Category: white collar crime

SEC Issues Two Whistleblower Awards for Independent Analysis

On February 18, the U.S. Securities and Exchange Commission (SEC) announced two whistleblower awards issued to individuals who provided independent analysis to the SEC which contributed to a successful enforcement action. One whistleblower received an award of $375,000 while the other received $75,000.

According to the award order, the whistleblowers “each voluntarily provided original information to the Commission that was a principal motivating factor in Enforcement staff’s decision to open an investigation.”

Through the SEC Whistleblower Program, qualified whistleblowers, individuals who voluntarily provide original information which leads to a successful enforcement action, are entitled to a monetary award of 10-30% of funds recovered by the government.

A 2020 amendment to the whistleblower program rules established a presumption of a statutory maximum award of 30% in cases where the maximum award would be less than $5 million and where there are no negative factors present. The SEC notes that this presumption did not apply to the two newly awarded whistleblowers. According to the SEC, the first whistleblower unreasonably delayed in reporting their disclosure and the second whistleblower only provided limited assistance.

In the award order, the SEC justifies its decision to grant the first whistleblower a larger award than the second. According to the SEC, the first whistleblower’s disclosure included high quality about an issue which “was the basis for the bulk of the sanctions in the Covered Action” whereas the second whistleblower’s disclosure did not touch on this pivotal issue. Furthermore, the first whistleblower provided significant ongoing assistance to the SEC staff while the second whistleblower did not.

Since issuing its first award in 2012, the SEC has awarded approximately $1.2 billion to 247 individuals. Before blowing the whistle to the SEC, individuals should first consult an experienced SEC whistleblower attorney to ensure they are fully protected under the law and qualify for the largest award possible.

Article By Mary Jane Wilmoth of Kohn, Kohn & Colapinto. Geoff Schweller also contributed to this article.

For more whistleblower and white collar crime legal news, click here to visit the National Law Review.

Copyright Kohn, Kohn & Colapinto, LLP 2022. All Rights Reserved.

Sixth Circuit Clarifies When Statute of Limitations Commences in False Claims Act Whistleblower Retaliation Cases

On January 10, 2022, the Sixth Circuit held in El-Khalil v. Oakwood Healthcare, Inc., 2022 WL 92565 (6th Cir. Jan 10, 2022) that the statute of limitations period for a False Claims Act whistleblower retaliation case commences when the whistleblower is first informed of the retaliatory adverse employment action.

El-Khalil’s False Claims Act Whistleblower Retaliation Claim

While working as a podiatrist at Oakwood Healthcare, El-Khalil saw  employees submit fraudulent Medicare claims, which he reported to the federal government. In 2015, Oakwood’s Medical Executive Committee (MEC) rejected El-Khalil’s application to renew his staff privileges.  After commencing a series of administrative appeals, El-Khalil found himself before Oakwood’s Joint Conference Committee (JCC) on September 22, 2016. The JCC, which had the authority to issue a final, non-appealable decision, voted to affirm the denial of El-Khalil’s staff privileges.  On September 27, 2016, the JCC sent El-Khalil written notice of its decision.

Three years later, on September 27, 2019, El-Khalil sued Oakwood for retaliation under the False Claims Act whistleblower retaliation law.  Oakwood moved for summary dismissal on the basis that the claim was not timely filed in that the JCC’s decision became final when it voted on September 22, 2016 and therefore the filing on September 27, 2019 was outside of the 3-year statute of limitations. The district court granted Oakwood’s motion and El-Khalil appealed.

Sixth Circuit Denies Relief

In affirming the district court, the Sixth Circuit held that the text of the FCA anti-retaliation provision (providing that an action “may not be brought more than 3 years after the date when the retaliation occurred”) is unequivocal that the limitations period commences when the retaliation actually happened. It adopts “the standard rule” that the limitations period begins when the plaintiff “can file suit and obtain relief,” not when the plaintiff discovers the retaliation. The retaliation occurred on September 22 when the JCC voted to affirm the denial of El-Khalil’s staff privileges, and the JCC’s September 27 letter merely memorialized an already final decision.

In addition, the Sixth Circuit held that the False Claims Act’s whistleblower protection provision does not contain a notice provision. As soon as Oakwood “discriminated against” El-Khalil “because of” his FCA-protected conduct, he had a ripe “cause of action triggering the limitations period.” The court noted that if an FCA retaliation plaintiff could show that the employer concealed from the whistleblower the decision to take an adverse action, the whistleblower might be able to avail themself of equitable tolling to halt the ticking of the limitations clock.

Implications for Whistleblowers

Some whistleblower retaliation claims have a short statute of limitations and therefore it is critical to promptly determine when the statute of limitations starts to run.  For most whistleblower retaliation claims that are adjudicated at the U.S. Department of Labor, the clock for filing a complaint begins to tick when the complainant receives unequivocal notice of the adverse action.  Udofot v. NASA/Goddard Space Center, ARB No. 10-027, ALJ No. 2009-CAA-7 (ARB Dec. 20, 2011).  If a notice of termination is ambiguous, the statute of limitations may start to run upon the effective date of the termination as opposed to the notice date.  Certain circumstances may justify equitable modification, such as where:

  1. the employer actively misleads or conceals information such that the employee is prevented from making out a prima facie case;
  2. some extraordinary event prevents the employee from filing on time;
  3. the employee timely files the complaint, but with the wrong agency or forum; or
  4. the employer’s own acts or omissions induce the employee to reasonably forego filing within the limitations period.

See Turin v. AmTrust Financial Svcs., Inc., ARB No. 11-062, ALJ No. 2010-SOX-018 (ARB March 29, 2013).

When assessing the statute of limitations for whistleblower retaliation claims, it is also critical to calculate the deadline to timely file a claim for each discrete adverse action or each act of retaliation.  However, in an action alleging a hostile work environment, retaliatory acts outside the statute of limitations period are actionable where there is an ongoing hostile work environment and at least one of the acts occurred within the statute of limitations period.  And when filing a retaliation claim, the whistleblower should consider pleading untimely acts of retaliation because such facts are relevant background evidence in support of a timely claim.

Article By Jason Zuckerman of Zuckerman Law

For more whistleblower and business crimes legal news, click here to visit the National Law Review.

© 2022 Zuckerman Law

CFPB Solicits Whistleblowers to Strengthen Enforcement of Consumer Financial Protection Laws

In its revamped whistleblower webpage, the CFPB is enlisting the help of whistleblowers to provide tips about the following issues:

  • Any discrimination related to consumer financial products or services or small businesses
  • Any use of artificial intelligence/machine learning models that is based on flawed or incomplete data sets, that uses proxies for race, gender, or other group characteristics, or that impacts particular groups or classes of people more than others;
  • Misleading or deceptive advertising of consumer financial products or services, including mortgages
  • Failure to collect, maintain, and report accurate mortgage loan application and origination data
  • Failure to provide or use accurate consumer reporting information
  • Failure to review mortgage borrowers’ loss mitigation applications in a timely manner
  • Any unfair, deceptive, or abusive act or practice with respect to any consumer financial product or service.

The CFPB has also announced that it seeks tips to help it combat the role of Artificial Intelligence in enabling intentional and unintentional discrimination in decision-making systems.  For example, a recent study of algorithmic mortgage underwriting revealed that Black and Hispanic families have been more likely to be denied a mortgage compared to similarly situated white families.

