Bill to Increase SEC Penalties Boon to Whistleblowers

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Securities enforcement actions brought by the SEC may have a better chance of reaching the $1 million threshold to qualify for a monetary incentive under the Dodd-Frank whistleblower programs if a new bipartisan bill introduced into the Senate is passed.

The Stronger Enforcement of Civil Penalties Act of 2015, introduced by Senators Chuck Grassley (R-Iowa) and Jack Reed (D-R.I.), will increase the civil monetary penalties the Securities & Exchange Commission can levy against individuals and firms in violation of the law. The bill would allow civil penalties against individuals up to $1 million for serious offenses and $10 million per violation against entities.

The current limits are $160,000 for individuals and $775,000 for entities. Disgorgement of illicit gains or efforts to make investors whole can exceed the restrictions of the current limits. Multiple violations and disgorgement accounts for the SEC’s ability to hand down fines in excess of the currently specified amounts.

Senator Reed said that the bill gives the SEC the firepower it need to crack down on Wall Street fraud. A similar piece of legislation was previously introduced into Congress in 2012 and failed to gain traction.

If the SEC is able to find individuals and entities larger fines, more enforcement actions will reach the $1 million minimum threshold to start the reward claim submission process. A notice of covered action, the first step in the submission of a whistleblower award claim, only happens when the total amount recovered in an enforcement action reaches $1 million.

For additional information, contact one of our SEC whistleblower attorneys. An attorney can be reached by our contact form or calling 1-800-590-4116.

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Medicare Advantage Plan Audit Finds Medicare Paid Too Much for Nearly Half of Patients


A 2012 audit of a Medicare Advantage plan provided by UnitedHealth Group through PacifiCare of Washington State of 201 patients found 153 erroneous diagnoses out of 786 diagnoses. In total, the Government paid too much for nearly half of the patients on the insurance plan.

Medicare should have paid less in 49 percent of bills, with higher payments 15 percent in the audit. As a result, the government asked the health insurer to pay the difference, a total penalty for UnitedHealth of only $381,000 since the audit only involved a small number of cases and the government did not seek to predict the adjustment in the other patient populations.

And yet it formed the basis of a three year legal battle that remains ongoing. UnitedHealth objected to having to collect the medical records to support the erroneous diagnoses. 64 percent of the improper payments involved insufficient documentation. For example, 38% of the objectionable records lacked a physician’s signature.

The internal estimates of CMS officials concerning Medicare Advantage fraud totaled $13.5 billion in billing errors in 2010 alone. The Center for Public Integrity had previously estimated that improper payments to Medicare Advantage plans could top $12 billion in 2014.

A recent study by the National Bureau of Economic Research suggested that $2 billion of those improper payments are the result of upcoding. The working paper estimates that patients on Medicare Advantage plans have 6% to 16% higher risk scores than they would under traditional Medicare. The paper, which stops short of calling all issues the result of intentional manipulation, also suggests that CMS hasn’t gone far enough with its 2010 decrease in risk scores.

The Department of Justice has been investigating the use of risk adjustment scores in MA plans at healthcare plans, providers and vendors. Humana, one of the largest U.S. providers, has previously disclosed a government inquiry into its practices, for example. Several health care whistleblowers have already filed lawsuits under the False Claims Act to challenge fraud in insurance plans in this area as well.

Audits like the one performed on UnitedHealth are called Risk Adjustment Data Validation. If risk scores are inaccurate, it can cause Medicare to pay higher rates for people who are not as sick as the health care provider or insurer represents. In the audit, auditors typically review medical records to confirm that patient conditions are properly documented and the facility was entitled to payment.

The Center for Public Integrity obtained the documents concerning UnitedHealth through a FOIA request.

Medicare Advantage has been a hot topic since it now treats 17 million Americans at a cost of more than $150 billion a year. It is the subject of a few different bills in Congress at the moment. A recent bill to extend the period of time for comment on rates and policy changes by 15 days just passed the House. And another to extend poorly rated drug plans set to be eliminated in 2015 to be extended until 2018 to give seniors using the Medicare plans a chance to find a different insurance plan.

