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Hargrove, Whistleblower, Dodd-Frank, State Bar of Texas
Hargrove, Whistleblower, Dodd-Frank, State Bar of Texas

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UPDATE ON WHISTLEBLOWERS IN THE AGE OF STIMULUS (BLOWING THE DODD-FRANK WHISTLE

)

DAN HARGROVE Waters & Kraus, LLP The Vogue Building 600 Navarro St., Floor 5 San Antonio, Texas 78205 (210) 349-0515 (210) 349-3666 (f) dhargrove@waterskraus.com www.waterskraus.com www.govtfraudlawyer.blogspot.com

State Bar of Texas 20 ANNUAL ADVANCED EMPLOYMENT LAW COURSE January 26 - 27, 2012 Dallas
th

CHAPTER 22

DAN HARGROVE
Mr. Hargrove represents whistleblowers. Prior to joining Waters & Kraus, LLP, Mr. Hargrove practiced with Hargrove & Rea, PC, Jenkens & Gilchrist, PC, and served for six years on active duty with the U.S. Army JAG Corps (10th Mountain Division (Light Infantry) and deployed to the Middle East with the 82nd Airborne Division). Mr. Hargrove served as an Assistant Professor of Law at the U.S. Army JAG School from 2003 to 2011. He continues to serve in the Reserves, with the rank of Lieutenant Colonel. Mr. Hargrove was named The 2004 San Antonio Young Lawyer of the Year.

Admitted: Supreme Court of the United States U.S. Court of Appeals, Fifth Circuit All U.S. District Courts in Texas Court of Federal Claims Court of Appeals for the Armed Forces All Texas courts

Organizations: Taxpayers Against Fraud Federal Bar Association (San Antonio chapter Board Member) Society of American Military Engineers (Board Member) Texas Biomedical Research Institute, Founder’s Council Reserve Officers Association Association of Military Surgeons of the United States

Practice Areas: FALSE CLAIMS ACT (qui tam) Health Care Fraud Federal Government Contracts

Education: U.S. Army JAG School, LLM (Federal Procurement Law) 2003 St. Mary’s University School of Law, JD 1994 Texas A&M University, BS 1991 (Honors Program; Corps of Cadets; ROTC Scholarship) Rotary International Exchange Student (Sweden) 1986

Waters & Kraus, LLP (San Antonio office) The Vogue Building 600 Navarro St., Floor 5 San Antonio, Texas 78205 (210) 349-0515 (210) 349-3666 (f)

dhargrove@waterskraus.com www.waterskraus.com www.govtfraudlawyer.blogspot.com

NOTABLE PUBLICATIONS & RECENT PRESENTATIONS Author, INVESTIGATING HEALTH CARE FRAUD, Association of Certified Fraud Examiners (forthcoming 2012) Author & Presenter, Blowing the Dodd-Frank Act Whistle, State Bar of Texas Advanced Employment Law Course, Dallas (Jan. 2012) Presenter, Compliance and the Corporate Lawyer, In-House Counsel Conference, South Texas College of Law, Houston (July 2011) Author & Presenter, Whistleblowers in the Age of Stimulus, State Bar of Texas Advanced Employment Law Course, Austin (Jan. 2011) Author, Soldiers of Qui Tam Fortune -- Are Servicemembers Proper Plaintiffs Under the False Claims Act, 34 GEORGE WASH. U. SCHOOL OF LAW PUBLIC CONTRACT LAW JOURNAL 45 (Fall 2004) Author, Employment Protections for the Citizen-Soldier, Employment Law Strategist, Vol. 11, No. 8 (Dec. 2003)

RECENT CASES

United States ex rel. Dr. Black & Dr. Montiel v. Novo Nordisk Inc. (D. Ct. Md.) (Novo Nordisk Inc., a Danish pharmaceutical manufacturer, agreed to pay $25 million plus attorney’s fees to resolve its civil liability arising from the illegal promotion of its drug, NovoSeven). Click here for the DoJ press release (June 10, 2011). United States ex rel. Dr. Good v. Treehouse Clinics et al. (W.D. Tex.) (The Treehouse Clinics agreed to pay $1.4 million plus attorney’s fees for submitting false claims to TRICARE involving the treatment of special needs children). Click here for the DoJ press release (Sep. 21, 2011).

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TABLE OF CONTENTS
I. II. INTRODUCTION ................................................................................................................................................... 1 THE DODD-FRANK ACT OF 2010...................................................................................................................... 2 A. Overview of the Dodd-Frank Act’s Bounty Programs and Protections for Whistleblowers Against Reprisal............................................................................................................................................................ 2 B. The SEC Whistleblower Incentive (Bounty) Program .................................................................................... 2 1. Introduction to the SEC Whistleblower Incentive Program (Section 922).............................................. 2 2. Who may File an SEC Whistleblower Bounty Claim ............................................................................. 3 3. Who is Precluded from being Paid an Award ......................................................................................... 4 4. No Amnesty ............................................................................................................................................. 4 5. The SEC Claim Procedures and Administrative Process ........................................................................ 4 6. No Right to Judicially Appeal an SEC Bounty Determination ............................................................... 5 C. Interplay of SEC Whistleblower Program and Company Internal Compliance Processes ............................. 5 D. New Reprisal Cause of Action for SEC Whistleblowers that can be filed in U.S. District Court (no exhaustion of administrative remedies required)............................................................................................. 5 E. Resources -- DODD-FRANK ACT’S SEC Bounty Programs and Protections for Whistleblowers Against Reprisal............................................................................................................................................................ 7 F. Funding of the SEC Whistleblower Program .................................................................................................. 7 G. The Commodity Futures Trading Commission (CFTC) Whistleblower Bounty Program and Anti-Reprisal Protections for Whistleblowers ....................................................................................................................... 7 1. Introduction to the CFTC Incentive (Bounty) Program (Section 748) .................................................... 8 2. Who may File a CFTC Bounty Claim ..................................................................................................... 8 3. Who is Precluded from being Paid a CFTC Bounty Claim ..................................................................... 9 4. No Amnesty ............................................................................................................................................. 9 5. The CFTC Claim Procedures and Administrative Process...................................................................... 9 6. Whistleblower can Judicially Appeal the CFTC’s Bounty Determination.............................................. 9 F. Interplay of the Whistleblower Award Program and Company Internal Compliance Processes: ................. 10 G. New Reprisal Cause of Action for CFTC Whistleblowers............................................................................ 10 1. Whistleblowers Protected Against Reprisal (no exhaustion of administrative remedies required)....... 10 2. Arbitration Agreements Void ................................................................................................................ 10 H. Resources -- DODD-FRANK ACT’S CFTC Bounty Programs and Protections for Whistleblowers against Reprisal.......................................................................................................................................................... 10 I. New Reprisal Cause of Action for Whistleblowers in the “Financial Services Industry” (Section 1057 of the DODD-FRANK ACT) ............................................................................................................................. 10 1. Introduction to Section 1057 of the DODD-FRANK ACT........................................................................ 11 2. Who is Covered ..................................................................................................................................... 11 a. Employee ....................................................................................................................................... 11 b. Employer........................................................................................................................................ 11 3. What is Protected ................................................................................................................................... 11 4. The Process (employee must exhaust administrative remedies before filing lawsuit) .......................... 11 a. Administrative ............................................................................................................................... 11 b. Judicial ........................................................................................................................................... 11 c. Burden of Proof ............................................................................................................................. 12 5. Remedies ............................................................................................................................................... 12 6. Arbitration Agreements Void ................................................................................................................ 12 J. Strengthening the SARBANES-OXLEY ACT’S Whistleblower Protections ..................................................... 12 1. Introduction to the Existing SOX Whistleblower Protections ............................................................... 12 2. Sections 922 and 929A of the Dodd-Frank Act “clarifies” the SOX Whistleblower Claim ................. 12

III. THE PATIENT PROTECTION AND AFFORDABLE CARE ACT OF 2009 ................................................... 13 A. Overview of the HEALTH CARE ACT............................................................................................................. 13 B. Section 1558 – Protections for Whistleblowers ............................................................................................ 13
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C.

1. Introduction to Section 1558 - Scope of Coverage and Protections ...................................................... 13 2. Procedure and Limitations ..................................................................................................................... 13 3. Remedies ............................................................................................................................................... 13 4. Arbitration Agreements Void ................................................................................................................ 13 Reporting Requirements for Federally Funded Long-Term Care Facilities – The ELDER JUSTICE ACT ...... 14 1. Timing ................................................................................................................................................... 14 2. Penalties ................................................................................................................................................. 14

IV. THE AMERICAN RECOVERY AND REINVESTMENT ACT OF 2009 (THE “RECOVERY ACT”) ........... 14 A. Introduction ................................................................................................................................................... 14 B. Retaliation Cause of Action for Whistleblowers ........................................................................................... 14 1. Who is Covered ..................................................................................................................................... 14 2. What is Protected ................................................................................................................................... 14 3. Administrative Process .......................................................................................................................... 15 4. Judicial Process...................................................................................................................................... 15 5. Arbitration Agreements Void ................................................................................................................ 15 6. Remedies ............................................................................................................................................... 15 7. Employee-Favorable Burden Of Proof .................................................................................................. 15 C. Additional Matters ......................................................................................................................................... 15 V. THE CONSUMER PRODUCT SAFETY COMMISSION REFORM ACT OF 2008 ........................................ 16 A. Protections for the Consumer Safety Whistleblower .................................................................................... 16 B. Who is Covered ............................................................................................................................................. 16 C. What is Protected........................................................................................................................................... 16 D. Statute of Limitations .................................................................................................................................... 16 E. Remedies ....................................................................................................................................................... 16 F. Process ........................................................................................................................................................... 16 G. Resources....................................................................................................................................................... 16 VI. RECENT AMENDMENTS TO THE FALSE CLAIMS ACT ............................................................................. 17 A. The Fraud Enforcement and Recovery Act of 2009 ...................................................................................... 17 1. Expanding Protections to the Anti-Retaliation Cause of Action (31 U.S.C. §3730(h)) ........................ 17 B. THE HEALTH CARE ACT Amended the “Original Source” Definition of the FALSE CLAIMS ACT ............... 18 C. Section 1079A(b) of the DODD-FRANK ACT Amended the FALSE CLAIMS ACT by Explicitly Providing a Three-year Statute of Limitations to bring a Retaliation Claim ................................................................. 19 VII. THE IRS WHISTLEBLOWER REWARD PROGRAM ..................................................................................... 19 A. Introduction to the IRS Whistleblower Reward Program ............................................................................. 19 B. Filing an IRS Informant Reward Claim ........................................................................................................ 19 1. 7623(b) Awards: .................................................................................................................................... 19 2. 7623(a) Claims: ..................................................................................................................................... 20 3. Full Disclosure....................................................................................................................................... 20 4. Eligibility to File a Claim for Award..................................................................................................... 20 5. Identity of the Whistleblower ................................................................................................................ 20 C. Appealing to the U.S. Tax Court ................................................................................................................... 20 D. Resources....................................................................................................................................................... 20 VIII. UNIQUE ISSUES FACING FEDERAL GOVERNMENT CONTRACTORS ........................................... 20 A. Introduction ................................................................................................................................................... 20 B. Whistleblower Protections for Contractor Employees .................................................................................. 21 1. Who and What is Protected ................................................................................................................... 21 2. Procedure ............................................................................................................................................... 21 3. Remedies, Enforcement, and Review .................................................................................................... 22 C. Recent changes to the Federal Acquisition Regulation Require Contractors to Disclose ............................. 22 D. The Federal Awardee Performance and Integrity Information System ......................................................... 22 IX. CONCLUSION ..................................................................................................................................................... 23
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APPENDICES .............................................................................................................................................................. 25 Appendix A ........................................................................................................................................................... 26 Appendix B ........................................................................................................................................................... 31 Appendix C ........................................................................................................................................................... 33 Appendix D ........................................................................................................................................................... 37 Appendix E............................................................................................................................................................ 41

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WHISTLEBLOWERS IN THE AGE OF STIMULUS – BLOWING THE DODD-FRANK WHISTLE
INTRODUCTION While it may come as a surprise to many, the Federal Government has insufficient legal and investigative resources to enforce the laws it passes and protect programs such as Medicare. Given this reality, Congress is increasingly turning to whistleblowers to root out and report fraud. The FALSE CLAIMS ACT, originally enacted during the Civil War, 1 has proven to be the Government’s most powerful and effective fraud-fighting tool. It has been hugely successful, recovering over $25 billion for the Government since 1986 (when major amendments were made to the Act). Some of the recoveries have been astronomical. On September 2, 2009, the Department of Justice announced that Pfizer agreed to settle a qui tam case for $2.3 billion, from which six whistleblowers were awarded payments of more than $102 million. In October 2010, GlaxoSmithKline settled with the Department of Justice for $750 million in a qui tam case, from which the whistleblower will receive $96 million. The FALSE CLAIMS ACT, which primarily relies upon whistleblowers to bring evidence of fraud to the Government, 2 has two powerful weapons in its arsenal. First, the FALSE CLAIMS ACT allows a private person to prosecute a qui tam 3 action for I.