Proposed CFPB Whistleblower Reward Program

Currently, there is no whistleblower reward program at the CFPB and sanctions collected in CFPB enforcement actions do not qualify for SEC related action whistleblower awards.  In light of the success of the SEC’s Whistleblower Program as an effective tool to protect investors and strengthen capital markets, the CFPB requested that Congress establish a rewards program to strengthen the CFPB’s enforcement of consumer financial protection laws.

In September 2021, Senator Catherine Cortez Masto introduced the Financial Compensation for Consumer Financial Protection Bureau Whistleblowers Act (S. 2775), which would establish a whistleblowers rewards program at the CFPB similar to the SEC Whistleblower Program.  It would authorize the CFPB to reward whistleblowers between 10% to 30% of collected monetary sanctions in a successful enforcement action where the penalty exceeds $1 million.  And in cases involving monetary penalties of less than $1 million, the CFPB would be able to award any single whistleblower 10% of the amount collected or $50,000, whichever is greater.

The Financial Compensation for CFPB Whistleblowers Act is cosponsored by Chairman of the Senate Banking, Housing, and Urban Affairs Committee Senator Sherrod Brown and Senators Dick Durbin, Elizabeth Warren, Jeff Merkley, Richard Blumenthal, and Tina Smith. In the House, Representative Al Green introduced a companion bill (H.R. 5484).

A whistleblower reward program at the CFPB could significantly augment enforcement of consumer financial protection laws, including laws barring unfair, deceptive, or abusive acts and practices.  The CFPB has authority over a broad array of consumer financial products and services, including mortgages, deposit taking, credit cards, loan servicing, check guaranteeing, collection of consumer report data, debt collection associated with consumer financial products and services, real estate settlement, money transmitting, and financial data processing.  In addition, the CFPB is the primary consumer compliance supervisory, enforcement, and rulemaking authority over depository institutions with more than $10 billion in assets.

Hopefully, Congress will act swiftly to enact the Financial Compensation for CFPB Whistleblowers Act.

Protection for CFPB Whistleblowers

Although Congress did not establish a whistleblower reward program when it created the CFPB, it included a strong whistleblower protection provision in the Consumer Financial Protection Act of 2010 (CFPA).  The anti-retaliation provision of the Consumer Financial Protection Act provides a cause of action for corporate whistleblowers who suffer retaliation for raising concerns about potential violations of rules or regulations of the CFPC.

Workers Protected by the CFPA Anti-Retaliation Law

The term “covered employee” means “any individual performing tasks related to the offering or provision of a consumer financial product or service.”  The CFPA defines a “consumer financial product or service” to include “a wide variety of financial products or services offered or provided for use by consumers primarily for personal, family, or household purposes, and certain financial products or services that are delivered, offered, or provided in connection with a consumer financial product or service . . . Examples of these include . .. residential mortgage origination, lending, brokerage and servicing, and related products and services such as mortgage loan modification and foreclosure relief; student loans; payday loans; and other financial services such as debt collection, credit reporting, credit cards and related activities, money transmitting, check cashing and related activities, prepaid cards, and debt relief services.”

Scope of Protected Whistleblowing About Consumer Financial Protection Violations

The CFPA protects disclosures made to an employer, to the CFPB or any State, local, or Federal, government authority or law enforcement agency concerning any act or omission that the employee reasonably believes to be a violation of any CFPB regulation or any other consumer financial protection law that the Bureau enforces. This includes several federal laws regulating “unfair, deceptive, or abusive practices . . . related to the provision of consumer financial products or services.”

Some of the matters the CFPB regulates include:

  • kickbacks paid to mortgage issuers or insurers;
  • deceptive advertising;
  • discriminatory lending practices, including a violation of the Equal Credit Opportunity Act (“ECOA”);
  • excessive fees;
  • any false, deceptive, or misleading representation or means in connection with the collection of any debt; and
  • debt collection activities that violate the Fair Debt Collection Practices Act (FDCPA).

Some of the consumer financial protection laws that the CFPB enforces include:

  • Real Estate Settlement Procedures Act;
  • Home Mortgage Disclosure Act;
  • Equal Credit Opportunity Act;
  • Truth in Lending Act;
  • Truth in Savings Act;
  • Fair Credit Billing Act;
  • Fair Credit Reporting Act;
  • Electronic Fund Transfer Act;
  • Consumer Leasing Act;
  • Fair Debt Collection Practices Act;
  • Home Owners Protection Act; and
  • Secure and Fair Enforcement for Mortgage Licensing Act

Reasonable Belief Standard in Banking Whistleblower Retaliation Cases

The CFPA whistleblower protection law employs a reasonable belief standard.  As long as the plaintiff’s belief is reasonable, the whistleblower is protected, even if the whistleblower makes a mistake of law or fact about the underlying violation of a law or regulation under the CFPB’s jurisdiction.

Prohibited Retaliation

The CFPA anti-retaliation law proscribes a broad range of adverse employment actions, including terminating, “intimidating, threatening, restraining, coercing, blacklisting or disciplining, any covered employee or any authorized representative of covered employees” because of the employee’s protected whistleblowing.

Proving CFPA Whistleblower Retaliation

To prevail in a CFPA whistleblower retaliation claim, the whistleblower need only prove that his or her protected conduct was a contributing factor in the adverse employment action, i.e., that the protected activity, alone or in combination with other factors, affected in some way the outcome of the employer’s decision.

Where the employer takes the adverse employment action “shortly after” learning about the protected activity, courts may infer a causal connection between the two.  Van Asdale v. Int’l Game Tech., 577 F.3d 989, 1001 (9th Cir. 2009).

Filing a CFPA Financial Whistleblower Retaliation Claim

CFPA complaints are filed with OSHA, and the statute of limitations is 180 days from the date when the alleged violation occurs, which is the date on which the retaliatory decision has been both made and communicated to the whistleblower.

The complaint need not be in any particular form and can be filed orally with OSHA. A CFPA complaint need not meet the stringent pleading requirements that apply in federal court, and instead the administrative complaint “simply alerts OSHA to the existence of the alleged retaliation and the complainant’s desire that OSHA investigate the complaint.” If the complaint alleges each element of a CFPA whistleblower retaliation claim and the employer does not show by clear and convincing that it would have taken the same action in the absence of the alleged protected activity, OSHA will conduct an investigation.

OSHA investigates CFPA complaints to determine whether there is reasonable cause to believe that protected activity was a contributing factor in the alleged adverse action.  If OSHA finds a violation, it can order reinstatement of the whistleblower and other relief.

Article By Jason Zuckerman of Zuckerman Law

For more financial legal news, click here to visit the National Law Review.

© 2021 Zuckerman Law

Biden Administration Issues New Government-Wide Anti-Corruption Strategy

On Dec. 7, 2021, the White House published a government-wide policy document entitled “United States Strategy on Countering Corruption” (“Strategy”). The Strategy implements President Biden’s National Security Memorandum from earlier in 2021, which declared international corruption a threat to U.S. national security.

