Tag: Whistleblower

SEC Awards $600,000 to Whistleblower

On February 22, the U.S. Securities and Exchange Commission (SEC) issued a $600,000 whistleblower award to an individual who voluntarily provided the agency with original information which led to a successful enforcement action.

Through the SEC Whistleblower Program, when a qualified whistleblower’s information contributes to an enforcement action in which the SEC collects at least $1 million, the whistleblower is entitled to an award of 10-30% of the funds collected by the government. The SEC also extends anti-retaliation protections to whistleblowers and thus does not disclose any identifying information about award recipients.

In determining the exact percentage for a whistleblower award, the SEC weighs a number of factors. According to the order for the $600,000 award, the SEC considered that “[the whistleblower] provided new information that significantly contributed to the success of the Covered Action; [the whistleblower] provided substantial, ongoing assistance, including participating in an interview with Commission staff and providing helpful documents on multiple occasions; and the charges in the Covered Action were based, in part, on [the whistleblower’s] information.”

The SEC Whistleblower Program has already issued a slew of whistleblower awards in the 2022 fiscal year. Since the fiscal year began on October 1, 2021, the SEC has awarded over $100 million to over 30 individual whistleblowers.

The 2021 fiscal year was a record year for the program. During the fiscal year, the SEC received a record 12,200 whistleblower tips and issued a record $564 million in whistleblower awards to a record 108 individuals. Over the course of the year, the whistleblower program issued more awards than in all previous years combined.

Overall, since issuing its first award in 2012, the SEC has awarded approximately $1.2 billion to nearly 250 individual whistleblowers.

Geoff Schweller also contributed to this article.

Copyright Kohn, Kohn & Colapinto, LLP 2022. All Rights Reserved.
For more articles about SEC whistleblowers, visit the NLR White Collar Crime & Consumer Rights section.

SEC Report Details Record-Shattering Year for Whistleblower Program

On November 15, the U.S. Securities and Exchange Commission (SEC) Whistleblower Program released its Annual Report to Congress for the 2021 fiscal year. The report details a record-shattering fiscal year for the agency’s highly successful whistleblower program. During the 2021 fiscal year, the SEC Whistleblower Program received a record 12,200 whistleblower tips and issued a record $564 million in whistleblower awards to a record 108 individuals. Over the course of the year, the whistleblower program issued more awards than in all previous years combined.

“The SEC’s Dodd-Frank Act whistleblower program has revolutionized the detection and enforcement of securities law violations,” said whistleblower attorney Stephen M. Kohn. “Congress needs to pay attention to this highly effective anti-corruption program and enact similar laws to fight money laundering committed by the Big Banks, antitrust violations committed by Big Tech, and the widespread consumer frauds often impacting low income and middle class families who are taken advantage of by illegal lending practices, redlining, and credit card frauds.”

“The report documents that whistleblowing works, and works remarkably well, both in the United States and worldwide,” continued Kohn. “The successful efforts of the SEC to use whistleblower-information to police Wall Street frauds is a milestone in the fight against corruption. Every American benefits from this program.”

In the report, Acting Chief of the Office of the Whistleblower Emily Pasquinelli states “[t]he success of the Commission’s whistleblower program in landmark FY 2021 demonstrates that it is a vital component of the Commission’s enforcement efforts. We hope the awards made this year continue to encourage whistleblowers to report specific, timely, and credible information to the Commission, which will enhance the agency’s ability to detect wrongdoing and protect investors and the marketplace.”

Read the SEC Whistleblower Program’s full report.

Geoff Schweller also contributed to this article.

Copyright Kohn, Kohn & Colapinto, LLP 2021. All Rights Reserved.
For more on SEC Whistleblower Rewards, visit the NLR White Collar Crime & Consumer Rights section.

Protections for Employees Who Report Workplace Discrimination

While thousands of employees each year submit complaints of discrimination against their employers, many more experience workplace discrimination and do not submit a formal complaint or even report it internally. A 2016 study by the Equal Employment Opportunity Commission (EEOC) noted that three out of four individuals who experienced harassment never spoke with a supervisor, manager, or union representative about the harassment. Other studies estimate that only one percent of people who experience workplace discrimination file a formal discrimination charge.