himself and on behalf of the Government against persons who commit fraud against the Government. 31 U.S.C. §§3729 et seq. The whistleblower, called a relator 4, is entitled to be rewarded between ten to thirty percent of any amounts recovered by the Government plus attorney fees and costs. 31 U.S.C. §3730(d). Second, recognizing that a whistleblower acts at his peril, the FALSE CLAIMS ACT protects whistleblowers in their employment by providing a cause of action for acts of reprisal by an employer. 31 U.S.C. §3730(h). The success of the FALSE CLAIMS ACT has encouraged Congress to place additional reliance upon whistleblowers to ensure compliance with other laws. A number of statutes have recently been enacted that
DICTIONARY 1262 (7th ed. 1999). Blackstone explained qui tam as follows:

For a history of the FALSE CLAIMS ACT, see Dan L. Hargrove, Soldiers of Qui Tam Fortune: Do Military Service Members Have Standing to File Qui Tam Actions Under the False Claims Act?, 34 PUB. CONT. L.J. 45, 51-53 (2004). For the purposes of this article, “Government” means the United States Government, as opposed to other governments such as the State of Texas. While many states, Texas included, have qui tam statutes, this article focuses on federal law. See, e.g., THE TEXAS MEDICAID FRAUD PREVENTION LAW, TEX. HUM. RES. CODE §§36.00136.117 (providing for citizen qui tam actions as it relates to fraud committed against the Texas Medicaid program). “Qui tam (often shortened to Q.T.) is short for the Latin phrase qui tam pro domino rege quam pro se ipso in hac parte sequitur, which means ‘who pursues this action on our Lord the King’s behalf as well as his own.’” Vermont Agency of Natural Res. v. United States ex rel. Stevens, 529 U.S. 765, 769 n.1 (2000) (citing 3 W. BLACKSTONE, COMMENTARIES ON THE LAW OF ENGLAND 160 (1768)). A “qui tam action” is “an action brought under a statute that allows a private person to sue for a penalty, part of which the government or some specified public institution will receive; also termed “popular action.” BLACKS’S LAW 1
3 2

1

More usually, these forfeitures created by statute are given at large, to any common informer; or, in other words, to any such person or persons as will sue for the same: and hence such actions are called popular actions, because they are given to the people in general. Sometimes one part is given to the king, to the poor, or to some public use, and the other part to the informer or prosecutor, and then the suit is called a qui tam action, because it is brought by a person, “qui tam pro domino rege quam pro se ipso in hac parte sequitur.” If the king therefore himself commences this suit, he shall have the whole forfeiture. But if any one hath begun a qui tam, or popular action, no other person can pursue it; and the verdict passed upon the defendant in the first suit is a bar to all others, and conclusive even to the king himself.
4

Qui tam enlists the public in the recovery of civil penalties and forfeitures. It rewards with a portion of the recovered proceeds those who sue in the government’s name. Qui tam lives on in federal law only in the FALSE CLAIMS ACT and in two minor examples found in patent and Indian protection laws. In Vermont Agency of Natural Resources v. United States ex rel. Stevens, the Supreme Court identified four contemporary federal qui tam statutes: the FALSE CLAIMS ACT, the PATENT ACT, and two Indian protection laws. 529 U.S. 765, 768-69 n.1 (2000), referring to 31 U.S.C. §§3729-3733; 35 U.S.C. §292; 25 U.S.C. §81; and 25 U.S.C. §201, respectively. A fifth, not identified, 26 U.S.C. §7341 (sale of untaxed, taxable property), appears to have been rarely used. One of the Indian protection statutes, 25 U.S.C. §81, has since been amended so that it no longer authorizes a qui tam action.

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allow the Government to pay a “bounty” to a whistleblower. This article surveys whistleblower laws that have been enacted since 2007. These laws can be divided into two categories. On one side of the ledger are the laws that protect whistleblowers from acts of reprisal by employers. An example of such a law is Section 1057 of the DODD-FRANK ACT, which protects financial services industry employees who report certain violations of the law. On the other side of the ledger are the laws, commonly called “bounty” or “informer” laws, that reward informers who presents evidence of fraud to the Government. The IRS Whistleblower Reward Program and the DODDFRANK ACT Whistleblower Incentive Program are examples of recently enacted bounty laws. Among all of the laws surveyed in this article, the FALSE CLAIMS ACT is unique in that it is the only statute that has a qui tam provision, which permits a whistleblower to sue for himself and the Government with the entitlement to be awarded a percentage of what the Government recovers. II. THE DODD-FRANK ACT OF 2010 A. Overview of the Dodd-Frank Act’s Bounty Programs and Protections for Whistleblowers Against Reprisal On July 21, 2010, President Obama signed into law the DODD-FRANK WALL STREET REFORM AND CONSUMER PROTECTION ACT (DODD-FRANK ACT) 73, Pub. L. No. 111-203, 124 Stat 1841, 111th Congress (July 21, 2010). The DODD-FRANK ACT is massive in scope and significantly changes the law as it relates to rewarding and protecting whistleblowers. It strengthens existing whistleblower protections and attempts to close “loop-holes” for employees in the financial services industry. Of significance is the creation of bounty programs, new anti-reprisal causes of action that can be filed against employers that retaliate against employers, and a new administrative process for the adjudication of some of those bounty and reprisal claims. The bounty provisions are not specifically qui tam actions, but do allow the Government to pay an award to an informer who presents information that leads to a financial recovery by the Government. The DODD-FRANK ACT whistleblower programs intend to shed light on company violations by providing incentives for employees to report those violations. Significantly, these programs do not require most employees to first use or to exhaust internal compliance reporting processes to receive a bounty award or protection from reprisal. Some types of employees, however, are excluded being awarded a bounty. In May and August 2011, respectively, the Securities and Exchange Commission (SEC or the
2

“Commission”) and Commodity Futures Trading Commission (CTFC) adopted final rules to implement these whistleblower programs. Furthermore, the SEC’s new Office of the Whistleblower has launched and started listing successful enforcement actions from which whistleblowers can make claims for awards. 5 The SEC Whistleblower Incentive (Bounty) Program 1. Introduction to the SEC Whistleblower Incentive Program (Section 922) Section 922 of the DODD-FRANK ACT, entitled “Whistleblower Protection,” amended the SECURITIES EXCHANGE ACT of 1934 6 (SEC ACT) by creating a bounty program (the “Securities Whistleblower Incentives and Protection” program) for whistleblowers who voluntarily provide “original information” to the SEC about securities violations that result in the imposition of monetary sanctions greater than $1,000,000. 7 The bounty amount can range between ten to thirty percent of the money collected. Rather than being a qui tam action, it is a whistleblower bounty program. Congress created and has funded the SEC Investor Protection Fund to make such awards. SEC ACT at §21f(g)(1). The SEC is to use the fund for “paying awards to whistleblowers as provided.” Id. at §21f(g)(2). In addition, Section 922 enhances existing protections to whistleblowers under the SARBANESOXLEY ACT (H.R. 3763, Pub. L. 107-204, 116 Stat 745, 107th Congress July 30, 2002). Finally, Section 922 creates an entirely new whistleblower antireprisal cause of action that an employee can file in U.S. District Court against employers. The SEC’s final rules implementing Section 922 became effective on August 12, 2011. The rules define important terms and outline procedures for applying for awards and making decisions on bounty claims. Before adopting the Final Rules, the SEC considered comments from “individuals, whistleblower advocacy groups, public companies, corporate compliance personnel, law firms and individual lawyers, academics, professional B.

See SEC OFFICE OF THE WHISTLEBLOWER, Claim An Award, (November 8, 2011), available at http://www.sec.gov/about/offices/owb/owb-awards.shtml
6 7

5

15 U.S.C. §§78a et seq.

To meet this $1,000,000 threshold, the SEC may also aggregate two smaller actions that arise from the same nucleus of operative facts. See 17 C.F.R. §240.21F-4(d)(2).

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associations, nonprofit organizations and audit firms” 8 One significant change based upon comments related to employee use of internal compliance processes. Although not required to use such processes, employees who first report violations through those processes are allowed to receive additional bounty incentives. See infra. Who may File an SEC Whistleblower Bounty Claim A “whistleblower” who “voluntarily” provides “original information” may file an SEC bounty claim. SEC ACT at §21f(a)(6) (stating “’whistleblower’ means any individual who provides, or 2 or more individuals acting jointly who provide, information relating to a violation of the securities laws to [the] Commission, in a manner established by rule or regulation by the Commission.”); see also 17 C.F.R. §240.21F-2(a) (stating “[a] company or another entity is not eligible to be a whistleblower.”). A whistleblower must “voluntarily” submit original information. 17 C.F.R. §240.21F-4(a) provides that the whistleblower must submit information before a request for information to the whistleblower (or whistleblower’s representative) is made by the Commission, Congress or other authorized authority. Likewise, a whistleblower who has a legal to duty to report original information to the Commission, Congress, or other authorized authority does not “voluntarily” submit original information. Id. at §240.21F-4(a)(3). 9 The definition of “original information” 10 is important because it weeds out whistleblowers who do not base their bounty claim on first-hand or original source information. “Original information” is
SECURITIES AND EXCHANGE COMMISSION, FINAL RULE: IMPLEMENTATION OF THE WHISTLEBLOWER PROVISIONS OF SECTION 21F OF THE SECURITIES EXCHANGE ACT OF1934, SEC Release No. 34-64545; File No. S7-33-10 (adopted May 25, 2011) [hereafter Adopting Release].
9 8

defined in the statute to mean information that: (A) is derived from the independent knowledge or analysis of a whistleblower; (B) is not known to the Commission from any other source, unless the whistleblower is the original source of the information; and (C) is not exclusively derived from an allegation made in a judicial or administrative hearing, in a governmental report, hearing, audit, or investigation, or from the news media, unless the whistleblower is a source of the information.” 11 SEC ACT at §21F(a)(3). So long as a person voluntarily provides “original information,” any person (not just an employee or insider) may file an SEC bounty claim. Id.; see also 17 C.F.R. §240.21F-8 (stating that a whistleblower must also “give the Commission information in the form and manner it requires. The procedures for submitting information and making a claim for an award are described in §240.21F-9 through §240.21F-11”) A whistleblower can file a claim pro se or with counsel; however, a whistleblower may file a bounty claim anonymously only if represented by counsel. 17 C.F.R. § 240.21F-7(b)(1). Before an award is paid, the whistleblower’s identity shall be revealed to the SEC and the SEC shall be provided any requested information about the whistleblower. Id. at §240.21F79(b)(3). Failure to do so authorizes the SEC to not pay the claim. As a practical matter and in order to be successful, most whistleblowers will want to reveal their identity in order to work hand-in-hand with the SEC. The bounty amount to be awarded is at the discretion of the SEC and should not be influenced by the balance in the Investor Protection Fund. However, the SEC is required to consider the following four factors that would increase the amount to be awarded to an SEC whistleblower. (1) the significance of the information provided by the whistleblower to the success of the covered judicial or administrative action; (2) the degree of assistance provided by the whistleblower and any legal representative
11

2.

The SEC clarified that the employee (and not the employer) must have a duty to report information to preclude a whistleblower from eligibility (for failure to meet the voluntariness requirement). Furthermore, an employer cannot preclude employees from whistleblower eligibility by requiring all of them to sign a contract stating they will report violations to an authorized authority. See Adopting Release, supra note 11 at 35-36.

The term “original information” or “original source” is important to bounty statutes. For example, the FALSE CLAIMS ACT precludes certain whistleblowers from acting as qui tam relators unless they qualify as an “original source.” Such a limitation is a mechanism to weed out parasitical bounty claims or actions of which the Government has prior knowledge. 3

10

17 C.F.R. §240. 21F-4(b) further defines “independent knowledge” and “independent analysis.”

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of the whistleblower in a covered judicial or administrative action; (3) the programmatic interest of the Commission in deterring violations of the securities laws by making awards to whistleblowers who provide information that lead to the successful enforcement of such laws; and (4) such additional relevant factors as the Commission may establish by rule or regulation. SEC ACT at §21F(c)(1) (“Determination of Amount of Award”). 17 C.F.R. §240.21F-6 adds additional relevant factors to the consideration of award amount. Section 240.21F-6(a) restates and further explains the criteria in the statute but also adds “participation by whistleblower in internal compliance systems” to the list. On the other hand, a whistleblower award may be reduced if the following factors are indicated: 1. 2. 3. Culpability of the whistleblower; Unreasonable reporting delay by the whistleblower; and Interference with internal compliance and reporting systems by the whistleblower.

(v) a law enforcement organization; (B) is convicted of a criminal violation related to the judicial or administrative action for which the whistleblower otherwise could receive an award under this section; (C) gains the information through the performance of an audit of financial statements required under the securities laws and for whom such submission would be contrary to the requirements of section 10A of the Securities Exchange Act of 1934 (15 U.S.C. 78j–1); or (D) fails to submit information to the Commission in such form as the Commission may, by rule, require. Id. at §21F(c)(2). The SEC is also precluded from paying an award to a whistleblower who “knowingly and willfully makes any false, fictitious, or fraudulent statement or representation; or . . . uses any false writing or document knowing the writing or document contains any false, fictitious, or fraudulent statement or entry.” Id. at §21F(i). No Amnesty Although whistleblowers who engage in culpable conduct could be eligible for a bounty award, the whistleblower provisions do not provide amnesty or immunity to individuals who provide information to the SEC. Thus, the SEC may still bring an enforcement action against a whistleblower based on conduct in connection with violations of federal securities laws. 17 C.F.R. §240.21F-15. Regarding paying a whistleblower who has dirty hands, the SEC will consider the degree of culpability. The SEC Claim Procedures and Administrative Process The SEC rules provide procedures for submitting original information (17 C.F.R. §240.21F-9) and making a claim based on a successful SEC action (17 C.F.R. § 240.21F-10). The whistleblower can submit original information electronically or can mail or fax “Form TCR” (Tip, Compliant or Referral) to the SEC Office of the Whistleblower. 17 C.F.R. §240.21F-9. If there is a successful SEC action based on the whistleblower’s information, the SEC puts out a “Notice of Covered Action” on the SEC website. Id. at § 240.21F-10. The whistleblower then has 90 days to make a claim for award based on the successful 5. 4.

