Thursday, May 26, 2011
Erika Kelton of Phillips and Cohen told the New York Times that employees almost always report their concerns about misconduct and fraud to managers and supervisors first. "It has only been after they have been retaliated against for doing so that they have come to us.”
Ms. Kelton noted that the SEC resisted intense pressure from corporate interest groups to weaken the rules. "By establishing incentives for people to report fraud concerns internally before going to the SEC -- but not making such reporting mandatory -- the SEC has struck a balance that still will encourage whistleblowers."
Wednesday, May 25, 2011
The Securities and Exchange Commission took a big step today to establish a strong whistleblower program by endorsing final rules for the SEC whistleblower program that would reward – but not require – whistleblowers to report concerns of wrongdoing and fraud to internal compliance programs first.
The Chamber of Commerce and other corporate interests had barraged the SEC with complaints that internal compliance programs would be rendered worthless unless employees were required to report fraud to those internal programs before going to the SEC. Fortunately, the SEC seemed to realize that such a requirement would emasculate the program. Instead, the rules would make whistleblowers eligible for an increased reward if they report their concerns to internal compliance programs first.
The SEC also clarified that whistleblowers who bring information to the SEC are protected by anti-retaliation measures whether they get an award or not.
Tuesday, May 24, 2011
The new Mortgage Fraud Strike Force will have three teams. The corporate fraud team will target misconduct involving investments and securities tied to subprime mortgages, as well as false or fraudulent claims made to the state with respect to these securities.
A consumer enforcement team will focus on predatory lending, unfair business practices in originating loans, deceptive marketing, and loan modification and foreclosure consultant scams. The criminal enforcement team will prosecute criminal frauds, including fraudulent investment and money laundering schemes related to mortgage lending or foreclosure relief.
Harris said, “We are prepared to use it [the state's False Claims Act] in a way that will look at all those who have made false statements or misled investors of any nature – be they individuals, institutions or municipalities."
Thursday, May 19, 2011
BAE, Europe’s largest military contractor, paid a total civil penalty of $79 million for alleged violations of the Arms Export Control Act (AECA) and the International Traffic in Arms Regulations (ITAR). It is the largest civil penalty the State Department has ever levied.
In a related criminal case, BAE pleaded guilty last year to two criminal charges involving Arms Export Control Act (AECA) and International Traffic in Arms Regulations (ITAR) violations and payments made to win huge contracts in Saudi Arabia and other countries. BAE paid nearly $450 million in criminal penalties.
As Congress has put in place whistleblower reward laws that reach such violations (the False Claims Act, a stronger IRS whistleblower program and the Dodd-Frank SEC whistleblower program), we can expect to see more and larger cases brought by insiders who have lacked any incentive to come forward until now.
Although the public disclosure/original source rules were further amended in 2009, the federal “report” language applies to both versions of the statute. Accordingly, under the Supreme Curt’s interpretation, any response to a FOIA request, even one obtained from someone other than the whistleblower could, potentially, bar the action unless the whistleblower can show she qualifies as an “original source.”
Relator Daniel Kirk had worked for Petitioner Schindler Elevator Corporation (Schindler) for twenty-five years and alleged that Schindler had falsely certified its compliance with the Vietnam Era Veterans' Readjustment Assistance Act of 1972 (VEVRAA), which requires contractors to report information concerning its employment of veterans to the U.S. Department of Labor (DOL). He also alleged that Schindler failed to file certain required VETS-100 reports and included false information in VETS-100 reports.
As part of his investigation, Kirk’s wife submitted three FOIA requests to DOL including all VETS-100 reports filed by Schindler for the years 1998-2006. DOL sent copies of ninety-nine VETS-100 reports that Schindler filed, and a FOIA response informing her it could not locate Schindler's VETS-100 reports for 1998, 1999, 2000, 2002, or 2003. Kirk used this information to support its allegations.
In holding that a response to a FOIA request is a governmental “report,” the Supreme Court held that such a response falls within the ordinary meaning of the word “report” because it is “something that gives information,” “a notification,” and an “official or formal statement of facts.” The Supreme Court also held that any records produced with the FOIA response are also part of the “report” and may be used to support a public disclosure defense.
The Supreme Court thus held that the three written FOIA responses in this case, along with the accompanying records produced to Mrs. Kirk, are reports within the meaning of the public disclosure bar. The Court remanded for a determination whether the Kirk’s suit is “based upon . . . allegations or transactions” disclosed in those reports. If so, Relator Kirk will need to demonstrate on remand that he is an original source to proceed with his claims.
For whistleblowers, this case means that one should likely not use FOIA before bringing one’s claims to an experienced qui tam lawyer to discuss and perhaps first bring to the government before looking for corroborating evidence.
Monday, May 16, 2011
The vote was 5-3, with Justice Thomas writing for the majority and Justice Ginsburg writing the dissent. Justice Kagan was recused.
The Schindler opinion is posted on the Supreme Court website.
Thursday, May 12, 2011
The FCPA is expected to an important enforcement tool under the new Dodd-Frank law and similar cases are likely to end up in court. Bribery is a routine practice in many foreign countries, but the U.S. Department of Justice doesn't view it as beningn.
Assistant Attorney General Lanny Breuer said, “Lindsey Manufacturing is the first company to be tried and convicted on FCPA violations, but it will not be the last. Foreign corruption undermines the rule of law, stifling competition and the health of international markets and American businesses. As this prosecution shows, we are fiercely committed to bringing to justice all the players in these bribery schemes – the executives who conceive of the criminal plans, the people they use to pay the bribes, and the companies that knowingly allow these schemes to flourish. Bribery has real consequences.”
In a May 10 letter to the SEC, Grassley said one of his concerns was an “over-emphasis” on internal compliance programs at the expense of whistleblowers. Corporate interests have been demanding the SEC require whistleblowers to report concerns about securities law violations to internal compliance programs before informing the SEC. The SEC didn’t go that far in its proposed regulations. But it did propose that whistleblowers would receive a larger reward if they report fraud to internal compliance programs before going to the SEC.
Grassley said such a requirement “would effectively render the whistleblower program null and void.” he said that would effectively chill good faith whistleblowers from coming forward for fear they would be terminated.
See Grassley’s website to read his entire letter to the SEC about the proposed whistleblower rules.
Monday, May 02, 2011
Automated kiosks were installed in physicians' offices to allow and encourage patients to fill their prescriptions at Duane Reade. Patients could enter prescription information into the kiosks and pick up their prescriptions at a local Duane Reade. The company's monthly "rent" payments to participating physicians violated the Anti-Kickback statutes by paying higher "rents" to physicians who generated a high volume of prescriptions.
DOJ's intervention, the first in a qui tam suit alleging illegal student recruitment practices, follows investigations by Congress and the federal Education Department into sales practices, student-loan defaults and job placement claims at for-profit colleges.
The company's announcement said that several states are expected to join the action alleging violations of their respective state False Claims Acts.