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Grassley Reintroduces Legislation for Antitrust Whistleblower Protection

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Senators Chuck Grassley and Patrick Leahy reintroduced the Criminal Antitrust Anti-Retaliation Act into the Senate. CAARA prohibits employer retaliation against employees providing information to the Department of Justice about conduct violating criminal antitrust law.

The legislation as currently written does not provide for rewards for antitrust whistleblowers. The Government has expressed concern that it will be more difficult to make their case under the criminal law with a higher burden of proof than civil cases if their star witness of the conspiracy will receive a reward. The United States already provides limited immunity to certain individuals or companies that come forward first with evidence of their participation in an antitrust conspiracy.

Internationally, several countries do provide monetary awards in this area. The United Kingdom, South Korea, Hungary and Pakistan all pay for information about price fixing cartels. A Government Acountability Office report in July 2011 found support for rewards in the United States mixed.

The bill is one of a number under consideration by Congress and the States. The Motor Vehicle Safety Whistleblower Act sponsored by Senators Thune and Nelson to incentivize auto whistleblowers has already passed the Senate. New York’s Attorney General Eric Schneiderman has also announced a proposal for the Financial Frauds Whistleblower Act to compensate whistleblowers in the banking, insurance and financial services industries.

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CFTC Asks Congress for Higher Penalty Authority

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CFTC Chairman Timothy Massad told Congress that the CFTC needs to be able to assess higher penalties for certain enforcement actions last week. The remarks came as part of a Senate Agricultural Committee hearing on regulatory issues impacting end-users and market liquidity.

The Commodity Exchange Act caps certain fines at $140,000 per violation. Massad expressed concern that this amount was not an adequate deterrent “given the size, scale, complexity of these markets.”

There are exceptions to the cap. Market manipulation and attempted manipulation carries a higher maximum charge per violation, around $1 million. Penalties can also be based on the monetary gain from the misconduct, assessed at amounts up to triple the wrongful gains.  Notably, the CFTC has reached settlements in the hundreds of millions of dollars over the past few years with financial institutions concerning misconduct related to LIBOR and FOREX.

The penalty discussions were coming in the context of other measures Congress is considering.  Congress is debating legislation to grant commercial end users relief from swaps rules required by Dodd-Frank. Congress is also considering a bill to reauthorize the CFTC for another five years. The previous authorization of the derivatives and commodities regulator ran out in September 2013.

The prepared remarks of Massad are available at

Our CFTC whistleblower attorneys can assist you with answers to questions about this information as well as assistance reporting violations of the Commodity Exchange Act to the U.S. Government. To speak to an attorney, fill out our contact form or call 1-800-590-4116.

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How Long Until SEC, CFTC Regulate Cybersecurity?

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Cybersecurity seems to be a priority of the securities and commodities regulators this year. Given the frequency of comments in this area, it is probably only a matter of time until we get additional rules regarding the requirements for cyber defense by market participants or disclosures by public companies.

SEC Chair Mary Jo White made comments Friday on the importance of disclosures by public companies to the U.S. Government even if they aren’t making public disclosures. And the CFTC in March held a roundtable on cybersecurity testing in order to ensure market participants, registered entities and other organizations are following best practices. Both White and CFTC Chairman Timothy Massad have recognized the potential impact of illegal hacking on market integrity.

It seems like only a matter of time before Congress, the SEC, or the CFTC take action. Congress is already considering several bills. One of them, passed by the House already, would provide protection from liability for companies sharing information about cyberthreats with each other and the government.

The CFTC is also considering a rule to require the exchanges and clearing organizations to test their cybersecurity defenses. In a speech in November at the Future Industry Association Expo, Massad said the commodities regulator is overseeing preparations against cyber attacks and looking to ensure robust disaster recovery capabilities.