The Strategy is notable for several reasons:

First, the Strategy focuses not just on the “supply side” of foreign bribery and corruption—that is, companies acting in violation of the Foreign Corrupt Practices Act (FCPA)—but also on the “demand side” of the equation, namely corrupt foreign officials and those who assist them. It promises to pair vigorous enforcement of the FCPA with efforts to hold corrupt leaders themselves accountable, via U.S. money laundering laws, economic sanctions, and visa restrictions.

Second, the Strategy specifically calls out the role of illicit finance in facilitating and perpetuating foreign corruption, promising “aggressive enforcement” against those who facilitate the laundering of corrupt proceeds through the U.S. economy. Professional gatekeepers such as lawyers, accountants, and trust and company service providers are specifically identified as targets of future scrutiny. The Strategy also promises to institute legislative and regulatory changes to address anti-money laundering (AML) vulnerabilities in the U.S. financial system. These promised changes include:

  • Finalizing beneficial ownership regulations, and building a national database of beneficial owners, as mandated by the Anti-Money Laundering Act of 2020.

  • Promulgating regulations designed to reveal when real estate is used to hide ill-gotten gains. Contemporaneously with the White House’s issuance of the Strategy, the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued an Advance Notice of Proposed Rulemaking (ANPRM), inviting public comment on its plan to apply additional scrutiny to all-cash real estate transactions.

  • Prescribing minimum reporting standards for investment advisors and other types of equity funds, which are currently not subject to same AML program requirements as other financial institutions.

Third, the Strategy calls for a coordinated, government-wide response to corruption, and it contemplates a role not only for law enforcement and regulatory agencies but also for agencies such as the Department of State and Department of Commerce, which is to establish its own new anti-corruption task force. It remains to be seen if the increased scope of anti-corruption efforts called for by the Strategy will result in new or additional penalties for persons and entities perceived as corrupt or as facilitating corruption, but the Strategy may place an additional premium on corporate anti-corruption compliance.

Individuals and entities operating in sectors traditionally associated with corruption and/or AML risk should consider taking the following steps in response to the Strategy. These considerations apply not only to U.S. persons and businesses but also to anyone who may fall within the broad purview of the FCPA, U.S. money laundering statutes, and other laws with extraterritorial reach:

  • Increase due diligence for any pending or future transactions in jurisdictions where potentially corrupt actors or their designees play a role in awarding government contracts. Ensure any payments are the result of arms-length transactions based on legitimate financial arrangements.

  • Professional gatekeepers should become familiar with the particular risks associated with the industries in which they operate. While AMLA made it clear that lawyers, accountants, and real estate professionals will come under increased scrutiny based on the risk profile of their clients, the Strategy increases the likelihood that law enforcement will devote additional resources in this sometimes-overlooked area.

  • Given the increased role the State Department will continue to play in the anticorruption space based on the National Defense Authorization Act and the Strategy, companies doing business in or with countries vital to U.S. foreign policy goals should remember that in addition to the individual leaders of these countries, government institutions and lower-level officials could create risk and will be closely watched. Though the U.S. government often talks about specific government officials, the Strategy appears to take a broader approach.

  • Businesses should continue to examine and reexamine third-party risk with an emphasis on preventing potential problems before they occur. Additional resources and increased cooperation between and among government agencies may lead to additional investigations and enforcement actions, so compliance programs should be updated where necessary.

Article By Kyle R. Freeny and Benjamin G. Greenberg of Greenberg Traurig, LLP

For more white collar crime and consumer rights legal news, click here to visit the National Law Review.

©2021 Greenberg Traurig, LLP. All rights reserved.

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

SEC Investigating Cyberattacks Used to Find Secret Company Mergers

SEC Investigating Cyberattacks and Insider Trading

According to Reuters, the Securities and Exchange Commission (SEC) is investigating hacks of email accounts of associates and executives that reveal information on potential mergers. The hackers use a technique known as phishing where they craft emails that trick recipients into logging into malicious websites to steal their email logins. These hacks pose a threat because fraudsters can easily use the information to engage in insider trading.

The group, known as FIN4, allegedly targeted a list of 60 companies in biotechnology, medical instruments, hospital equipment, and drugs. Fireeye reported these cyberattacks in February 2014 and found that they were performed to “obtain an edge on the stock trading.” This will continue to be a problem as more businesses move over to cloud computing, which could lead to a significant increase in data breaches.

The SEC’s Office of Compliance Inspections and Examinations released a report on observations relating to cybersecurity and best practices by financial market participants. The observations are offered as guidelines for firms considering how to improve their cybersecurity preparedness and response procedures. The intent is to highlight specific examples of cybersecurity and operational resiliency practices and controls that firms are taking to safeguard against threats, and how they respond in the event of a breach. The SEC “encourages organizations to review their practices, policies, and procedures with respect to cybersecurity and operational resiliency.” Cybersecurity and Resiliency Observations report.

New Technology & Whistleblower Tips Root Out Insider Trading

The SEC relies on technological developments to accomplish its enforcement goals, including identifying and pursuing insider trading cases. In FY 2018, the SEC implemented a Consolidated Audit Trail, intended to enhance, centralize, and update the regulatory data infrastructure available to market regulators. Once fully implemented, the Consolidated Audit Trail will give regulators quicker access to all trade and order data, facilitating the detection of illegal trading practices, such as insider trading.

In addition to technology, the SEC has increasingly relied on whistleblower tips to identify and halt insider trading. Whistleblowers have been instrumental to expose fraud and expose insider trading secrets.

SEC Rewards Whistleblowers for Exposing Insider Trading 

Under the SEC Whistleblower Program, whistleblower are eligible to receive a reward if their original information about insider trading leads to a successful enforcement action with total monetary sanctions of more than $1 million. A whistleblower may receive an award of between 10 to 30 percent of the total monetary sanctions collected. If represented by counsel, a whistleblower may submit a tip anonymously to the SEC.

© 2020 Zuckerman Law

For more on SEC Insider Trading enforcement, see the National Law Review Criminal Law and Business Crimes section.

Are Culpable Whistleblowers Eligible to Receive SEC Whistleblower Awards?

Yes. In many circumstances, culpable whistleblowers are eligible to receive SEC whistleblowers awards (see limitations below). The final rules of the SEC Whistleblower Program recognize that culpable whistleblowers enhance the SEC’s ability to detect violations of the federal securities laws, increase the effectiveness and efficiency of the SEC’s investigations, and provide critical evidence for the SEC’s enforcement actions. In fact, a speech by the former Director of the SEC’s Division of Enforcement highlighted the importance of culpable whistleblowers to the agency’s enforcement efforts:

Finally, I want to say a word about participants in wrongdoing and their ability to be whistleblowers. It is important for participants in misconduct to understand that, in many circumstances, they are eligible for awards and we would like to hear from them. Obviously, culpable insiders with first-hand knowledge of misconduct can provide valuable information and assistance in identifying participants in, transactions relating to, and proceeds of, fraudulent schemes. And, while there are safeguards built into the program to ensure that whistleblowers do not profit from their own misconduct…culpable whistleblowers can still get paid for eligible information they report that falls outside of these limitations.

