Law 360 on 2.2.2021 | Written By Zachary Arbitman, Benjamin H. McCoy

Prior to 2006, Internal Revenue Service (IRS) rewards to whistleblowers were wholly discretionary and included a 15% cap on recovered funds. The 2006 Tax Relief and Health Care Act added a new provision to the Internal Revenue Code that made whistleblower awards mandatory where the recovered funds are greater than $2 million or where the taxpayer is an individual whose gross annual income exceeds $200,000. Because of those changes, the IRS whistleblower program has expanded, and additional amendments to the IRS’s whistleblower program in 2018 and 2019 should hasten that expansion. The most notable change came in the Taxpayer First Act of 2019, which created anti-retaliation provisions to protect whistleblowers.

Law360 on 12.9.2020 | Written By Zachary Arbitman

Cooperation between the Securities and Exchange Commission (SEC) and the U.S. Department of Justice’s Antitrust Division has increased the government’s ability to detect fraud and manipulation schemes in the financial exchange and securities markets. The SEC’s whistleblower rewards program provides individuals with evidence of wrongdoing the incentive they need to come forward to help the government root out fraud. The SEC’s publication of those rewards increases the likelihood that other whistleblowers will offer tips, complaints, and referrals about market manipulations. Making the decision to blow the whistle on a company committing fraud can be terrifying, and the SEC’s efforts encourage those who might be wavering.

Law360 on 10.14.2020 | Written By Zachary Arbitman, Benjamin H. McCoy, Tejinder Singh, Nicomedes Herrera

Many whistleblowers are insiders with intimate knowledge of an organization’s wrongdoing, but some are outsiders with specialized tools or a unique perspective. Unlike insiders, outsiders (e.g., industry experts, competitors, public interest organizations, data miners, concerned citizens) are less encumbered by fear of retaliation or self-incrimination. Critics often complain that outside whistleblowers are opportunistic bounty hunters, but that complaint misses the mark about the value of outsiders in detecting fraud and recovering funds. That is why the False Claims Act, the Securities and Exchange Commission, the Commodity Futures Trading Commission, and the Internal Revenue Service—the US government’s primary weapons for fighting fraud—all have whistleblower policies that welcome claims from outsiders.

Law360 on 4.2.2020 | Written By Zachary Arbitman, Jason Zuckerman

The Consumer Financial Protection Bureau (CFPB) was designed to protect consumers of financial products or services. When former President Donald Trump and a Republican Congress overturned a CFPB rule that banned companies from crafting forced arbitration clauses barring consumers from filing or participating in class action lawsuits, the US saw a proliferation of such clauses and class action waivers. The passage of legislation creating a CFPB whistleblower program could reverse that trend and enhance existing consumer protection laws. Recently proposed legislation would create a whistleblower rewards program that works much like the SEC and CFTC programs, although the draft legislation does include a reward cap that could limit the program’s effectiveness.

Legal Intelligencer on 3.17.2020 | Written By Zachary Arbitman

Declining reimbursement rates and a focus on profits are creating chaos in large retail pharmacy chains in the US. That pressure can cause errors in the dispensing of medications, which can have deadly consequences for patients and can yield medical malpractice lawsuits against pharmacies. Besides causing potentially catastrophic mistakes, pressure from stakeholders at those chains can lead to the dispensing of medically unnecessary drugs, a violation of the False Claims Act (FCA). Under the FCA, a private citizen may bring a qui tam action against a pharmacy that defrauds the US government, and those whistleblowers, known as “relators,” are entitled to receive 15% to 30% of whatever the government can recover.

Legal Intelligencer on 1.7.2020 | Written By Zachary Arbitman, Benjamin H. McCoy

Much like the Securities and Exchange Commission (SEC) whistleblower program, the Commodity Futures Trading Commission (CFTC) program was created through the Dodd-Frank Act of 2010, but whereas the SEC program regulates fraud related to investments, the CFTC program regulates fraud committed by companies that deal in commodities. Knowing that some companies would be subject to both whistleblower programs, the CFTC adopted rules that are nearly identical to the SEC rules. Those rules include detailed procedures for submitting anonymous reports of fraud and policies for rewards, which range from 10% to 30% of recovered funds that total at least $1 million. The CFTC program also established anti-retaliation provisions to protect whistleblowers.