The SEC issued a Risk Alert warning investors and the financial industry about concerns with cybersecurity in early February. The SEC, which last issued voluntary guidelines for disclosures by public companies in 2011, may also be considering further regulations in this area. However, at the moment, it seems content to let companies advance measures on their own without government interference.

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Democratic Senators Push for Living Wage By Senate Contractors

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Democratic Senators sent a letter to the Chairman of the Senate Rules Committee urging the adoption of a requirement that Senate Office building contractors pay their employees a living wage. The letter does not call for a specific amount but does object to the low wages paid food and restaurant workers that must be subsidized by taxpayer-funded benefits. The letter sent by the Senators is available on Senator Sherrod Brown’s website.

Last week, federal contract workers engaged in a one-day strike to urge President Obama to allow workers to unionize and give preference to contractors that pay $15 an hour.

The living wage movement has spread around the country and has successfully changed practices in several areas, including Seattle. Implementation of Seattle’s $15 minimum wage started this month. The law will incrementally increase the minimum wage in the city over a period of years determined by the businesses number of employees. Large employers were given three to four years and small employers (less than 500 employees) were given five to seven years.

Last year, President Obama issued Executive Order 13658 establishing a minimum wage of $10.10 for workers on Federal construction and service contracts. The order applied to new contracts and replacements for expiring contracts resulting from solicitations issued on or after Jan. 1, 2015 or contracts awarded outside this process from that date as well. The order covers four major categories of agreements, including construction contracts covered by the Davis-Bacon Act, service contracts covered by the Service Contract Act, concessions contracts, and contracts in connection with Federal property or land relating to services offer to government employees and the general public.

Last week, we discussed the possibility that living wage measures such as the one called for by the Senators and the President’s Executive Order could be the subject of qui tam lawsuits under the False Claims Act in addition to the standard case by employees for wage and hour violations. This story reinforces that belief. We expect to see more employers may decide to circumvent wage and hour laws as the minimum wage increases and that there will be more lawsuits brought by employees as well as whistleblowers.

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Senate Passes Auto Whistleblower Reward Bill

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The U.S. Senate unanimously passed the Motor Vehicle Safety Whistleblower Act yesterday to provide auto industry whistleblowers with incentives to provide the Department of Justice and the NHTSA information about product defects. It’s the first auto safety legislation to pass since the recalls of millions of vehicles because of issues with GM and Takata products.

The law is modeled after proposed legislation allows employees or contractors of manufacturers, part suppliers and dealers to become eligible for a reward.

The bill was sponsored by Senators John Thune and Bill Nelson. Senator Thune is the chair of the Senate Commerce Committee and Senator Nelson is the top Democrat there.

We have previously suggested three changes that should be made to the bill, including:

Mandatory Rewards: The bill leaves awards up to the discretion of the Secretary of Transportation. Other laws, like the Dodd-Frank Act, the False Claims Act and IRS Section 7623(b) all have mandatory award provisions. Discretionary programs at the SEC on insider trading and the IRS on

Anti-Retaliation Protections: The legislation does not provide for them. It is similar to the IRS program in this respect. The President and the Internal Revenue Service have been asking Congress for years to fix this missing piece. The lesson from this situation should be heeded and a remedy for whistleblowers who are retaliated against should be added.

Expanded Eligibility: The bill only allows employees at certain companies within the industry to receive a reward. As data from the SEC whistleblower program suggests, industry experts, customers and many other individuals will also have information that would be welcomed by the U.S. Government. Ex-employees are also a large source of reports of corporate wrongdoing. Including these individuals would be beneficial to the government’s goal of

The next obstacle for the legislation is the House of Representatives, where a number of different initiatives to promote motor vehicle safety are pending.

Here is our discussion of the bill from a few months ago:

If the legislation passes the House and is signed by President Obama, our whistleblower attorneys will be expanding their practice to represent members of the auto industry reporting violations of federal laws governing recalls and auto safety. To learn more about the auto whistleblower law, contact one of our whistleblower attorneys via our contact form or by calling 1-800-590-4116.