Id. at §240.21F-6(b)(1)-(3). Finally, while not explicitly stated in the Act or its implementing regulations, the SEC is very much interested in deterring future violations. Small recoveries paid by offenders may not sufficiently deter future wrongdoing. If offenders merely get a “slap on the wrist”, then they may not be deterred from committing future bad acts. 3. Who is Precluded from being Paid an Award So long as ”original information” is voluntarily provided, any natural person may file an SEC bounty claim. However, Congress restricts the SEC from paying an award to certain people. SEC ACT at §21F(c)(2). The SEC is not authorized to pay a claim to any whistleblower who: (A) is, or was at the time the whistleblower acquired the original information submitted to the Commission, a member, officer, or employee of— (i) (ii) (iii) (iv) an appropriate regulatory agency; the Department of Justice; a self-regulatory organization; the Public Company Accounting Oversight Board; or
4

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commission action by filing a “Form WB-APP.” Id. After the covered action has completely concluded, the SEC evaluates bounty submissions 12 and makes a Preliminary Determination about an award. Id. at §240.21F-10(d). The whistleblower has 60 days to contest the award determination; otherwise, the preliminary determination becomes the Final Order of the SEC. Id. at §240.21F-10(h). 13 No Right to Judicially Appeal an SEC Bounty Determination Unlike the CFTC Whistleblower Incentive Program, see infra, an SEC whistleblower has no right to appeal to a U.S. District Court the denial or amount of an award by the SEC. See DODD-FRANK ACT at §922, amending SEC ACT at §21F(f) (stating “[a]ny determination made under this section, including whether, to whom, or in what amount to make awards, shall be in the discretion of the Commission.”). C. Interplay of SEC Whistleblower Program and Company Internal Compliance Processes Before adopting its final rules, the SEC received many public comments encouraging it to require that whistleblowers first report violations internally to qualify for an award. 14 Ultimately, the SEC did not include this requirement in its final rules. The SEC recognized, however, that internal compliance programs play a significant role in achieving compliance with securities laws. 15 To better incentivize whistleblowers to use internal compliance processes, the SEC made a number of changes to its final rules. These changes provide benefits to whistleblowers who first report violations internally: 1. The “Amount of Award” Benefit: A whistleblower’s voluntary participation in an entity’s internal compliance and reporting systems is a factor that can increase the amount of the (bounty) award. Conversely, a whistleblower’s interference with internal compliance and reporting is a factor that can 6.

2.

3.

decrease the amount of the (bounty) award. See 17 C.F.R. §240.21F-6. The “Full Credit” Benefit: If a whistleblower reports a violation internally, and that entity reports that information to the SEC, then all of the information provided by the entity to the Commission will be attributed to whistleblower in determining the award amount. See 17 C.F.R. §240.21F4(c)(3). The “Look-back Period” Benefit: A whistleblower who first reports to an entity’s internal compliance program of a possible securities law violation, and within 120 days reports to the SEC, could be an eligible whistleblower whose submission is measured as if it had been made at the earlier internal reporting date. See 17 C.F.R. § 240.21F-4(b)(7) (this look-back period is significant for determining which whistleblower provided “original information).

D. New Reprisal Cause of Action for SEC Whistleblowers that can be filed in U.S. District Court (no exhaustion of administrative remedies required) Congress created an anti-reprisal cause of action to protect whistleblowers who provide information to or assist the SEC in an investigation or judicial or administrative action that is based upon the whistleblower’s bounty claim and other protected disclosures (e.g., reports of violations of law that the SEC enforces). See DODD-FRANK ACT at §922, 16

§922 of the DODD-FRANK ACT amends Section 21F(h) of the SEC ACT, which provides: PROTECTION OF WHISTLEBLOWERS.—(1) PROHIBITION AGAINST RETALIATION.— (A) IN GENERAL.—No employer may discharge, demote, suspend, threaten, harass, directly or indirectly, or in any other manner discriminate against, a whistleblower in the terms and conditions of employment because of any lawful act done by the whistleblower— (i) in providing information to the Commission in accordance with this section; (ii) in initiating, testifying in, or assisting in any investigation or judicial or administrative action of the Commission based upon or related to such information; or (iii) in 5 making disclosures that are

16

The SEC may request additional information relating to eligibility or satisfaction of conditions for the award. 17 C.F.R. §240.21F-10(d).
13

12

If the Whistleblower objects, the Claims Review Staff will evaluate WB submission and objections and prepare a proposed final determination. Unless, any commissioner requests full review of the decision, the proposed final determination will be the Final Order. 17 C.F.R. §240.21F10(h). See Adopting Release, supra note 10. See Adopting Release, supra note 10 at 32-34.

14 15

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adding Section 21F(h)(1) to the SEC ACT. The coverage of the action is broad. This provision applies to all employers, prohibits “harassment” and other acts of reprisal, permits a non-Governmental employee to file in U.S. District Court, requires no administrative pre-suit filing, and voids 17 arbitration agreements. SEC ACT at §21f(h)(1)(A). 18 The anti-reprisal protections apply to whistleblowers whether or not they qualify for an award. 17 C.F.R. § 240.21F-2(b)(ii). However, a whistleblower must have a “reasonable belief” that the information he or she provides relates to a possible securities violation to qualify for anti-reprisal protections. Id. at § 240.21F-2(b)(i). The SEC included this “reasonable belief” standard to alleviate concerns that employees could submit bad faith or

required or protected under the SarbanesOxley Act of 2002 (15 U.S.C. 7201 et seq.), the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.), including section 10A(m) of such Act (15 U.S.C. 78f(m)), section 1513(e) of title 18, United States Code, and any other law, rule, or regulation subject to the jurisdiction of the Commission. §922(c) of the DODD-FRANK ACT added 18 U.S.C. §1412A(e), which voids arbitration agreements. Here is the new statutory language: (e) NONENFORCEABILITY OF CERTAIN PROVISIONS WAIVING RIGHTS AND REMEDIES OR REQUIRING ARBITRATION OF DISPUTES.— (1) WAIVER OF RIGHTS AND REMEDIES.—The rights and remedies provided for in this section may not be waived by any agreement, policy form, or condition of employment, including by a predispute arbitration agreement. (2) PREDISPUTE ARBITRATION AGREEMENTS.—No predispute arbitration agreement shall be valid or enforceable, if the agreement requires arbitration of a dispute arising under this section.
18 17

frivolous claims merely to obtain protection from termination. 19 Employers may not require employees to waive or limit their anti-retaliation rights under Section 21F. In its adopting release, the SEC stated “because Section 21F is codified in the Exchange Act, it is covered by Section 29(a) of the Exchange Act, which specifically provides that “[a]ny condition, stipulation, or provision binding any person to waive compliance with any provision of this title or any rule or regulation thereunder . . . shall be void.” 20 The statute of limitations for whistleblowers who allege reprisal is long. 21 A whistleblower may bring the action up to six years after the violation of the law (SEC ACT, SARBANES-OXLEY ACT, among other laws) or three years after the date when “facts material to the right of action are known or reasonably should have been known” by the whistleblower. SEC ACT at §21F(h)(1)(B)(iii)(I). However, no action may be brought more than ten years after the date of the violation. Id. at §21F(h)(1)(B)(iii)(II). The recoverable remedies include reinstatement with seniority, back pay with interest, and compensation for any special damages sustained as a result of the discharge or discrimination, including litigation costs, expert witness fees, and reasonable attorney fees. SEC ACT at §21F(h)(1)(C). 22
19 20 21

See Adopting Release, supra note 10 at 16. See Adopting Release, supra note 10 at 19-20. §922(c)(B)(iii) of the DODD-FRANK ACT provides: STATUTE OF LIMITATIONS.— (I) IN GENERAL.—An action under this subsection may not be brought— (aa) more than 6 years after the date on which the violation of subparagraph (A) occurred; or (bb) 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 employee alleging a violation of subparagraph (A). (II) REQUIRED ACTION WITHIN 10 YEARS.—Notwithstanding sub clause (I), an action under this subsection may not in any circumstance be brought more than 10 years after the date on which the violation occurs.

§922(h)(B)(i) provides: (B) ENFORCEMENT.— (i) CAUSE OF ACTION.—An individual who alleges discharge or other discrimination in violation of subparagraph (A) may bring an action under this sub section in the appropriate district court of the United States for the relief provided in subparagraph (C). 6
22

§922(h)(C) provides: (C) RELIEF.—Relief for an individual prevailing in an action brought under subparagraph (B) shall include— (i) reinstatement with the same seniority

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E.

Resources -- DODD-FRANK ACT’S SEC Bounty Programs and Protections for Whistleblowers Against Reprisal SEC OFFICE OF THE WHISTLEBLOWER, Claim An Award, (November 8, 2011), available at http://www.sec.gov/about/offices/owb/owbawards.shtml Securities and Exchange Commission, Final Rule: Implementation of the Whistleblower Provisions of Section 21F of the Securities Exchange Act of1934, SEC Release No. 3464545; File No. S7-33-10 (adopted May 25, 2011) (available at http://www.sec.gov/rules/final/2011/3464545.pdf) U.S. Security and Exchange Commission, Annual Report on Whistleblower Program (Nov. 2011) Office of Whistleblower website, available at www.sec.gov/whistleblower

• •

F.

Funding of the SEC Whistleblower Program As of September 30, 2011, the Fund was fully funded, with an ending balance of $452,788,043.74. FY 2011 FY 2010
$0.00

Balance of Fund at beginning of preceding fiscal year Amounts deposited into or credited to Fund during preceding fiscal year Amount of earnings on investments during preceding fiscal year Amount paid from Fund during preceding fiscal year to whistleblowers Amount disbursed to Office of the Inspector General during preceding fiscal year Balance of Fund at end of the preceding fiscal year

$451,909,854

$0.00

$451,909,854

$990,562

$0

$0

$0

($112,372)

$0.00

$452,788,043

$451,909,854

G. The Commodity Futures Trading Commission (CFTC) Whistleblower Bounty Program and Anti-Reprisal Protections for Whistleblowers Congress established the Commodity Futures Trading Commission (CFTC) as an independent agency in 1974. The CFTC has jurisdiction to regulate commodity futures and option markets, which, over the years, have expanded from agriculture products to a much broader bundle of commodities such as the energy, agriculture, metals, financial, and livestock industries. Five commissioners, appointed by the President and approved by the Senate, administer the CFTC. Title VII (Wall Street Transparency and Accountability), Part II (Regulation of Swap Markets) of the DODD-FRANK ACT contains provisions to provide incentives and protections for another class of whistleblowers. Section 748 of the DODD-FRANK ACT amends the COMMODITY EXCHANGE ACT by adding section 23, titled “Commodity Whistleblower Incentives and Protection.” DODD-FRANK ACT at §748, Pub. L. No. 111-203, 124 Stat. 1841 (2010). As amended, Section 23 of the COMMODITY EXCHANGE ACT directs that the CFTC must pay awards, subject to certain limitations and conditions, to whistleblowers who voluntarily provide it with original information about a violation of the COMMODITY EXCHANGE ACT, f that information leads to a successful enforcement action brought by the CFTC resulting in monetary sanctions exceeding $1,000,000. 23 The CTFC’s final rules for implementing the whistleblower provisions became effective on October 24, 2011. The Commission received more than 635 comment letters 24 addressing issues such as internal compliance programs, exclusion of certain individuals from the program, procedures for submitting and making claims, and the anti-retaliation provisions. 25 In adopting its final rules, the CFTC stated that, where appropriate and consistent with its statutory mandate, it had considered the SEC’s whistleblower rulemaking and “endeavored to harmonize” the two sets of rules. 26 As a result, many of the final rules are the same or similar to the SEC rules.

23

status that the individual would have had, but for the discrimination; (ii) 2 times the amount of back pay otherwise owed to the individual, with interest; and (iii) compensation for litigation costs, expert witness fees, and reasonable attorneys’ fees. 7

To meet this $1,000,000 threshold, the CTFC may also aggregate two smaller actions “that arise from the same nucleus of operative facts.” 17 C.F.R. §165.2( a)(1).

Public comments are available at http://comments.cftc.gov/PublicComments/CommentList.as px?id=916
25 26

24

17 C.F.R. Part 165, Background and Summary. Id.

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Introduction to the CFTC Incentive (Bounty) Program (Section 748) Section 748 of the DODD-FRANK ACT amends the COMMODITY EXCHANGE ACT 27 and creates a bounty program for whistleblowers who provide original information to the CFTC that results in the imposition of monetary sanctions greater than $1 million. As with the SEC Whistleblower Program, the CFTC program is not a qui tam action; it is a whistleblower bounty program. The CFTC program provides: In any covered judicial or administrative action, or related action, the Commission, under regulations prescribed by the Commission and subject to subsection (c), shall pay an award or awards to 1 or more whistleblowers who voluntarily provided original information to the Commission that led to the successful enforcement of the covered judicial or administrative action, or related action, in an aggregate amount equal to— (A) not less than 10 percent, in total, of what has been collected of the monetary sanctions imposed in the action or related actions; and (B) not more than 30 percent, in total, of what has been collected of the monetary sanctions imposed in the action or related actions. See DODD-FRANK ACT at §748, to be codified at 7 U.S.C. § 23(b)(1). 28 Payments are made from the CFTC Protection Fund. Id., to be codified at 7 U.S.C. §§23(a)(2) and (g). The CFTC has the discretion to set the award amount, but the DODD-FRANK ACT lists the criteria that the CFTC should consider: • • • The significance of the whistleblower’s information to the success of the action against the wrongdoer; The degree of the whistleblower’s assistance (as well as counsel); The CFTC’s programmatic interest in deterring violations of the COMMODITY EXCHANGE ACT;

1.

and Additional relevant factors as established by CFTC’s regulations.