SEC Whistleblower Awards to Culpable Whistleblowers

The SEC Whistleblower Program’s decision to work with, and award, culpable whistleblowers has proven to be effective in enabling the SEC to discover fraud and protect investors. To date, the SEC has issued several awards to whistleblowers who had some culpability in the violations, including:

  • On August 30, 2016, the SEC announced a $22 million award to a whistleblower who helped the agency “halt a well-hidden fraud” at the company where the whistleblower worked. The accompanying order states that the Commission considered several factors mitigating the whistleblower’s culpability in determining the appropriate percentage, but the whistleblower did not financially benefit from the misconduct.
  • On July 27, 2017, the SEC announced a $1.7 million award to a whistleblower who helped the Commission stop a “serious, multi-year fraud that would have otherwise been difficult to detect.” There were a few mitigating factors in the Commission’s determination of the whistleblower’s final award, including the fact that the whistleblower did not comply with one of the SEC’s rules, an omission which normally requires an award denial. The order stated that “certain unusual circumstances” governed this case, thus the Commission decided to waive that requirement. In determining the award amount, the Commission considered, too, the fact that the whistleblower unreasonably delayed in reporting and ultimately bore “some, albeit limited, culpability” in the fraud.
  • On September 14, 2018, the SEC announced it had reduced a whistleblower’s award to $1.5 million because the Commission found that the whistleblower unreasonably delayed in reporting the fraud, the whistleblower “received a significant and direct financial benefit,” and was culpable in the scheme. The order further details these determining factors, and explains that the whistleblower waited more than a year after learning of the facts to report the fraud and reported to the Commission only after learning of the ongoing investigation.

See additional SEC whistleblower cases that have resulted in multi-million dollar awards.

Limitations on SEC Whistleblower Awards to Culpable Whistleblowers

While the SEC has been clear that it welcomes information from culpable whistleblowers, the SEC Whistleblower Program has specific rules that could disqualify certain whistleblowers from receiving SEC whistleblower awards. In addition, the program has rules that could limit the size of a culpable whistleblower’s future SEC whistleblower award. Importantly, whistleblowers who are concerned about potential liability should consult with experienced SEC whistleblower attorneys before reporting information to the SEC Office of the Whistleblower. Once information is submitted to the SEC, it cannot be withdrawn.

Whistleblowers Cannot Be Convicted of a Criminal Violation

The SEC Office of the Whistleblower will not issue awards to whistleblowers who are convicted of a criminal violation in relation to an action for which they would otherwise be eligible for an award. Moreover, the SEC Whistleblower Program does not provide amnesty to whistleblowers who provide information to the SEC. The fact that a whistleblower reports information to the SEC and assists in an SEC investigation and enforcement action does not preclude the SEC from bringing an action against the whistleblower based upon their own conduct in connection with violations of the federal securities laws. If such an action is determined to be appropriate, however, the SEC will take the whistleblower’s cooperation into consideration. As noted in the speech of the former Director of the SEC’s Division of Enforcement: “There are also other potential benefits for culpable whistleblowers — in appropriate circumstances, we will take their cooperation under the whistleblower program and in our investigation into consideration in deciding what remedies, if any, are appropriate in any action we determine should be brought against the whistleblowers for their role in the scheme.”

Culpable Whistleblowers Cannot Benefit from Their Own Misconduct

Under the SEC Whistleblower Program, the SEC will issue awards to whistleblowers who provide original information that leads to enforcement actions with total monetary sanctions in excess of $1 million. A whistleblower may receive an award of between 10-30 percent of the monetary sanctions collected. Since 2011, the SEC Whistleblower Office has issued nearly $400 million in awards to whistleblowers. The largest SEC whistleblower awards to date are a $50 million award, a $39 million award, and a $37 million award.

While the SEC is permitted to issue awards to culpable whistleblowers, the rules of the SEC Whistleblower Program do not allow whistleblowers to benefit from their own misconduct. Specifically, for purposes of determining whether the $1 million threshold has been satisfied or calculating the amount of an award, the SEC will not count any monetary sanctions that the whistleblower is ordered to pay or that are ordered to be paid against any entity whose liability is based substantially on conduct that the whistleblower directed, planned, or initiated.

Culpability May Decrease the Size of an Award

In determining the percentage of monetary sanctions to award a whistleblower, the SEC considers various factors that may increase or decrease the size of a whistleblower’s award. One of the factors that may decrease the size of an award is the whistleblower’s culpability in the securities law violation. When making this determination, the SEC may consider the following factors:

  • the whistleblower’s position or responsibility at the time the violations occurred;
  • if the whistleblower acted with scienter, both generally and in relation to others who participated in the violations;
  • if the whistleblower is a recidivist;
  • the egregiousness of the fraud committed by the whistleblower;
  • whether the whistleblower financially benefitted from the scheme; and
  • whether the whistleblower knowingly interfered with the SEC’s investigation.

Notably, while culpability may reduce a whistleblower’s award percentage, any whistleblower who qualifies for an award under the SEC Whistleblower Program – including culpable whistleblowers – will receive at least 10% of the monetary sanctions collected in the enforcement action.

© 2020 Zuckerman Law

For more on whistleblower rules, see the National Law Review Securities & SEC laws section.

White Collar Enforcement and New Trump Administration: Your Top Ten Questions Answered

White Collar EnforcementEnforcement activity under the Obama administration often made headlines for the eye-popping level of fines, with the Foreign Corrupt Practices Act (FCPA), Anti-Money Laundering (AML) regulations, and economic sanctions maintained by the Office of Foreign Assets Control (OFAC) leading the way. The U.S. Department of Justice (DOJ), the Federal Bureau of Investigation (FBI), and the U.S. Securities and Exchange Commission (SEC) devoted substantial resources to criminal enforcement of these regulations, including through their application to non-U.S. companies operating outside the United States.

To avoid becoming enmeshed in this vigorous enforcement environment, most multinational companies have implemented enhanced regulatory risk management and compliance programs. Under a new Clinton administration, the continuation of the enforcement environment likely would have been a given, but that assumption ended when President Trump secured the 270th electoral vote. So with a new administration coming to town, a number of questions arise in the white collar world, including:

  • What is the future of white collar enforcement over the next four years?

  • Will the aggressive enforcement activity under the Obama administration continue or even grow?

  • Will the U.S. government continue to emphasize enforcement of activities abroad, including against non-U.S. companies and for conduct occurring outside the United States?

  • Or will the new administration mark a change in the enforcement priorities of the U.S. government?

To help deal with the open questions regarding enforcement activity in the Trump Administration, this client alert presents the “top ten” questions every company potentially subject to U.S. jurisdiction should be thinking about. Previously issued client alerts discussed the future of national security (CFIUS) reviews,1 NAFTA,2 U.S. Customs,3 and international trade litigation4 (antidumping and countervailing duty measures and so forth) under the Trump administration; future client alerts will deal comprehensively with all international trade and regulatory areas where significant change could occur under the new administration.

The Top Ten White Collar Enforcement Questions Answered (or, Will the New Administration Enforce with Force?)

