Whistleblowers in the Age of Stimulus Chapter 9

Whistleblowers in the Age of Stimulus

Dan Hargrove
Hargrove & Rea, P.C.
Historic One Ten Broadway
110 Broadway, Suite 550
San Antonio, Texas 78205
(210) 223-9700
dh@hargroverea.com
www.Govtfraudlawyer.com

State Bar of Texas

Advanced Employment Law Course 2011
January 13-14, 2011
Austin, Texas

CHAPTER 9
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Whistleblowers in the Age of Stimulus Chapter 9

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DAN HARGROVE
Mr. Hargrove represents businesses and individuals in matters involving federal
government contracts, the FALSE CLAIMS ACT (qui tam), whistleblower actions, and
health care fraud. Mr. Hargrove was named The 2004 San Antonio Young Lawyer
of the Year by the San Antonio Young Lawyers Association, a Rising Star for 2004
& 2005 by TEXAS MONTHLY, and has been named as one of San Antonio’s best
employment attorneys by SCENE IN SA MONTHLY.
PROFESSIONAL AFFILIATIONS

Admitted: Organizations:

Supreme Court of the United States Taxpayers Against Fraud

U.S. Court of Appeals, Fifth Circuit
All U.S. District Courts in Texas
Court of Federal Claims
Court of Appeals for the Armed Forces
All Texas courts
Federal Bar Association (San Antonio chapter Board Member)
Society of American Military Engineers (Board Member)
Southwest Foundation for Biomedical Research, Founder’s Council
Reserve Officers Association
San Antonio Trial Lawyers Association

PRACTICE AREAS

! FALSE CLAIMS ACT (qui tam)

! Health Care Fraud
! Federal Government Contracts
! Whistleblower Actions

BACKGROUND

Mr. Hargrove focuses his practice on the FALSE CLAIMS ACT (whistleblower and qui tam litigation), federal government
contracts, and health care fraud. Before forming Hargrove & Rea, P.C., Mr. Hargrove practiced with Jenkens & Gilchrist,
P.C. and served for six years on active duty with the U.S. Army JAG Corps (10th Mountain Division (Light Infantry) and the
82nd Airborne Division) and deployed to the Middle East. He continues to serve in the Army Reserves, with the rank of
Lieutenant Colonel, and is an Assistant Professor of Law at the U.S. Army JAG School.

EDUCATION

! U.S. Army JAG School, LL.M. (Federal Procurement Law) 2003

! St. Mary’s University School of Law, J.D. 1994
! Texas A&M University, B.S. 1991 (Honors Program; Corps of Cadets; ROTC Scholarship)
! Rotary International Exchange Student (Sweden) 1986

NOTABLE PUBLICATION

Daniel L. Hargrove, Soldiers of Qui Tam Fortune—Are Servicemembers Proper Plaintiffs Under the False Claims Act, 34
GEORGE WASH. U. SCHOOL OF LAW PUBLIC CONTRACT LAW JOURNAL 45 (2004)

CONTACT INFORMATION
Hargrove & Rea, PC www.govtfraudlawyer.com
Historic One Ten Broadway, Suite 550
San Antonio, Texas 78205
(210) 223-9700 (o) www.govtfraudlawyer.blogspot.com
(210) 223-9708 (f)
dh@hargroverea.com

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Whistleblowers in the Age of Stimulus Chapter 9

TABLE OF CONTENTS

I. INTRODUCTION ............................................................................................................................................1

II. THE DODD-FRANK ACT OF 2010 ..............................................................................................................2

