrative or judicial action resulting in sanctions of more than $1 million; whistleblowers could receive anywhere from 10 to 30 percent of the amount recovered. They are not required to report allegations first through a corporate compliance program, and—if they are represented by counsel—they can make disclosures anonymously. Finally, whistleblowers would be protected from retaliation by employers.
“What’s unusual here is that the government is providing money to people who have suffered no injury to aid it in regulating the private sector,” says Sean Farhang, an assistant professor at UC Berkeley’s Goldman School of Public Policy. “Normally, people who are injured get to sue. This is regulation by bounty for bystanders.”
Farhang says the SEC’s approach is rare, but not unique. He traces the lineage of the proposed rules to the False Claims Act (31 U.S.C. §§ 3729 – 3733), a post–Civil War statute that permits private parties to sue government contractors for alleged fraud. That statute, revised in 1986, promoted the growth of a thriving qui tam plaintiffs bar. Farhang, author of The Litigation State: Public Regulation and Private Lawsuits in the U.S. (Princeton University Press, 2010), calls the resulting regulatory regime typically American: a hybrid that combines private enforcement with public administration.
“Clearly, the False Claims Act has deterred fraud against the government,” says Mark Labaton, managing partner in the Los Angeles office of Motley Rice who represents whistleblowers. “It is a significant deterrent, it saves the taxpayers money, and it [protects] consumers from unsafe products sold under government contract.”
But U.S. corporations have called the SEC’s proposed rules an open invitation to greedy lawyers and gold-digging whistleblowers. In December, the Washington, D.C.based Association of Corporate Counsel (ACC) sent the SEC a letter signed by 270 chief legal officers of U.S. corporations, demanding that the commission require whistleblowers to use existing internal compliance and reporting systems before they report any suspected wrongdoing.
Two days later, ACC general counsel Susan Hackett followed up with a technical letter outlining ten major areas of disagreement with the proposed rules. Among her main points, Hackett asked the SEC to require that prospective whistleblowers disclose any conflicts of interest they may have and comply with their employer’s corporate policy in obtaining or disclosing submitted information, and to bar rewards to individuals who engaged in the underlying misconduct or sold company stock short in the reporting period. Finally, Hackett requested that the SEC consider prohibiting whistleblowers from signing contingency fee agreements with outside counsel.
“Moving toward a bounty-hunting system will lead to the evisceration of internal reporting,” Hackett warned in an interview. “The proposed SEC rules only offer incentives for people to go outside of corporate compliance programs.”
Proponents of the new rules, however, contend that internal reporting programs are ineffective. In its comment letter last year to the SEC, the National Whistleblowers Center wrote that, based on its review of False Claims Act cases filed between 2007 and 2010, 89.7 percent of the employees who eventually filed complaints had initially reported their concerns internally—proving that an offer of rewards doesn’t discourage employees from using compliance programs.
But reporting through channels does expose employees to retaliation. The letter stated, “Since 1984, when counsel for the NWC first became involved with this issue, we are not aware of any corporation in the United States that has ever urged any federal court to protect employees who chose to file their whistleblower claims internally.”
Labaton, a former assistant U.S. Attorney, contends there is no conflict between the SEC’s proposed new rules and corporate compliance programs. “Dealing with insiders is nothing new for the SEC,” he says. “Even before it released the proposed rules, the commission was discussing how to be more receptive to tips. The reality is that often, the best information about fraud comes from people working for the company.”
Labaton also sees the human cost of whistleblowing. “There’s lots of pressure not to come forward,” he says. “It’s generally tough–you could lose your job, and you’re often blackballed. The motivations of people are often complex. Of course making money can be a factor. But remember—no whistleblower under this program is going to benefit unless the SEC can successfully build a case using their information.”
Labaton predicts that the SEC will proceed cautiously. “There’s a tremendous amount of fear out there,” he says. “But the SEC has never wanted to bring actions that weren’t justified, and it realizes public companies have competent defense lawyers and all sorts of due-process rights. It usually will weed out spurious claims very quickly.”
Whistle in the Work
In the United States, OSHA’s whistleblower statutes protect the person who reports or exposes injuries, misconduct, alleged dishonest or occurring in an entity or company from retaliation. An employer in the United States cannot retaliate by taking “adverse action” against workers who report injuries, safety or some other illegal activity.
Federal False Claims Act Whistleblowers and Forensic Accountants
By Erik Cummins. He is a San Francisco-based freelance writer and a former reporter for the San Francisco Daily Journal (2010)
Note: there is a full entry in this Encyclopedia about the Federal False Claims Act here and other related entry about the False Claims in the United States here.
In the he-said, she-said world of the False Claims Act (FCA), whistleblowers can be an unreliable lot. So instead of depending on their words alone, qui tam attorneys turn to corroborating evidence and expert witnesses to persuade the government to join their cause.