Types of Discrimination Charges Filed

Even with a high level of underreporting of harassment and discrimination in the workplace, the EEOC reported that workers filed 67,448 charges of workplace discrimination in fiscal year 2020.[1] The EEOC breaks down the data by the characteristics of the individual who filed the complaint. The breakdown reflects the various bases for protection under federal anti-discrimination laws, specifically disability, race, sex, age, national origin, color, religion, and genetic information. In the EEOC data from fiscal year 2020, retaliation claims made up 55.8% of all charges filed, which was the most common claim asserted. Retaliation claims are often coupled with claims of discrimination because they generally require complaints about, or opposition to, discrimination in the workplace. Because of this overlap in claims and the reality that workers may have multiple characteristics or identities that entitle them to protections, the total of the percentages of the types of claims asserted is greater than 100%.

Following retaliation claims, discrimination claims based on disability were the most common in fiscal year 2020, making up 36.1% of all workplace discrimination claims. Fiscal year 2020 may have seen an even greater increase in disability-related charges due to the COVID-19 pandemic. The EEOC continues to update its guidance periodically on the impact of COVID-19 on workplace discrimination laws related to disability. Discrimination based on race made up 32.7% of claims, and discrimination based on sex made up 31.7%.

The breakdown by category is consistent with charge filing patterns in past years. One study conducted by the Center for Employment Equity of the University of Massachusetts Amherst analyzed all discrimination charges filed with the EEOC (or a comparable state agency) from 2012 to 2016. It determined that discrimination charges based on disability and race were the most common and that disability-related claims had become more frequent than charges based on other protected categories. In an article published by staff at the Center for Employment Equity, they determined that 63% of employees who filed a complaint eventually lost their jobs.

Protections from Retaliation

The data from the EEOC and Center for Employment Equity underscores an unfortunate reality for employees who come forward to report discrimination—they face the possibility of retaliation by their employer, which, at its most extreme, results in a loss of their job. Fortunately, there are legal protections in place for employees who face retaliation for complaining about workplace discrimination.

Employees who engage in protected activity, either by participating in an investigation of workplace discrimination, complaining of workplace discrimination, or opposing discrimination in the workplace, are protected from retaliation. This means that an employer cannot take any “materially adverse action” against these employees. Such actions include anything that would deter a reasonable worker from coming forward to complain about discrimination in the workplace.  This includes actions short of termination, like demotions or salary reductions. The law protects not only current employees and applicants, but also former employees and third parties who have a close relationship with the employee who experienced discrimination. Employees who face retaliation for reporting discrimination in the workplace may be entitled to monetary compensation for the harm caused by the retaliation, including back wages, reinstatement to their former position if they were terminated, compensation for emotional distress caused by the employer’s actions, and reimbursement of their attorneys’ fees and costs.

While no employee should face retaliation for reporting workplace discrimination or harassment, the data demonstrates that it is an unfortunate reality in workplaces. If you believe you have faced discrimination, harassment, or retaliation, you should contact an employment attorney to determine your options and how to proceed.

Importance of Seeking Legal Counsel

The Center for Employment Equity’s analysis highlighted another reality faced by employees who filed discrimination charges with the EEOC. Upon examining the outcome of each charge and excluding charges that were closed because of administrative reasons, it noted that monetary benefits and changes to workplace practices were relatively infrequent. In less than 20% of charges, employees received a monetary benefit.  Less than 10% resulted in changes to employer practices. This data does not account for employees who made complaints of discrimination and were able to reach a resolution with their employer prior to filing a charge.

This data showing the poor outcomes from filing discrimination charges demonstrates the importance of seeking legal counsel if you believe that you have faced discrimination in the workplace. An attorney can advise you on the merits of your claim as well as the appropriate deadlines for filing a charge and lawsuit, and can advocate for you before the employer, both before and after submitting a discrimination charge. For current employees, such advocacy may help to shield you from retaliation or to exit from your employment on more favorable terms. In addition to seeking legal counsel, you can begin to take other steps to assist your case by doing the following:

  • Document the mistreatment you experience.

  • Create a detailed timeline of instances of discrimination, which will assist an attorney who may assess your potential claims.

  • Retain employment-related documents, like employee manuals; employment offer letters and agreements; and information concerning commission, equity, and benefits plans.

  • Do not record conversations without the consent of the other party and without first seeking advice from legal counsel. Each state has different recording law statutes that require all parties or at least one party to consent to recording. It is important not to violate these laws, which can carry civil and sometimes criminal liability.