A. Overview of the DODD-FRANK ACT’S Bounty Programs and Protections for

Whistleblowers Against Reprisal ..........................................................................................................2
B. The SEC Whistleblower (Bounty) Incentive Program ............................................................................2
1. Introduction to the SEC Incentive Program (Section 922) ...........................................................2
2. Who may File an SEC Bounty Claim ...........................................................................................3
3. Who is Precluded from being Paid an Award...............................................................................4
4. Statute of Limitations to File a Bounty Claim ..............................................................................4
5. The SEC’s Administrative Process...............................................................................................4
6. No Right to Judicially Appeal an SEC Bounty Determination ....................................................4
C. New Reprisal Cause of Action for SEC Whistleblowers that can be Filed
in U.S. District Court (no exhaustion of administrative remedies required)...........................................5
D. Resources – DODD-FRANK ACT’S SEC Bounty Programs and Protections for
Whistleblowers Against Reprisal ............................................................................................................6
E. The Commodity Futures Trading Commission Whistleblower Bounty Program and
Anti-Reprisal Protections for Whistleblowers ........................................................................................6
1. Introduction to the CFTC Incentive (Bounty) Program (Section 748).........................................7
2. Who may File a CFTC Bounty Claim ..........................................................................................7
3. Who is Precluded from being Paid a CFTC Bounty Claim ..........................................................8
4. Statute of Limitations....................................................................................................................8
5. The CFTC Administrative Process ...............................................................................................8
6. Whistleblower can Judicially Appeal the Commission’s Bounty Determination ........................9
F. New Reprisal Cause of Action for CFTC Whistleblowers ......................................................................9
1. Whistleblowers Protected Against Reprisal (no exhaustion of administrative
remedies required) .......................................................................................................................9
2. Arbitration Agreements Void .......................................................................................................9
G. Resources – DODD-FRANK ACT’S CFTC Bounty Programs and Protections for
Whistleblowers Against Reprisal ............................................................................................................9
H. New Reprisal Cause of Action for Whistleblowers in the “Financial Services Industry”
(Section 1059 of the Dodd-Frank Act)..................................................................................................10
1. Introduction to Section 1057 of the DODD-FRANK ACT.............................................................10
2. Who is Covered...........................................................................................................................10
a. Emlpoyee .........................................................................................................................10
b. Employer .........................................................................................................................10
3. What is Protected ........................................................................................................................10
4. The Process (employee must exhaust administrative remedies before filing lawsuit) ...............10
a. Administrative .................................................................................................................11
b. Judicial ............................................................................................................................11
c. Burden of Proof ...............................................................................................................11
5. Remedies.....................................................................................................................................11
6. Arbitration Agreements Void .....................................................................................................11
I. Strengthening the SARBANES-OXLEY ACT’S Whistleblower Protections ..............................................11
1. Introduction to the Existing SOX Whistleblower Protections....................................................11
2. Sections 922 and 929A of the DODD-FRANK ACT “clarify” the SOX

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Whistleblowers in the Age of Stimulus Chapter 9

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Whistleblower Claim ......................................................................................................................12

III. THE PATIENT PROTECTION AND AFFORDABLE CARE ACT OF 2009 ..........................................12

A. Overview of the HEALTH CARE ACT ....................................................................................................12

B. Section 1558 – Protections for Whistleblowers ....................................................................................12
1. Introduction to Section 1558 - Scope of Coverage and Protections ...........................................12
2. Procedure and Limitations ..........................................................................................................13
3. Remedies.....................................................................................................................................13
4. Arbitration Agreements Void .....................................................................................................13
C. Reporting Requirements for Federally Funded Long-Term Care Facilities –
The ELDER JUSTICE ACT .......................................................................................................................13
1. Timing.........................................................................................................................................13
2. Penalties ......................................................................................................................................14

IV. THE AMERICAN RECOVERY AND REINVESTMENT ACT OF 2009

(THE “RECOVERY ACT”) ........................................................................................................................14

A. Introduction ...........................................................................................................................................14
B. Retaliation Cause of Action for Whistleblowers...................................................................................14
1. Who is Covered ..........................................................................................................................14
2. What is Protected ........................................................................................................................14
3. Administrative Process ...............................................................................................................15
4. Judicial Process...........................................................................................................................15
5. Arbitration Agreements Void .....................................................................................................15
6. Remedies.....................................................................................................................................15
7. Employee-Favorable Burden of Proof........................................................................................15
C. Additional Matters.................................................................................................................................15

V. THE CONSUMER PRODUCT SAFETY COMMISSION REFORM ACT OF 2008 ................................16

A. Protections for the Consumer Safety Whistleblower ............................................................................16

B. Who is Covered .....................................................................................................................................16
C. What is Protected...................................................................................................................................16
D. Statute of Limitations ............................................................................................................................16
E. Remedies................................................................................................................................................16
F. Process ...................................................................................................................................................16
G. Resources...............................................................................................................................................17

VI. AMENDMENTS TO THE FALSE CLAIMS ACT ...................................................................................17

