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Protecting Whistleblowers since 1977

The National Law Journal: Law Firms React to Growing Wave of Whistleblower Lawsuits

June 12, 2017
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Last month, Labaton Sucharow’s whistleblower practice added three high-profile enforcement lawyers from the U.S. Department of Justice and the U.S. Securities and Exchange Commission. Five years ago, that probably would not have happened.

In the past, lawyers like these usually 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. It is exploding, and numerous whistleblower firms are expanding to meet the need.

For example, one of the largest such firms, Phillips & Cohen, added eight new associates, three of counsel and two lateral partners during the past six years, according to firm partner Erika Kelton, in Washington, D.C. And they expanded their offices from three to six, with additions in New York, Miami and London.   

At Labaton, which expanded its securities practice to pursue SEC whistleblower cases in 2011, the three hires “represent a substantial investment,” said attorney Jordan Thomas, head of the firm’s whistleblowing practice. “It shows our belief in the program and its long term future. We are doubling down.”

Law firms that defend corporations have also made adjustments, with a number of them, such as Littler Mendelson or Proskauer Rose, carving out whistleblower and retaliation practices.Their expansion seems justified. Consider:

• In 1959, America had one whistleblower law. Today, it has 59 laws, both state and federal, covering various agencies. The SEC, IRS, Commodity Futures Trading Commission and the Occupational Safety and Health Administration 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

• Whistleblowing is expanding its international reach, and law firms, such as Phillips & Cohen, are opening overseas offices to take advantage of the trend. In 1959, no other country had a whistleblower law; today 33 nations have them and another 60 countries are enacting laws that cover a specific sector, such as health care or finance, according to Tom Devine, legal director of the Government Accountability Project.

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

Whistleblowing got its start in the United States in 1863 during the Civil War with passage of the False Claims Act (FCA) 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.

Phillips & Cohen’s 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 for 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 said 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 jumped in with both feet, adding attorneys and a couple partners.” 

Many misconduct cases in health care, pharmaceutical and defense contractor cases are still brought under the False Claims Act, she said. But since Dodd-Frank was enacted she said the growth has been “explosive” in fraud cases generally brought under the SEC and CFTC programs.

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

Another leading whistleblower attorney, Jason Zuckerman, a principal at Zuckerman Law in Washington, D.C., said besides healthcare and financial fraud claims, his firm is seeing an increase in cybersecurity whistleblowers. These workers expose corporate breaches that were not disclosed to the public and data security vulnerabilities at their companies, citing various state and federal laws.

Zuckerman said another hot area right now is fraud in the EB-5 investment visa program. Under the program, foreign residents can earn an EB-5 U.S. immigrant visa by making a major investment in the U.S.  But the SEC has found a billion dollars’ worth of fraud in the program, including misuse of investor funds and misrepresentations in marketing.

Zuckerman also predicts “we will see some increase in in-house counsel bringing claims” against their companies for retaliation after a recent whistleblower victory.

In a California case earlier this year, a fired general counsel, Sanford Wadler, won $14.5 million, including attorney fees, after claiming he was fired for reporting potential foreign bribery issues to the board of directors of Bio-Rad Laboratories Inc. Federal and state laws include broad protections for whistleblowers with the right to file a retaliation claim.

Earl (Chip) Jones III, Dallas office managing partner for defense firm Littler Mendelson, said he is definitely seeing more retaliation cases. And in an unusual twist, he said he’s noticed an increasing number of whistleblower cases brought against companies by their new compliance officers:

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 said.

The situation becomes so toxic, Jones said, that the compliance officer quits or files a whistleblower suit. “I’m seeing the same scenario play out over the past couple years,” he said. 

Whistleblowers’ Rights Against Retaliation 

Meanwhile, whistleblowers’ rights against retaliation also have grown exponentially in recent years, according to Devine of the Government Accountability Project. “And they are increasingly winning against the scorched earth attacks being launched against them,” he said.

Among other rights, workers can bring whistleblower retaliation claims under OSHA in a variety of industries, including banks. That scenario occurred at a bank accused of opening unauthorized bank accounts.

Devine warns, however, that it is easy for fired whistleblowers to become overwhelmed in the fight. “They have to build a financial war chest, he said, and recruit a legal team. And be prepared for a two to three-year struggle, he advised.

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

Author: 
Sue Reisinger
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