Id., to be codified at 7 U.S.C. §23(c)(1)(B)(i). The CFTC “shall not take into consideration the balance of the Fund” when deciding how much to award the whistleblower. Id., to be codified at 7 U.S.C. §§23(c)(1)(B)(ii). The CTFC final rules clarify and expand on the list of criteria that the CTFC will consider in making an award. As with the SEC final rules, the CTFC added “participation in internal compliance systems” to the list of criteria that the CFTC would consider in determing whether to raise the bounty amount. 17 C.F.R. §165.9. Likewise, the rules include factors that will decrease the amount of the whistleblower’s award including: interference with internal compliance and reporting systems, culpability, and unreasonable reporting delay. Id. Who may File a CFTC Bounty Claim A “whistleblower”, who voluntarily provides “original information”, may file a bounty claim. See DODD-FRANK ACT at §748, amending §23(a)(7) of COMMODITY EXCHANGE ACT (defining ‘‘WHISTLEBLOWER.—The term ‘whistleblower’ means any individual who provides, or 2 or more individuals acting jointly who provide, information relating to a violation of this Act to the Commission, in a manner established by rule or regulation by the Commission.”). The limitations of “original information” 29 is important, and is defined by the COMMODITY EXCHANGE ACT at Section 23(a)(4) as information that: (A) is derived from the independent knowledge or analysis of a whistleblower; (B) is not known to the CFTC from any other source, unless the whistleblower is the original source of the information; and (C) is not exclusively derived from an allegation made in a judicial or administrative hearing, in a governmental report, hearing, audit, or investigation, or from the news media, unless the whistleblower is a source of the 2.

27 28

7 U.S.C. §§1 et seq.

All citations are to the COMMODITY EXCHANGE ACT, which was amended by §748 of the DODD-FRANK ACT to create the CFTC whistleblower bounty program, to be codified at 7 U.S.C. §§1 et seq., 8

The term “original information” or “original source” is important to bounty statutes. For example, the FALSE CLAIMS ACT precludes certain whistleblowers from acting as qui tam relators unless they qualify as an “original source.” Such a limitation is a mechanism to weed out parasitical bounty claims or actions of which the Government has prior knowledge.

29

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information. 17 C.F.R.§165.2(o)(1) provides that original information is voluntary if made prior to any request from the CFTC, Congress or any other authorized authority. Likewise, information cannot be voluntary if the whistleblower is under a pre-existing legal or contractual duty to report the violations that are the subject of whistleblower’s information. Id. at §165.2(o)(2). A Whistleblower can file a claim pro se or with counsel. Id., to be codified at 7 U.S.C. §23(d)(1). The ACT permits a whistleblower to file a bounty claim anonymously, but only if represented by counsel. Id., to be codified at 7 U.S.C. §23(d)(2)(A). Before an award is paid, the whistleblower’s identify and any other requested information shall be revealed to the CFTC. Id., to be codified at 7 U.S.C.§23(d)(2)(B). 3. Who is Precluded from being Paid a CFTC Bounty Claim Although anyone can file a bounty claim, Congress restricts the CFTC from paying an award to certain people. Id., to be codified at 7 U.S.C.§23(c)(2). No award under subsection (b) shall be made to any whistleblower who: (A) is, or was at the time the whistleblower acquired the original information submitted to the CFTC, a member, officer, or employee of— (i) an appropriate regulatory agency; (ii) the Department of Justice; (iii) a registered entity; (iv) a registered futures association; (v) a self-regulatory organization as defined in section 3(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)); or (vi) a law enforcement organization; (B) is convicted of a criminal violation related to the judicial or administrative action for which the whistleblower otherwise could receive an award under this section; (C) submits information to the CFTC that is based on the facts underlying the covered action submitted previously by another whistleblower; (D) fails to submit information to the CFTC in such manner deemed appropriate or
9

required by the CFTC. No Amnesty Similar to the SEC rules, the CTFC rules clarify that the Commodity Whistleblower Incentives and Protections Program does “not provide individuals who provide information to the Commission with immunity from prosecution.” 17 C.F.R. §165.16. Thus, a whistleblower who provides false information to the CFTC may expose himself to criminal prosecution. Id., to be codified at 7 U.S.C. §23(m) (citing 18 U.S.C. §1001). Nevertheless, whistleblowers who engage in culpable conduct are not restricted from obtaining an award. The CFTC Claim Procedures and Administrative Process To submit original information to the CFTC, a whistleblower must complete a “Form TCR” and submit it online, or by fax or mail. 17 C.F.R. §165.3(a)(1)-(2). Once there is a (final) judicial or administrative action resulting in sanctions more than $1,000,000 the CFTC publishes a “Notice of Covered Action” on its website. Id. at §165.7(a). The CTFC clarifies that it “will not contact claimants directly”; thus, claimants must monitor the CFTC’s website to see if they are eligible for an award. Id. To claim an award the whistleblower must file Form WB-APP with the CTFC within 90 days. Id. In the process of evaluating whistleblower claims and bounty amounts, the CFTC may ask for additional information from the whistleblower. Following its evaluation, the Commission sends a Final Order to the whistleblower setting forth whether claim is allowed and the award percentage. This Final Order is judicially appealable. Id. at §165.7(d). Whistleblower can Judicially Appeal the CFTC’s Bounty Determination The CFTC has the sole discretion to determine “whether, to whom, or in what amount to make awards.” Id., to be codified at 7 U.S.C.§23(f)(1). But the whistleblower may appeal that decision “to the appropriate court of appeals of the United States not more than 30 days after the determination is issued by the Commission.” Id. at §23(f)(2). The right to appeal is in direct contrast with the SEC Whistleblower program, 30 which does not permit whistleblower appeals as to amounts. 6. 5. 4.

30

DODD-FRANK ACT at §922.

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F.

Interplay of the Whistleblower Award Program and Company Internal Compliance Processes: In adopting its Final Rules, the CTFC also clarified that it would incentivize whistleblowers to use company internal compliance processes. The CTFC harmonized these incentives with those of the SEC. In particular, it repeated incentives offered by the SEC: 1. Amount of Award Benefit: The CTFC will consider use of internal compliance processes as a factor that positively affects the amount of the award. Conversely, the CFTC will consider interference with internal compliance processes as a factor that negatively affects the amount of the award. 17 C.F.R. §169.9(b)(4), (c)(3) The “Full Credit” Benefit: If a whistleblower reports original information internally, and that entity later reports that information to the CFTC, all of the information provided by entity to the CFTC will be attributed to the whistleblower. Id at §165.2(i)(3).

A whistleblower must bring the action no later than two years after the date of adverse personnel action. Id., to be codified at 7 U.S.C. §23(h)(1)(B)(iii). The recoverable remedies include reinstatement with seniority, back pay with interest, and compensation for any special damages sustained as a result of the discharge or discrimination, including litigation costs, expert witness fees, and reasonable attorney fees. Id. , to be codified at 7 U.S.C. §23(h)(1)(C). Similar to the SEC program, the anti-reprisal protections apply whether or not the whistleblower qualifies for an award. Likewise, to limit potential abuse, the protections apply only if the whistleblower maintains a “reasonable belief” that the information provided relates to a possible securities violation. 17 C.F.R. §165.2 (p)(2)(i). 2. Arbitration Agreements Void Section 23(h) of the COMMODITY EXCHANGE ACT and 17 C.F.R.§165.19 provide that “the rights and remedies provided for in this Part 165 [whistleblower protections] of the Commission’s regulations may not be waived by any agreement, policy, form, or condition of employment including by a predispute arbitration agreement. No predispute arbitration agreement shall be valid or enforceable, if the agreement requires arbitration of a dispute arising under this Part.” H. Resources -- DODD-FRANK ACT’S CFTC Bounty Programs and Protections for Whistleblowers against Reprisal • Commodity Futures Trading Commission 17 C.F.R. Part 165 (available at: http://www.cftc.gov/ucm/groups/public/@lrfeder alregister/documents/file/2011-20423a.pdf)

2.

G. New Reprisal Cause of Action for CFTC Whistleblowers 1. Whistleblowers Protected Against Reprisal (no exhaustion of administrative remedies required) Congress created an anti-reprisal cause of action to protect whistleblowers who provide information to or assist the CFTC in an investigation or judicial or administrative action that is based upon the whistleblower’s bounty claim. See DODD-FRANK ACT at §748, amending §23(h) of COMMODITY EXCHANGE ACT. The coverage of the action is broad. This provision applies to all employers, prohibits “harassment” and other acts of reprisal, permits a nonGovernmental employee to file in U.S. District Court, and requires no administrative pre-suit filing. Id., to be codified at 7 U.S.C. §§23(h)(1)(A) and (B). The scope of the activity protected is also large. 31
31

As amended, Section 23(h)(1) of the COMMODITY EXCHANGE ACT provides: No employer may discharge, demote, suspend, threaten, harass, directly or indirectly, or in any other manner discriminate against, a whistleblower in the terms and conditions of employment because of any lawful act done by the whistleblower— (i) in providing Commission in information to the accordance with 10

New Reprisal Cause of Action for Whistleblowers in the “Financial Services Industry” (Section 1057 of the DODD-FRANK ACT) Title X of the DODD-FRANK ACT created the Bureau of Consumer Financial Protection (the “Bureau”). DODD-FRANK ACT at §1011. The Bureau has broad powers to “regulate the offering and provision of consumer financial products or services under the Federal consumer financial laws.” Id.
subsection(b); or (ii) in assisting in any investigation or judicial or administrative action of the Commission based upon or related to such information. 7 U.S.C. §23(h)(1).

I.

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Congress obviously felt so strongly about the importance of such regulation that the Bureau was bestowed the status of an executive agency. Id. Introduction to Section 1057 of the DODDFRANK ACT Section 1057 of the DODD-FRANK ACT creates a whistleblower cause of action for employees of the financial services industry. Among other things, this section protects employees who provide information reasonably believed to be a violation of the CONSUMER FINANCIAL PROTECTION ACT OF 2010 (Title X of the DODD-FRANK ACT) or any other law subject to jurisdiction of the Bureau to their employers or to the government . Section 1057 requires an employee to file a complaint with the Department of Labor (DoL) for administrative adjudication. The DoL has the authority to order broad remedies, which ultimately could be enforced by the DoL. The employee has a right to file a civil action in U.S. District Court. As with the other newly enacted whistleblower claims, Section 1057 provides a burden-shifting mechanism favorable for employees. However, Section 1057 has no qui tam or bounty provision—it is merely an antireprisal cause of action. Who is Covered Employee Section 1057(b) defines a “covered employee” to mean “any individual performing tasks related to the offering or provision of a consumer financial product or service.” As of the end of 2011, the Bureau had not published its regulations to further refine that statutory definition. Regardless, the plain language of the statute protects a broad spectrum of employees in industries ranging from credit agencies to the banking to the mortgage industries. Employer Section 1057 covers employers who engage in the offering or provision of a consumer financial product or service. The scope of coverage also encompasses affiliates who provide a related material service to the employer. 3. What is Protected Section 1057(a)(1)-(4) lists the employee’s acts that will be protected. An employer may not terminate or discriminate against an employee (or the employee’s representative) who, whether in the scope of his employment duties or outside of those duties, engages in the following: • “provided, caused to be provided, or is about to provide or cause to be provided, information to
11

1.

• •

the employer, the Bureau, or any State, local, or Federal, government authority or law enforcement agency relating to any violation of, or any act or omission that the employee reasonably believes to be a violation of [any law or regulation that is subject to the Bureau’s jurisdiction]; testified or will testify in any proceeding resulting from the administration or enforcement of any provision of [any law or regulating that is subject to the Bureau’s jurisdiction]; filed, instituted, or caused to be filed or instituted any proceeding under any Federal consumer financial law; or objected to, or refused to participate in, any activity, policy, practice, or assigned task that the employee reasonably believed to be in violation of [any law or regulating that is subject to the Bureau’s jurisdiction].”

DODD-FRANK ACT at 1057(a)(1)-(4). The Process (employee must exhaust administrative remedies before filing lawsuit) a. Administrative An employee is required to file an administrative complaint with the Department of Labor (DoL) within 180 days after the date on which the discriminatory act occurred. DODD-FRANK ACT at §1057(c)(1)(A). The DoL is then required to investigate the complaint and notify the employer of the complaint and process. Id. at §1057(c)(1)(B). The employer then must be afforded an opportunity to respond to the complaint. But no later than 60 day after the complaint was filed, the DoL is required to issue a determination of whether the complaint has merit. Id. at §1057(c)(2)(A). A preliminary order for relief can be issued by the DoL if it determines that a violation occurred. Within 30 days of that order, either party may request a DoL hearing. Id. at §1057(c)(2)(C). Within 120 days of that hearing, the DoL is required to issue a final order and can assess the penalties discussed in a later section Judicial If the DoL has failed to issue a final order 210 days after complaint was filed, or within 90 days after the date of a preliminary order, the employee—but not the employer—may file a civil action in U.S. District Court seeking a de novo review. Id. at §1057(c)(4)(D). If the case is removed for such a review, either party may request a jury trial. No later than 60 days after the DoL issues a final order, either party may file a petition for review with the circuit court of appeals. Id. at §1057(c)(4)(E). b. 4.