A. THE FRAUD ENFORCEMENT AND RECOVERY ACT of 2009 ..................................................................17

1. Expanding protections to the retaliation cause of action (31 U.S.C. §3730(h)) .........................17
B. THE HEALTHCARE ACT .........................................................................................................................18
C. Section 1079A(b) of the DODD-FRANK ACT .........................................................................................19

VII. THE IRS WHISTLEBLOWER REWARD PROGRAM .......................................................................................19

A. Introduction to the IRS Whistleblower Reward Program .....................................................................19

B. Filing an IRS Informant Reward Claim ................................................................................................20
1. 7623(b) Awards ..........................................................................................................................20
2. 7623(a) Claims............................................................................................................................20

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Whistleblowers in the Age of Stimulus Chapter 9

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3. Full Disclosure............................................................................................................................20
4. Eligibility to File a Claim for Award..........................................................................................20
5. Identity of the Whistleblower .....................................................................................................21
C. Appealing to the U.S. Tax Court ...........................................................................................................21
D. Resources...............................................................................................................................................21

VIII. UNIQUE ISSUES FACING FEDERAL GOVERNMENT CONTRACTORS .......................................21

A. Introduction ..........................................................................................................................................21
B. Whistleblower Protections for Contractor Employees ..........................................................................22
1. Who and What is Protected ........................................................................................................22
2. Procedure ....................................................................................................................................22
3. Remedies, Enforcement, and Review .........................................................................................22
C. Recent Changes to the Federal Acquisition Regulation Require Contractors to Disclose ....................23
D. The Federal Awardee Performance and Integrity Information System ................................................23

IX. CONCLUSION ............................................................................................................................................24

APPENDIX ......................................................................................................................................... Appendix 1

A. Major False Claims Act cases settled in 2010........................................................................ Appendix 2

B. New Anti-Retaliation Legislation that Voids Arbitration Agreements .................................. Appendix 4
C. IRS Form 211 ......................................................................................................................... Appendix 5
D. Proposed SEC Form WB-APP ............................................................................................... Appendix 8
E. Proposed CFTC Form TCR, TIP, Complaint or Referral..................................................... Appendix 14