This list only identifies basic steps that you can take if you believe you have experienced discrimination or harassment in the workplace. If you have faced workplace discrimination, you should consult with an employment attorney for advice on your potential claims

[1] The number of charges filed has decreased steadily in recent years, with 72,675 charges of workplace discrimination filed with the EEOC in fiscal year 2019 and 76,418 filed in 2018. There may be multiple explanations for this decrease, though this year’s decline may be in part explained by the COVID-19 pandemic, which left many employees without work for much of 2020 and required others to work remotely.

This article was written by Alia Al-Khatib of Katz, Marshall & Banks, LLP.
For more articles regarding workplace discrimination, please visit our Labor and Employment News section.

Whistleblower Rewarded Over $2 Million for Exposing Contractor of Military Helicopters That Provided Unsafe Helicopters, Risking the Lives of Military Members Deployed to War Zones

An Illinois-based aviation services company and its subsidiary in Florida have agreed to pay the government $11,088,000 to resolve allegations that they violated the False Claims Act by breaching their contract to maintain military aircraft that were “fully mission capable.”

The aviation service companies own and maintain helicopters.  They had contracted with the Department of Defense to supply helicopters for use in transporting cargo and personnel in support of missions in Afghanistan and Africa.  However, according to a whistleblower, the aviation companies schemed to maximize profits by failing to provide the resources needed to maintain the helicopters.  This resulted in the helicopters not being airworthy.  Yet, the companies continued to certify the helicopters as “fully mission capable.”  Thus, it was alleged, the companies knowingly risked the lives of military personal who were using the aircraft while deployed in war zones and committing fraud against U.S. taxpayers.

The same companies also paid an additional amount to resolve a separate matter brought by the Federal Aviation Administration (FAA) against them for deficiencies in helicopter maintenance work.

This lawsuit originated from a former employee of the aviation service companies who brought suit under the qui tam, or whistleblower, provisions of the False Claims Act. Whistleblower lawsuits allow private parties, known as “relators,” to bring suit on behalf of the government and to share in any recovery, usually 15% to 25% of the settlement amount.  In this case, the whistleblower will receive $2,162,160.  The False Claims Act allows the government to intervene and prosecute an action, as it did in this case.  Fraud in government contracting is often exposed by individuals with knowledge that the fraud is occurring, as in this case. Whistleblowers may be employees, clients, or competitors of the wrongdoer.  Such individuals can use their inside knowledge to bring fraud to the attention of the government, saving lives and protecting taxpayer money.

© 2021 by Tycko & Zavareei LLP

COVID-19 Whistleblower Protections: Few Options for Workers Reporting Unsafe Working Conditions

The United States has been rocked by the COVID-19 pandemic in innumerable ways and it has had profound and ongoing impacts on workers. One of the most vexing problems arising from COVID-19 has been protecting workers who object to employers that are failing to implement meaningful safety precautions to protect their workers during the pandemic. As just one of many examples, an Amazon employee was fired after he opposed the company’s failure to meaningfully protect warehouse employees who had potentially been exposed to the coronavirus. This article will examine our failures in addressing this problem through meaningful federal action and highlight instances where local legislators have passed laws to protect workers who find themselves facing this predicament.

The Deficiencies of Federal Law to Protect Workers During the Coronavirus Crisis

The primary federal law requiring a safe working environment is the Occupational Safety and Health Act (“OSH Act”). Section 11(c) of the OSH Act prohibits employers from discharging or discriminating against an employee because the employee exercised any rights under the Act, including the right to raise health or safety complaints. 29 U.S.C. § 660(c). The OSH Act theoretically protects an employee who refuses to work based on unsafe working conditions, although the requirements for a protected work refusal are stringent.

Unfortunately, the OSH Act does not effectively protect workers in general, much less in the face of a burgeoning pandemic. The Act does not have a private right of action, so employees who suffer retaliation for reporting unsafe working conditions cannot sue in court. Instead, Section 11(c) allows employees to file a complaint with the Occupational Safety and Health Administration (“OSHA”) and request that OSHA protect them. Thus, government officials ultimately decide what to do with the OSH Act complaint; if they fail to protect an employee, that employee has no other recourse under the statute. In addition, the OSH Act has a 30-day statute of limitations—the shortest of any federal anti-retaliation statute. Finally, the strict requirements governing what constitutes a protected refusal to work will leave many employees in the cold. OSHA officials have acknowledged the weakness of the OSH Act protections. In 2010, then-Deputy Assistant Secretary for Occupational Safety and Health, Jordan Barab, testified before Congress that Section 11(c)’s lack of a private right of action and statutory right of appeal were “[n]otable weaknesses” in the law. Mr. Barab also lamented the OSH Act’s “inadequate time for employees to file complaints.”