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Spring 2016 Update:

The Thune-Nelson proposal was signed into law by President Obama as part of the FAST Act in December 2015. For additional information, please visit our page dedicated to auto whistleblowers.

Thune-Nelson Bill Back in Senate as Auto Safety Reforms Remain in Focus


The nation’s auto safety and highway infrastructure is increasingly demanding the attention of Congress and the White House. This trend continued over the past month. At the end of January, Senators Thune and Nelson reintroduced the Motor Vehicle Safety Whistleblower Act into the U.S. Senate. Transportation Secretary Anthony Foxx also commented to reporters in early February on both the budget proposal seeking increased funding for the NHTSA and the potential for the White House to unveil new auto safety reforms when it revamps the long-term highway funding bill. Foxx also pushed for the bill to boost infrastructure funding at the House Transportation Committee yesterday.

The upcoming legislation for auto safety previewed by Foxx would have many of the Obama administration’s previously proposed reforms, including an increase to $300 million in the maximum fine for an automaker that unnecessarily delays the recall of a vehicle and the power to get vehicles deemed an “imminent hazard” off the road faster.

If the auto safety reforms can latch on to the highway funding bill, they may move faster than might otherwise be expected. The Highway Trust Fund, which pays for infrastructure projects, will run out of money on May 31st and will be hotly debated over the next few months. The Obama administration’s initial proposal in this area was a six year, $478 billion plan to improve the nation’s infrastructure. Among the ideas for funding the bill has been a tax on overseas corporate revenue and an increase on the federal gas tax.

The record number of auto recalls last year and the continuing investigation into Takata has maintained momentum for action in this area. The White House’s budget proposal in early February called for the defect investigation budget at the National Highway Traffic Safety Administration to more than triple from its current $9.7 million budget to $31.3 million. The increased funding would allow the agency to create a trend analysis division as well as a separate, specialized crash investigation group.

The defects team currently has 8 screeners and 16 defects to analyze 75,000 complaints a year. The proposal would allow the defect team to double its personnel by adding a mathematician, two statisticians, four investigators and 16 engineers. Amid the growing complexity of automotive technology and more data in accident reports, manufacturers’ data, medical records and even social media, the Transportation Department needs the additional funds in order to be able to identify safety defects quicker, ensure remedies are put in place and the public informed about the problems.

The crash investigations group would be similar to the National Transportation Safety Board team investigating high-profile accidents. The NHTSA already has a crash investigation group as part of its statistics and analysis unit. However, this group would target accidents which may involve a defect that the NHTSA is investigating and collect the data the NHTSA needs.

Overall, the six-year budget proposal calls for an increase in the funding of the NHTSA’s vehicle and research program from $269 million to $414 million in 2021.

I have yet to see the public discussion include much talk about the possibility of whistleblower incentives. However, Senators Thune and Nelson did reintroduce their auto whistleblower legislation into the Senate on January 29, 2015. The Thune-Nelson bill is now S.304 in the 114th Congress.

Senator Thune spoke when re-introducing the bill. Thune called it a commonsense, bipartisan bill that will help to prevent injuries and deaths for American drivers. It is absolutely clear that vehicle safety defects need to be identified as early as possible to protect consumers from death and injury, according to Thune. He also cited reports of employees concerns being ignored, silenced or covered up as evidence that the bill was necessary to encourage them to come forward sooner.

Following Thune’s remarks, Senator Nelson provided an update on the investigation into the defective Takata airbags. Takata identified to the committee a total of 5 deaths and 64 injuries due to ruptured airbags. Nelson added that there was another death due to a defective airbag in Texas in January and expressed his desire to get to the bottom of the situation.

Senators Jerry Moran (R-KS) and Richard Blumenthal (D-CT) were added as cosponsors of the legislation. Senator Moran is the Chair of the Subcommittee on Consumer Protection, Product Safety, Insurance, and Data Security and Richard Blumenthal is the Ranking Minority Member of the Subcommittee. They join Senators Heller, McCaskill, Klobuchar and Ayotte.