2. a.

b.

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Burden of Proof The employee has the initial burden of proving that his protected behavior was a “contributing factor in the unfavorable personnel action” taken against him. Id. at §§1057(c)(3)(A) and (C). The burden then shifts to the employer to prove, by clear and convincing evidence, that the same unfavorable personnel action would have been taken in the absence of the employee’s protected behavior. Id. at §1057(c)(3)(B) and (C). 5. Remedies a. The Department of Labor has the authority to assess the following penalties against the employer: reinstatement of the employee to his former position, with back pay, and restore the terms and conditions of his employment; compensatory damages; and attorney fees and costs (to include expert witness fees). DODD-FRANK ACT at §1057(c)(4)(B). A district court has the authority to grant: reinstatement with the same seniority status that the employee would have had, but for the discharge; back pay with interest; and compensation for “special damages sustained as a result of the discharge or discrimination” and litigation costs (which include attorneys fees and expert witness fees. DODD-FRANK ACT at §1057(c)(4)(D)(ii).

c.

whistleblower was required to make a report to a federal regulatory or law enforcement agency, member of Congress, or person with supervisory authority over the whistleblower. The whistleblower had to file an administrative complaint with OSHA within 90 days after he became aware of violation. If the Department of Labor issued no final decision within 180 days, the whistleblower was permitted to file a lawsuit in U.S. District Court. For many reasons, however, few whistleblowers were actually prevailed in these actions. In an attempt to encourage whistleblowers to report SEC rules violations, Congress “clarified” the SOX antiretaliation cause of action. Sections 922 and 929A of the Dodd-Frank Act “clarifies” the SOX Whistleblower Claim In Section 929A of the DODD-FRANK ACT, Congress clarified the SOX reprisal claim by expanding the scope of coverage to employees of privately-held subsidiaries of publicly traded corporations. 32 Many SOX retaliation claims were dismissed because the publicly traded corporation actually subject to SOX regulations employed few employees. Many employees who suffered retaliation after blowing the whistle were employed by privatelyheld entities that were not subject to SOX. Moreover, Section 922(b) further expands SOX coverage to employees of nationally recognized statistical ratings organizations, such as Moody’s Investors Service Inc., A.M. Best Company Inc., and Standard & Poor’s Ratings Service. DODD-FRANK ACT at §922(c), amending 18 U.S.C. §1514A(a). In addition, the DODD-FRANK ACT extended the SOX reprisal claim statute of limitations from 90 to 180 days. DODD-FRANK ACT at §922(c)(1), amending 18 U.S.C. §1514A(b)(2). Whistleblowers may remove their claims to U.S. District Court and have the right to a jury trial. Id. Finally, arbitration agreements that waive the rights and remedies afforded to SOX whistleblowers are void and a court is not authorized to enforce waivers of a whistleblower’s rights under SOX. DODD-FRANK ACT §922(c), amending 18 U.S.C. §1514A(e) 2.

• • •

b. • • •

6.

Arbitration Agreements Void Section 1057(d) makes void any agreement that requires arbitration for disputes under Section 1057, except for those that are part of a collective bargaining agreement. Finally, an employee may not waive the rights and remedies of Section 1057. Strengthening the SARBANES-OXLEY ACT’S Whistleblower Protections 1. Introduction to the Existing SOX Whistleblower Protections When enacted in 2002, the SARBANES-OXLEY ACT (SOX) contained a cause of action for whistleblowers against their employers. 18 U.S.C. §1514A. Among other areas of protection, whistleblowers were protected for reporting violations of SEC rules and regulations, federal crimes involving securities and fraud. To gain the protected status, the
12

J.

32

Section 929A of the DODD-FRANK ACT provides: Section 1514A of title 18, United States Code, is amended by inserting ‘‘including any subsidiary or affiliate whose financial information is included in the consolidated financial statements of such company’’ after ‘‘the Securities Exchange Act of 1934 (15 U.S.C. 78o(d))’’.

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III. THE PATIENT PROTECTION AND AFFORDABLE CARE ACT OF 2009 A. Overview of the HEALTH CARE ACT THE PATIENT PROTECTION AND AFFORDABLE CARE ACT OF 2009 (HEALTH CARE ACT or ACT) is a massive piece of legislation. Pub. L. No. 111-148, 124 Stat. 119 (Mar. 21, 2010). In enacting this Act, Congress continued its recent trend of relying upon whistleblowers to enforce compliance of the laws it passes. Section 1558 creates a robust whistleblower cause of action that protects employees against reprisal by employers. Section 6703 is interesting in that it makes whistle blowing mandatory for employees to report crimes committed against residents of federally funded long-term care facilities. Unlike the DODD-FRANK ACT or the IRS Whistleblower Program, however, Congress did not create a new bounty program for whistleblowers in the health care arena—more than likely because the qui tam provisions of the FALSE CLAIMS ACT have proven to be extremely effective in combating health care fraud. Section 1558 – Protections for Whistleblowers Introduction to Section 1558 - Scope of Coverage and Protections Section 1558 prohibits an employer from retaliating against an employee who blows the whistle about violations of Title I of the ACT. (Title I is expansive in its coverage, ranging from denial of health care insurance due to pre-existing conditions to failure to rebate excess premiums.) An employer may not “discharge or in any manner discriminate against any employee with respect to his or her compensation, terms, conditions, or other privileges of employment because the employee . . . [makes a protected report].” HEATH CARE ACT. at §1558, amending §18C(a)(2) of the FAIR LABOR STANDARDS ACT OF 1938. Protected reports include internal reports to an employer, the Federal Government, or a state attorney general about “any violation of, or any act or omission the employee reasonably believes to be a violation of [Title I of the ACT].” Id. In addition to these internal and external reports, the ACT protects an employee who “testified or is about to testify in a proceeding” related to violations of Title I of the ACT. Id. at §18C(a)(3). The ACT also protects an employee who participates or assists another in a proceeding related to violations of Title I of the ACT. Id. at §18C(a)(4). Finally, the ACT protects an employee who objects or refuses to participate in “any activity, policy, practice, or assigned task that the employee (or other such person) reasonably believed to be in violation of [the ACT] or any order, rule, regulation, standard, or ban under [the ACT]. Id. at §18C(a)(5). As it relates to this last protected activity, an employee need only show that he had a reasonable belief, even if mistaken, that a
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violation of Title I of the Act and its subsequent regulations and policies occurred. Procedure and Limitations Section 1558 simply incorporates the procedures, burden-shifting framework, remedies and statute of limitations set forth in the CONSUMER PRODUCT SAFETY IMPROVEMENT ACT OF 2008. Pub. L. No. 110-314 (Aug. 14, 2008), codified at 15 U.S.C. §2087(b). An employee must first exhaust his administrative remedies by filing a complaint with the Occupational Safety and Health Administration (OSHA) within 180 days of the employee becoming aware of the employer’s act of reprisal. OSHA is required to investigate the complaint and has authority to order preliminary relief, including reinstatement. Either party can appeal OSHA’s determination to the Department of Labor (DoL) for a de novo review by a DoL administrative law judge. A DoL judge does not have the authority, however, to stay an OSHA order of reinstatement. Either side can appeal the DoL judge’s decision to the DoL Administrative Review Board, and either party can appeal that decision to the circuit court of appeals in which the adverse action took place. In the alternative, if the DoL fails to issue a final decision within 120 days of the filing of the employee’s complaint, or within 90 days of receiving a written determination from OSHA, the employee can remove the claim to U.S. district court for a de novo review, and either party can request trial by jury. 15 U.S.C. §2087(b)(4). 3. Remedies An employer can be ordered to reinstate the employee and possibly be required to pay back pay with interest, “special damages,” attorney fees, litigation costs, and expert witness fees. Front (or advance) pay can be awarded where reinstatement is not feasible. THE PATIENT PROTECTION AND AFFORDABLE CARE ACT OF 2009 at §1558, incorporating 15 U.S.C. §2087(b)(4) (CONSUMER PRODUCT SAFETY IMPROVEMENT ACT OF 2008). Arbitration Agreements Void Consistent with the recent trend of voiding arbitration agreements, the HEALTH CARE ACT explicitly makes void arbitration agreements. HEALTH CARE ACT at §1558, amending §18C(b)(2) of the FLSA (providing “[t]he rights and remedies in this section may not be waived by agreement, policy, form, or condition of employment.”). 4. 2.

B. 1.

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C. Reporting Requirements for Federally Funded Long-Term Care Facilities – The ELDER JUSTICE ACT The ELDER JUSTICE ACT, set out in Section 6703 of the HEALTH CARE ACT, requires whistle blowing for certain activities. 33 See HEALTH CARE ACT at §6703, amending Part A of title XI of the SOCIAL SECURITY ACT. The owner or operator of a covered entity must educate its employees of their whistle blowing duties in the event of crimes committed against the facility’s residents. Specifically, for this section, a covered entity is a long-term care facility that receives at least $10,000 in federal funds per year In turn, the facility’s employees are required to report to the Secretary of Health and Human Services and to local law enforcement “any reasonable suspicion of a crime (as defined by the law of the applicable political subdivision) against any individual who is a resident of, or is receiving care from, the facility.” Id. Timing If the events that raise suspicion result in serious bodily injury, the suspected crime must be reported immediately and not more than “2 hours after forming the suspicion.” All other suspected crimes must be reported within 24 hours. Id. at § 1150B(b)(2). Penalties Failure to report a suspected crime can expose an employee, manager, or contractor to a civil penalty of up to $300,000. Id. at § 1150B(c)(2)(A). In addition, the ELDER JUSTICE ACT prohibits retaliation against an employee “because of lawful acts done by the employee.” Id. at § 1150B(d)(1)(A). If a long-term elderly care facility were to discharge, threaten, harass, or otherwise retaliate against an employee for making or helping to make a report about a crime being committed against residents of the facility, the facility would face a civil monetary penalty of up to $200,000 or being excluded from any federal healthcare program for two years. Id. at §1150B(d)(2). 2. 1.

IV. THE AMERICAN RECOVERY AND REINVESTMENT ACT OF 2009 (THE “RECOVERY ACT”) A. Introduction The AMERICAN RECOVERY AND REINVESTMENT ACT OF 2009 (the “RECOVERY ACT”) 34 is an unique piece of legislation for many reasons. Pub. L 111-5, (February 17, 2009). In addition to the hundreds of billions of dollars in appropriations, Congress also created perhaps the most robust whistleblower protections ever. Section 1553 of the RECOVERY ACT, called the “McCaskill Amendment,” covers all persons who or entities (including state and local governments) that receive funds under the RECOVERY ACT, protects employee internal disclosures, has a burden-shifting mechanism favorable for employees, and allows for significant remedies that can be prosecuted in federal court. But the McCaskill Amendment has a limited shelf life because the RECOVERY ACT was a one-time appropriation. It should be noted that the RECOVERY ACT has no qui tam or bounty provision; such an incentive was unnecessary because the qui tam provisions of the FALSE CLAIMS ACT can be used when suing those 35 who or that submit false claims as they relate to RECOVERY ACT funds. B. Retaliation Cause of Action for Whistleblowers 1. Who is Covered The McCaskill Amendment applies to any nonfederal employer who receives funds under the RECOVERY ACT. RECOVERY ACT at §1553(g)(4). Covered employers include contractors, subcontractors, grantees, state and local governments, and basically all other non–Federal employers who receive a contract, grant, or other payment appropriated or made available by the RECOVERY ACT. A covered employee is “an individual performing services on behalf of the employer” but does not include any federal employee or military service member. RECOVERY ACT at §1553(g)(3). 2. What is Protected Protected conduct includes a disclosure to a person with supervisory authority over the employee (i.e., internal disclosures), a State or Federal regulatory or law enforcement agency, a member of Congress, a court or grand jury, the head of a Federal
Pub. L. 111-5.

Such mandatory whistle blowing appears to be the trend. For example, the FEDERAL ACQUISITION REGULATION was amended, effective December 12, 2008, to require federal government contractors to disclose credible evidence of certain criminal acts and violations of the False Claims Act committed by its employees or subcontractors. See FEDERAL ACQUISITION REGULATION at ¶3.1003(a)(2) (mandating self-disclosure and providing for suspension and debarment for failure to self-disclose). See Part VIII of this article, supra. 14

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States and their governmental subdivisions are immune from the FALSE CLAIMS ACT. They are, however, subject to the McCaskill Amendment and can be sued for acts of reprisal taken against their employees.

