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Protecting Whistleblowers since 1977

Corporate Counsel: Ride the Whistleblower Wave

August 09, 2017
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Earlier this year, Sanford Wadler won $14.5 million, including attorney fees, from his California company, which fired him for reporting alleged foreign bribes to the board of directors. The former general counsel's court victory highlights, and perhaps has helped inspire, two recent trends in the world of whistleblowing—a growing number of in-house counsel and compliance officers becoming whistleblowers, and an increasing number of retaliation suits.

Wadler filed suit against Bio-Rad Laboratories Inc. and its board members after his employment was terminated in June 2013. He asserted retaliation claims under federal law, including the Sarbanes-Oxley and Dodd-Frank Acts, along with wrongful termination under state law.

Plaintiffs' attorney Jason Zuckerman, a partner at Zuckerman Law in Washington, D.C., predicts there will be "some increase" in the number of in-house counsel bringing retaliation claims against their companies after the Wadler victory.

"Yes, I think we will see more in-house claims, but it's an area where for many reasons the in-house lawyer has to move carefully," Zuckerman says. "Proceeding with a claim in a public manner can make it very hard for that lawyer to get re-employed."

And Earl "Chip" Jones III, Dallas office managing partner for defense firm Littler Mendelson, says he is definitely seeing more whistleblower and retaliation cases brought against companies by their new compliance officers.

He explains: The company brings in an expert, bares its soul and confesses its sins, then asks the compliance officer to fix everything. "They bring in someone who wants to build a world-class program, but they only have the resources for a mini-program," Jones says.

The situation becomes so toxic, Jones adds, that the compliance officer quits or files a whistleblower suit. "I'm seeing the same scenario play out over the past couple years," he says.

Law firms that defend corporations against such suits have had to make adjustments in recent years, with a number of them, such as Littler Mendelson and Proskauer Rose, carving out whistleblower and retaliation practices.

Whistleblower Rights Grow

Meanwhile, whistleblowers' abilities to bring retaliation claims also have grown exponentially in recent years, says Tom Devine of the Government Accountability Project. "And they are increasingly winning against the scorched earth attacks being launched against them," he adds.

Among other rights, workers can bring whistleblower retaliation claims under the Occupational Safety and Health Administration in a variety of industries, including banks. That unusual scenario occurred recently in a scandal that involved a bank's opening unauthorized accounts. An unnamed bank manager filed a retaliation complaint with OSHA, and was awarded $5.4 million. The bank is appealing the award.

On June 26 the U.S. Supreme Court agreed to hear a case that will either expand or limit whistleblower retaliation protection. The U.S. Securities and Exchange Commission has ruled that whistleblowers deserve protection from retaliation, even if they have only reported the misconduct internally and not to the government. Two federal circuit courts of appeal have heard challenges and have agreed with the commission, while one appeals court has ruled against it. The SCOTUS will settle the issue in its next October session.

Devine warns that it is easy for fired whistleblowers to become overwhelmed in long court fights. He advises that first they need to do their homework.

They have to build a financial war chest, he says, and recruit a legal team. And they have to be prepared for a two- to three-year struggle. Blowing the whistle, he says, "is a very serious decision."

One thing that has helped, Devine adds, is a cultural shift in how whistleblowers are viewed. In past decades, society often viewed them as traitors to the company. "But today they are seen more as heroes," he says.

How It Began

Whistleblowing got its start in the United States in 1863 during the Civil War with passage of the False Claims Act to catch cheating defense contractors. Amended several times since then, the act imposes liability on people or companies that defraud the government. A so-called "qui tam" provision (from a Latin phrase that means "he who stands in place of the king") allows a citizen to sue on behalf of the government and receive a percentage of the recovery.

In 1959, America had one whistleblower law. Today, it has 59 laws, both state and federal, covering various agencies. The U.S. Securities and Exchange Commission, the IRS, the U.S. Commodity Futures Trading Commission and OSHA all have their own whistleblower programs.

The SEC has received almost as many whistleblower claims in the past two years (8,000) as it did in its first five years of the program (10,500). Since the program began in 2011, the agency has levied nearly $1 billion in penalties and awarded some $154 million to 44 whistleblowers, according to Jane Norberg, chief of the SEC's Office of the Whistleblower.