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Whistleblowers in the Age of Stimulus
Whistleblowers in the Age of
Stimulus
I. INTRODUCTION
While it may come as a surprise to many, the
Federal Government has insufficient legal and
investigative resources to enforce the laws it passes
and protect programs such as Medicare. Given this
reality, Congress is increasingly turning to
whistleblowers to root out and report fraud. The
FALSE CLAIMS ACT, originally enacted during the
Civil War,1 has proven to be the Government’s most
powerful and effective fraud-fighting tool. It has been
hugely successful, recovering over $25 billion for the
Government since 1986. Some of the recoveries have
been astronomical. On September 2, 2009, the
Department of Justice announced that Pfizer agreed to
settle a qui tam case for $2.3 billion, from which six
whistleblowers were awarded payments of more than
$102 million. In October 2010, GlaxoSmithKline
settled with the Department of Justice for $750
million in a qui tam case, from which the
whistleblower will receive $96 million. The FALSE
CLAIMS ACT, which primarily relies upon
whistleblowers to bring evidence of fraud to the
Government,2 has two powerful weapons in its
arsenal. First, the FALSE CLAIMS ACT allows a
private citizen, on behalf of the Government, to
prosecute a qui tam3 action against those who commit
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1
For a history of the FALSE CLAIMS ACT, see Dan L.
Hargrove, Soldiers of Qui Tam Fortune: Do Military
Service Members Have Standing to File Qui Tam Actions
Under the False Claims Act?, 34 PUB. CONT. L.J. 45, 51-53
(2004).
2
For the purposes of this article, “Government” means the
United States Government, as opposed to other
governments such as the State of Texas. While many
states, Texas included, have qui tam statutes, this article
focuses on federal law. See, e.g., THE TEXAS MEDICAID
FRAUD PREVENTION LAW, TEX. HUM. RES. CODE §§36.001-
36.117 (providing for citizen qui tam actions as it relates to
fraud committed against the Texas Medicaid program).
3
“Qui tam is short for the Latin phrase “qui tam pro
domino rege quam pro se ipso in hac parte sequitur,”
which means ‘who pursues this action on our Lord the
King’s behalf as well as his own.’” Vermont Agency of
Natural Res. v. United States ex rel. Stevens, 529 U.S. 765,
769 n.1 (2000) (citing 3 W. BLACKSTONE, COMMENTARIES
ON THE LAW OF ENGLAND 160 (1768)). A “qui tam action”
is “an action brought under a statute that allows a private
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fraud against the Government. 31 U.S.C. §§3729 et
seq. The whistleblower, called a relator, is entitled to
be rewarded a percentage of what the Government
recovers, ranging from ten to thirty percent, plus
attorneys fees and costs. 31 U.S.C. §3730(d).
Second, the FALSE CLAIMS ACT protects
whistleblowers in their employment by providing a
cause of action for acts of reprisal by an employer. 31
U.S.C. §3730(h).
The success of the FALSE CLAIMS ACT has
encouraged Congress to further rely upon
whistleblowers to ensure compliance with the law. A
number of statutes have recently been enacted that
allow the Government to pay a “bounty” to a
whistleblower. Recognizing a whistleblower acts at
his peril, Congress has also cloaked whistleblowers
with protections by creating causes of action for
reprisals committed against them by their employers.
This article surveys these new whistleblower laws that
have been enacted since 2007. These laws can be
divided into two categories. On one side of the ledger
are those laws that protect whistleblowers from acts of
reprisal by employers. An example of such a law is
Section 1057 of the DODD-FRANK ACT, which
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person to sue for a penalty, part of which the government or
some specified public institution will receive—Also termed
popular action.—Often shortened to qui tam (Q.T.).”
BLACKS’S LAW DICTIONARY 1262 (7th ed. 1999).
Blackstone explained qui tam as follows:
More usually, these forfeitures created by
statute are given at large, to any common
informer; or, in other words, to any such
person or persons as will sue for the same:
and hence such actions are called popular
actions, because they are given to the
people in general. Sometimes one part is
given to the king, to the poor, or to some
public use, and the other part to the
informer or prosecutor, and then the suit is
called a qui tam action, because it is
brought by a person, “qui tam pro domino
rege quam pro se ipso in hac parte
sequitur.” If the king therefore himself
commences this suit, he shall have the
whole forfeiture. But if any one hath
begun a qui tam, or popular action, no
other person can pursue it; and the verdict
passed upon the defendant in the first suit
is a bar to all others, and conclusive even
to the king himself.
Whistleblowers in the Age of Stimulus
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protects financial services industry employees who
report certain violations of the law against reprisal by
their employers. On the other side of the ledger are
those laws that reward or give a bounty to an informer
who presents evidence of fraud to the Government,
commonly called “bounty or informer” laws. The IRS
Whistleblower Reward Program and the DODD-
FRANK ACT Whistleblower Incentive Program are
examples of recently enacted bounty laws. Among all
of the laws surveyed in this article, the FALSE CLAIMS
ACT is unique in that it is the only statute that has a
qui tam provision, which permits a whistleblower to
sue for himself and the Government with the
entitlement to be awarded a percentage of what the
Government recovers.4
II. THE DODD-FRANK ACT OF 2010
A. Overview of the DODD-FRANK ACT’S
Bounty Programs and Protections for
Whistleblowers Against Reprisal
On July 21, 2010, President Obama signed into
law the DODD-FRANK WALL STREET REFORM AND