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agency, or an inspector general about information that the employee reasonably believes evidences: • • • • • Gross mismanagement of an agency contract or grant relating to stimulus funds; A gross waste of stimulus funds; A substantial and specific danger to public health or safety related to the implementation or use of stimulus funds; An abuse of authority related to the implementation or use of stimulus funds; or A violation of a law, rule, or regulation that governs an agency contract or grant related to stimulus funds.

employee may not waive his rights and remedies provided in the McCaskill Amendment, again, unless such waivers are part of a collective bargaining unit. RECOVERY ACT at §§1553(d)(1) & (3). Remedies At the administrative level, the agency head has authority to order the employer to make whole the employee. Such an order can include: (1) reinstatement; (2) back pay; (3) compensatory damages; and (4) attorney fees and litigation costs. RECOVERY ACT at §1553(c)(2). If the employee’s action is prosecuted in federal court, then he can be awarded the same remedies. RECOVERY ACT at §1553(c)(3). Where an agency files an action in federal court to enforce an order of relief for a prevailing employee, the court may also award exemplary or punitive damages. RECOVERY ACT at §1553(c)(4). Employee-Favorable Burden Of Proof To prevail in a whistleblower action under the McCaskill Amendment, an employee need not show that the protected conduct was a significant or motivating factor in the reprisal, but instead must merely prove that the protected conduct was a “contributing factor” to the reprisal. RECOVERY ACT at §1553(c)(1). An employee need not present direct evidence of retaliatory motive by the employer, but instead can establish the “contributing factor” element through temporal proximity or by demonstrating that the decision maker knew of the protected disclosure. RECOVERY ACT at §1553(c)(1)(A)(i) and (ii). An employer can avoid liability by demonstrating the high evidentiary burden of “clear and convincing evidence,” that the same action would have been taken in the absence of the employee engaging in protected conduct. RECOVERY ACT at §1553(c)(1)(B). C. Additional Matters 1. Section 3.907 of the FEDERAL ACQUISITION REGULATION was amended to incorporate the McCaskill Amendment, and applies to all RECOVERY ACT contracts funded in whole or in part by that Act. Contracting officers are instructed to use and include clause 52.203-15, Whistleblower Protections under the American Recovery and Reinvestment Act of 2009, in all solicitations and contracts funded in whole or in part with Recovery Act funds. The RECOVERY ACT web page is at http://www.recovery.gov/Pages/default.aspx The Federal Acquisition Regulation is at https://www.acquisition.gov/Far/. 7. 6.

RECOVERY ACT at §1553(a). The McCaskill Amendment specifically protects so–called “duty speech” whistleblowing such as disclosures made by employees in the ordinary course of performing their job duties. Administrative Process The employee who believes he has been improperly retaliated against must file a complaint with the inspector general (IG) for the agency that is administering the stimulus funds. RECOVERY ACT at §1553(b)(1). For example, if the Department of Transportation (DoT) is administering the funds, then the employee would file his complaint with the DoT’s IG. Unless the IG determines the action is frivolous, does not relate to covered funds, or has been resolved in another Federal or State administrative proceeding, the IG must conduct an investigation and make a determination on the merits of the whistleblower retaliation claim no later than 180 days after receipt of the complaint. RECOVERY ACT at §§1553(b)(1) and (2). Within 30 days of receiving an IG’s investigative findings, the head of the appropriate agency shall determine whether there has been a violation, in which event the agency head can award the employee certain remedies. Judicial Process If an agency head has denied relief in whole or in part or has failed to issue a decision within 210 days of the filing of a complaint, the employee can bring a de novo action in federal court, which shall be tried by a jury at the request of either party. RECOVERY ACT at §1553(c)(3). Arbitration Agreements Void The McCaskill Amendment explicitly states that pre–dispute arbitration agreements do not apply to RECOVERY ACT whistleblower claims, unless such waivers are part of a collective bargaining unit. RECOVERY ACT at §§1553(d)(2) & (3). Moreover, an
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3.

4.

5.

2. 3.

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V. THE CONSUMER PRODUCT SAFETY COMMISSION REFORM ACT OF 2008 A. Protections for the Consumer Safety Whistleblower Given the concerns about the safety of products intended for children, Congress enacted the CONSUMER PRODUCT SAFETY COMMISSION REFORM ACT (CPSC ACT). Pub. L. No. 110-314 (Aug. 14, 2008), codified at 15 U.S.C. § 2051 et seq. Congress created new whistleblower protections for employees of manufacturers, private labelers, distributors, or retailers of consumer products. See 15 U.S.C. §2087. Covered employees are protected from discharge or any other form of retaliation resulting from the employee’s report to the employer, the Federal Government, or a state attorney general of information relating to any violation of statutes or regulations enforced by the U.S. Consumer Product Safety Commission (CPSC). Who is Covered The CPSC regulates about 15,000 types of consumer products used in the home, schools and recreation. THE CPSC ACT covers employees of consumer product manufacturers, importers, private labelers (owners of a brand or trademark on the private label of a consumer product), distributors, and retailers. 15 U.S.C. §2087(a). A "consumer product," as defined under the CONSUMER PRODUCT SAFETY ACT, generally means any article, or component part thereof, produced or distributed: (i) for sale to a consumer for use in or around a permanent or temporary household or residence, a school, in recreation, or otherwise, or (ii) for the personal use, consumption or enjoyment of a consumer in or around a permanent or temporary household or residence, a school, in recreation, or otherwise. 15 U.S.C. §2052(5). C. What is Protected An employer may not discharge or in any other manner retaliate against an employee who provided, caused to be provided or was about to provide or cause to be provided to the employer, the federal government, or the attorney general of a state information relating to any violation of, or any act or omission that the employee reasonably believed to be a violation of, the CPSC ACT or any other Act enforced by the CPSC, or any order, rule, regulation, standard or ban under any such Acts. 15 U.S.C. §2087(a)(1). In addition, an employer may not discharge or in any manner retaliate against an employee for testifying, participating, or assisting in a proceeding under the laws, orders, rules, regulations, standards or bans enforced by the CPSC. Also, an employer may
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not discharge or in any manner retaliate against an employee who objected to or refused to participate in, any activity, policy, practice, or assigned task that he reasonably believed to be in violation of any provision of the CPSC ACT or any other Act enforced by the CPSC, or any order, rule, regulation, standard or ban under any such Acts. 15 U.S.C. §2087(a)(2-4). D. Statute of Limitations A complaint setting forth the facts and identifying the responsible party must be filed with the Secretary of Labor no later than 180 days after the date on which the violation occurs. 15 U.S.C. §2087(b)(1). Remedies A prevailing employee is entitled to: (1) reinstatement; (2) back pay; (3) compensatory damages; and (4) attorney fees and litigation costs, to include expert witness fees. 15 U.S.C. §2087(b)(3). F. Process The employee must file a complaint with the Department of Labor (DoL) within 180 days of the employee first becoming aware of the retaliatory adverse action. The Occupational Safety and Health Administration (OSHA) will investigate the claim and can order preliminary relief, including reinstatement. Either party can appeal OSHA’s determination by requesting a de novo hearing before a DoL administrative law judge. Either party may seek review of the administrative law judge’s decision before the DoL’s Administrative Review Board. Either party can appeal the Board’s decision to the appropriate circuit court of appeals. 15 US.C. § 2087(b)(5). If there is no final order issued by the Secretary of Labor within 210 days from the date the complaint was filed, then the employee can remove the case to U.S. District Court. 15 U.S.C. § 2087(b)(4). The CPSC ACT whistleblower must prove, by a preponderance of the evidence, that (1) he engaged in protected conduct; (2) the employer knew that the employee had engaged in protected conduct; (3) the employer took adverse action against the employee; and (4) the protected conduct contributed to the employer’s decision to take an adverse action. 15 U.S.C. § 2087(b)(2)(B). G. Resources • • The CPSIA web page: http://www.cpsc.gov/about/cpsia/cpsia.html The U.S. Department of Labor, OSHA, The Whistleblower Protection Program web page, is at: E.

B.

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https://iforms.oshaslc.gov/dep/oia/whistleblower/consumer-productindustry-employees.html The OSHA office for Texas is in Dallas, phone number (972) 850-4145.

VI. RECENT AMENDMENTS TO THE FALSE CLAIMS ACT With its qui tam36 provision, 37 protections for whistleblowers, 38 and powerful investigative discovery tools, 39 the FALSE CLAIMS ACT is the Federal Government’s most effective fraud fighting tool. Since 2009, Congress has amended the FALSE CLAIMS ACT in three separate pieces of legislation. The most significant change to the FALSE CLAIMS ACT occurred in 2009 with the enactment of THE FRAUD ENFORCEMENT AND RECOVERY ACT of 2009. Then, in 2010, using the HEALTH CARE ACT, Congress modified the “public disclosure bar” which was causing many meritorious qui tam cases to be dismissed on jurisdictional grounds. In October 2010, Congress used the DODD-FRANK ACT to provide for a three-year statute of limitations for anti-retaliation claims.

36 37 38

See notes 3 and 4, supra. 31 U.S.C. §3730(b)-(e). 31 U.S.C. §3730(h) provides: Any employee who is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment by his or her employer because of lawful acts done by the employee on behalf of the employee or others in furtherance of an action under this section, including investigation for, initiation of, testimony for, or assistance in an action filed or to be filed under this section, shall be entitled to all relief necessary to make the employee whole. Such relief shall include reinstatement with the same seniority status such employee would have had but for the discrimination, two times the amount of back pay, interest on the back pay, and compensation for any special damages sustained as a result of the discrimination, including litigation costs and reasonable attorneys’ fees. An employee may bring an action in the appropriate district court of the United States for the relief provided in this subsection.

A. The Fraud Enforcement and Recovery Act of 2009 1. Expanding Protections to the Anti-Retaliation Cause of Action (31 U.S.C. §3730(h)) THE FRAUD ENFORCEMENT AND RECOVERY ACT OF 2009 (FERA) amended the retaliation cause of action of the FALSE CLAIMS ACT. S. Res. 386, 111th Cong., Pub. L. No. 111-21, 123 Stat. 1620-25 (enacted), codified at 31 U.S.C. §3730(h). Most importantly, amendments to Section 3730(h) widen the scope of protected conduct and expand the zone of protected individuals. Prior to FERA, an employee had to prove his employer retaliated against him because he was taking steps in furtherance of a qui tam action. 40 Merely reporting fraud or violations of the FALSE CLAIMS ACT was insufficient to establish a retaliation claim. Section 3730(h) now protects an employee who is taking steps to stop fraud by, for example, making internal reports or refusing to participate in the misconduct that leads to fraud, false claims, or violations of the FALSE CLAIMS ACT. A whistleblower is no longer required to prove he was actually pursuing a qui tam action to prosecute a relation claim. Additionally, prior to FERA, courts frequently concluded that the FALSE CLAIMS ACT did not cover associational discrimination 41 and subcontractor retaliation because the parties involved did not meet the technical definition of “employees.” FERA amended Section 3730(h) to explicitly protect the whistleblower’s colleagues and family members as well as contractors and agents from retaliation. Below is a redline version of the changes to Section 3730(h) made by the FERA (the blue font is new statutory language; the red font is the repealed statutory language; the black font is the language that remains the same): 31 U.S.C. §3730(h) RELIEF FROM RETALIATORY ACTIONS.—

(1) IN GENERAL.—Any employee, contractor, or agent shall be entitled to all relief necessary to make that employee, contractor, or agent whole, if that employee, contractor, or agent is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment by his
40

31 U.S.C. §3733 (authorizing the Attorney General, or his delegate [U.S. Attorney] to issue civil investigative demands). 17

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See, e.g., United States ex rel. Yesudian v. Howard University, 153 F.3d 731 (D.C. 1998) (listing elements for a retaliation claims).

For example, retaliation against the family members and colleagues of those who have blown the whistle.

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or her employer because of lawful acts done by the employee, contractor, or agent on behalf of the employee or, contractor, or agent or associated others in furtherance of an action under this section, including investigation for, initiation of, testimony for, or assistance in an action filed or to be filed under this section, shall be entitled to all relief necessary to make the employee whole. Such relief other efforts to stop 1 or more violations of this subchapter. (2) RELIEF.—Relief under paragraph (1) shall include reinstatement with the same seniority status such that employee, contractor, or agent would have had but for the discrimination, 2 times the amount of back pay, interest on the back pay, and compensation for any special damages sustained as a result of the discrimination, including litigation costs and reasonable attorneys’ fees. An employee may bring an action under this subsection may be brought in the appropriate district court of the United States for the relief provided in this subsection. THE HEALTH CARE ACT Amended the “Original Source” Definition of the FALSE CLAIMS ACT THE PATIENT PROTECTION AND AFFORDABLE CARE ACT (HEALTH CARE ACT) amended the FALSE CLAIMS ACT’S definition of “original source.” H.R. 3590, 111th Cong., Pub. L. 111–148, 124 Stat. 901902, §10104(j)(2) (amending 31 U.S.C. §3730(e)(4)) (enacted on Mar. 23, 2010). This amendment expands the scope of the “original source” exception to the “public disclosure bar” and shifts the “public disclosure bar” from a jurisdictional prohibition to a more flexible standard, with discretionary power held by the Department of Justice. Under the former language, most courts held that a qui tam case had to be dismissed if the allegations were based upon a “public disclosure” because courts considered the public disclosure bar to be jurisdictional. 42 Sources of a public disclosure were many, ranging from records requests under the FREEDOM OF INFORMATION ACT, to State criminal or civil actions, and even to news media stories. Consequently, many meritorious qui tam actions were dismissed because they were based B.

on a “public disclosure”, as that term had been construed by the courts. Congress sought to amend the language of the public disclosure bar to prevent courts from dismissing meritorious qui tam cases under the public disclosure bar, which was jurisdictional. The amendment to Section 3730(e)(4) also narrows the definition of what constitutes publicly disclosed information and expands the scope of the original source exception. The new language expands the definition of “original source” by removing the requirement that a qui tam relator have "direct" knowledge of the facts underlying the allegations. It is now sufficient for a qui tam relator to simply have "knowledge that is independent of and materially adds to the publicly disclosed allegations . . . ." A qui tam relator's allegations can now be based on indirect or secondhand information, provided those allegations add to whatever information is already contained in the public domain. The amendment to Section 3730(e)(4) also means that a “public disclosure” resulting from a government report, hearing, audit or investigation must be from a federal government source to bar a qui tam relator's claim. Public disclosures in state or local government reports or proceedings will no longer trigger the jurisdictional bar. Finally, despite inclusion in a health care statute, the FALSE CLAIMS ACT amendment applies to all qui tam cases, not simply those involving federal health care programs. Below is the new language of Section 3730(e)(4) made by the HEALTH CARE ACT: (A) The court shall dismiss an action or claim under this section, unless opposed by the Government, if substantially the same allegations or transactions as alleged in the action or claim were publicly disclosed--(i) in a Federal criminal, civil, or administrative hearing in which the Government or its agent is a party; (ii) in a congressional, Government Accountability Office, or other Federal report, hearing, audit, or investigation; or (iii) from the news media, unless the action is brought by the Attorney General or the person bringing the action is an original source of the information. (B) For purposes of this paragraph, “original source'” means an individual who either (i) prior to a public disclosure under subsection (e)(4)(a), has voluntarily disclosed to the Government the information on which allegations or transactions in a claim are based, or (2)
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See, e.g., United States ex rel. Quinn v. Springfield Terminal Ry., 14 F.3d 645 (D.C. Cir. 1994) (concluding a court would not have jurisdiction over a qui tam case where the allegations were based upon a public disclosure).

