Protecting Corporate Whistleblowers
This post was written by Josh
A corporate whistleblower faces a very real risk of retaliation by her employer, commonly in the form of termination. Certain provisions of the Sarbanes-Oxley Act (SOX) provide protections for whistleblowers, and new whistleblower protections could potentially come through the proposed financial reform bill.
18 U.S.C. sec. 1514A of SOX protects corporate whistleblowers by providing them with the remedy of a civil action in the event of retaliation by their employer. Publicly traded companies, as well as their contractors, subcontractors, and agents, are prohibited from retaliating against a whistleblower who participates in an investigation or participates in an action stemming from violations of Federal law relating to fraud against shareholders.
If a whistleblower does suffer some sort of retaliation, she has two options depending on the amount of time that has elapsed. She could file a complaint with the Secretary of Labor, or, in the event that the Secretary of Labor has not issued a decision within 180 days of the filing of the complaint and the whistleblower has not done anything in bad faith to cause the delay, the whistleblower can go ahead and file a lawsuit in federal district court. As a side note, there is a special loophole created for whistleblower plaintiffs here. Normally, in order to get into federal district court the amount in controversy must be $75,000 or more. For whistleblowers alleging discrimination, this requirement is waived.
The proposed financial reform legislation, which may be headed to the Senate floor this week, could significantly expand whistleblower protections. Under both the House version of the bill as well as that proposed by Senator Chris Dodd, the SEC would be authorized to reward whistleblowers for any insider trading violations (not just those related to securities, as the law currently stands). In addition, the whistleblower's share of the SEC sanction would be increased to 30% from its current 10%. This is a significant jump, putting it in line with the maximum recoveries available to qui tam relators and IRS whistleblowers.
Blowing the whistle is by no means without risk. The whistleblower should take some comfort, however, in the fact that there are several protections available, and stronger protections likely are on the way. Recent events in the financial world, such as the Goldman Sachs short selling debacle, are sure to provide an impetus to Congress to reinforce whistleblower protections in this area.
This article was sponsored by The Qui Tam Team, the epicenter for whistleblowers and people interested in the False Claims Act, Qui Tam Provisions, and Medicare and Medicaid fraud. To discuss a potential case, please call Eric Young at 1 (800) 590-4116.
Qui Tam in the Mines
This post was written by Josh
As far as we know, they aren't sending kids into the mines like they used to do in the heady days of 1908, when you had to start working basically as soon as you could walk. That doesn't mean that mining is any less dangerous today, however. Every year, there seems to be some type of mishap, usually involving fire, poisonous gas, being trapped hundreds of feet underground, or some combination thereof. What gets less attention, however, are the qui tam cases related to coal mining and other types of resource extraction.
Although it doesn't necessarily tug at the heartstrings the way stories of trapped miners do, fraud by by companies extracting coal and other natural resources from federal and Indian lands costs taxpayers millions of dollars in lost royalties. The typical situation is one in which a resource extractor removes more of a resource than it discloses to the government by falsifying records.
According to testimony given by Acting Inspector General for the Department of the Interior Mary L. Kendall before Congress regarding bill H.R. 3534, nearly $700 million has been recovered from 25 companies, much of it through qui tam cases. H.R. 3534, the Consolidated Land, Energy, and Aquatic Resources Act, is a bill that would "provide greater efficiencies, transparency, returns, and accountability in the administration of Federal mineral and energy resources by consolidating administration of various Federal energy minerals management and leasing programs into one entity to be known as the Office of Federal Energy and Minerals Leasing of the Department of the Interior."
A perfect example of a False Claims Act violation by a resource extractor met its apex in December 2009, when Chevron agreed to pay $45 million to the United States to resolve claims that it knowingly underpaid royalties for natural gas extracted from federal and Indian land. As one of the assistant attorneys general involved in the case observed, royalties are an important source of income for Native Americans, the federal government, and various states. When companies underpay royalties, they usually end up cheating everyone to some degree. It's important for whistleblowers to help ensure that resource extractors don't take advantage of the complex nature of their business. As the demand increases for certain natural resources, such as natural gas, there are sure to be more opportunities for fraud.
New Restrictions on Whistleblower Suits a la the Supreme Court
This post was written by Josh
If you're thinking about blowing the whistle on your corrupt little local government after you heard about their having misspent funds from a state audit, think again. The Supreme Court has just handed down a decision which holds that the provision of the False Claims Act prohibiting whistleblower lawsuits when the information was obtained through an administrative report or audit applies to reports prepared by all governments—not just the feds. Whistleblower suits based on public disclosure of fraud through news reports, court hearings, and congressional/administrative audits were already prohibited against the federal government, but the law regarding local/state governments was murky.
The case is Graham County Soil and Water Conservation District v. U.S ex rel. Wilson, 08-304.
A variety of interested parties filed amicus briefs in the case, and it would have been quite a scene if all of them had ended up in the same room, considering some of them are usually fighting each other. Parties filing amicus briefs in support of the Petitioner (Graham County Soil and Water Conservation District) included good ol' boys (State of Alabama), Green Mountain Boys (State of Vermont), several other states, the U.S. Chamber of Commerce, the Pharmaceutical Research and Manufacturers of America, and the American Hospital Association. Hopefully the states got to share some litigation pointers with each other before they went home to file their latest False Claims Act cases against the hospitals and drug makers! But seriously, we're sure a good time was had by all.
Unfortunately for the amici brief writers (and certain fragile Supreme Court egos) the decision is not likely to remain law for very long. In the new health care reform legislation, an amendment to the FCA was included which clarifies that private lawsuits under the FCA are barred only if the public disclosure was federal in nature, i.e., from a proceeding in which the federal government is a party or from a federal report, etc. This amendment appears to overrule the decision in the Graham County case, and Justice Stevens acknowledged the law in a footnote. A fight may still loom over whether the new law is retroactive to pending cases or state reports/audits made publicly available prior to the health care bill's passage.
The upshot of all this is that there is movement on the part of legislators to bar whistleblower lawsuits that are deemed "parasitic" and are based essentially on a relator's luck of the draw in hearing about the misspending of funds. Until the issue of whether Graham County applies to pending cases involving state/local reports/audits, it may be wise to avoid getting entangled in this tricky area.
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