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  • Supreme Court holds FCA relators have 10 years to bring nonintervened suit

    Courts

    On May 13, the U.S. Supreme Court unanimously held that a relator has up to 10 years to bring a qui tam suit under the False Claims Act (FCA) whether or not the government intervenes in the suit. According to the opinion, in November 2013, a relator brought a suit against two defense contractors alleging they defrauded the U.S. Government by submitting false payment claims for security services in Iraq through early 2007. The relator claimed he told federal officials about the allegedly fraudulent conduct in November 2010, but the Government declined to intervene. The defendants moved to dismiss the action as barred by the six year statute of limitations under 31 U. S. C. §3730(b)(1), while the relator claimed the action was timely under §3730(b)(2)— which states that a FCA civil action may not be brought “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 official of the United States charged with responsibility to act in the circumstances, but in no event more than 10 years after the date on which the violation is committed.” The district court dismissed the action, while the U.S. Court of Appeals for the 11th Circuit reversed the decision, concluding that §3730(b)(2) applies in “nonintervened actions, and the limitations period begins when the Government official responsible for acting knew or should have known the relevant facts.”

    Upon review, the Supreme Court rejected the defendants’ argument that the six year statute of limitations in §3731(b)(1) applies to all relator-initiated actions (whether the Government intervenes or not), while § 3731(b)(2) applies only to qui tam actions when the Government intervenes, arguing the interpretation is “at odds with fundamental rules of statutory interpretation.” Moreover, the Court concluded that the relator in a nonintervened suit is not “the official of the United States” whose knowledge triggers §3731(b)(2)’s three-year limitations period, as it was not what Congress intended, and a private relator is neither “appointed as an officer of the United States nor employed by the United States.”  

    Courts U.S. Supreme Court False Claims Act / FIRREA Whistleblower Financial Crimes

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  • Ninth Circuit denies rehearing in Wadler FCPA whistleblower retaliation case

    Financial Crimes

    On April 8, the Ninth Circuit denied a petition to rehear its February order affirming most of the jury’s award – $8 million of the original $11 million – in a landmark FCPA whistleblower-retaliation case. The court denied the life sciences manufacturing company’s petition without explanation. 

    For prior coverage of the matter, including an analysis of the Ninth Circuit’s February opinion, please see hereherehere, and here.

    Financial Crimes FCPA Whistleblower

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  • SEC issues $50 million whistleblower award; third-highest ever

    Securities

    On March 26, the SEC announced awards totaling $50 million to two whistleblowers for volunteering information that led to a successful enforcement action, with one whistleblower receiving $37 million (the third-highest SEC award to date) and the other receiving $13 million. While details of the related enforcement action were not made public, the SEC’s award order noted that one of the whistleblowers “provided information and documentation that were of a significantly high quality and critically important,” including documents that “were akin to ‘smoking gun’ evidence.” As previously covered by InfoBytes here and here, the SEC awarded $50 million to two joint whistleblowers in March 2018 and $39 million to a single whistleblower in September 2018—the two highest awards given by the SEC so far. Since the program’s inception in 2012, the SEC has awarded more than $376 million to 61 whistleblowers.

    Securities SEC Whistleblower

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  • 9th Circuit issues opinion in Wadler, remands for possible new trial

    Financial Crimes

    On February 26, 2019, the Ninth Circuit issued a long-awaited opinion in a case involving a life sciences manufacturing company and its former General Counsel. The 23-page opinion, slated for publication, takes a mixed view of the trial outcome, vacating in part, affirming in part, and remanding for the district court to determine whether to hold a new trial.

    Two years ago, following a $55 million civil and criminal FCPA settlement by the company, a jury awarded Wadler (the company’s former General Counsel) $11 million in punitive and compensatory damages, including double back-pay under Dodd-Frank, in his whistleblower retaliation case against his former employer. The company appealed to the Ninth Circuit, arguing that the district court erroneously instructed the jury that SEC rules or regulations prohibit bribery of a foreign official; that the company’s alleged FCPA violations resulted from Wadler’s own failure to conduct due diligence as the company’s General Counsel; that the district court should have allowed certain impeachment testimony and evidence related to Wadler’s pursuit and hiring of a whistleblower attorney; and that Wadler was not a “whistleblower” under Dodd-Frank because he only reported internally and did not report out to the SEC. The Court heard arguments on November 14, 2018. 