Several states have their own version of the OSH Act, protecting employees who raise concerns about workplace health and safety. Like the federal OSH Act, however, many of these state laws do not contain private rights of action. See, e.g., D.C. Code § 32-1117 (no private right of action); Md. Code, Labor & Empl. § 5-604 (same); but see Va. Code § 40.1-51.2:2 (providing private right of action and a 60-day limitations period for filing a complaint).

Proposed Legislation to Protect Whistleblowers

The Coronavirus Oversight and Recovery Ethics Act (“CORE Act”) put in place meaningful protections against retaliation for individuals who report waste, fraud, and abuse related to government funds that were distributed to combat the COVID-19 pandemic. Like other recent whistleblower protection legislation, it is primarily enforced through the Department of Labor but permits whistleblowers to “kick out” their claims into federal court. Further, language in the bill nullifies the effectiveness of pre-dispute mandatory arbitration provisions with respect to claims asserted under the law. In many ways, it is a model piece of whistleblower protection legislation.

One significant omission from the CORE Act, however, is language amending the OSH Act or otherwise granting meaningful protections to whistleblowers who report workplace health and safety concerns related to COVID-19. Thus, nothing in the bill purports to protect an individual who refuses to come to work, or opposes her employer’s practices, because her employer has failed to take sufficient steps to mitigate COVID-19-related risk to employee health. In most of the country, employees in that situation are left with the OSH Act as their primary recourse for protection against retaliation.

Given the clear deficiencies in the OSH Act’s protections of whistleblowers concerned about workplace safety, whistleblower advocacy organizations like the Project on Government Oversight (“POGO”) have pushed for Congress to pass legislation that would, among other things, “prohibit retaliation against essential workers making disclosures related to worker or public health and safety during the pandemic.” On June 15, 2020, in response to calls from groups like POGO, Senator Kamala Harris and Representatives Jackie Speier and Jamie Raskin introduced the COVID-19 Whistleblower Protection Actto expand the whistleblower protections of the CORE Act.

Protecting Whistleblowers at the Local Level

Given the lack of federal action to address this problem, some municipalities have passed legislation specifically designed to protect employees who report COVID-19-related workplace safety concerns. For example, Mayor Kenney of Philadelphia recently signed into law Bill No. 200328, which requires employers to “comply with all aspects of public health orders addressing safe workplace practices to mitigate risks” related to COVID-19. The bill further states that “[n]o employer shall take any adverse employment or other action against an employee” who refuses to work in conditions that do not comply with public safety guidelines, and that “no employer shall take any adverse employment or other action against any employee for making a protected disclosure.” A “protected disclosure” is defined as a “good faith communication” disclosing information “that may evidence a violation of a public health order that may significantly threaten the health or safety of employees or the public, if the disclosure or intention to disclose was made for the purpose of remedying such violation.” The legislation includes a private right of action and permits awards to successful litigants including reinstatement, back pay, compensatory damages, and liquidated damages “of $100 to $1000 on behalf of the City for each day in which a violation occurs.”

In late May, the City of Chicago enacted a bill that contained slightly narrower but still powerful protections. In the bill, the City of Chicago prohibited employers from retaliating against employees for complying with public health orders relating to COVID-19 issued by the City or the State or for following COVID-19-related quarantine instructions from a treating health care provider. The protections extend to employees who are caring for an individual subject to such a quarantine. The bill includes a remarkable damages provision entitling successful claimants to liquidated damages “equal to three times the full amount of wages that would have been owed had the retaliatory action not taken place.”

These actions by municipalities are meaningful and offer critical protections to citizens living in those cities. At the same time, the need for this local legislation highlights the glaring absence of meaningful protections for workers in the rest of the country. It seems that every week we hear more horror stories about conditions in which workers are forced to work during this pandemic, lest they risk losing their jobs in the midst of a devastating economic downturn. The weaknesses in the OSH Act and the absence of even proposed federal legislation that would fill this critical gap in protection is a moral failure.