1. What has President Trump promised?

Although President Trump has generally assailed government activity that stands in the way of the operation of business (including with regard to the FCPA, as discussed below), there is little to indicate President Trump’s views on white collar law enforcement. Nonetheless, there are numerous reasons to believe the Trump administration will continue to aggressively enforce what are commonly known as white collar crimes. The trend has been to enforce these crimes more aggressively under both Republican (George W. Bush) and Democratic (Obama) administrations. There is now an institutional apparatus to handle white collar enforcement, including dedicated FBI investigation resources, the creation of avenues to share information with foreign governments on white collar matters, established procedures to handle the large amount of data often generated by these cases, and increased hiring to support white collar enforcement (both through the addition of attorneys and the assignment of additional FBI agents) at the DOJ and dedicated personnel at other agencies (such as the SEC) that investigate these matters. And the regulatory agencies have established conduits to share information and coordinate potentially criminal matters.

The results show up in the numbers: enforcement of the FCPA has resulted in the collection of $4 billion in penalties over the course of the Obama administration, and OFAC/AML enforcement is well over $10 billion. This vast apparatus to handle white collar matters is not going away.

2. What impact would the appointment of Senator Sessions as attorney general have on white collar enforcement?

The DOJ is much more than a top-down organization that precisely mirrors changes in administration and the views of the current attorney general. Only a few persons are politically appointed; most of the DOJ consists of career prosecutors and agents. Thus, there is a certain institutional inertia that transcends changes at the political level. The long-term trend of increasing enforcement activity has been fostered and implemented as much at the lower level as it has been a top-down initiative, and it has institutional reasons to continue.

Nonetheless, the attorney general exercises a great deal of discretion regarding what cases are brought, where the DOJ focuses its enforcement attention, how the laws are interpreted, and how they are settled. With Senator Sessions surviving a hard-fought confirmation process to become Attorney General, the high degree of attention currently being paid to white collar matters likely will continue. Senator Sessions has nearly two decades of experience as a prosecutor in Alabama, both on the federal level (as an assistant U.S. attorney and then the U.S attorney for the Southern District of Alabama for 14 years) and state level (Alabama attorney general for two years). In his role as a federal prosecutor, Senator Sessions prosecuted savings and loan fraud, which was a major enforcement area during Mr. Sessions’ time as a federal prosecutor. In a 2002 Judiciary Committee hearing, Senator Sessions stated his view that vigorous enforcement of the savings and loan fraud cases during his time as a prosecutor led to “a lot better behavior in banking today” because, in his view, “[h]arsh sentencing does deter.”[5]

These statements show an appreciation for the deterrent value of prosecuting white collar crime and a willingness to use prosecutions to send a message of compliance. Companies and corporate executives should not expect any lessening of the enforcement attention applied by the U.S. government under a prospective Attorney General Sessions.

Additional support for the continuation of the aggressive enforcement of white collar crimes is provided by the nomination of U.S. attorney Rod Rosenstein as the deputy attorney general (the second-highest position in the DOJ). Mr. Rosenstein is the longest-serving U.S. attorney. Appointing the only holdover U.S. attorney from the George W. Bush administration. As the person responsible for the day-to-day operation of the 113,000 employee DOJ shows support for continuity at the DOJ, both in terms of its operations and its enforcement priorities, especially since the FBI and the Bureau of Alcohol, Tobacco, Firearms and Explosives will report directly to him.

3. What are the likely areas where we would see enforcement attention in a Sessions-led DOJ?

Predicting enforcement activity can be difficult, because events can have a large say in how the DOJ operates. When Attorney General Ashcroft was appointed in the George W. Bush administration, he came into an administration that was believed to have a pro-business tilt. There was little expectation that white collar enforcement activity would become a priority. But financial scandals and revelations of bribery led to a large ramp-up of government enforcement activity, culminating in the investigation of Siemens and the assessment of a record FCPA penalty. FCPA enforcement has been strong ever since.

Against this backdrop, we predict the following areas will see significant enforcement activity over the next four years:

  • FCPA. President Trump has expressed skepticism regarding the FCPA and international antibribery enforcement, such as in a 2012 interview with CNBC, where President Trump stated that “this country is absolutely crazy” to prosecute alleged FCPA violations in places where corruption is common because it puts U.S. business at a “huge disadvantage.” President Trump concluded that the FCPA is a “horrible law and it should be changed.”6

    Despite these criticisms of the FCPA, it is unlikely that strong enforcement of the FCPA is going to go away. Senator Sessions has shown general support for the value of antibribery laws, having co-sponsored the Public Corruption Prosecution Improvements Act, which would have revised U.S. law to expand prohibitions against bribery, theft of public money, and other government-related public corruption. By all reports, there is a strong pipeline of FCPA investigations at the DOJ and the SEC, and the Trump administration is unlikely to court the bad publicity that would occur if these investigations were quashed or the level of penalties were suddenly to fall. Other countries (often at the urging of the United States) have also drafted new anticorruption laws and stepped up their enforcement of their laws, making anticorruption enforcement more of a worldwide movement. To the extent that the public skepticism of President Trump regarding the FCPA will be realized, it is more likely to take the form of congressional amendments to the FCPA, such as the inclusion of an affirmative defense based on the existence of an effective compliance program. (Predictions regarding FCPA enforcement will be covered in a future client alert.)

  • Export Controls. One of the hallmarks of the Trump campaign rhetoric was an emphasis on enhancing U.S. national security interests. Although export controls were not mentioned specifically, both the International Traffic in Arms Regulations (ITAR) and the Export Administration Regulations (EAR) are specifically intended to implement national security concerns and have seen significant enforcement activity in recent years. These are goals likely to be supported by Senator Sessions, who in 2003 joined with other senators to support a plan to strengthen export controls on products with military uses.7 It would not be difficult to accomplish a similar result by enforcing the existing export controls in a strong fashion, leading to the prospect of increasingly stringent enforcement activity in the export controls area. (Predictions regarding export controls enforcement will be covered in a future client alert.)

    Of particular note, Senator Sessions argued that administration of the dual-use controls (i.e., commercial or dual-use products with potential military uses) should not be overseen by the Department of Commerce because there supposedly is “an inherent conflict of interest in resting the protection of our national security in the hands of a department that is charged with the promotion of U.S. business interests.”8 With the Department of Commerce overseeing the export controls that apply most broadly (the EAR), including the civil (but not the criminal) enforcement of the EAR, Senator Sessions may emphasize the area of criminal enforcement of the export control regulations, in part to combat this perceived conflict in overseeing the most common export control regulations.

  • Economic Sanctions. Economic sanctions enforcement (along with AML) showed the strongest increase under the Obama administration, with the U.S. government using aggressive theories of jurisdiction as a means of asserting the extra-territorial application of the economic sanctions administered by OFAC. Neither trend is likely to change in the Trump administration. Senator Sessions introduced the Iran Sanctions Loophole Elimination Act, which would have imposed sanctions on any foreign bank that knowingly engaged in certain transactions with the Central Bank of Iran or any entity blacklisted within the shipping, shipbuilding, port operation, or energy sectors.9 Senator Sessions also was in favor of a “Sense of Congress” motion stating that negotiations with Iran would be more likely to succeed if the president were granted the explicit authority to impose new sanctions on Iran. Indeed, Republicans in general have been skeptical of any easing of the economic sanctions against bad actors, opposing efforts to ease the Iranian or Cuban sanctions. This general sympathy towards the robust use of economic sanctions likely will translate to a willingness to enforce the existing laws strongly, including against non-U.S. companies that have engaged in activity with some connection to the United States (such as the use of the U.S. financial system or the conduct of transactions in U.S. dollars). (Other anticipated developments with regard to economic sanctions will be explored in a future “top ten” questions article on the topic.)