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who has knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions, and who has voluntarily provided the information to the Government before filing an action under this section. C. Section 1079A(b) of the DODD-FRANK ACT Amended the FALSE CLAIMS ACT by Explicitly Providing a Three-year Statute of Limitations to bring a Retaliation Claim Section 1079A of the DODD-FRANK ACT established a three-year statute of limitations in which to file retaliation lawsuit. H.R. 4173, 111th Cong., Pub. L. No. 111-203, 124 Stat. 2079 (§1079A) (enacted), amending 31 U.S.C. §3730(h). This explicit statute of limitation brings much-needed clarity in the wake of the Supreme Court’s decision in Graham County Soil & Water Conservation Dist. v. U.S. ex rel. Wilson, 545 U.S. 409 (2005), which held that the most closely analogous state statute of limitations applies to a FALSE CLAIMS ACT retaliation claim. Finally, Section 1079A of the DODD-FRANK ACT clarified what appears to be a grammatical error in the FERA amendments. Section 3730(h) of the FALSE CLAIMS ACT now provides an employee will be protected for “lawful acts done by the employee, contractor, or agent or associated others in furtherance of an action under this section or other efforts to stop 1 or more violations of [False Claims Act].” This was a minor change. For additional information about the False Claims Act, visit www.govtfraudlawyer.com and www.govtfraudlawyer.blogspot.com. VII. THE IRS WHISTLEBLOWER REWARD PROGRAM A. Introduction to the IRS Whistleblower Reward Program The TAX RELIEF AND HEALTH CARE ACT of 2006 (ACT), signed into law on December 20, 2006, amended the INTERNAL REVENUE CODE to provide rewards for turning in tax cheats. 26 U.S.C. §7623. According to the IRS, the “primary purpose behind the Act was to provide incentives for people with knowledge of significant tax noncompliance to provide that information to the IRS.” 43 The new program generally requires the IRS to pay rewards to whistleblowers if the information presented substantially contributes to the collection of money by

the IRS. The law created the IRS Whistleblower Office to receive, evaluate, and to determine whether to pay the whistleblower an award. It is interesting to note that the IRS has possessed the authority to pay awards to tax whistleblowers for almost a century and a half. What is now Section 7623(a) of Title 26 had its origins in an 1867 law. The original law allowed the Treasury Secretary “to pay such sums as he deems necessary for detecting and bringing to trial and punishment [a] person guilty of violating the internal revenue laws or conniving at the same.” When the law was enacted, such awards were discretionary; now such rewards are required to be paid. The IRS has funded a robust IRS Whistleblower Program. The new program focuses on cases that involve over $2 million of taxes, penalties, and interest. If the case involves an individual taxpayer, he or she must have $200,000+ of taxable income in any year at issue in the claim. The reward is from fifteen to thirty percent of the amount collected, depending upon the extent to which the whistleblower contributed to the collection. If the IRS determines that the whistleblower’s information was not the original source of information, but still contributed to the collection, the IRS can award up to ten percent of the amount collected. Informants have the right to petition the Tax Court within 30 days of receiving the IRS’s reward determination. Unlike the FALSE CLAIMS ACT, however, the whistleblower is not authorized to prosecute a claim in court if the federal government chooses to not do so. B. Filing an IRS Informant Reward Claim A whistleblower, with or without counsel, must submit his claim on an IRS Form 211 (“Application for Award for Original Information). The IRS then makes a determination whether the claim meets the criteria of a Section 7623(b) whistleblower claim or, if not, if the claim meets the criteria of a Section 7623(a) detection of underpayment or fraud claim. 7623(a) claims are sent to Ogden, Utah, for determination. IRC 7623(b) claims are determined at the IRS Whistleblower Office in Washington, D.C. 1. 7623(b) Awards: To qualify for a whistleblower award under section 7623(b), the information must: • Relate to a tax noncompliance matter in which the tax, penalties, interest, additions to tax and additional amounts in dispute exceed $2,000,000; and Relate to a taxpayer, and in the case of an individual taxpayer, one whose gross income

IRS Whistleblower Office, Annual Report to Congress on the Use of Section 7623 at 2 (2009) (on file with the author). 19

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exceeds $200,000 for at least one of the tax years in question. Id. at § 7623(b)(5). If the information meets the above criteria and substantially contributes to a decision by the IRS to take administrative or judicial action that results in the collection of tax, penalties, interest, additions to tax and additional amounts, then the IRS will pay an award of at least fifteen percent, but not more than thirty percent of what the IRS collects. 26 U.S.C. at § 7623(b)(1). However, similar to the original source doctrine of the FALSE CLAIMS ACT, the IRS has authority to reduce the award to ten percent if the claim is based upon specific allegations disclosed in certain public information (e.g., government audit reports). Id. at § 7623(b)(2). The IRS also has the authority to reduce the award or not give an award if the whistleblower planned and initiated the actions that led to the tax underpayment. Id. at § 7623(b)(3). 7623(a) Claims: If the whistleblower’s information submitted under the IRS Form 211 does not meet the criteria of Section 7623(b), the IRS Whistleblower Office will send the claim to Ogden, Utah, for processing as a potential Section 7623(a) claim, which relates to detection of underpayment of taxes and fraud. Full Disclosure If available information is withheld, the whistleblower bears the risk such information may not be considered by the Whistleblower Office in making any award determination. If documents or supporting evidence are known to the whistleblower but are not in his possession, the whistleblower must describe the documents and identify their location to the best of his ability. The IRS also instructs whistleblowers to provide substantiating documentation. 4. Eligibility to File a Claim for Award Almost any person, other than certain present or former federal employees, is eligible to file a claim for reward. See 26 C.F.R. §301.7623-1(b)(1) and (2). Those former and current employees that are barred from filing a claim include an “officer or employee of the Department of the Treasury at the time the individual came into possession of information relating to violations of the internal revenue laws, or at the time the individual divulged such information.” Id. However, “any other current or former federal employee is eligible to file a claim for reward if the information provided came to the individual's knowledge other than in the course of the individual's official duties.” Id. Finally, the claim survives the death of the whistleblower. 26 C.F.R. §301.762320

1(b)(3). Identity of the Whistleblower By regulation, the IRS is not allowed to reveal of the identity of the whistleblower. 26 C.F.R. §301.7623-1(e). C. Appealing to the U.S. Tax Court The TAX RELIEF AND HEALTH CARE ACT of 2006 authorized the whistleblower to appeal the IRS Whistleblower Program’s determination regarding an award to Tax Court. 26 U.S.C. §7623(b)(4). Such appeals must be filed within 30 days of the IRS Whistleblower Program’s determination. Id. In mid2010, the Tax Court held that it had jurisdiction to review a Tax Whistleblower Office decision to decline to pursue a whistleblower’s claim for a reward. See Cooper v. Commissioner, 135 T.C. No. 4 (July 9, 2010). D. Resources 5.

2.

• •

3.

• • •

The IRS Whistleblower – Informant Program web page: (http://www.irs.gov/compliance/article/0,,id=180 171,00.html ) IRS Notice 2008-4 (available on the web page cited above) IRS Form 211 (available on the web page cited above or click on the link) IRS Whistleblower Office, Annual Report to Congress on the Use of Section 7623 Whistleblower – Information Regulations were codified at 26 CFR 301.7623-1. www.taxwhistleblowerblog.com Joel D. Hesch, Reward: Collecting Millions for reporting Tax Evasion (Your Complete Guide to the IRS Whistleblower’s Reward Program) (ISBN 978-0-9819357-2-0 published by LU Books, available at Amazon.com) http://taxprof.typepad.com/

UNIQUE ISSUES FACING FEDERAL GOVERNMENT CONTRACTORS A. Introduction Federal Government contracting (primarily military and NASA) has historically been big business for Texas. Texas has some of the most important and largest military installations in the Department of Defense’s inventory, all of which award billions of dollars in contracts. 44 Major defense contractors (such
For example, El Paso has Fort Bliss. Killeen has Fort Hood (the world’s largest military installation). San Antonio, which calls itself “Military City USA,” has Fort
44

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as Raytheon, AT&T, Halliburton, KBR, Valero, Texas Instruments, among dozens of others) are headquartered or have a substantial presence in Texas,. 45 These contractors employ thousands of Texans. Most recently, Texas did well in the latest round of Base Realignment and Closure (BRAC), resulting in tens of thousands of service members, civil service employees, and contractors and their employees relocating to various military installations and cities in Texas. Given the large presence of this industry in Texas, employment lawyers should be knowledgeable about the unique whistleblowing rules that apply to Government contractors. Government contractors are prohibited from retaliating against their employees who engage in whistleblowing. Perhaps most significant is that the FEDERAL ACQUISITION REGULATION was amended (effective December 12, 2008) to require Government contractors to self report to the Government certain crimes and violations of the FALSE CLAIMS ACT committed by their employees and subcontractors—a contractor’s failure to do so could be the basis for a ban from contracting with the Government. Moreover, the Government is now “keeping score.” The Government created a new database entitled the Federal Awardee Performance and Integrity Information System (FAPIIS). The FAPIIS keeps records to determine whether contractors are “responsible” and therefore eligible for future government awards. Violations of the FALSE CLAIMS ACT or other specified statutes (including those that protect whistleblowers) is the type of information that the Government keep in the FAPIIS and uses to determine whether contractors are “responsible.” B. Whistleblower Protections for Contractor Employees 1. Who and What is Protected The FEDERAL ACQUISITION REGULATION (FAR) regulates some aspects of the employment relationship between a federal Government contractor and its employees. FAR protection for whistleblowers implements 10 U.S.C. §2409 and 41 U.S.C. §265, as amended by Sections 6005 and 6006 of the FEDERAL ACQUISITION STREAMLINING ACT OF 1994 (Pub. L. 103-355). It is not always clear, however, if the FAR
Sam Houston (headquarters for military medicine), Lackland Air Force Base (the Air Force’s largest training base), and Randolph Air Force Base (headquarters for Air Education Training Center, one of the largest commands in the Air Force). Finally, Fort Worth is home to the U.S. Army Corps of Engineers – West. See www.fedspending.org for searchable databases about individuals or organizations receiving federal contracts. 21
45

applies to a particular employment situation. Some companies, for example, do only Government work. In that scenario, the FAR and its protections for whistleblowers will likely apply to the contractor, depending on its size or contracts. Other contractors do business with the Government and the private sector. In that scenario, it is not always clear if the FAR regulates the employment relationship between the contractor and all of its employees. Regardless, it should be assumed that the FAR protects employees of Government contractors who blow the whistle. The FAR provides that “Government contractors shall not discharge, demote or otherwise discriminate against an employee as a reprisal for disclosing information to a Member of Congress, or an authorized official of an agency46 or of the Department of Justice 47, relating to a substantial violation of law related to a contract (including the competition for or negotiation of a contract).” FAR 3.903. Internal disclosures are not protected. See 10 U.S.C. §2409; 41 U.S.C. §265. Procedure The FAR provides that an employee who believes he was discriminated against because of his protected whistleblowing may file a complaint with the Inspector General (IG) 48 of the agency that awarded the contract. FAR 3.904(a). In the complaint, the employee must identify the “substantial violation of law giving rise to the disclosure; the nature of the disclosure giving rise to the discriminatory act; and the specific nature and date of the reprisal.” FAR 3.904(b). Unfortunately, no statute of limitations is set out. If the IG determines the complaint merits further investigation, then the IG must conduct an investigation and issue a written report to the agency head. FAR 3.905(b). Both the 2.

46

FAR 3.901 defines “’Authorized official of an agency” [to mean] an officer or employee responsible for contracting, program management, audit, inspection, investigation, or enforcement of any law or regulation relating to Government procurement or the subject matter of the contract.”