Several years ago a case against Bank of America alleged an elaborate form of bond fraud, recalls Stephanie Skaff, a partner at Farella Braun + Martel in San Francisco. With her background in finance and accounting, she worked alongside the state Attorney General’s office to represent hundreds of cities, counties, and public agencies in the case. Investigators relied on financial documents that filled a four-story building the bank rented to house the records. “They did it to show their diligence,” Skaff says.
During the investigation, the plaintiffs hired the forensic accounting firm of Hemming Morse to pore over the documents. “Many false claims cases require that kind of accounting,” Skaff explains. “Generally, the allegations are about a pattern of fraud or false claims, and [the accountants] identify that pattern. So much of your case is having very good experts.”
The Bank of America case was staffed by four attorneys at Farella Braun and a number of others at the AG’s office. It settled in 1998 for $187.5 million – one of the largest recoveries ever under the California False Claims Act (state ex rel. Stull v. Bank of America, No. 968484 San Francisco Super. Ct. settlement order filed Mar. 19 , 1999).
Defense counsel also commonly rely on forensic accountants and other experts in these cases, says Nicola T. Hanna, a white- collar defense attorney at the Irvine office of Gibson Dunn & Crutcher. A certain case, he says, may call for someone skilled in the nuances of regulatory compliance, or with a background in medical coding and off-label drug use. In addition, Gibson Dunn uses statisticians who can analyze and interpret sample documents from large discovery requests, as well as experts in government contracts and damages valuation.
The range of expert resources is so wide because false claims allegations run the gamut from “cooking the books, to people who fail to perform what they are supposed to perform and then lie about it, to people selling shoddy material,” explains Robert L. Vogel, a qui tam attorney at Vogel, Slade & Goldstein in Washington, D.C. The firm often lines up former FBI and Inspector General employees to help in its investigations, he notes.
Work on internal investi-gations may begin even before the false claims complaints are unsealed, says Yvonne
Craver, a partner in Deloitte Financial Advisory Services. In fact, she says, “We start doing interviews and reviewing data” as soon as a client gets an inkling it may be subject to an investigation.
When Deloitte confronts an enormous amount of disputed data, Craver says, her team – which includes PhD-level economists – can do statistical samples “to see if anything stands out.” But electronic data isn’t always easily acces-sible. “Sometimes we pull data from an old [computer] system and put it on our [current] system,” she says. “It’s not like the old days, where we laid spreadsheets and invoices out on the table.”
To accommodate an anticipated flood of new cases in the next few years, Craver says, Deloitte – like its big-law counterparts – is “ramping up. We are looking for economists, data analytics people, people with strong database and programming skills, and government contracts people.”
Patrick McGeehin, a consultant with FTI Consulting in Florida and Maryland, has a team of 25 people that handle false claims investigations. At any given time they can be employed by defense counsel, government investigators, or qui tam attorneys. FTI also has a health care group in Atlanta focused on false claims litigation.
During an intervention proceeding, McGeehin’s team might prepare a PowerPoint presentation estimating damages – an important issue, since no case could proceed without establishing actual damages. “What you are looking for goes beyond … normal accounting,” McGeehin says.
Some FCA cases resemble accounting fraud disputes less than product liability suits, according to Mitchell S. Ettinger, a defense attorney at Skadden, Arps, Slate, Meagher & Flom in Washington, D.C. In one case, for instance, he hired a metallurgical expert to examine the rotors on a helicopter.
But for both sides, Ettinger contends, a false-claims case often comes down to numbers. When a single health care coding case involves millions of separate billing claims, “only experts can unscramble those eggs,” he says. “I just finished a case that produced a terabyte of data.”
Provisions in the Sarbanes-Oxley Act of 2002, as well as many other laws involving management and personnel issues, include whistle-blowing protection. Whistle-blowing involves reporting an illegal action of one’s employer. If you discovered that financial records were being altered in order to cover up extravagant personal purchases made by the top executives, would you report it? If you did, you would be a whistle-blower. If you got fired for your whistle-blowing, you would have recourse under several federal laws governing whistle-blowing.
Making a decision to be a whistle-blower involves personal ethics. Employees and managers who face such decisions find it easier to report offenses when a company has specific guidelines for making ethical decisions and a way to report offenses.
- Legal Topics.
- Civil Service Reform Act
- Freedom of Information Act
- Whistleblower Protection Enhancement Act of 2012 (American Encyclopedia of Law)
- Whistleblowers in the Australian Encyclopedia of Law
- Indirect Tax Practitioners Assn. V. R.k.jain (Indian case in the Indian and Asian Legal Encyclopedia)
- Employment at Will
- Employment Law
- United States Department of Labor
Further Reading (Encyclopedias and other References)
- Information about Whistleblower in the Gale Encyclopedia of American Law.