  • Anti-Money Laundering. AML enforcement is likely to remain a priority, as it also is viewed as having terrorism and national security implications. Senator Sessions co-sponsored the Combating Money Laundering and Terrorist Financing Act of 2004, which would have combated money laundering by expanding RICO to cover funds related to illegal activities (embezzlement and fraud in the purchase of securities, illegal money transmission businesses, and so forth). Although the statute was not enacted, it indicates an approval of the aggressive use of the AML laws, a mindset favoring strong AML enforcement.

  • Cybersecurity. President Trump’s transition website states a plan for the Trump administration to “order an immediate review of all U.S. cyber defenses and vulnerabilities, including critical infrastructure, by a cyber review team of individuals from the military, law enforcement, and the private sector.”10 President Trump also has indicated he will instruct the DOJ to “create Joint Task Forces throughout the U.S. to coordinate Federal, State, and local law enforcement response to cyber threats.”11 Senator Sessions, in turn, supported the Cybersecurity Information Sharing Act of 2015, which would have enabled enhanced sharing of cyber threat information between government and private companies. Based on these positions, increased enforcement attention regarding cybersecurity breaches, and prosecution of same, appears likely. (Further information regarding cybersecurity under the new administration will be covered in a separate “top ten” questions article.)

  • Financial Fraud. Senator Sessions co-sponsored the SAFE Markets Act in 2009, which authorized the FBI to hire an additional 500 agents to investigate criminal misconduct that relates to U.S. financial markets, as well as an additional 50 assistant United States attorneys.12 Although the legislation was not enacted, it does indicate support for the aggressive use of enforcement resources in this area.

  • Health Care Fraud. Beyond stating that repealing the Affordable Care Act (Obamacare) would be a priority,13 and stating his general view that the federal government has a lot of “waste,” President Trump did not specifically focus on the issue of health care fraud. Nonetheless, the health care fraud provisions of the Affordable Care Act have a strong chance of being preserved, as it is unlikely that the Trump administration or Congress will want to be perceived as being soft on fraud. While the prioritization of other enforcement areas, such as national security, might divert resources from the issue of health care fraud, we expect that significant resources will continue to be devoted to this area.

4. Will there likely be changes in how the DOJ determines what cases to bring, how they are run, and what evidence is gathered?

Ever since the indictment of Arthur Anderson resulted in the demise of the firm, the perception has been that the DOJ weighs the “collateral consequences” of any indictment. In a 2012 speech, the head of the DOJ’s criminal division, Lanny Breuer, stated that the “collateral consequences of an indictment,” such as potential losses for corporate shareholders, jobs, and the potential to destroy a company factor into decisions by the DOJ in the Obama administration to bring charges.14

This view could well change under a Senator Sessions-led DOJ. In 2010, Senator Sessions questioned whether the DOJ should consider the collateral consequences of a criminal conviction for a corporation, stating that “I was taught if they violated a law, you charge them. If they didn’t violate the law, you don’t charge them.”15 Also, with regard to the DOJ’s investigation into BP over the Deepwater Horizon oil spill, he stated that BP “should be held liable for their responsibilities to the extent of their existence.”16 Both of these statements indicate that Senator Sessions might bring a more law-and-order view of enforcement to the DOJ, with enforcement activity being based solely upon consideration of whether a legal violation has occurred.

With regard to the way in which cases are prosecuted once the DOJ determines to go forward, Senator Sessions supports the aggressive use of electronic surveillance methods in criminal investigations, which could lead to a rolling back of certain electronic surveillance restrictions put in place by the Obama administration, such as the limitations on the bulk gathering of telephone records.

Another change could be to the contentious issue of when the DOJ can pressure companies and people to waive the attorney-client privilege and the attorney work product doctrines. The current approach is that the DOJ can request a waiver, and can consider whether the privileges were waived as an affirmative factor, but cannot punish a company or individual for not waiving privilege. But during a 2015 Senate Judiciary Committee hearing, Senator Sessions argued against this approach, noting that prosecutors regularly pressure street criminals to waive constitutional rights using threats of tougher penalties. Senator Sessions argued that the Justice Department should be able to use similar leverage against corporations, seeking to have them waive privilege in return for more lenient treatment.

5. Will there be changes in how cases are settled?

Potentially yes. The use of Deferred Prosecution Agreements (DPAs) and Non-Prosecution Agreements (NPAs) has sharply increased under the Obama administration. DPAs and NPAs are agreements not to prosecute, with the DOJ (and other agencies, such as the SEC) agreeing to settle the cases based upon a recitation of the facts and enumerated conditions of settlement, generally including the payment of a penalty. Although the DOJ seldom used NPAs and DPAs as recently as 2003, the Obama administration has used them to settle a large proportion of its investigation. This is based upon the view, summarized by Assistant Attorney General Lanny Breuer, that DPAs and NPAs are a “powerful tool” because, “in many ways, a DPA has the same punitive, deterrent, and rehabilitative effect as a guilty plea.”17

Senator Sessions has raised concerns about resolving investigations in this fashion. Senator Sessions once stated that the use of NPAs and DPAs “undermine the rule of law by depriving the [DOJ’s] legal arguments of meaningful testing in a judicial forum.”18 While this statement does indicate a skepticism regarding the use of DPAs and NPAs, it remains to be seen whether a different view would prevail if Senator Sessions transitions to attorney general. Our view is that any attorney general overseeing a criminal enforcement division with a large case load and limited resources will always be looking for expeditious ways to bring investigations to a close, including through the use of NPAs and DPAs.

6. What about the False Claims Act (FCA)? Will it continue to show increasing use?

We expect the FCA will continue to be an important area of DOJ attention. The FCA provides a mechanism whereby individuals can file lawsuits regarding claims that persons and companies have defrauded governmental programs. Since the law includes a qui tam provision that allows persons who are not affiliated with the government (relators) to bring cases on behalf of the U.S. government, and to receive a portion of any recovered damages, activity under the FCA largely is driven by private actors bringing cases, with the DOJ becoming involved thereafter. The financial incentives for relators to file such cases are not going away.

One development that could have an impact is the manner in which the Affordable Care Act is amended/repealed, as that act contained amendments to the FCA that enhanced the ability of certain individuals to qualify as relators. The Supreme Court also has shown interest in this area, making the appointment of a new Supreme Court justice to replace Justice Scalia potentially important.

