Lawson - Association of Corporate Counsel

The Whistle Blows and
the Game Starts
Presented by
Heather L. Campbell, RN,JD
(515) 283-4652
Current Landscape
• Federal
• SEC has an “Office of the Whistleblower”
• DOJ reports 713 whistleblower cases under False
Claims Act in FY 2014
• Billions in recoveries
• FY2014 False Claims Act-$5.69 Billion; $435 Million to
• SEC-3,620 tips in FY2014; 9 awards in 2014; 3 already in
2015; largest single award to date-$30 Million in 2014
• State agencies and joint federal/state agencies are
also increasing enforcement
Attorney General’s Office
Medicaid Fraud Control Unit (MFCU)
Sarbanes Oxley and Lawson
• Section 806 of Sarbanes-Oxley contains a
whistleblower provision
• “Civil Action to protect against retaliation in
fraud cases”
• “Whistleblower Protection for Employees
of Publicly Traded Companies”
• Fidelity mutual funds at issue
• The mutual funds themselves had no
employees, but instead contracted with
privately held companies to handle day-today operations, including filings with SEC
• Plaintiffs were employees of two privately
held companies that contracted with
Fidelity for management of operations of
the funds
Lawson-Facts and Procedure
• One Plaintiff was Senior Director of Finance at her company and
raised concerns about cost accounting methods she believed
overstated expenses associated with operating the funds.
Allegation was that after she suffered a series of adverse
employment actions following, resulting in constructive discharge
• Second Plaintiff was a portfolio manager and alleged he was fired in
retaliation for raising concerns about inaccuracies in a draft SEC
registration statement involving certain Fidelity funds.
• Each filed administrative complaints and after the end of the 180day period specified in the statute, sued in federal district court in
• Fidelity defendants moved to dismiss, arguing that § 1514A didn’t
apply to Plaintiffs because they were not employees of a public
company (the fund itself), so the public company took no adverse
action against the employees
• District Court denied motion to dismiss
• Divided panel of First Circuit COA reversedmajority held that “an employee” meant only
employees of public companies and not the
employees and not a contractor’s own employees
• Administrative Review Board later issued Spinner
decision, in which it stated that §1514A affords
whistleblower protection to employees of privately
held contractors that render services to public
• Supreme Court granted certiorari to resolve the
division of opinion
Lawson-SCOTUS Majority
• Ordinary meaning- “no …contractor…may
discharge…an employee”
• No insertion “of a public company” should be read into the
statute; where Congress meant “an employee of a public
company, it said so”
• Who else would contractor have authority to fire-likely not
the employee of the public company with whom it
contracts; that interpretation would “shrink to insignificance
the provision’s ban on retaliation by contractors”
• Congressional intent to ward off another Enron debacle
• Dismissed the captions as not dispositive, as text was not
• Scalia and Thomas-concur in principal part and in
judgment- text is plain “employee” means employee of a
contractor, so no need to discuss Congressional intent
• Sotomayor, Kennedy and Alito
• Statute speaks to public companies and then
to five types of representatives companies
hire to carry out their business
• Capable of interpretation either way-but
majority’s interpretation goes too far as it
would include household employees of any
individual who works for Section 12 or
Section 15(d) company;
• Look at headings for guidance
Dodd-Frank and FCPA
• 15 U.S.C. § 78u-6(h)(1)(A) prohibits employers
from retaliating against a whistleblower for:
• Providing information to the SEC;
• Initiating, testifying in, or assisting in any investigation
or judicial or administrative action of the SEC based
upon or related to such information; or
• Making disclosure that are required or protected
under SOX, certain other securities law, and any
other law, rule or regulation subject to the jurisdiction
of the SEC
• Allows for civil action in court, reinstatement, twotimes back pay and attorneys fees
Dodd-Frank and FCPA
• SEC stated it expects FCPA complaints under
Dodd-Frank whistleblower provisions to continue
to be “increasingly fertile ground”
• Unless you aren’t in the U.S.• Liu- District Court held, and Second Circuit affirmed,
that Dodd-Frank whistleblower provisions did not
apply to foreign nationals employed by foreign
companies abroad (Liu v. Siemens AG, No. 13-4385cv)
• Presumption against extraterritorial application
• Facts-no conduct happened in US-all overseas;
question whether different facts would have changed
the outcome?