Copyright Katz, Marshall & Banks, LLP

For more on COVID-19 related whistleblowing, see the National Law Review Coronavirus News section.

Virginia Employees Protected From Retaliation for Raising Concerns About COVID-19 Workplace Safety Issues

On June 29, 2020, the Virginia Safety and Health Codes Board moved forward with an emergency workplace standard to curb the spread of COVID-19. These standards would apply to all Virginia employers and places of employment under the jurisdiction of the Virginia Occupational Health and Safety Administration.

Pursuant to 16 VAC 25-220, Emergency Temporary Standard, employers would be required to:

  • Mandate physical distancing on the job, i.e., “keeping space between yourself and other persons while conducting work-related activities inside and outside of the physical establishment by staying at least 6 feet from other persons. Physical separation of an employee from other employees or persons by a permanent, solid floor to ceiling wall constitutes physical distancing from an employee or other person stationed on the other side of the wall.”
  • Clean and disinfect all common spaces, including bathrooms, frequently touched surfaces, and doors at the end of each shift, and where feasible, disinfect shared tools, equipment, and vehicles prior to transfer from one employee to another.
  • Provide personal protective equipment to employees and ensure its proper use in accordance with VOSH laws, standards, and regulations applicable to personal protective equipment, including respiratory protection equipment when engineering, work practice, and administrative controls are not feasible or do not provide sufficient protection.
  • Assess the workplace for hazards and job tasks that could potentially expose employees to SARS-CoV-2/COVID-19 and ensure compliance with the applicable standards for “very high,” “high,” “medium,” or “lower” risk levels of exposure.
  • Inform employees of methods of self-monitoring and encourage employees to self-monitor for signs and symptoms of COVID-19 if they suspect possible exposure or are experiencing signs of forthcoming illness.
  • Notify their own employees who were at a worksite with an employee who subsequently tested positive for active COVID-19, other employers whose employees were also present, and the building/facility owner of the affected site within 24 hours of discovery of possible exposure.
  • Develop and implement policies and procedures for employees to report positive results from antibody testing, and while an employee who has tested positive for SARS-CoV-2 antibodies may return to work, employers are not required to allow an employee who has received such a test to return.

In addition, the emergency workplace standard prohibits employers from:

  • Discriminating against or discharging an employee because that employee voluntarily provides and wears their own personal protective equipment, if such equipment is not provided by the employer, as long as that equipment does not create an increased hazard for the employee or other employees.
  • Discriminating against or discharging an employee who has raised a reasonable concern about SARS-CoV-2/COVID-19 infection control to the employer, the employer’s agent, other employees, or a government agency, or to the public through print, online, social, or any other media.

These workplace safety standards are set to go into effect on July 15, 2020, and employers could be fined up to $13,000 for failing to comply.

The United States Department of Labor Occupational Safety and Health Administration (OSHA) has issued guidance to employers to protect workers but has not adopted a binding rule. OSHA provided guidance to employers on preventing worker exposure to SARS-CoV-2/COVID-19 in March 2020, and in June 2020 it released guidance on returning to work. The guidance on returning to work states that employers should continue to be flexible and allow employees to work remotely when possible, use alternative business operations such as curbside pickup to serve customers if feasible, implement strategies for basic hygiene and disinfection at work, encourage social distancing, apply procedures for identification and isolation of sick employees, and provide employee training on the various phases of reopening and necessary precautions. Further, employers should not retaliate against employees for adhering to OSHA’s safety guidelines or raising workplace health and safety concerns. Though these guidelines are not binding, employers are bound by the General Duty Clause of the Occupational Safety and Health Act of 1970, which requires that they provide a safe workplace free from serious hazards.

Virginia’s recently-enacted whistleblower protection law, which became effective July 1, 2020, will protect workers that disclose violations of the emergency workplace standard. In particular, the new Virginia whistleblower protection law provides a private right of action for an employee who suffers retaliation for “in good faith report[ing] a violation of any federal or state law or regulation to a supervisor or to any governmental body or law-enforcement official.” Va. Code § 40.1-27.3(A)(1).

The statute proscribes a broad range of retaliatory acts, including discharging, disciplining, threatening, discriminating against, or penalizing an employee or taking other retaliatory action regarding an employee’s compensation, terms, conditions, location, or privileges of employment because of the employee’s protected conduct. Id. at § 40.1-27.3(A).

