Whistleblower Qui Tam Law Blog

Lawsuits brought under the False Claims Act recovered over $3 billion in 2011 for the second consecutive year, a bulk of which were brought by whistleblowers against companies that defrauded federal healthcare programs. Although qui tam lawsuits under the False Claims Act saw another successful year, securities fraud recoveries dropped from 2010.

According to a study released on March 14, 2012 by Stanford Law School and Cornerstone Research, there were 65 court approved securities fraud settlements totaling $1.36 billion in 2011, down from 86 court approved settlements totaling $3.21 billion in 2010. The study reports that the median settlement amount for the 65 court approved settlements was $5.8 million, and the average settlement amount was $21 million. The largest settlement in 2011 was a $208.5 million recovery against Washington Mutual Inc., the largest United States bank or thrift to fail. As for the types of cases settled in 2011, 45 percent of settled cases involved allegations related to violations of generally accepted accounting principles, 40 percent of settled cases were accompanied by derivative actions, and the percentage of settlements involving underwriters matched an all-time high of 26 percent.

Dr. Laura E. Simmons, a business professor at the College of William and Mary and Senior Advisor at Cornerstone Research, believes that large settlements involving American International Group, Inc. and other companies, along with increased Securities and Exchange Commission (SEC) enforcement activity, will lead to a successful year in 2012. Settlement totals for 2012 are expected to include AIG's agreement to pay $725 million to resolve allegations of accounting fraud and stock price manipulations. Other settlements that are expected to top $100 million include Lehman Brothers Holdings Inc; Motorola Solutions Inc.; National City Corp., a bank now owned by PNC Financial Services Group Inc.; and Apollo Group Inc., a for-profit education company.

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The Department of Justice and the Securities and Exchange Commission recently announced their commitment to investigate and prosecute pharmaceutical and medical device companies that pay bribes to government physicians and hospital administrators in foreign countries to secure business.

This practice violates the Foreign Corrupt Practices Act of 1977, 15 U.S.C. § 73dd-1 et seq., which prohibits certain persons and entities from making payments to foreign government officials to assist in obtaining or retaining business. The anti-bribery provisions of the FCPA apply to all United States persons and certain foreign issuers of securities, as well as foreign firms and individuals who act in furtherance of a bribe to take place within the United States.

The FCPA also requires companies whose securities are listed in the United States to meet the accounting provisions set forth in 15 U.S.C. § 78m, which require corporations to (1) make and keep books and records that accurately and fairly reflect the transactions of the corporation and (2) devise and maintain an adequate system of internal accounting controls.

Like other types of fraud, whistleblowers play a key role in uncovering illegal bribes. Recognizing the importance of whistleblowers to government enforcement, the Securities and Exchange Commission has established a whistleblower reward program, which provides financial incentives to individuals who provide information to the government relating to violations of securities laws, including the FCPA. In cases where penalties against a corporation exceed $1 million, the SEC is required to award whistleblowers between 10% and 30% of the amounts recovered. For more information on the SEC Whistleblower Reward Program, click here.

Continue reading "U.S. Government to Scrutinize Pharmaceutical Companies that Pay Bribes to Foreign Physicians and Hospitals " »

The Securities and Exchange Commission (SEC) has adopted final rules establishing a whistleblower program to provide financial rewards to individuals who, alone or with others, provide information regarding possible violations of securities laws to the SEC. To be eligible for an award, a whistleblower must voluntarily provide original information that leads to a successful enforcement action by the SEC and penalties in excess of $1 million. In return, the SEC is required to award whistleblowers between 10% and 30% of the amounts actually recovered.

Generally, to be considered for an award under the new SEC Whistleblower Reward Program, the whistleblower must meet the following requirements:

Voluntary Submission. A submission is voluntary if the whistleblower makes the submission before a request, inquiry, or demand for related information is directed to the whistleblower (or anyone representing the whistleblower) by the SEC or other specified governmental authorities.

Original Information. "Original information" is any information that is derived from independent knowledge or independent analysis of the whistleblower. Under the rules, a whistleblower has "independent knowledge" if the factual information is not derived from publicly available sources. But if the information is derived from publicly available sources, the whistleblower may still qualify for an award if, upon the whistleblower's own examination and evaluation, the analysis reveals information that is not generally known or available to the public. Moreover, "original information" may not be already known to the SEC from any other source or derived from certain publicly available sources, unless the whistleblower is the original source of the information. Finally, original information must be provided to the SEC for the first time after July 21, 2010, the enactment date of Dodd-Frank.

Successful Enforcement by the SEC. A whistleblower's voluntary submission of original information can be deemed to have led to a successful enforcement action under the following circumstances: (1) the information is sufficiently specific, credible, and timely to cause the SEC to open a new examination or investigation, reopen a closed investigation, or open a new line of inquiry in an existing examination or investigation; (2) the conduct was already under investigation when the information was submitted, and the information significantly contributed to the success of the action; or (3) the whistleblower reports original information internally before or at the same time it is submitted to the SEC, the employer provides the whistleblower's information to the SEC, and the employer's report also satisfies prongs (1) and (2).

Monetary Sanctions. The enforcement action must result in monetary sanctions, including penalties, disgorgement, and interest, in excess of $1 million. The final rules permit aggregation of multiple proceedings involving the same or similar parties, factual allegations, violations, transactions, or occurrences.

Continue reading "The Securities and Exchange Commission Finalizes Rules on Whistleblower Reward Program" »