Legal Intelligencer on 9.16.2019 | Written By Zachary Arbitman

The Temple 10-Q on 7.30.2019 | Written By Zachary Arbitman, Andrew S. Youman

The SEC whistleblower program was modeled after the False Claims Act (FCA) and the IRS whistleblower program. The SEC program was designed to protect against fraud like Bernie Madoff’s Ponzi scheme, and in the decade since its inception, it has rewarded hundreds of millions of dollars to individual whistleblowers. Rewards range between 10% and 30% of recovered funds, but whistleblowers are only eligible to receive rewards on recoveries greater than $1 million. Unlike the FCA, the SEC’s program affords whistleblowers the protection of anonymity. The program also prohibits retaliation, and the US Supreme Court’s decision in Digital Realty Trust v. Somers (2018) clarifies the scope of the program’s anti-retaliation provision.

The Temple 10-Q on 7.26.2019 | Written By David J. Caputo

The False Claims Act (FCA) allows private citizens to file qui tam lawsuits against companies that defraud the US government. Healthcare fraud is one of the most common types of scams perpetrated against the US, and qui tam plaintiffs (also known as “relators”) are sometimes the victims of abuse, neglect, or unnecessary treatment themselves. Other times, relators are family members who discover evidence of systematic fraud while visiting their loved ones in healthcare facilities. While such cases can be potentially lucrative for relators, they are typically expensive to litigate and often difficult to prove, but experienced whistleblower attorneys have various methods at their disposal to demonstrate patterns of fraud and abuse.

Law360 on 6.16.2019 | Written By David J. Caputo, Zachary Arbitman

Section 4A of the Clayton Antitrust Act established the legal framework that allows the US government to obtain damages against companies that engage in anticompetitive behavior against the government. In a 2018 Section 4A case, the US won a $236 million settlement against three South Korea-based companies (SK Energy, GS Caltex, and Hanjin Transportation), which conspired to defraud the US. Interestingly, a private whistleblower’s qui tam action, the structure of which was established in the False Claims Act, served as the catalyst for the government’s antitrust investigation. Ensuring that relators receive fair compensation for bringing qui tam actions increases the likelihood that the US will be able to recover damages against perpetrators of fraud.

Corporate Compliance Insights on 4.10.2019 | Written By Zachary Arbitman, Michael Filoromo

The Securities Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) whistleblower programs protect and potentially reward employees—including compliance officers—who come forward with evidence of violations. To claim an award, whistleblowers must follow prescribed steps. Various factors determine award size, which ranges from 10% to 30% of whatever the agency collects. The SEC and CFTC allow whistleblowers to submit allegations anonymously, but the agencies also strive to protect identities of all whistleblowers. The Dodd-Frank Act, Sarbanes-Oxley (SOX) Act, and Commodity Exchange Act (CEA) are among the many state and federal retaliation protections offered to whistleblowers.

Corporate Compliance Insights on 3.14.2019 | Written By Zachary Arbitman, Michael Filoromo

The 2010 Dodd-Frank Act directed the Securities Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) to create whistleblower programs that include monetary incentives to induce individuals to come forward with evidence of securities and commodities trading violations. In 2018, the SEC paid out a record $168 million to whistleblowers; that same year, the CFTC awarded $75 million, also a record. Certain individuals are ineligible to receive those awards, including compliance officers who learn of violations in the performance of their official duties. There are, however, exceptions to those exclusions, and in 2015 the SEC awarded one compliance officer somewhere between $1.4 million and $1.6 million.

Law 360 on 2.28.2019 | Written By David J. Caputo, Zachary Arbitman

The False Claims Act (FCA) allows private citizens (known as “relators”) to file qui tam suits against those who defraud the US. If the government intervenes in a qui tam suit and recovers fraudulently acquired funds, the qui tam relator is entitled to a portion of the recovery. If, however, the government chooses not to intervene and instead pursues criminal prosecution that leads to criminal forfeiture, then it is unclear whether a relator is entitled to a portion of the recovery. In two recent cases (United States v. Couch and United States v. Bisig), the Eleventh Circuit considered the FCA’s “alternate remedy” provision and a relator’s rights to recovery through criminal forfeiture.

Legal Intelligencer on 5.19.0219 | Written By Zachary Arbitman, Benjamin H. McCoy

The False Claims Act (FCA) is a law enacted in 1863 to curb fraud perpetrated against the US government. The FCA established a process through which private citizens (known as “relators”) can prosecute offenders on behalf of the US government via qui tam lawsuits. The FCA also established financial rewards for those who help the government recover monies lost to fraud, and the law also protects whistleblowers from retaliation by their employers. This potent weapon in the war against fraud and waste has allowed the US government to recover more than $59 billion since 1986, and it paid a sizable portion of those recovered funds to relators.