A prevailing whistleblower under Virginia’s whistleblower protection law can obtain various remedies, including:

  • An injunction to restrain a continuing violation;
  • Reinstatement to the same or an equivalent position held before the employer took the retaliatory action; and/or
  • Compensation for lost wages, benefits, and other remuneration, together with interest, as well as reasonable attorneys’ fees and costs. at § 40.1-27.3(C).

© 2020 Zuckerman Law

For more anti-retaliation legislation, see the National Law Review Labor & Employment law section.

New York Compounding Pharmacy Settles Fraudulent Billing and Kickback Allegations in Whistleblower Lawsuit

Upstate New York pharmaceutical companies FPR Specialty Pharmacy (now defunct) and Mead Square Pharmacy, along with their owners, agreed to pay $426,000 to settle fraudulent claims and kickback allegations brought forth by a whistleblower. According to the U.S. government, the pharmacies submitted fraudulent claims for reimbursement to federal healthcare programs for compounded prescription drugs in violation of the False Claims Act and the Anti-Kickback Statute. The pharmacies allegedly sold prescription drugs to federal healthcare program beneficiaries in states without a license, improperly induced patients to purchase expensive custom compounded medications by waiving all or part of the substantial co-payments required under the federal healthcare programs, and paid sales representatives per-prescription commissions to illegally induce writing more prescriptions.

“The rules governing federal healthcare programs require pharmacies dispensing prescriptions to their members to be licensed with the appropriate state authorities to request reimbursement for the cost of the medications.  The pharmacies violated the False Claims Act by dispensing and requesting reimbursement for hundreds of prescriptions of “Focused Pain Relief” cream dispensed to federal healthcare program beneficiaries located in states where the pharmacies were not licensed to operate by the appropriate state authorities, and by failing to disclose that they were not licensed.  The Pharmacies also violated the False Claims Act by billing federal healthcare programs for prescriptions dispensed in states where they had obtained their state licenses under false pretenses, including by failing to inform state authorities that they had previously dispensed drugs in the states without a license and by failing to disclose” one of the pharmacy owners’ “criminal history on pharmacy license applications.”

Additionally, the pharmacies violated the Anti-Kickback Statute by engaging in two separate illegal practices, according to the government.  First, the pharmacies regularly charged federal healthcare program beneficiaries co-payments substantially below program requirements (which often exceeded $100) to induce them to purchase its pain cream, “Focused Pain Relief,” for which the federal healthcare programs paid hundreds and sometimes thousands of dollars each.  Second, the Pharmacies often paid illegal kickbacks to their sales representatives by giving sales commissions for the number of prescriptions written by the physicians the sales reps marketed.

Manhattan U.S. Attorney Geoffrey S. Berman said:  “Pharmacies, like other participants in the healthcare industry, must follow the rules.  The defendants here brazenly flouted basic rules on licensing and kickbacks to line their pockets with dollars from federal healthcare programs.  That is a prescription for intervention by my office and our partners.”

Similar to this case, there have been many instances in which whistleblowers exposed company fraud against the Medicare system.

© 2020 by Tycko & Zavareei LLP

For more on pharmaceutical fraud, see the National Law Review Biotech, Food & Drug law section.

New York Compounding Pharmacy Settles Fraudulent Billing and Kickback Allegations in Whistleblower Lawsuit

Upstate New York pharmaceutical companies FPR Specialty Pharmacy (now defunct) and Mead Square Pharmacy, along with their owners, agreed to pay $426,000 to settle fraudulent claims and kickback allegations brought forth by a whistleblower. According to the U.S. government, the pharmacies submitted fraudulent claims for reimbursement to federal healthcare programs for compounded prescription drugs in violation of the False Claims Act and the Anti-Kickback Statute. The pharmacies allegedly sold prescription drugs to federal healthcare program beneficiaries in states without a license, improperly induced patients to purchase expensive custom compounded medications by waiving all or part of the substantial co-payments required under the federal healthcare programs, and paid sales representatives per-prescription commissions to illegally induce writing more prescriptions.

