WSJ Reports Ontario Securities Whistleblower Tips Against Major Private Equity Firm


Since the Ontario Securities Commission opened its whistleblower program to tips, at least four individuals have filed complaints against one of Canada’s largest private equity firms according to the Wall Street Journal. Officials at the Ontario Securities Commission and a unit of the Toronto Police Service have inquired about the matter with the multi-billion dollar investment firm at issue.

Last fall, only a few months after launching the program in July, the head of the Ontario Securities Commission said that there had been more than 30 tips detailing securities law violations and that some of them involved serious offenses or potential offenses in areas that the agency would never otherwise be able to find. One express target of the program is misstatements in accounting and disclosure violations. The potential reward for reporting securities law violations that result in total monetary sanctions of over $1 million

The OSC has been accepting whistleblower tips for just over a year now. Based on the history of the SEC program, it is still far too early to expect them to have announced a payout. If they follow the lead of the SEC, they may put out a report of the number of tips acquired through the program in its first year.

This would be an interesting statistic to see and contrast against British whistleblowers, which have been reporting to the Financial Services Authority in the United Kingdom in declining numbers. The FSA has twice declined to offer banking whistleblowers monetary rewards, opting instead for regulations that aim to protect against retaliation, such as the requirement of an internal whistleblower champion within companies.

The WSJ article details a bit about the methodology of the program in Canada. Ontario regulators send tips warranting review to the program’s inquiries team to conduct interviews research before deciding whether to formally open an investigation. Many of the complaints are dismissed without any further inquiry.

The investment firm denied any wrongdoing in a statement released after the WSJ article was published.

DOJ Probing Electronic Health Record Vendors for Fraud


The Department of Justice is expected to investigate electronic health record (EHR) software providers for health care fraud following allegations against a major player that resulted in a $155 million settlement under the False Claims Act for skirting meaningful use regulations.

In a recently released video, a Senior Counsel at the Office of the Inspector General called false statements during certification and manipulation of the certification process by EHR vendors “an entirely new area of healthcare fraud.” Although the government is not expected to pursue hospitals that used the software in good faith, the United States seems willing to pursue vendors for false certifications and statements that could have a detrimental impact on patient care.

The United States offers incentive payments to healthcare providers that adopt certified EHR software and meet certain meaningful use requirements, as set forth in the American Recovery and Reinvestment Act of 2009. Companies that sell EHR software must attest that it satisfies criteria set by the Department of Health and Human Services as well as pass testing by an approved, accredited independent certifying entity.

Earlier this year, eClinicalWorks agreed to pay $155 million to resolve allegations brought under the False Claims Act that it misrepresented the capabilities of its software and paid kickbacks to customers for promoting the product. The government complaint alleged that the software did not comply with the standards for certification, because it could not retrieve a drug code from a complete database, did not accurately record user actions in an audit log, did not perform drug interaction checks, and failed to satisfy data portability requirements.

Individuals that report evidence of healthcare fraud through the False Claims Act may be eligible for rewards of between 15 and 30 percent of the government’s recovery. In the case against eClinicalWorks, the whistleblower received $30 million. If you have evidence of fraud by an EHR vendor, please call for a free initial and confidential consultation with Eric Young or another False Claims Act attorney at McEldrew Young.

SEC Gives Government Employee $2.5 Million Whistleblower Award


The Securities and Exchange Commission recently agreed to provide approximately $2.5 million to a SEC whistleblower that worked for a government agency. The SEC whistleblower both provided the initial information that led to the opening of the case but also provided critical documents and testimony that accelerated the pace of the enforcement action. The SEC, per its policy, did not identify the whistleblower, the defendant or identifying details.

A footnote in the order explains generally that there are two exceptions which would allow the SEC to deny an award to a federal, state, or local government agency employee. The first is that no awards can be paid to an employee of the SEC, the Comptroller of the Currency, the Board of Governors of the Federal Reverse System, or the Federal Deposit Insurance Corporation. The second prohibits awards to an employee of “a law enforcement organization.” Although this term is not defined, the Order says it is generally defined as “having to do with the detection, investigation, or prosecution of potential violations of law.” The agency where the individual worked did perform law enforcement responsibilities, but the subagency where the whistleblower was staffed did not.

The SEC also made clear in a footnote to the Order that the claimant did not seek “to circumvent the potential responsibilities that his or her government agency might have to investigate or otherwise take action for the misconduct.” The SEC reserved judgment on whether a different award determination would have happened under those circumstances.