    Section 806 of the Sarbanes-Oxley Act, codified as 18 U.S.C. § 1514A, protects whistleblowers from retaliation under certain circumstances, including reporting violations of “any rule or regulation of the Securities and Exchange Commission.” The company alleged, and the Ninth Circuit agreed, that the district court’s jury instructions incorrectly stated that Section 806 encompasses reports of FCPA violations. The Court ruled that “statutory provisions of the FCPA, including the three books-and-records provisions and anti-bribery provision . . . are not ‘rules or regulations of the SEC’ under SOX § 806.” However, the Court found that with the right instructions, a jury could have still ruled in Wadler’s favor. Accordingly, the Court vacated the Section 806 verdict and remanded to the district court for consideration of a new trial. On the other hand, the Court held that the same jury instruction error was harmless for the purposes of Wadler’s California public policy claim, so the Court upheld that verdict and its associated damages. The Court also rejected the company’s claims of evidentiary error. Finally, the Court ruled that under another case involving a real estate investment company and its former executive, Dodd-Frank does not apply to people who only report misconduct internally, and vacated the Dodd-Frank claim. As for damages, the Ninth Circuit affirmed Wadler’s compensatory and punitive damages award but vacated the double back-pay associated with the Dodd-Frank claim. 

    This decision is likely the first circuit court opinion to cite the case in an FCPA case for its holding that individuals who only report violations internally do not hold “whistleblower” status under Dodd-Frank.

    For prior coverage of the matter, please see herehere, and here.

    Financial Crimes FCPA Whistleblower SEC Dodd-Frank Sarbanes-Oxley Ninth Circuit

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  • District Court dismisses whistleblower’s mortgage fraud claims

    Courts

    On March 12, the U.S. District Court for the Northern District of Illinois granted a national bank’s motion to dismiss a former associate vice president/lending manager’s whistleblower claims that it violated the False Claims Act (FCA) by submitting fraudulent claims and providing false information about loan applications to Fannie Mae and Freddie Mac. The whistleblower alleged that the bank (i) knowingly submitted fraudulent claims for payment to the U.S. government; (ii) told Fannie Mae and Freddie Mac that the applications met underwriting standards; and (iii) later terminated his employment as retaliation for notifying his superiors about the alleged false statements. However, according to the court, the whistleblower failed to sufficiently plead that the bank actually submitted the false claims, did not provide enough specificity as to whom the bank sent the alleged false claims to, and failed to “allege specific facts that link [the bank’s] fraudulent conduct to a claim submitted to the government.” Moreover, the court stated that under the FCA’s public disclosure bar, a whistleblower cannot base his case on allegations raised in prior litigation or publically disclosed information, and identified several similarities between the whistleblower’s allegations and previously disclosed claims. Because the whistleblower’s FCA claims failed, the retaliation claims were also dismissed.

    Courts False Claims Act / FIRREA Whistleblower Mortgages Fraud Fannie Mae Freddie Mac

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  • 9th Circuit affirms $8 million California whistleblower claim

    Courts

    On February 26, the U.S. Court of Appeals for the 9th Circuit affirmed a former general counsel’s whistleblower retaliation claim, under California public policy, against a biopharmaceutical manufacturer and its CEO but vacated the jury’s Sarbanes-Oxley Act (SOX) and Dodd-Frank Act verdicts. According to the opinion, the general counsel sued the company and the CEO claiming whistleblower retaliation under SOX, the Dodd-Frank Act, and California wrongful termination case law, claiming the company fired him after he alleged the company may have violated the FCPA in China. The jury awarded the general counsel $11 million, including $2.96 million in lost wages, which was doubled under the Dodd-Frank Act’s whistleblower provision, and $5 million in punitive damages. The company appealed the verdict arguing the district court erred in the instructions to the jury when it stated that statutory provisions of the FCPA constitute “rules or regulations of the SEC for purposes of whether [the general counsel] engaged in protected activity under SOX.”

    On appeal, the 9th Circuit concluded the district court’s instructional error was not harmless as to the SOX claim, finding that the statutory provisions of the FCPA are not “rules or regulations of the SEC under SOX” as instructed to the jury. While the error was not harmless, the appellate court rejected entering judgment in favor of the company and instead, remanded the case back for proper instruction. Additionally, the appellate court vacated the district court’s instructions for the jury to enter judgment in favor of the Dodd-Frank Act claim, citing to the Supreme Court decision in Digital Realty Trust Inc. v. Somers. The appellate court concluded that the whistleblower provision of the act does not apply to purely internal reports and entered judgment in favor of the company. As for the California public policy claim, the appellate court determined that the incorrect SOX jury instructions were harmless because his California claim did not depend on SOX and the jury “necessarily would have reached the same verdict under proper instruction.” The affirmation of the California claim and associated damages left the general counsel with an award of nearly $8 million.