“The rules governing federal healthcare programs require pharmacies dispensing prescriptions to their members to be licensed with the appropriate state authorities to request reimbursement for the cost of the medications.  The pharmacies violated the False Claims Act by dispensing and requesting reimbursement for hundreds of prescriptions of “Focused Pain Relief” cream dispensed to federal healthcare program beneficiaries located in states where the pharmacies were not licensed to operate by the appropriate state authorities, and by failing to disclose that they were not licensed.  The Pharmacies also violated the False Claims Act by billing federal healthcare programs for prescriptions dispensed in states where they had obtained their state licenses under false pretenses, including by failing to inform state authorities that they had previously dispensed drugs in the states without a license and by failing to disclose” one of the pharmacy owners’ “criminal history on pharmacy license applications.”

Additionally, the pharmacies violated the Anti-Kickback Statute by engaging in two separate illegal practices, according to the government.  First, the pharmacies regularly charged federal healthcare program beneficiaries co-payments substantially below program requirements (which often exceeded $100) to induce them to purchase its pain cream, “Focused Pain Relief,” for which the federal healthcare programs paid hundreds and sometimes thousands of dollars each.  Second, the Pharmacies often paid illegal kickbacks to their sales representatives by giving sales commissions for the number of prescriptions written by the physicians the sales reps marketed.

Manhattan U.S. Attorney Geoffrey S. Berman said:  “Pharmacies, like other participants in the healthcare industry, must follow the rules.  The defendants here brazenly flouted basic rules on licensing and kickbacks to line their pockets with dollars from federal healthcare programs.  That is a prescription for intervention by my office and our partners.”

Similar to this case, there have been many instances in which whistleblowers exposed company fraud against the Medicare system.

© 2020 by Tycko & Zavareei LLP

Thai Army Whistleblower Faces Up to Seven Years of Jail Time For Fleeing Retaliation

In February of this year, the Thai Army launched a new initiative to combat corruption and abuse within its ranks—a 24-hour hotline that reports directly to the Army Chief General, Apirat Kongsompong. This initiative was created in the wake of a shocking incident in which a soldier killed 29 people after a dispute with his commanding officer. The new hotline, while not anonymous, was set up to provide Army whistleblower confidentiality and work in conjunction with National Anti-Corruption Commission, where complaints would be transferred if outside of the Army’s jurisdiction.

In rolling out this new program, General Nattapol was quoted as saying: “[T]he Army is doing our best…This is not a public stunt.” However, in light of the treatment of one of the first major complaints that was submitted through this channel, this statement could not be further from the truth.

As reported by Human Rights Watch, Sgt. Narongchai Intharakawi filed several complaints with the new hotline just two months after it was created, alleging fraud involving staff allowances at the Army Ordnance Materiel Rebuild Center. However, no action was taken on his complaints. Then, despite the promised confidentiality of the hotline, Sgt. Narongchai Intharakawi began receiving death threats and was informed that he would be facing a disciplinary inquiry for “undermining unity within the army and damaging his unit’s reputation.” This inquiry was nothing but a sham, intended to intimidate Sgt. Narongchai Intharakawi. In fact, a leaked video of the inquiry shows Sgt. Narongchai Intharakawi’s superior directly threatening him for reporting, including by stating: “You may be able to get away this time, but there is no next time for you.”

Because after all of this Sgt. Narongchai Intharakawi reasonably feared for his personal safety, he fled his post and publicized his experience, including by making a report to the Thai Parliament’s Committee on Legal Affairs, Justice, and Human Rights.

Instead of ceasing retaliation due to the new publicity around Sgt. Narongchai Intharakawi’s case, the Army has doubled down: They have requested a military court warrant his arrest him for delinquency in his duties. Under this charge Sgt. Narongchai Intharakawi could face up to seven years in prison as well as a dishonorable discharge.

This abhorrent treatment of a whistleblower will make the Army’s new system completely ineffectual and nothing more than symbolic piece of propaganda, discouraging any future whistleblowers from coming forward for fear they will be treated the same way. In order to make right their grievous actions, the Thai Army must abandon all charges against Sgt. Narongchai Intharakawi, issue a formal apology for the breach of confidentiality, and discipline those accused of participating in the retaliation.

Sgt. Narongchai Intharakawi is a hero for stepping out and trying to report corruption under a new, untested system and should be treated as such both in Thailand and globally.

Copyright Kohn, Kohn & Colapinto, LLP 2020. All Rights Reserved.