FAR 3.901 defines “’Authorized official of the Department of Justice’” [to mean] any person responsible for the investigation, enforcement, or prosecution of any law or regulation.” FAR ¶3.901 defines “’Inspector General’” [to mean] an Inspector General appointed under the Inspector General Act of 1978, as amended. In the Department of Defense, that is the DoD Inspector General. In the case of an executive agency that does not have an Inspector General, the duties shall be performed by an official designated by the head of the executive agency.”
48

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contractor and employee are entitled to a copy of the report, and have 30 days to submit a written response to the head of the agency. FAR 3.904(c) and (d). Upon accepting the IG’s report, the agency head has authority to order the contractor to take certain actions. The employee, however, has no private cause of action that can be prosecuted in an administrative court or in U.S. District Court. Remedies, Enforcement, and Review An agency head who determines a contractor violated FAR 3.903 has the authority to: (1) Order the contractor to take affirmative action to abate the reprisal. (2) Order the contractor to reinstate the person to the position that the person held before the reprisal, together with the compensation (including back pay), employment benefits, and other terms and conditions of employment that would apply to the person in that position if the reprisal had not been taken. (3) Order the contractor to pay the complainant an amount equal to the aggregate amount of all costs and expenses (including attorney fees and expert witnesses’ fees) that were reasonably incurred by the complainant for, or in connection with, bringing the complaint regarding the reprisal. FAR 3.906(a). If the contractor fails to comply with the agency head’s order, then the agency head “shall request the Department of Justice to file an action for enforcement of such order in the United States district court.” FAR 3.906(b) (emphasis added). In such an action, the court may grant “appropriate relief, including injunctive relief and compensatory and exemplary damages.” Id. Within 60 days of the agency head’s order, either party “may obtain review of the order’s conformance with the law, and this subpart, in the United States Court of Appeals for a circuit in which the reprisal is alleged in the order to have occurred.” FAR 3.906(c). 3.

C. Recent changes to the Federal Acquisition Regulation Require Contractors to Disclose The FAR now requires, effective December 12, 2008, 49 federal Government contractors with a contract amounting to over $5,000,000 and lasting more than 120 days to timely disclose “to the Government . . . credible evidence of a violation of Federal criminal law involving fraud, conflict of interest, bribery, or gratuity violations found in Title 18 of the United States Code or a violation of the civil False Claims Act.” FAR 3.1003. A contractor’s failure to disclose can be the basis for a suspension or debarment. FAR 3.1003(a)(2). As reflected in the preamble to the FAR amendment, requiring contractors to self-report is a ”sea change” in the law. 50 One area that contractors may be required to report would be a violation of the anti-retaliation provision of the FALSE CLAIMS ACT (Section 3730(h)). As shown in Part VI of this article, the Section 3730(h) was amended to further enhance the protections for whistleblowers. To be protected, the whistleblower must merely be performing acts to stop a violation of the FALSE CLAIMS ACT. D. The Federal Awardee Performance and Integrity Information System The self-reported crimes and violations of the FALSE CLAIMS ACT made by contractors is collected by, and disseminated through, the Government Effective April 22, 2010, the FAR was amended to implement the Federal Awardee Performance and Integrity Information System (FAPIIS). 75 Fed. Reg. 14059 (Mar. 23, 2010). The stated purpose of the FAPIIS is to enhance the Government’s ability to evaluate whether contractors are responsible and ethical.51 There are four basic categories of information that a contractor must report: • Criminal Convictions: A contractor must provide information about whether it or any of its principals has, within the last five years, in connection with the award or performance of a federal contract or grant, been subject to a

The rule implements THE CLOSE THE CONTRACTOR FRAUD LOOPHOLE ACT, Pub. Law 110– 252, Title VI, Chapter 1. Fed. Reg. Vol. 73, No. 219 at 67069 (stating “[t]here is no doubt that mandatory disclosure is a ‘‘sea change’’ and ‘‘major departure’’ from voluntary disclosure, but DoJ and the OIGs point out that the policy of voluntary disclosure has been largely ignored by contractors for the past 10 years.”).
51 50

49

THE DUNCAN HUNTER NATIONAL DEFENSE AUTHORIZATION ACT FOR FISCAL YEAR 2009 at §872. 22

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criminal proceeding—at the federal or state level—that resulted in a criminal conviction. Civil Liability: A contractor must provide information about whether it or any of its principals has, within the last five years, in connection with the award or performance of a federal contract or grant, been subject to a civil proceeding - at the federal or state level - that resulted in a finding of fault and liability and required payment of a monetary fine, penalty, reimbursement, restitution, or damages of $5000 or more. Administrative Proceedings: A contractor must provide information about whether it or any of its principals has, within the last five years, in connection with the award or performance of a federal contract or grant, been subject to an administrative proceeding—at the federal or state level—that resulted in a finding of fault and liability and required the payment of a monetary fine or penalty of $5,000 or more, or the payment of any reimbursement, restitution, or damages in excess of $100,000. An “administrative proceeding” is defined as a "non-judicial process that is adjudicatory in nature in order to make a determination of fault or liability." The following administrative proceedings are examples: Securities and Exchange Commission, Civilian Board of Contract Appeals, and Armed Services Board of Contract Appeals. But agency actions such as contract audits, site visits, corrective plans, or inspection of deliverables, are not administrative proceedings. Settlements: A contractor must provide information about whether, within the last five years, in connection with the award or performance of a federal contract or grant, a federal or state criminal, civil, or administrative proceeding was disposed of by consent or compromise with an acknowledgment of fault by the contractor, if the proceeding could have led to any of the reportable events discussed above.

in their scope. The full scope of the power and protection that the Government will bestow upon whistleblowers has yet to be determined. However, one thing is certain: Congress has unleashed whistleblowers in just about every industry. Because whistleblowers act at their peril, Congress has also sought to protect them. Most importantly, Congress has given a huge financial incentive to whistleblowers to blow the whistle by creating several bounty programs. The cocoon of protections that a whistleblower now enjoys, coupled with the financial carrot for reporting fraud, is sure to root out fraud. Perhaps the next Bernie Madoff will be turned in before it is too late, preventing the loss of many people’s life savings. Perhaps the next crooked physician who falsely bills Medicare will be stopped, saving taxpayer dollars. Whistleblowers will be a serious check and balance on malfeasance and fraud. Those organizations so inclined to commit fraud and break the law do so at their own peril with the threat that their employees have an incentive to blow the whistle on their nefarious acts.

IX. CONCLUSION The enactment of the these new bounty and antireprisal laws appears to be a recognition by Congress that the Executive Branch cannot effectively enforce the law and protect entitlement programs from fraud such as Medicare. Congress is also concerned that too often individuals and businesses have run afoul of laws (such as the SECURITIES AND EXCHANGE ACT) with impunity. The tremendous success of the FALSE CLAIMS ACT has encouraged Congress to further rely upon whistleblowers to ensure compliance with the law and to report fraud. Laws such as the DODDFRANK ACT and the HEALTH CARE ACT are massive
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APPENDICES

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Appendix A
Major FALSE CLAIMS ACT cases settled in 2010

MAJOR FALSE CLAIMS ACT CASES RESOLVED IN FISCAL YEAR 2010 Company GlaxoSmithKline Amount $750 million Date 10/26/2010 Allegation Deceit related to product contamination and dosage irregularities at GSK’s manufacturing facility in Puerto Rico.

Allergan

$600 million
($225 million to resolve civil allegations and a $375 million criminal fine.)

9/1/2010

Off-label marketing practices involving Botox

AstraZeneca

$520 million

4/27/2010

Illegally marketed the anti-psychotic drug Seroquel

Novartis Pharmaceuticals

$422.5 million
($237.5 million to resolve civil allegations and a $185 million criminal fine)

9/30/2010

Unapproved promotion of Trileptal

Forest Laboratories

$313 million
($149 million to resolve civil claims, a $150 million criminal penalty, and $14 million in forfeiture).

9/15/2010

Marketed Levothroid without FDA approval and unlawfully promoted Celexa and Lexapro for pediatric use

Elan Corporation

$203.5 million

7/15/2010

Improperly sold and marketed Zonegran

Teva Pharmaceuticals

$169 million

7/26/2010

Inflated prices reported to Medicaid

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Update on Whistleblowers in the Age of Stimulus (Blowing the Dodd-Frank Whistle) WellCare Health Plans $137.5 million 8/9/2010 Defrauded Medicare and Medicaid programs in several states

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Mylan, AstraZeneca, and Ortho-McNeil

$124 million

10/19/2009

Companies improperly classified certain drugs to evade rebate obligations

Omnicare and IVAX Pharmaceuticals

$112 million

11/3/2009

Omnicare engaged in kickback schemes with several parties, including IVAX

Health Alliance of Greater Cincinnati and Christ Hospital

$108 million

5/21/2010

Kickbacks to doctors in exchange for referring cardiac patients to hospital

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Qui Tam Actions, 2009 - 2010 52

2009
433 new qui tam cases Over $1.95 billion recovered in settlements or judgments where the US intervened Over $33.7 million recovered in settlements or judgments where the US declined to intervene Relators recovered over $249 million where the US intervened Relators recovered over $9 million where the US declined to intervene

2010
574 new qui tam cases Over $2.3 billion recovered in settlements or judgments where the US intervened Over $121 million recovered in settlements or judgments where the US declined to intervene Relators recovered over $385 million where the US intervened Relators recovered over $27.8 million where the US declined to intervene

The average relator award when DOJ intervened or otherwise pursued the case is between 16 and 17% of the federal portion of a FCA recovery. 53 Health and Human Services Qui Tam Actions, 2009-2010 54 The major focus of the USAO’s activities is the prosecution of health care fraud. At the end of FY 2010, 1,130 civil health care fraud matters were pending. Many of these, however, are settled without a complaint ever being filed. In FY 2010, the USAO filed or responded to 357 civil health care fraud cases, compared to 283 in the previous year. 55

2009
279 new HHSC qui tam cases Over $1.36 billion recovered in settlements or judgments where the US intervened Over $30 million recovered in settlements or judgments where the US declined to intervene Relators recovered over $155 million where the US intervened Relators recovered over $8 million where the US declined to intervene

2010
383 new HHSC qui tam cases Over $2 billion recovered in settlements or judgments where the US intervened Over $14 million recovered in settlements or judgments where the US declined to intervene Relators recovered over $330 million where the US intervened Relators recovered over $4 million where the US declined to intervene

52 53 54 55

http://www.justice.gov/civil/docs_forms/C-FRAUDS_FCA_Statistics.pdf http://www.taf.org/statistics.htm Id. These are actions where HHSC is “the primary client agency” http://www.justice.gov/usao/reading_room/reports/asr2010/10statrpt.pdf

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Department of Defense Qui Tam Actions, 2009-2010 56

2009
52 new DOD qui tam cases Over $415 million recovered in settlements or judgments where the US intervened $140,000 recovered in settlements or judgments where the US declined to intervene Relators recovered over $64 million where the US intervened Relators recovered $26,600 where the US declined to intervene Non-HHS/DOD Qui Tam Actions, 2009-2010 57

2010
56 new DOD qui tam cases Over $230 million recovered in settlements or judgments where the US intervened Over $9.19 million recovered in settlements or judgments where the US declined to intervene Relators recovered over $12 million where the US intervened Relators recovered over $2.7 million where the US declined to intervene

2009
102 new qui tam cases Over $177 million recovered in settlements or judgments where the US intervened Over $3 million recovered in settlements or judgments where the US declined to intervene Relators recovered over $29.6 million where the US intervened Relators recovered $953,019 where the US declined to intervene

2010
135 new qui tam cases Over $93 million recovered in settlements or judgments where the US intervened Over $73 million recovered in settlements or judgments where the US declined to intervene Relators recovered over $15.9 million where the US intervened Relators recovered over $20 million where the US declined to intervene

56 57

Boese, Civil False Claims and Qui Tam Actions, Appendix H. Boese, Civil False Claims and Qui Tam Actions, Appendix H. 29

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Appendix B

NEW ANTI-RETALITION LEGISLATION THAT VOIDS ARBIRATION AGREEMENTS NEW LEGISLATION VOIDING ARBITRATION AGREEMENTS
DODD-FRANK ACT at §922(c) (Whistleblower Protection) DODD-FRANK ACT at §748 (Commodity Whistleblower Incentives and Protection) DODD-FRANK ACT at §1057(d) (Bureau of Consumer Financial Protection—Employee Protection for Whistleblowers) DODD-FRANK ACT at §922(c) THE PATIENT PROTECTION AND AFFORDABLE CARE ACT OF 2009 at §1558 AMERICAN RECOVERY AND REINVESTMENT ACT OF 2009 §1553 “McCaskill Amendment” (d)(1)-(3)

AMENDMENTS TO THIS LAW

Amending 18 U.S.C. §1514A(e) Amending COMMODITY EXCHANGE ACT at §23(n); Proposed Rule 165.19 New law

Amending 18 U.S.C. §1514A(e) - the SARBANESOXLEY ACT Amending §18C(b)(2) of the FAIR LABOR STANDARDS ACT] New law

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Appendix C
IRS Form 211

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Appendix D
SEC Form WB-APP Application for Award for Original Information Submitted Pursuant to Section 21F of the Securities Exchange Act of 1934

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SEC Whistleblower Process for Determining Awards Based Upon A “Related Action”:

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Appendix E
CFTC Form TCR, TIP, Complaint or Referral Notice of Commodity Futures Trading Commission Proposed Rules to Implement the Whistleblower Incentives and Protections of Section 748 of the DODD-FRANK ACT

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