Dodd-Frank and FCPA
• Also cases addressing whether internal reporting alone is
sufficient to trigger whistleblower and anti-retaliation
• Some district courts have ruled that a whistleblower need not
report to directly to the SEC, a position the agency advocates
• The Fifth Circuit has ruled that to be a whistleblower under
Dodd-Frank, an employee must actually provide information
to the SEC (Asadi v. GE Energy, No.12-20522)
• Eighth Circuit recently declined to hear an interlocutory appeal
of a Nebraska District Court Judge’s denial of a motion to
dismiss on the basis that the plaintiff was not a whistleblower
under the act because she did not directly report alleged fraud
to the SEC, but instead to reported to FINRA
False Claims Act
• 31 U.S.C. § 3729
• Violations result from knowingly:
• Presenting or causing the presentation of a false claim or
fraudulent claim for payment or approval to an officer or
employee of the United State government or a member of
the Armed Forces of the United States;
• Making, using or causing to be made or used, a false
record or statement material to a false or fraudulent claim;
• Avoiding or decreasing a payment “obligation”
• For providers enrolled in federal health care programs,
failing to report and return overpayments (ACA 6402(d))
• “Knowingly”: actual awareness of falsity; deliberate
ignorance of the truth or falsity; or reckless disregard of
truth or falsity
FCA-Whistleblower Provision
• 31 U.S.C § 3730
• United States or private qui tam relators may bring
civil fraud actions
• Up to $11,000 per claim, trebled, attorney fees,
• Requires whistleblower to be “original source”
• If successful, whistleblower gets between 15-30%
of the recovery, plus costs
• Also contains an anti-retaliation provision for
employees that provides for reinstatement with
same seniority, two times back pay, interest on
back pay, special damages, fees and costs
Iowa False Claims Act
Iowa Code Chapter 685
Enacted July 1, 2010, amended July 1, 2011
Largely mirrors Federal False Claims Act
Few known cases
• First case filed in 2013 by Attorney General
• Recent intervention of AG in unsealed qui tam
case filed by former employee
• Both are based on allegations of Medicaid fraud
If Only It Were That Simple…
• Significant incentives for current and former
employees to blow the whistle
• Employer may not know that current or
former employee or employee has filed a qui
tam action
• Even those that aren’t filed as qui tam actions
can be expensive to defend and settle with
• Post-Lawson, clear that contractors and their
employees must be addressed
Compliance and Reporting
• Review compliance and reporting policies
and procedures
• Clear, unambiguous policies and procedures
• Coverage of contractors and their employees
• Process for ensuring appropriate dissemination
and documentation of understanding
• Agreements with contractors should contain strong
language concerning compliance issues, including
specific information on the contact for internal
Confidentiality Provisions
• SEC recently charged a Houston-based technology and engineering
firm with violating Rule 21F-17, which prohibits companies from
taking any action to impede whistleblowers from reporting possible
securities laws violations to the SEC
• At issue was a requirement that witnesses in certain internal
investigations not discuss the matters with outside parties without
the approval of the company’s in-house legal department or the
employee could be subject to discipline, including termination
• SEC stated provisions in agreements such as the one at issue could
silence potential whistleblowers and the agency will “vigorously
enforce” the rules prohibiting them
• Can seek to maintain attorney-client privileged information so role of
counsel in conducting investigative interviews should be considered
• Settled for $130,000 and a change in the policies and agreements
Okay, we get it…
No, BUT Internal Reporting is Goal
• Initial and ongoing training on employee’s
obligation to report compliance issues
• All employees and contractors get initial
training on company’s compliance and
reporting procedures
• Annual update-reminder and update if
• Culture that not only encourages but requires
internal reporting (can’t preclude external)
• Document all training provided-who attended,
when, what was covered, keep a copy of
materials for your file
• Annual compliance disclosure form
• In conjunction with annual training, require
employees/contractors to disclose any compliance
issues of which they are aware
• Includes request for description of issue, whether it
was reported internally or externally, to whom, etc.
• If employee or contractor doesn’t disclose anything,
can be good evidence in later proceeding(s)
• Investigations
• Litigation Hold-immediately communicate
need to preserve relevant evidence
• Employee interviews
• Get investigative interviews done quickly, as
employee turnover can lead to challenges later if
an external investigation or a lawsuit is initiated
• Be sure to consider issues like Upjohn warnings
Okay, now we really get it…
Post-Investigation Disciplinary
• Cannot retaliate against individuals who complain, whether
internally or externally, about compliance issues
• Just because an employee has made an internal or external
complaint doesn’t mean you can’t take disciplinary action for
something unrelated
• However, it can be very risky so make sure you have good documentation
• Another reason to do honest employee evaluations and
continually evaluate; sometimes timing is a factor and employer
is “stuck” because there are legitimate performance issues, but
those issues aren’t documented or are poorly documented,
leading to inference of action as retaliation for report
Post-Investigation Disciplinary
• If employer becomes aware of activity that is potentially fraudulent,
take disciplinary action quickly and document, document, document
• Accounts in disciplinary actions should be factual, not conclusory in
• Becomes unwelcome exhibit in unemployment hearings and
other proceedings
• Disciplinary actions for failure to report
• Sends a strong message of compliance and obligation to report
• Document, document, document
• Makes current employee former employee=more incentive to
externally report?
• Really depends on number of factors
Post-Investigation Actions
• Synthesize interview notes, facts, and reach
conclusion on whether alleged conduct did in fact
occur, and if so, whether it violated the employer’s
policies and/or a law
• Consider whether employment action(s) will be takenafter consulting with experienced counsel
• If legal violation, consider self-disclosure after
consulting with experienced counsel
• Often, carefully thought-out self-disclosure results in
quicker resolution with less financial and reputational risk
• May also eliminate “original source” component of some
whistleblower requirements
• Whistleblower claims increasing with several
sources of law for complaints
• Review compliance reporting policies and
• When faced with internal report or external
investigation, move quickly but deliberately
Interview employees and witnesses
Preserve evidence
Synthesize findings
Take appropriate action-self-disclosure,
disciplinary action
• Thank you