This is not the first time that a government employee has been a whistleblower. The situation has arose several times under the False Claims Act. Under that law, there is also no per se rule against paying government employees a reward. However, there are some procedural hurdles, since a government employee may have a difficult time qualifying as an original source (depending on the facts).

Nevertheless, the fact that the SEC decided to award the whistleblower with a bounty is a good sign that the new regime is not taking an excessively restrictive approach to interpreting the whistleblower rules.  The SEC took a similar approach in another award issued last week – the July 27, 2017 award of $1.7 million to a whistleblower that was assisting the government prior to Dodd-Frank and provided valuable information to the SEC after Dodd-Frank passed but before the final regulations were issued for the SEC whistleblower program.  The SEC waived procedural issues that happened in this interim period and rewarded the whistleblower with a bounty anyway.

Reverse Mortgage Whistleblower Gets $1.6 Million FIRREA Award


The $89 million settlement in May between Financial Freedom and the United States regarding claims under the False Claims Act and the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 resulted in a $1.6 million bounty for a FIRREA whistleblower.

The United States alleged that Financial Freedom failed to meet certain obligations to FHA as a mortgage insurance provider on their reverse mortgage loans. Financial Freedom collected interest from the FHA despite failing to obtain an appraisal within 30 days of the reverse mortgage becoming due and payable. Services that miss the 30-day appraisal deadline before a foreclosure are not entitled to interest that accrues after the loan becomes due.

This is the first FIRREA whistleblower award that I have seen confirmed in a Department of Justice press release. For some time, the law initially developed in response to the savings and loan crisis, went unused. It was reinvigorated following the Great Recession when it became the primary theory for prosecution of mortgage fraud.

It has since seen expanded utilization in other areas. In 2014, the DOJ issued subpoenas to two large subprime auto lenders investigating whether their origination and securitization practices violated FIRREA. In 2016, Volkswagen was charged with violations of FIRREA for the use of defeat devices to cheat on emissions tests. It ultimately settled these allegations for civil penalties of $50 million.

The reverse mortgage award demonstrates the substantial difference between the award structure for awards under the False Claims Act and FIRREA. The award of $1.6 million was paid under FIRREA. FIRREA has a different payout structure compared to the False Claims Act and a maximum award of $1.6 million. There is no maximum award under the False Claims Act. Under it, any award would have been between 15 and 25 percent of the recovery (for an intervened lawsuit). This would have resulted in a minimum payout of $13.3 million (assuming that the individual met the requirements under the law).

Former Attorney General Eric Holder, before he left the office, suggested in a speech at NYU School of Law that FIRREA should be amended to lift the maximum available award. Holder called 1.6 million “a paltry sum in an industry in which, last year, the collective bonus pool rose above $26 billion, and median executive pay was $15 million and rising.” As far as we are aware, Congress has not attempted to increase the maximum award recently.

Off-Label Marketing Whistleblower Lawsuit Settles for $280 Million


Celgene agreed to pay $280 million to settle a False Claims Act lawsuit brought in California accusing it of promoting two cancer drugs for unapproved uses. Pharmaceutical companies may only promote drugs for their FDA-approved indications even though doctors may legitimately prescribe them for off-label purposes. The False Claims Act authorizes whistleblowers to seek recovery (on behalf of the government) of the money it was improperly billed as a result of the improper marketing.

This whistleblower lawsuit was a declined case. After the United States investigated the allegations, it decided not to intervene. In an intervened FCA, the United States files its own complaint and takes charge of the conduct of the litigation. In a declined FCA, the whistleblower has the option to prosecute it on behalf of the government. In a declined FCA, the relator (as the whistleblower is known) is entitled to between 25 and 30 percent of the recovery from the lawsuit.

The vast majority of False Claims Act recoveries used to be from intervened cases. Now, more declined cases are being taken to settlement or trial. In 2015, there was a record settlement of $495 million in a declined case against DaVita Healthcare Partners. That year, there was also a $663 million verdict (subsequently appealed) against a guardrail manufacturer in a declined case.

The Celgene lawsuit involved two blockbuster drugs, Thalomid and Revlimid. Last year, Revlimid sales generated nearly $7 billion in revenue for Celgene.
Celgene denied wrongdoing and said that it settled the matter to avoid the “uncertainty, distraction, and expense of protracted litigation.”