    Courts Ninth Circuit Appellate Whistleblower FCPA Dodd-Frank Sarbanes-Oxley State Issues

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  • Waters reminds CFPB staff of whistleblower protections

    Federal Issues

    On February 21, Congresswoman Maxine Waters (D-CA), Chairwoman of the House Financial Services Committee, sent a letter to CFPB employees, reminding Bureau staff of the protections under The Whistleblower Protection Act and encouraged anyone who witnesses “waste, fraud, abuse or gross mismanagement” to reach out to her or her staff. Waters cited to the recent reports of a significant drop in Bureau staff morale and reiterated her concern with the changes that took place at the agency during acting Director Mick Mulvaney’s tenure. Waters emphasized the importance of the Bureau’s work to protect consumers and stated that she will conduct careful oversight of the agency as part of her Chairwoman duties.

    Federal Issues Whistleblower CFPB House Financial Services Committee

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  • University settles whistleblower FCA claims

    Federal Issues

    On February 11, the DOJ announced a $2.5 million settlement with a South Carolina university to resolve allegations that the university violated the False Claims Act (FCA) by submitting false claims to the U.S. Department of Education. According to the announcement, between 2014 and 2016, the university hired a company, which was partially owned by the university, to recruit students to the university and paid the company based on the number of students who enrolled in university programs, in violation of the prohibition on paying incentive compensation in Title IV of the Higher Education Act. The co-owner of the company originally brought a qui tam lawsuit against the university and will receive $375,000 from the settlement.

    Federal Issues DOJ Whistleblower Department of Education False Claims Act / FIRREA Incentive Compensation Settlement

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  • NYDFS issues whistleblowing program guidance and best practices

    State Issues

    On January 7, NYDFS issued guidance providing principles and best practices that all NYDFS-regulated institutions “regardless of industry, size, or number of employees” should consider when designing and implementing a robust whistleblowing program, which the department considers to be an essential component of an institution’s comprehensive compliance program. NYDSF-regulated institutions include New York state-charted branches of foreign banking organizations.

    The guidance notes that the design of a whistleblowing program should be based on factors such as the institution’s size, geographical reach and business. However, it outlines ten elements that institutions should, at a minimum, consider how to account for when designing their programs:

    • Independent, well-publicized, easy-to-access, and consistent reporting channels;
    • Strong protections for whistleblower anonymity;
    • Established procedures for identifying and managing the effects of possible conflicts of interest;
    • Adequately trained staff members responsible for receiving a whistleblowing complaints, determining a course of action, and competently managing any investigation, referral, or escalation;
    • Established procedures for appropriately investigating allegations of wrongdoing;
    • Established procedures for ensuring appropriate follow-up to valid complaints;
    • Protections against any form of retaliation;
    • Confidential treatment, including safeguards to protect the confidentiality of the whistleblower and the whistleblowing matters themselves;
    • Appropriate oversight by senior managers, internal and external auditors, and the Board of Directors; and
    • A top-down culture of support for the whistleblowing function.

    As previously covered by InfoBytes, last December NYDFS issued a consent order against an international bank and its New York branch to resolve allegations stemming from an investigation into the governance, controls, and corporate culture relating to the bank’s whistleblower program.

    State Issues Whistleblower Of Interest to Non-US Persons

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  • NYDFS fines international bank $15 million after whistleblower investigation

    State Issues

    On December 18, NYDFS announced a $15 million settlement with an international bank and its New York branch resolving allegations stemming from an investigation into the governance, controls, and corporate culture relating to the bank’s whistleblower program. According to the announcement, NYDFS’ investigation determined that several members of senior management failed to follow or apply the bank’s whistleblower policies and procedures, which allegedly allowed the bank’s CEO to attempt to identify the author(s) of two whistleblowing letters criticizing his and bank’s management’s roles in recruiting and employing a recently hired senior executive. Additionally, the investigation found that, in alleged violation of New York Banking Law, the bank (i) failed to devise and implement effective governance and controls with respect to the whistleblower program; and (ii) failed to submit a report to NYDFS immediately upon discovering misconduct.

    NYDFS acknowledged the bank’s substantial cooperation in the investigation, including engaging an outside consultant to perform an independent review of the whistleblowing policies, processes, and controls. Additionally NYDFS stated the bank has already addressed certain deficiencies noted in the Consent Order, including implementing (i) procedures which recognize that concerns raised outside whistleblowing channels may nevertheless constitute whistleblows; (ii) procedures which would avoid escalating a whistleblow to the subject of the concern; and (c) procedures to preserve whistleblower anonymity. In addition to the $15 million penalty, the bank must create a written plan to improve compliance and oversight of the whistleblower program and submit a report to NYDFS that contains all instances of whistleblower complaints since January 2017, attempts to identify whistleblowers, and any reported or sustained instances of whistleblower retaliation. 

    State Issues Whistleblower NYDFS Supervision Investigations

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