What’s New in Whistleblower Law? A $14 Million SEC Bounty, SOX and Dodd-Frank Lawsuits, False Claims Act, Accounting Fraud…

Earlier this week, the Securities and Exchange Commission announced that it had awarded an anonymous source $14 million under its whistleblower bounty program, the largest award ever given out by the SEC.

That’s just one of the many developments attorneys on JD Supra are covering on the broad topic of whistleblower and the law:

SEC Issues First Large Award in Whistleblower Program (Latham & Watkins LLP):

“On October 1, 2013, the US Securities and Exchange Commission announced that it expects to pay more than $14 million to a whistleblower whose information led to an SEC enforcement action that recovered substantial investor funds. […] None of the SEC whistleblower program’s previous awards paid any individual as much as $50,000. $14 million is something completely different — a life-changing amount of money for most people. Will this award inspire many more would-be whistleblowers to contact the SEC in hopes of getting rich?” Read on>>

SEC Awards Whistleblower More Than $14 Million – Largest Award to Date (Sutherland Asbill & Brennan LLP):

“Although the details of the enforcement action were not disclosed, the Commission’s Order Determining Whistleblower Award Claim provides some insight into the basis for the size of the award. According to the Order, the expected dollar amount of the award will exceed $14 million ‘in light of the monetary sanctions already collected’ and after ‘appropriately recogniz[ing] the significance of the information that the [whistleblower] provided to the Commission, the assistance the [whistleblower] provided in the Commission action, and the law enforcement interest in deterring violations by granting awards.’” Read on>>

SEC Issues Huge Bounty Award Of $14 Million To Whistleblower Under Dodd-Frank (Orrick):

“It remains to be seen if the SEC will provide more information about the nature of the award in the coming days. In the meantime, the SEC appears to have answered critics, at least for now, who have said that the Dodd-Frank bounty program is a toothless tiger.” Read on>>

Would you Speak Up for $25K? How About for $14 Million? (NAVEX Global):

“With great fanfare, the SEC Office of the Whistleblower opened its doors in September of 2011, and eagerly asked whistleblowers to step forward. The office is authorized to reward ‘high-quality, original information’ that results in an enforcement action with sanctions exceeding $1 million; payouts to individuals can range from 10 to 30 percent of the money collected in a case. As the whistleblower bounty hunter program was launched, many compliance and legal professionals were worried that employees would head directly to the SEC with reports of illegal activity, entirely circumventing and undermining internal compliance programs.” Read on>>

Take Heart, Companies Can Win Whistleblower Cases: Two Key Victories Last Week in SOX and Dodd-Frank Cases (Orrick):

“Two victories for employers last week in Dodd-Frank and SOX whistleblower cases may provide a basis for at least a sliver of optimism among employers and whistleblower defense lawyers hammered by a recent series of employee-favorable decisions under the two main federal statutes covering whistleblowing activity.” Read on>>

Beware the False Claims Act, Whistleblowers, and the Importance of Internal Investigations (Snell & Wilmer L.L.P.):

“Companies that do business with the federal government must be cognizant of potential liability under the False Claims Act. Civil litigation may be inevitable at times as a result of occasional business disputes with suppliers, customers, former employees, or competitors. Companies, however, should be particularly cautious about litigation with the United States as the adverse party. The reasons may be obvious since the federal government has unlimited resources for litigation. The financial consequences under the FCA can be devastating to business operations.” Read on>>

SEC “Refocuses” On Accounting Fraud (Michael Volkov):

“The SEC has announced the creation of a new Financial Reporting and Audit Task Force, which will lead the effort, not in prosecuting the cases but in identifying and developing cases for further investigation by other SEC prosecutors. The new accounting fraud enforcement effort will include two new important sources for investigations – a data mining system used to identify certain markers in financial reporting and disclosures, along with information provided through the SEC Whistleblower Program.” Read on>>

Whistleblowing at the Right Time for the SEC (Whistleblower Law for Managers):

“The Securities and Exchange Commission Office of the Whistleblower rejected a claim for an award earlier in the summer because it was not ‘original’ under the SEC’s whistleblower law. The claimant originally filed a report of accounting fraud in 2006. The SEC pursued the claim and a consent judgment for penalties, disgorgement and interest was entered. However, the claim was not eligible for an award because it was not original information according to SEC’s whistleblower law.” Read on>>

Employers Beware: Will The SEC Be A Safety Net For Terminated Whistleblowers? (Morvillo Abramowitz Grand Iason & Anello P.C.):

“Commentators, employers and especially whistleblowers have paid a tremendous amount of attention to the whistleblower bounty provisions of the Dodd-Frank Act. Much less attention has been paid to an SEC rule implementing the anti-retaliation provisions of that Act, giving the SEC enforcement authority against employers who retaliate against their whistleblowing employees. The SEC has not yet brought an enforcement action for retaliation, but recent statements by SEC officials indicate that the agency is looking for just such a case to test the bounds of its authority.” Read on>>