North American Securities Administrators Association Proposes Model State Whistleblower Rewards Legislation

The North American Securities Administrators Association (NASAA) announced it released for public comment a proposed model law to help states incentivize individuals to come forward to report suspected wrongful violations of state securities laws and to protect whistleblowers.  According to NASAA President and Chief of the New Jersey Bureau of Securities Christopher W. Gerold, “The intent of this model legislation is to incentivize individuals who have knowledge of potential securities law violations to report it to state regulators in the interest of investor protection . . . [i]nformation from those with knowledge of securities law violations is a valuable enforcement tool to help regulators detect financial fraud and wrongdoing.”

The SEC whistleblower program that Congress created about 10 years ago in the Dodd-Frank Act has proven effective in combatting securities fraud and protecting investors.  Since the inception of the program, the SEC has paid more than $450 million in awards to whistleblowers.  SEC enforcement actions associated with those awards have resulted in sanctions totaling more than $2 billion.  Whistleblower awards can range from 10 percent to 30 percent of the monetary sanctions collected when the sanctions exceed $1 million.

Proposed Model State Securities Whistleblower Rewards Legislation

The proposed state whistleblower rewards legislation is modeled on the Dodd-Frank Act’s SEC whistleblower rewards provisions. Some of the key features include:

  • A whistleblower could obtain 10 to 30% of the monetary sanctions collected in any related administrative or judicial action stemming from original information that the whistleblower voluntarily provides to a state securities regulator.
  • Factors that would determine the award percentage include:
    • the significance of the original information provided by the whistleblower to the success of the administrative or judicial action;
    • the degree of assistance provided by the whistleblower in connection with the administrative or judicial action; and
    • the programmatic interest of the [Securities Administrator] in deterring violations of the securities laws by making awards to whistleblowers who provide original information that leads to the successful enforcement of such laws.
  • Information that could reasonably be expected to reveal the identity of a whistleblower would be exempt from public disclosure.
  • There are approximately 11 categories of whistleblowers that would be ineligible to receive an award, including (1) a whistleblower convicted of a felony in connection with the administrative or judicial action for which the whistleblower otherwise could receive an award; (2) a whistleblower who acquires the original information through the performance of an audit of financial statements required under the securities laws; (3) a whistleblower who knowingly or recklessly makes a false, fictitious, or fraudulent statement or misrepresentation as part of, or in connection with, the original information provided or the administrative or judicial proceeding for which the original information was provided; and (4) a whistleblower who has a legal duty to report the original information.

The model legislation also includes a whistleblower protection provision that would prohibit an employer from terminating, discharging, demoting, suspending, threatening, harassing, directly or indirectly, or in any other manner retaliating against, a whistleblower because of any lawful act done by the whistleblower:

  • in providing information to the [Securities Division] in accordance with this Act;
  • in initiating, testifying in, or assisting in any investigation or administrative or judicial action based upon or related to such information; or
  • in making disclosures that are required or protected under the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7201 et seq.); the Securities Act of 1933 (15 U.S.C. 77a et seq.); the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.); 18 U.S.C. 1513(e); any other law, rule, or regulation subject to the jurisdiction of the Securities and Exchange Commission; or [the Securities Act of this State] or a rule adopted thereunder.

Remedies for a whistleblower prevailing in a retaliation claim include:

  • reinstatement with the same compensation, fringe benefits, and seniority status that the individual would have had, but for the retaliation;
  • two (2) times the amount of back pay otherwise owed to the individual, with interest;
  • compensation for litigation costs, expert witness fees, and reasonable attorneys’ fees;
  • actual damages; or
  • any combination of these remedies.

Role of State Securities Regulators

Although the SEC is the primary securities market regulator and enforces federal securities laws, state securities regulators enforce “blue sky” laws designed to protect investors against fraudulent sales practices and activities that fall outside of the SEC’s jurisdiction, e.g., offerings that are not required to be registered with the SEC.  Most of the state securities laws are based on the Uniform Securities Act, which is intended to prevent the fraudulent sale of securities to investors.

Securities law enforcement at the state level plays a vital role in protecting investors.  According to the NASAA’s 2018 Enforcement Report, in 2017 state securities regulators received 7,988 complaints, took 2,105 enforcement actions, and ordered $486 million returned to investors. Incentivizing whistleblowers to report securities fraud could significantly enhance the ability of state securities regulators to protect investors.

The proposed model act is open for public comment through June 30, 2020.

© 2020 Zuckerman Law

For more on securities laws, see the National Law Review Securities & SEC law section.