7. Will the recent trend in focusing on individuals continue? What about the Yates memo?

The Yates Memorandum (formally known as the Individual Accountability for Corporate Wrongdoing memorandum19 is the latest of a series of pronouncements regarding the increasing focus of the DOJ on individual liability for corporate crimes. Under the Yates memo approach, corporations cannot qualify for any cooperation credit unless they “provide to the Department all relevant facts relating to the individuals responsible for the misconduct.”20 The Yates memo also has other requirements regarding individuals, including announcing a reluctance to release individuals from liability. All information regarding individuals can then be viewed by the DOJ to determine whether it should focus enforcement attention on individual employees. This focus on individuals both deals with some criticisms of the DOJ for not prosecuting individuals regarding the sub-prime mortgage crisis, and also is consistent with the view stated by Assistant Attorney General Breuer that “the strongest deterrent against corporate crime is the prospect of prison time for individual employees.”21

Senator Sessions is likely to continue this focus on individuals. At a 2002 Judiciary Committee hearing regarding white collar crime, Senator Sessions stated his view that prosecution of individuals is essential for deterrence of criminal activity. As he stated: “I am going to tell you there is a lot better behavior in banking today because people went to jail over those cases in the past. They lost everything they had, their families were embarrassed, and a lot of people started checking to make sure they were doing their banking correctly.”22 Along these lines, in hearings involving white collar issues, Senator Sessions has stated that in cases of serious violations of law, “the crooks in the corporation [should] be sent to jail” and that sentences for white-collar violators “should not be a lot different than [for] somebody who robs a bank.”23 This endorsement of individual responsibility for corporate wrong-doing is consistent with the goals of the Yates memorandum — a point made by Sally Yates herself, who recently stated that “[h]olding individuals accountable for corporate wrongdoing isn’t ideological; it’s good law enforcement.”24

8. Will recent efforts to incentivize whistleblowers continue?

The U.S. government has put in place incentives to report wrongdoing, including in the high-profile area of the FCPA (where the SEC maintains a whistleblower program for publicly traded companies). Senator Sessions appears to approve of such efforts, having stated that “whistleblowers can be a critical part of discovering frauds that may be of a massive nature,” making whistleblower programs “a legitimate part of our enforcement effort.”25 This mindset may lead to support for enhanced whistleblower programs, especially when considered alongside evidence that such programs as the one implemented at the SEC have been successful. (Further information regarding the potential repeal of the Dodd-Frank Act, and its impact on the whistleblower program, will be covered in a future client alert.)

9. What about the international application of U.S. law?

Across a variety of enforcement contexts, the U.S. government has used aggressive theories of agency, tangential contact with the territorial United States (such as the sending of a single email from within the United States), or the unplanned/unknown use of the U.S. financial system as a means of asserting jurisdiction. As a result, the U.S. government, in some ways, has become the world’s white collar policeman. For example, 7 of the 10 largest FCPA actions have targeted non-U.S. companies for activities largely taking place outside of the United States, and many of the recent large OFAC settlements have targeted non-U.S. financial institutions (particularly in Europe).

It is unlikely the U.S. government will cease using such theories, because they are such a useful way of asserting jurisdiction. Nonetheless, as more individuals are charged (see above), the number of cases going to court is likely to rise, because individuals facing jail time are far more likely to fight enforcement activity than are corporations, which often want to settle investigations and move on. These cases likely will target jurisdiction based upon attenuated contact with the United States, the U.S. economy, or the U.S. financial system. Thus, judicial review may lead to restrictions on the use of such jurisdictional theories. Otherwise, we do not see a likely decline in the use of these aggressive jurisdictional theories.

10. Everything discussed above sounds scary. What can I do to mitigate the risk of heightened enforcement activity?

Regardless of the enforcement priorities of the new administration, the days where enforcement actions could be considered a “cost of doing business” are long gone. Large penalties and the poor publicity that accompanies high-profile compliance lapses have ensured that regulatory risk management is going to remain a corporate priority for the foreseeable future.

Although the topic of regulatory risk management is complicated, and best performed based upon an evaluation of the individual risk profile, scope of business operations, and compliance culture of an individual company, the following are the six areas where corporations (especially multinational corporations) should focus their risk-management attention:

  • Risk Assessment. Regulatory risk management is, at its heart, an exercise in risk identification and management, through the implementation of effective compliance measures, backed up by appropriate internal controls and training. It necessarily follows that the starting point is the conduct of a risk assessment that evaluates the regulatory risk points unique to each organization. A risk assessment should be performed or updated at least every two years and after every significant change in the risk profile of the firm, such as after a significant acquisition, expansion to a new country, change in key laws, or other major change in the business/regulatory profile of the organization.26

  • Compliance Program. At most organizations, there are anywhere between 18 and 22 key regulatory areas that are the subject of detailed compliance policies.27 These policies should dovetail with the company’s code of conduct/code of ethics and internal controls/standard operating procedures. The focus should be on making the policies effective, including through making them short and easy to understand and tailoring them to the organization’s unique risk and business profile.

  • Compliance Infrastructure. There can be a major difference between how compliance is envisioned at headquarters and how it actually is implemented in the field. Often this is because compliance is viewed as a top-down affair, with insufficient attention being given to the administration of the compliance program, especially at multinational corporations. Organizations, accordingly, should take the time to evaluate their compliance infrastructure, including by determining whether the organization has sufficient compliance liaisons at different divisions and regions/countries, whether there is an adequate two-way flow of information regarding compliance topics and compliance lapses, and whether the compliance infrastructure is supported by adequate resources.

  • Internal Controls. Internal controls, along with written compliance policies and training, are one of the three legs of a properly functioning compliance program, yet they are often neglected. But the compliance mission is not satisfied by the mere promulgations of even a well-written compliance policy. Organizations should look for areas where compliance response can be institutionalized and governed by internal controls that systematize the compliance function. Examples of common internal controls include Gifts, Meals, Entertainment & Travel policies for antibribery compliance, screening protocols for economic sanctions, and know-your-customer controls for AML.

  • Training. Effective compliance requires frequent training, yet too many organizations provide training at orientation and leave it at that. The U.S. government, however, has communicated that it does not give any mitigating credit in an enforcement action to “paper programs” that look good as written, but are not consistently applied or understood at the organization. Training should be tailored to the audience, being more in-depth for personnel at highest risk and made relevant to the audience through the provision of actual examples likely to be encountered. Detailed logs of training, including when it occurred, who was trained, and the actual training materials relied upon and used should be kept for a minimum of five years past the time when the personnel remain at the company. 

  • Audits. Finally, the days when an organization could launch a compliance program and then let it run on auto-pilot are long gone (if they ever existed). Effective compliance, at least in high-risk areas, requires that organizations continually assess the state of compliance efforts, benchmark them against industry competitors, and update the compliance program and internal controls based on the gathered learning. Companies accordingly should establish a multi-year compliance audit schedule in which key compliance measures are evaluated and processes established to enhance compliance efforts. The areas/divisions/regions to be examined should be established using risk-based principles.

NOTE: The international climate for U.S.-based multinational companies and non-U.S. based companies that sell into the United States has never been more uncertain. We will be issuing a series of “ten question” alerts related to the transition to a new administration, including with regard to such international regulatory topics as the future of NAFTA (already issued),28 International Trade (antidumping, countervailing duty, and safeguard) actions (already issued),29 Customs & Border Protection (already issued),30 CFIUS reviews31 (already issued), economic sanctions and export controls, the FCPA, and cybersecurity.