Further Reading (Books)
Alford, C. Fred. 2001. Whistleblowers: Broken Lives and Organizational Power. Ithaca, NY: Cornell University Press.
De Maria, William. 1999. Deadly Disclosures: Whistleblowing and the Ethical Meltdown of Australia. Kent Town, Australia: Wakefield.
Glazer, Myron Peretz, and Penina Migdal Glazer. 1989. The Whistleblowers: Exposing Corruption in Government and Industry. New York: Basic.
Government Accountability Project. 1996. Courage without Martyrdom: The Whistleblower’s Survival Guide. Washington, DC: Author.
Maria, William. 2006. Brother Secret, Sister Silence: Sibling Conspiracies against Managerial Integrity. Journal of Business Ethics 65 (3): 219_234.
Miethe, Terance D., and Joyce Rothschild. 1994.
Whistleblowing and the Control of Organizational Misconduct. Sociological Inquiry 64 (3): 322_347.
Near, Janet P., and Marcia P. Miceli. 1985. Organizational Dissidence: The Case of Whistle-Blowing. Journal of Business Ethics 4 (1): 1_16.
Rothschild, Joyce, and Terance D. Miethe. 1999. Whistle-Blower Disclosures and Management Retaliation: The Battle to Control Information about Organizational Corruption. Work and Occupations 26 (1): 107_128.
U.S. Merit Systems Protection Board. 1993. Whistle-blowing in the Federal Government: A Report to the President and the Congress of the United States. Washington, DC: U.S. Government Printing Office.
Further Reading (Books 2)
Devine, Thomas. “The Whistleblower Protection Act of 1989: Foundation for the Modern Law of Employment Dissent.” Administrative Law Review 35 (1999): 531_579.
Vaughn, Robert G. “Statutory Protection of Whistleblowers in the Federal Executive Branch.” University of Illinois Law Review (1982): 615_667.
Further Reading (Articles)
SEC Whistleblower Rules Now In Effect.(Securities and Exchange Commission), Mondaq Business Briefing; October 13, 2011
SEC Whistleblower Office Issues First Award, Mondaq Business Briefing; August 23, 2012
Whistleblower Retaliation Claims – Are You Prepared?, Mondaq Business Briefing; March 20, 2013
The Whistleblower Improvement Act: New Legislation Takes Aim At Dodd-Frank Whistleblower Bounty Provisions.(Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010), Mondaq Business Briefing; July 26, 2011
OSHA Whistleblower Program: Record Number of Cases Filed & Resolved in 2012, Mondaq Business Briefing; January 31, 2013
CFTC Whistleblower Rules Finalized., Mondaq Business Briefing; August 31, 2011
The Whistleblower Statute Prepared for the Organization of American States and the Global Legal Revolution Protecting Whistleblowers, The George Washington International Law Review; January 1, 2003; Vaughn, Robert G. Devine, Thomas Henderson, Keith
Paying the IRS Whistleblower: A Critical Analysis of Collected Proceeds, Virginia Tax Review; June 22, 2012; Davis-Nozemack, Karie Webber, Sarah J.
SEC Whistleblower Office “Open for Business and Ready to Pay”, Mondaq Business Briefing; August 24, 2012
The IRS Whistleblower Program.(Internal Revenue Service), Mondaq Business Briefing; February 28, 2011
MCCASKILL LEGISLATION EXPANDS WHISTLEBLOWER PROTECTIONS., States News Service; October 1, 2009
$4.5M whistleblower award for CPA.(Practice Resources), Accounting Today; May 1, 2011
CFTC And SEC Whistleblower Bounties: Largely Similar But Important Differences Remain.(Commodity Futures Trading Commission)(Securities and Exchange Commission), Mondaq Business Briefing; August 23, 2011
New Whistleblower Bounty Law on the Horizon in NY?, Mondaq Business Briefing; May 19, 2013
OSHA Strengthens DOL’s Whistleblower Protection Program., Mondaq Business Briefing; April 26, 2012
SEC Unveils Final Whistleblower Rules.(Securities and Exchange Commission), Mondaq Business Briefing; June 3, 2011
Congress Strengthens IRS Whistleblower Statute.(Internal Revenue Service), Mondaq Business Briefing; February 5, 2007
Fifth Circuit Limits SEC Whistleblower Program, Mondaq Business Briefing; August 11, 2013
SEN. MCCASKILL LEGISLATION EXPANDS WHISTLEBLOWER PROTECTIONS, US Fed News Service, Including US State News; October 6, 2009
LEGISLATION TO STRENGTHEN, UPDATE WHISTLEBLOWER PROTECTIONS CLEARS COMMITTEE., States News Service; October 19, 2011