Off-label marketing has been a controversial area for False Claims Act lawsuits in the past few years. In 2012, the Court of Appeals for the Second Circuit reversed the conviction of a sales representative selling a drug for unapproved uses, contending that it violated freedom of speech. Later, Amarin sued the FDA for a declaratory judgment that it could make certain truthful and non-misleading statements about off-label uses for its drug Vascepa. The Amarin lawsuit settled in 2016.

Update on NHTSA Whistleblower Rules


The National Highway Traffic Safety Administration has yet to publish the proposed rules for the NHTSA whistleblower program. This whistleblower program was authorized by the Fixing America’s Surface Transportation (FAST) Act in December 2015.

The terms of the Motor Vehicle Safety Whistleblower Act required the Department of Transportation to publish regulations for the program within 18 months of the date of the passage of the law. According to our informal search, the regulations have still not been published despite the elapse of more than the allotted time. We assume this is the result of issues due to the change in administration and they will be promulgated shortly.

In the meantime, whistleblowers may submit tips to the Department of Transportation prior to the promulgation of the regulations. An attorney for the NHTSA confirmed in an email subsequently published online by the recipient that it is the appropriate agency to submit whistleblower tips under the FAST Act. The NHTSA attorney also confirmed that the statutory provisions are in effect and that early whistleblowers will receive the confidentiality protections specified in 49 U.S.C. § 30712(f).

The law provides for the representation of auto whistleblowers by an attorney. If you are an employee of an auto manufacturer, part supplier or dealer, and have information about a serious safety issue with motor vehicles, please call 1-800-590-4116 to speak to Eric Young or another whistleblower attorney at McEldrew Young.

Without Whistleblower Rewards, British Tips Decline


A report earlier this month by the Financial Conduct Authority detailed the declining number of whistleblower tips reported to the British authorities. From 2014-15 to 2016-17, the number of reports has declined each year, resulting in just 900 cases in the last year. In 2014-15, the FCA had 1,340 whistleblower reports.

A spokesman for the FCA indicated that they believe that whistleblowers are more aware of internal reporting mechanisms and are taking advantage of them. However, this system has received negative press this year due to the efforts of Barclays chief executive Jes Staley to learn the identity of an anonymous whistleblower.

The British regulators adopted measures in 2014 to require each firm to appoint a “whistleblower champion” and prohibited retaliation against employees that skip the internal reporting mechanisms in favor of reporting directly to the FCA. However, it rejected financial incentives for whistleblowers after studying the SEC program.

In May, the UK confirmed that overseas lenders that have a British Branch must inform their UK-based staff that they can whistleblow in confidence to the FCA or the Bank of England’s Prudential Regulation Authority. It extended the program to non-executive directors at lenders and insurers, while planning to roll out the regime to the entire financial-services industry.  The FCA again failed to institute rewards despites suggestions to do so during the comment period.

The FCA has made various efforts to better respond to whistleblowing over the past few years. It held an internal whistleblowing event in May 2016, has networked with other bodies to benchmark their own performance, and increased training for staff on how to handle whistleblowing.

The declining numbers stand in stark contrast to the success of the SEC and CFTC whistleblower programs, which have seen increasing numbers of tips about misconduct. The SEC and CFTC Directors recently touted the success of those programs. The SEC program, for example, has helped recover more than $1 billion since the passage of the Dodd-Frank Act by Congress.

Record Award Predicted for SEC Whistleblowers from JPMorgan Fine


A media outlet, Financial Planning, is predicting that a pair of SEC whistleblowers will share an award of approximately $70.6 million out of the $307 million in regulatory fines against JPMorgan in 2015. Another outlet, Advisor Hub, put the number at $61 million instead. Either award amount would be the largest in the history of the SEC whistleblower program to date.

The SEC whistleblower program is authorized by the Dodd-Frank Act to pay awards of between 10 and 30 percent of the amount the United States recovers as a result of a tip. The top award previously was announced in September 2014 and totaled approximately $30 million.

It looks like the discrepancy between the two numbers reported by the media outlets results from the calculation of the overall amount of fines against JPMorgan. Financial Planning is counting both the SEC fine of $267 million as well as the CFTC fine of $40 million. Advisor Hub is counting only the SEC settlement. It seems probable that the larger number is correct and that the CFTC waward

Any award announcement is still probably months away. The calculations are based on a leaked preliminary award determination. The number of whistleblowers, percentages and their allocation can still change as the parties are permitted time to dispute the preliminary determination.