ARTICLE BY Scott L. Fredericksen & Gregory Husisian of Foley & Lardner LLP
© 2017 Foley & Lardner LLP

1 See Gregory Husisian, “CFIUS and the New Trump Administration: Your Top Ten Questions Answered”

2 See Gregory Husisian and Robert Huey, “NAFTA and the New Trump Administration: Your Top Ten Questions Answered”

3 See Gregory Husisian and Robert Huey, “U.S. Customs and the New Trump Administration: Your Top Ten Questions Answered”

4 See Gregory Husisian and Robert Huey, “International Trade Litigation and the New Trump Administration: Your Top Ten Questions Answered”

5 Penalties for White Collar Crime: Hearing Before the Subcomm. on Crime and Drugs of the S. Comm. on the Judiciary, 107th Cong. 176 (2002) (Statement of the Hon. Jeff Sessions).

6 See FCPA Professor, “The FCPA is a Horrible Law and It Should be Changed,” http://fcpaprofessor.com/donald-trump-the-fcpa-is-a-horrible-law-and-it-should-be-changed/.

7 See Ken Guggenheim, “Republican Senators Push for Tighter Export Controls,” Associated Press (Mar. 10, 2003); David Clarke, “Hill Republicans Want Bush Help on Export Controls,” CQ Homeland Security – Technology (Mar. 11, 2003).

8 See Ken Guggenhein, “GOP Senators Seek Tighter Export Controls,” http://www.myplainview.com/news/article/GOP-Senators-Seek-Tighter-Export-Controls-8861452.php.

9 See https://www.congress.gov/bill/113th-congress/senate-bill/892/cosponsors.

10 See https://www.donaldjtrump.com/policies/cyber-security.

11 See Donald J. Trump’s Vision – Cybersecurity, available at https://www.donaldjtrump.com/policies/cyber-security.

12 See https://www.govtrack.us/congress/bills/111/s331.

13 See “Healthcare Reform to Make America Great Again,” available at https://www.donaldjtrump.com/positions/healthcare-reform.

14 See “Assistant Attorney General Lanny A. Breuer Speaks at the New York City Bar Association” (Sept. 13, 2012), available at https://www.justice.gov/opa/speech/assistant-attorney-general-lanny-breuer-speaks-new-york-city-bar-association.

15 Nomination of James Michael Cole, Nominee To Be Deputy Attorney General, U.S. Department of Justice: Hearing Before the S. Comm. on the Judiciary, 111th Cong. 99 (2010) (Statement of Senator Sessions).

16 Nomination of James Michael Cole, Nominee To Be Deputy Attorney General, U.S. Department of Justice: Hearing Before the S. Comm. on the Judiciary, 111th Cong. 98 (2010) (Statement of Senator Sessions).

17 See Assistant Attorney General Lanny A. Breuer Speaks at the New York City Bar Ass’n (Sept. 13, 2012), available at www.justice.gov/opa.speech/assistant-attorney-general-lanny-breuer-speaks-new-york-city-bar-association.

18 Protecting American Taxpayers: Significant Accomplishments and Ongoing Challenges in the Fight Against Fraud: Hearing Before the S. Comm. on the Judiciary, 112th Cong. 54 (2011) (Questions Posed by Senator Jeff Sessions).

19 See https://www.justice.gov/dag/file/769036/download.

20 See Sally Quillian Yates, “Individual Accountability for Corporate Wrongdoing” (Sept. 9, 2015), available at https://www.justice.gov/dag/file/769036/download.

21 See Assistant Attorney General Lanny A. Breuer Speaks at the New York City Bar Ass’n (Sept. 13, 2012), available at www.justice.gov/opa.speech/assistant-attorney-general-lanny-breuer-speaks-new-york-city-bar-association.

22 Penalties for White Collar Crime: Hearing Before the Subcomm. on Crime and Drugs of the S. Comm. on the Judiciary, 107th Cong. 176 (2002) (Statement of Hon. Jeff Sessions).

23 Penalties for White Collar Crime: Hearing Before the Subcomm. on Crime and Drugs of the S. Comm. on the Judiciary, 107th Cong. 177 (2002) (Statement of Hon. Jeff Sessions).

24 See C. Ryan Barber, “Yates ‘Optimistic’ Trump Won’t Trash Namesake Enforcement Memo” (New York L.J.) (Dec. 1, 2016) (quoting Deputy Attorney General Sally Yates).

25 Effective Strategies for Preventing Health Care Fraud: Hearing Before the S. Comm. on the Judiciary, 111th Cong. 3 (2009) (Statement of Hon. Jeff Sessions).

26 A risk-assessment questionnaire that provides a good starting point for assessing regulatory risk at most multinational corporations

27 A starting list of typical core policies that should be considered by most organizations is available by sending an email to ghusisian@foley.com or by contacting him at 202.945.6149.

28 See “NAFTA and the New Trump Administration: Your Top Ten Questions Answered“

29 See Gregory Husisian and Robert Huey, “International Trade Litigation and the New Trump Administration: Your Top Ten Questions Answered“

30 See Gregory Husisian and Robert Huey, “U.S. Customs and the New Trump Administration: Your Top Ten Questions Answered”

31 See Gregory Husisian, “CFIUS and the New Trump Administration: Your Top Ten Questions Answered”

DaVita Agree to $495 Million Settlement in Alleged Medicare Fraud Lawsuit Filed by Qui Tam Whistleblowers

On Monday, May 4, 2015, DaVita Kidney Care, a division of DaVita Healthcare Partners, Inc. (DaVita), and one of the leading dialysis services providers in the United States, agreed to pay the U.S. Government $450 million for allegedly violating the False Claims Act (FCA) when it continuously discarded good medicine and then billed Medicare and Medicaid for it. DaVita also agreed to pay $45 million for legal fees.

According to the lawsuit filed in 2011 by two former employees of DaVita, between 2003 and 2010, when DaVita administered iron and vitamin supplements such as Zemplar, Vitamin D, and Venofer, vials containing more than what the patients needed were used and the rest was thrown away. For example, if a patient only needed 25 milligrams of medicine, DaVita allegedly used a 100 milligram vial, administered only 25 mg, and tossed the rest in the trash. Although before 2001, this practice was condoned by the National Centers for Disease Control and Prevention (CDC) in order to prevent infectious outbreaks caused by the re-entry of the same vial of medicine, the CDC subsequently changed it policies to outlaw this practice.

This FCA lawsuit alleging that DaVita misused and mishandled of medicine, and overbilled Medicare and Medicaid is not the first such allegation against DaVita, which is not a stranger to FCA lawsuits. In fact, DaVita previously settled two other lawsuits in which it allegedly violated the FCA. In October 2014, DaVita agreed to pay the U.S. Government $350 million for allegedly persuading physicians or physician groups to refer their dialysis patients to DaVita by offering kickbacks for each patient referred. And in 2012, DaVita agreed to pay $55 million to the federal government for overbilling the government for Epogen, an anemia drug. These lawsuits were filed by former employees who decided to come forward as whistleblowers and to help to uncover what they considered to be illegal practices by DaVita. Under the FCA, such whistleblowers can bring what is known as a “qui tam” lawsuit, which is brought by a private citizen to recover money obtained by fraud on the government. As an incentive to bring qui tam lawsuits, the FCA provides that qui whistleblowers receive between 15 and 30 percent of the amount of funds recovered for the government.

Provisions of the FCA make it unlawful for a person or company to defraud governmental programs, such as Medicare or Medicaid.

Posted by the Whistleblower Practice Group at Tycko & Zavareei LLP

© 2015 by Tycko & Zavareei LLP