DOD Updates Contractor Whistleblower Regulations—Increased Enforcement and Litigation on the Horizon (King & Spalding):

“On September 30, 2013, the Department of Defense published a potentially significant Interim Rule to amend the Defense Federal Acquisition Regulations. This rulemaking brings DOD regulations into line with Congress’ recent expansion of whistleblower protections in the National Defense Authorization Act. Effective July 1, 2013, that statutory expansion of whistleblower protections: (i) covered, for the first time, employees of subcontractors; (ii) expanded both the scope of alleged violations that a whistleblower could report and the reporting mechanisms; and (iii) clarified the applicable burden of proof.” Read on>>

Whistleblower from 2005 Wins His Job Back (Whistleblower Law for Managers):

“Eight years after his wrongful termination, the court order[ed] the defendant to reinstate Teutscher to his position. Many argue that reinstatement is often not the best remedy, because the relationship between the employee and employer has deteriorated to such a low level that continued cooperation cannot be reasonably expected.” Read on>>

Want to Turn on Your Employer? There’s an App for That (Mintz Levin):

“Plaintiffs’ firms looking to capitalize on the growth in whistleblower litigation are turning to smart phone technology to try to gain a competitive edge. Well-known Delaware plaintiffs’ class action law firm Grant & Eisenhofer is attempting to enlarge its footprint in the burgeoning qui tam litigation field with a new smart phone app called, ‘Whistleblower Laws: Know Your Rights.’” Read on>>

Citigroup Whistleblower Won’t Give Up (Whistleblower Law for Managers):

[Richard] Bowen, while responsible for Citigroup’s mortgage unit’s quality control from 2002 to 2006, discovered that 60 percent of the approximately $50 billion of prime mortgages the bank traded were defective. Citigroup’s credit policies were routinely ignored. Mortgage loan decisions were reversed from ‘denied’ to ‘approved’ and applications were accepted without policy-required documents. ‘Sub-prime’ mortgage investments were resold to investors as credit-worthy.” Read on>>

SEC Enforcement Official Recommends That Firms Showcase Their Compliance Programs (Proskauer):

“Mr. Cohen’s comments send the message that the SEC Office of the Whistleblower remains active and vigilant, and underscore the value of demonstrating the scope, functioning and effectiveness of corporate compliance programs during SEC investigations. So, how can this be accomplished? For starters, companies should focus on demonstrating: thorough and widely disseminated policies and up-to-date codes of conduct; robust training for all levels of employees; an appropriate tone at the top and in the middle with respect to ethics and compliance; rigorous audit protocols and processes; triage and escalation processes; and structures to ensure that the audit committee, chief compliance officer, and compliance committees are fully informed and appropriately empowered.” Read on>>

The SEC’s Renewed Scrutiny on Accounting Cases: Expected Focus Areas and How Companies Can Prepare (Skadden, Arps, Slate, Meagher & Flom LLP):

“The U.S. Securities and Exchange Commission (SEC or Commission) has announced plans to reinvigorate its enforcement efforts with respect to accounting issues. These plans include adding dedicated personnel and using data mining capabilities to identify suspicious activity and build cases against suspected wrongdoers. Following a wave of tips to the SEC’s whistleblower office alleging financial reporting misconduct in the past year, this renewed effort by the SEC likely will lead to an increase in the number of accounting investigations and subsequent enforcement actions against issuers and corporate officers, directors and employees.” Read on>>

Retaliation for Whistleblowing to the FBI (Whistleblower Law for Managers):

“Alessandro Salvo and his father operate G.S. Construction, which was awarded a 2011 contract to replace sidewalks along South Hairston Road in DeKalb County. Shortly after beginning work, the county inspector Neacacha Joyner made their lives miserable with complaints. When Joyner later asked for a $500 loan and the Salvos complied, all of the problems from her stopped. Joyner later approached them with an overbilling and kickback scheme. The Salvos contacted the FBI and went undercover for one year to expose the entire illegal operation.” Read on>>

SEC Announces Additional Whistleblower Award Based on Assets Seized by Justice Department (Proskauer):

“After awarding the second-ever whistleblower bounty award pursuant to Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act … the SEC announced that the three whistleblowers were being awarded additional funds based on assets collected by the collected by the Justice Department in [a related case].. The two cases constituted “related actions” because they were based on the same original information. The SEC’s determination to award an additional bounty based on the related criminal action is likely to lead to more whistleblower tips.” Read on>>

Find additional commentary and analysis on Whistleblower Developments at JD Supra Law News>>