The settlement with JPMorgan was announced in December 2015. Two JPMorgan wealth management subsidiaries agreed to admit wrongdoing and pay $267 million to the SEC and $40 million to the CFTC for the failure to disclose conflicts of interest to clients. The subsidiaries had a preference for clients to invest in the firm’s own proprietary products which it did not disclose to them. The SEC said that the preference deprived clients of information that they needed to make fully informed investment decisions with respect to asset allocation and the selection of fund managers.

Photo Credit.

SEC, CFTC Directors Speak on Whistleblower Programs


The Chief of the SEC’s Office of the Whistleblower, Jane Norberg, and the Director of the CFTC Whistleblower Office, Christopher Ehrman, spoke recently at the Practicing Law Institute’s program on June 28, 2017, titled Corporate Whistleblowing in 2017. Their comments covered a wide range of hot topics in the field of whistleblower law and were relayed in a recent JDSupra article, so we thought them appropriate to briefly detail here for current and potential Dodd-Frank whistleblowers.

Both Norberg and Ehrman emphasized that the programs are open for business and going well. Norberg said that the United States has recovered over $1 billion as a result of enforcement actions and related actions arising from whistleblower tips. Ehrman emphasized that the CFTC Whistleblower Office is growing, seeing an increase in staffing, tips, and high quality tips. Ehrman expected 2017 to be a strong year for the CFTC Whistleblower program.

About the SEC Whistleblower program, Norberg spoke significantly on whistleblower protection. Protecting whistleblowers from retaliation and efforts to chill their reports are a top priority according to Norberg. Norberg believes that that the SEC’s interpretation of the Dodd-Frank anti-retaliation provision to protect whistleblowers who report internally is the only one consistent with the incentives to encourage internal reporting put in place by the SEC. Norberg also discussed Rule 21F-17, but did not definitely state whether the Rule also covers non-US employment agreements. Instead, she said that it would depend on the facts and circumstances of the case.

About the CFTC Whistleblower program, Ehrman spoke specifically on the changes to the CFTC whistleblower program that will go into effect on July 31, 2017. As he explained, the changes are intended to enhance whistleblower protections and revise the claims review process to mirror the SEC program. Ehrman did not provide a definitive answer to the question of whether the changes would apply retroactively. He said that they are considering it and would let everyone know when they have reached a definitive answer.

We will continue to post information here that provides insight as to any changes in the program during the Trump Administration.

Tax Court Denies Anonymous Proceeding to Serial Whistleblower


The Tax Court has reminded IRS whistleblowers in a recent decision that the ability to proceed anonymously is not absolute. On June 28, 2017, the U.S. Tax Court denied an anonymous proceeding to Whistleblower 14377-16W after weighing the public interest in knowing who is using the Tax Court to bring serial whistleblower claims against an insufficient fact-specific justification for anonymity (Opinion here).

The whistleblower claim involved a non-employee accountant (CPA) who discovered in public records that several companies were failing to report millions of dollars in income from the sale of gift cards, according to the allegations. The individual brought several whistleblower claims, identifying 50 or so taxpayers, and currently has 11 whistleblower cases pending before the Tax Court. The individual does not work for any of the companies and is retired as a CPA, instead working with his spouse in a registered investment advisory business.

The Tax Court found that the justifications for providing anonymously were weak because the individual was not working for any of the companies and otherwise did not identify any specific business partner or political figures who would retaliate against him. In good news for other whistleblowers, the Court said that absent the serial usage of the Tax Court, it might just have allowed the individual to proceed anonymously at the early stage in the litigation.

However, the Tax Court declared the public interest in knowing who was repeatedly using the Court greater than this limited personal interest in anonymity. In all likelihood, if the Court had allowed him anonymity in this proceeding, it would have had to do so in the other 10 as well as any additional cases.

The Tax Court’s analysis was a bit problematic for whistleblowers in large cases. In a large and complicated case, with parent corporations, subsidiaries and affiliated entities, plus multiple submissions by the whistleblower to prove tax evasion, the number of “claims” assigned by the IRS can grow quickly. The Tax Court does properly explain in a footnote the process of assigning claims, but the potential for labeling an individual who brings a large and complicated submission as a serial whistleblower nevertheless exists.

In the end, this is an opinion that seems best relegated only to non-employee whistleblowers who are engaged in data mining to bring claims against multiple corporations. Nevertheless, it is a good reminder that all whistleblowers are potentially at risk of having their identity exposed and should properly consider the potential benefits and risks before filing a tip.

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