Phillips & Cohen attorney Erika Kelton remembers first becoming involved with a whistleblower suit when she worked on a case brought in 1988 against a company that overcharged the government for flight simulators over eight years.

The case settled for $55.5 million, with the whistleblower splitting a $7.5 million award in 1992. Kelton was one year out of law school, and whistleblower cases were sparse then. But she was "hooked."

She later became interested in financial fraud whistleblowers in the mid-90s, "and once the Dodd-Frank Wall Street Reform and Consumer Protection Act passed [in 2010] we [Phillips & Cohen] jumped in with both feet, adding attorneys and a couple partners."

Many misconduct cases in health care, pharmaceuticals and defense contracting are still brought under the False Claims Act, says Kelton. But since Dodd-Frank was enacted she says the growth has been "explosive" in fraud cases generally brought under the SEC and CFTC programs.

She says her Washington D.C.-based law firm, one of the largest serving whistleblowers, added eight new associates, three of counsel and two lateral partners during the past six years. And it expanded its offices from three to six, with additions in New York, Miami and London.

Kelton notes the growing number of international clients at her firm. "The nature of securities and commodities laws gives the SEC and CFTC global reach," she explains. In fact, she says, in 2014 the largest SEC whistleblower award thus far, $32 million, went to one of her clients, an anonymous international whistleblower.

Looking Ahead

In 1959, no other country had a whistleblower law; today 33 nations have them and another 60 countries are enacting whistleblower laws that cover a specific sector, such as health care or finance, according to the Accountability Project's Devine.

"The United Nations, the World Bank and every regional development bank recognize whistleblower rights," Devine says. "They are the cornerstones of international anti-corruption treaties. It has reached a point where it's the rare exception in the world when workers don't have a right to challenge power and corruption."

Whistleblowers who report illegal wildlife trafficking, logging, fishing and other wildlife crimes are entitled to monetary rewards under several federal laws, including the Lacey Act and the Endangered Species Act. Several agencies, including the U.S. Fish and Wildlife Service, the National Marine Fisheries Service and the U.S. Departments of the Interior, Commerce, Treasury and Agriculture can pay rewards to individuals who disclose original information concerning wildlife crimes that result in a successful enforcement action, according to the National Whistleblower Center.

Even endangered species now have their own whistleblower program. "The Wildlife Whistleblower Program is focusing on an untapped resource for reporting wildlife crime—the whistleblower," says attorney Stephen Kohn, who started the reward program.

Kohn, a leading whistleblower lawyer with Kohn, Kohn & Colapinto, says, "There are people out there who know what's going on [with wildlife crime], but are afraid to come forward. By protecting and rewarding them, we can protect the animals who can't speak for themselves."

Most whistleblower cases, however, are filed against people and institutions. One growing trend involves complaints tied to cybersecurity breaches, according to Zuckerman. He says his firm is seeing an increase in workers exposing corporate breaches that were not disclosed to the public as well as revealing data security vulnerabilities at their companies, citing various state and federal laws.

Zuckerman says another hot area is visa fraud. Under the immigrant investor visa program, foreign residents can earn an EB-5 U.S. immigrant visa by making a major investment in the United States. But the SEC has found significant fraud in the program, he says, including misuse of investor funds and misrepresentations in marketing of investments to visa clients.

The increase in whistleblower claims across so many areas has led to growth at law firms. For instance, in May, Labaton Sucharow's whistleblower practice added three high-profile enforcement lawyers from the U.S. Department of Justice and the SEC—a move that likely would not have happened even just five years ago.

In the past, lawyers like these joined big corporate law firms and defended white-collar criminals for big bucks. That these three hires chose to join a plaintiffs firm that goes after corporate misconduct speaks volumes about what is happening in the world of whistleblower law today.

At Labaton, which expanded its securities practice to include SEC whistleblower cases in 2011, the three hires "represent a substantial investment," says Jordan Thomas, head of the firm's whistleblowing practice. Thomas, a former assistant director and chief litigation counsel at the SEC, was the architect of the agency's whistleblower program before he joined Labaton. Does he fear that the SEC under a new director and new administration might cut back its investigation of whistleblower complaints? Not at all. Hiring three government veterans "shows our belief in the program and its long-term future," Thomas says. "We are doubling down."

Author: 
Sue Reisinger
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