The legislation has been referred to the Committee on Commerce, Science and Transportation. We will keep you updated as it moves through Congress.

To learn more about the auto whistleblower law, contact one of our whistleblower attorneys via our contact form or by calling 1-800-590-4116.

Spring 2016 Update:

The Thune-Nelson proposal was signed into law by President Obama as part of the FAST Act in December 2015. For additional information, please visit our page dedicated to auto whistleblowers.

A First Look at the Proposed Auto Whistleblower Bill


After nearly a week of waiting, a copy of the Thune-Nelson Motor Vehicle Safety Whistleblower Act was posted online on the Wednesday before Thanksgiving.

The law contains two substantial deviations from the one passed by Congress for the securities industry as part of the Dodd-Frank Act. It fails to offer whistleblower protections through a retaliation lawsuit and the award is discretionary rather than mandatory. Together, the combination could cause individuals with some of the best tips to forgo providing them to the U.S. Government.

Although whistleblowers are typically motivated by the opportunity to stop a wrong rather than the prospect of substantial monetary rewards, these two differences may signal to potential informants that their information will not be taken seriously and cause them to think twice about reporting information.

The proposed bill does not authorize retaliation lawsuits.

The Thune-Nelson bill provides for confidentiality protections but does not authorize the filing of a lawsuit with compensatory damages for wrongful termination. If the final bill were to pass as is, auto employees would need to rely on qualifying for protection under various state laws. There is no guarantee that they would be able to do as state laws differ and were not written with auto whistleblowers in mind.

An appropriate mechanism to handle cases of retaliation is important both to ensure that individuals feel comfortable providing the government with information and they are compensated for any wrongful treatment. The SEC has repeatedly acknowledged the importance of protecting its whistleblowers from retaliation. Absent protection from termination, some whistleblowers may choose not to come forward with information about suspected legal violations.

The IRS program, which currently lacks retaliation protections, has mentioned this shortfall in its annual report several times. Although it doesn’t appear that Congress will alter the program anytime soon, it would be better for Thune-Nelson to learn from the errors of previous programs rather than repeat their mistakes.

The bill only provides for discretionary awards.

The Thune-Nelson bill currently provides for any determination of “whether, to whom, or in what amount to make an award, shall be in the discretion of the [U.S. Department of Transportation Secretary].”

Discretionary awards have fallen out of favor recently compared to the large, mandatory awards authorized by Internal Revenue Service Code § 7623(b) and the Dodd-Frank Act. Prior to the implementation of their current whistleblower programs, both the IRS and the Securities and Exchange Commission had discretionary award programs. Neither was considered successful.

The IRS program had been around since 1867 but was largely ineffective prior to the adoption of a mandatory award. Few informants came forward because awards were completely discretionary and the program was not well publicized.

Prior to Dodd-Frank, the SEC offered a discretionary bounty for information about insider trading. Authorized by the Insider Trading and Securities Fraud Enforcement Act of 1988, the law only led to payouts for five individuals during . The total sum paid out was only $160,000. Mandatory awards were implemented to remedy the institutional failures that led information about Bernard Madoff’s ponzi scheme to be ignored.

The track record of discretionary programs hasn’t been nearly as strong as the laws requiring government agencies to distribute mandatory awards.

It also doesn’t provide for a minimum award.

The major whistleblower programs currently specify a range of monetary awards for information, typically from 10 to 30 percent. The absence of a minimum award leaves open the possibility that a successful individual could receive an award that does not fairly compensate them for the risks involved. Agency regulations could alleviate this concern, of course, but it is another area for Congress to clarify prior to adoption.

To learn more about the auto whistleblower law, contact one of our whistleblower attorneys via our contact form or by calling 1-800-590-4116.

Spring 2016 Update:

The Thune-Nelson proposal was signed into law by President Obama as part of the FAST Act in December 2015. For additional information, please visit our page dedicated to auto whistleblowers.

