Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
On July 23, the SEC announced a $500,000 award to an overseas whistleblower whose “expeditious reporting” on an important witness assisted the Commission in bringing a successful enforcement action. The SEC’s order noted that the whistleblower’s tip was the first information that the Commission received on the charged misconduct, and that without the information—which was substantiated by other witnesses—the violations would have been difficult to identify and prove partly because the misconduct happened abroad. The order does not provide any additional details regarding the whistleblower or the company involved in the enforcement action. Since the program’s inception in 2012, the SEC has awarded approximately $385 million to 65 whistleblowers.
On July 11, the SEC responded to a petition asking the U.S. Court of Appeals for the District of Columbia to compel a whistleblower award determination from the agency. In April 2017, the “John Doe” petitioner had applied for an SEC whistleblower award, claiming that beginning in May 2011 and continuing for the next several years, he voluntarily provided original information to the Commission that led to the SEC and DOJ’s $519 million resolution of foreign bribery claims against a multinational pharmaceutical company (previously reported here). Under the SEC Whistleblower Program established by the Dodd-Frank Act, the petitioner could be eligible for up to 30% of that $519 million recovery. In April 2019, after the SEC still had not issued a preliminary determination in connection with his application, the petitioner sought relief in court. The petitioner argued that it was a “simple task” to evaluate his claim, and the agency’s two-year delay was “unreasonable.”
In its response, the SEC argued that the petitioner “greatly misapprehends the work, effort, and time involved in reviewing whistleblower claims,” “overlooks the substantial complexities involved in adjudicating claims regarding the matter,” and “ignores that the SEC is processing a voluminous number of other whistleblower applications that require the attention of the Commission in addition to his claim.”
For additional information about SEC whistleblower awards and procedures under the SEC Whistleblower Program, see the article published here by Buckley LLP attorneys.
On June 24, the Commodity Futures Trading Commission (CFTC) announced a whistleblower award of approximately $2.5 million to an individual who reported information that led to a successful enforcement action. The CFTC noted that the award was reduced because of the individual’s unreasonable delay in reporting the violations to the CFTC. CFTC officials emphasized that while there may be reasons to delay reporting, “[this] case illustrates the importance of reporting violations to the CFTC as soon as reasonably possible. Reporting early lessens the harm violators can inflict on the public and hastens our investigations to bring the culprits to justice.” The associated order does not provide details of the information provided or the related enforcement action. Since 2014, the CFTC has awarded over $90 million to whistleblowers, whose information has led to more than $730 million in sanctions.
On June 3, the SEC announced awards totaling $3 million to two whistleblowers for jointly volunteering information that led to a successful enforcement action involving an alleged securities law violation that impacted retail investors. The SEC noted that the whistleblowers “undertook significant and timely steps to have their employer remediate the harm caused by the alleged violations.” The order does not provide any additional details regarding the whistleblowers or the company involved in the enforcement action. Since the program’s inception in 2012, the SEC has awarded approximately $384 million to 64 whistleblowers.
On May 24, the SEC announced a $4.5 million award to a whistleblower who reported concerns internally to his or her company and also to the SEC within 120 days of reporting to the company. This marked the first time the SEC issued an award to a claimant under the provision of the whistleblower rules that were “designed to incentivize internal reporting by whistleblowers who also report to the SEC within 120 days.” The company reported the allegations, and later the findings of the internal investigation it launched as a result of the claimant’s tip, to the SEC and another federal agency. The SEC initiated its own investigation after the company self-reported, which resulted in a successful enforcement action and the $4.5 million award to the whistleblower that originated the allegations. The order does not provide any additional details regarding the whistleblower or the company involved in the enforcement actions. Since the program’s inception in 2012, the SEC has awarded approximately $381 million to 62 whistleblowers.
10th Circuit: Compliance employees must show they went beyond established protocols to obtain FCA whistleblower retaliation protection
On April 30, the U.S. Court of Appeals for the 10th Circuit affirmed the dismissal of a former employee’s False Claims Act (FCA) whistleblower retaliation claims, holding that employees with compliance responsibilities bear the burden of showing that their alleged protected activities are not simply part of their job responsibilities. The case concerned a qui tam relator who alleged her former employer systemically violated the FCA when it knowingly and fraudulently billed the government for inadequately or improperly completed work, and then fired her in retaliation for trying to end the alleged fraud. According to the plaintiff—who was previously employed as a senior quality control analyst responsible for reviewing investigators’ work and documenting incomplete investigations—the company violated the FCA by: (i) “falsely certifying that it performed complete and accurate investigations”; (ii) “falsely certifying that it did proper case reviews and quality-control checks”; and (iii) “falsifying corrective action reports.” The district court, however, entered summary judgment for the company on all counts, determining that the plaintiff’s qui tam claims were “‘substantially the same’ as those that had been publically disclosed” in previous investigations and news reports, and dismissing her claims under the public disclosure bar. Her retaliation claim was dismissed after the district court determined that she had failed to properly plead that the company was on notice that she was engaging in protected activity.
On appeal, the 10th Circuit concluded that the district court erred in its legal determinations on the qui tam claims, vacated the order for summary judgment, and remanded those claims for further proceedings. However, the 10th Circuit agreed with the district court’s decision to dismiss the plaintiff’s whistleblower retaliation claim, stating that in order to establish FCA whistleblower liability, an employer must know that the employee’s actions were connected to a claimed FCA violation, and an employee “must overcome the presumption that her internal reports of fraud were part of her job.” The appellate court held that because the plaintiff’s allegations did not show that she went outside of established protocols or broke her chain of command, she failed to allege adequately that the company was on notice of her claimed FCA-protected activity.
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.”
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.
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.
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.
- Kathryn L. Ryan to discuss "Industry open forum session on NMLS usage" at the NMLS Annual Conference & Training
- Tim Lange to discuss "State legislative update - MSBs and consumer finance" at the NMLS Annual Conference & Training
- Kathryn L. Ryan to discuss "Regulating innovative consumer lending products" at the NMLS Annual Conference & Training
- Daniel P. Stipano to moderate "Washington update" at the Puerto Rican Symposium of Anti Money Laundering
- Melissa Klimkiewicz to discuss "Private flood insurance updates" at the Mortgage Bankers Association Servicing Solutions Conference & Expo
- Jonice Gray Tucker and H Joshua Kotin to discuss regulatory compliance issues in the fintech industry at Protiviti's Risk & Compliance Innovation Roundtable
- APPROVED Checkpoint Webcast: CFL overview
- Amanda R. Lawrence and Sherry-Maria Safchuk to discuss "California privacy rule" on an NAFCU webinar
- Sasha Leonhardt to discuss "MLA & SCRA" on a NAFCU webinar
- Daniel P. Stipano to discuss "Pathway of the SARs: Tracking trajectories of suspicious activity reports from alerts to prosecution" at the ACAMS International AML & Financial Crime Conference
- Daniel P. Stipano to discuss "Which bud’s for you? A deep-dive into evolving marijuana laws" at the ACAMS International AML & Financial Crime Conference
- John P. Kromer to discuss "Navigating the multi-state fintech regulatory regime" at the American Conference Institute Legal, Regulatory and Compliance Forum on Fintech & Emerging Payment Systems