Senators to Propose Whistleblower Rewards for the Auto Industry


Senators John Thune (R-S.D.) and Bill Nelson (D-Fla) are expected to introduce a bill to provide auto industry whistleblowers with up to 30% of monetary penalties resulting from enforcement actions by the Department of Transportation or Justice Department. Called the Thune-Nelson Motor Vehicle Safety Whistleblower Act, it will provide for the Secretary of the Treasury to issue auto industry employees and contractors discretionary rewards for voluntary information about problems at motor vehicle manufacturers, parts suppliers and dealerships. The legislation is modeled after the Internal Revenue Service and Securities and Exchange Commission whistleblower programs, including confidentiality protections.

It is co-sponsored by Claire McCaskill (D-Mo.) and Dean Heller (R-Nevada), the leaders of the Commerce Committee’s subcommittee on consumer protection. The subcommittee is investigating delayed recalls of ignition switches at General Motors. The bipartisan sponsors of the bill suggest that the issue may cross party lines even though corporations have in the past vehemently opposed past efforts to strengthen rewards.

The Detroit News called out the bill as “the first significant auto safety proposal to receive backing of a top Republican.” The chairman of the House Energy and Commerce Committee, Representative Fred Upton (R-MI) said he is still considering proposing a bill for auto reform.

Democrats in the House and Senate proposed sweeping reforms earlier this year. In September, the Vehicle Safety Improvement Act was introduced to reform the industry. Senate Democrats proposed the Early Warning Reporting System Improvement Act in March followed by the Motor Vehicle and Highway Safety Enhancement Act in August.

The introduction of the whistleblower bill comes at a time when several companies in the auto industry are being investigated for defective products. The introduction of the bill coincides with a hearing today in the Senate Commerce Committee regarding the recall of 7.8 million vehicles by 10 major automakers because of defective Takata air bags.

In June, news broke about a GM whistleblower who had been silenced and fired by the company for accusing it of dragging its feet to fix safety issues.  The company had known about the problematic ignition switches for years before it finally issued a recall.

Toyota paid a $1.2 billion fine earlier this year for misleading the government and consumers about unintended acceleration complaints. U.S. Attorney Preet Bharara said, “Even while giving unequivocal assurances that it had fully addressed a grave safety problem, Toyota knew full well that the problem of unwanted acceleration persisted.” Toyota initially blamed the problem on the accelerator being stuck under the floor mat while hiding the potential for “sticky pedals”. The company recall didn’t cover all of the cars in danger and they continued to manufacture problematic vehicles.

Earlier this month, Hyundai Motor and Kia Motors were also fined $300 million for overstating vehicle fuel-economy standards. We haven’t been able to track down the bill yet to determine whether information about this time of fine for a violation of the Clean Air Act will also be covered.

This bill is not the only area where the U.S. Government is considering expanding rewards.

Representative Maxine Walters (D-CA) introduced the Holding Individuals Accountable and Deterring Money Laundering Act (H.R. 3317) into the House of Representatives last October. It provides for an increase in the potential payment for FinCEN whistleblowers from the current maximum payment of $150,000.  The new law would offer a minimum of 10 percent and maximum of 30 percent on eligible recoveries over $1 million.

The Centers for Medicare and Medicaid Services proposed an increase last year in the maximum reward for its own Medicare Incentive Reward Program to $9.9 million from $1,000.  The U.S. Government Accountability Office also published a report on reform of the criminal cartel enforcement laws in 2011 which considered, among other things, adding incentives for reports of antitrust violations.

New York is also considering rewards for information provided to its Department of Financial Services.  The agency, run by Benjamin Lawsky, has issued several large fines against financial institutions this year, including this week’s $315 million settlement with Bank of Tokyo Mitsubishi UFJ.  It also will reportedly pursue penalties against Barclay’s for forex manipulation similar to the conduct involved in settlements between five banks and the CFTC last week.

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