CONSUMER PROTECTION ACT (DODD-FRANK ACT or
ACT). H.R. 4173, Pub. L. No. 111-203, 124 Stat 1841,
111th Congress (July 21, 2010). The DODD-FRANK
ACT is massive in scope and significantly changes the
law. It strengthens existing whistleblower protections
and attempts to close “loop-holes” for employees in
the financial services industry. Of significance is the
ACT’S creation of bounty programs, new anti-reprisal
claims that can be filed against employers, and a new
administrative process for the adjudication of some of
those reprisal and bounty claims. The bounty
provisions are not qui tam actions, but rather allow the
Government to pay an award to an informer who
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Qui tam enlists the public in the recovery of civil
penalties and forfeitures. It rewards with a portion of the
recovered proceeds those who sue in the government’s
name. Qui tam lives on in federal law only in the FALSE
CLAIMS ACT and in two minor examples found in patent
and Indian protection laws. In Vermont Agency of Natural
Resources v. United States ex rel. Stevens, the Supreme
Court identified four contemporary federal qui tam statutes:
the FALSE CLAIMS ACT, the PATENT ACT, and two Indian
protection laws. 529 U.S. 765, 768-69 n.1 (2000), referring
to 31 U.S.C. §§3729-3733; 35 U.S.C. §292; 25 U.S.C. §81;
and 25 U.S.C. §201, respectively. A fifth, not identified, 26
U.S.C. §7341 (sale of untaxed, taxable property), appears to
have been rarely used. One of the Indian protection
statutes, 25 U.S.C. §81, has since been amended so that it
no longer authorizes a qui tam action.
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presents information that leads to a financial recovery
by the Government.
By April 21, 2011, the Securities and Exchange
Commission (SEC) is required to issue final
regulations implementing the whistleblower
provisions of the DODD-FRANK ACT. On November
3, 2010, the SEC published its proposed
administrative rules for implementing the
whistleblower provisions. See Proposed Rule, SEC
File Number S7-33-10 (“Proposed Rule 21F”)
(proposing to amend 17 C.F.R. Parts 240 and 249).5
Many believe that the real legislative fight will be
over the content of the regulations. Comments are
due by December 17, 2010.6 Further, the SEC’s
Division of Enforcement is in the process of
establishing a Whistleblower Office. The SEC has
posted a vacancy announcement for a Senior Officer
to serve as head of the office and is in the process of
evaluating applicants, with a selection expected in the
near future. Staffing of the Whistleblower Office will
proceed after the head is selected. Finally, the SEC’s
Office of the Inspector General is required to issue a
report on the efficacy of the Act’s whistleblower
bounty program by December 2013 to evaluate the
merits of the program.
B. The SEC Whistleblower Incentive
(Bounty) Program
1. Introduction to the SEC
Whistleblower Incentive Program
(Section 922)
Section 922 of the DODD-FRANK ACT, entitled
“Whistleblower Protection,” amended the SECURITIES
EXCHANGE ACT of 19347 by creating a bounty
program for whistleblowers who provide “original
information” to the SEC about securities violations
that result in the imposition of monetary sanctions
greater than $1 million. This new program is called
the “Securities Whistleblower Incentives and
Protection.” The SEC will award between ten to
thirty percent of the money collected to a
whistleblower who voluntarily provides the SEC with
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%"" Securities and Exchange Commission, Proposed Rules
for Implementing the Whistleblower Provisions of Section
21F of the Securities and Exchange Act of 1934, Proposed
Rule, 75 Fed. Reg. 70,488 (Nov. 17, 2010) (to be codified
at 17 C.F.R. Parts 240 and 249).
6
Available at: http://www.sec.gov/rules/proposed.shtml)."
7
15 U.S.C. §§78a et seq.
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original information about a violation of the securities
laws that leads to a successful enforcement of an
action brought by the SEC that results in monetary
sanctions exceeding $1,000,000. This is not a qui tam
action; rather, it is a whistleblower bounty program.
Congress created and has funded the SEC
Investor Protection Fund to make such awards. SEC
ACT at §21f(g)(1). The SEC is to use the fund for
“paying awards to whistleblowers as provided.” Id. at
§21f(g)(2).
In addition, Section 922 enhances existing
protections to whistleblowers under the SARBANES-
OXLEY ACT. Finally, Section 922 creates an entirely
new whistleblower anti-reprisal cause of action that an
employee can file in U.S. District Court against
employers.
2. Who may File an SEC Whistleblower
Bounty Claim
" may file a bounty claim anonymously, but only if
A “whistleblower” who voluntarily provides
“original information” may file an SEC bounty claim.
SEC ACT at §21f(a)(6) (stating “’whistleblower’
means any individual, or 2 or more individuals acting
jointly who provide, information relating to a
violation of the securities laws to [the] Commission,
in a manner established by rule or regulation by the
Commission.”); see also Proposed Rule 21F at 6
(stating “a whistleblower must be a natural person; a
company or another entity is not eligible to receive a
whistleblower award.”). The definition of “original
information”8 is important because it weeds out
whistleblowers who do not base their bounty claim on
first-hand or original source information. “Original
information” is defined in the statute to mean
information that:
(A) is derived from the independent
knowledge or analysis of a whistleblower;
(B) is not known to the Commission from
any other source, unless the whistleblower
is the original source of the information;
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8
The term “original information” or “original source” is
important to bounty statutes. For example, the FALSE
CLAIMS ACT precludes certain whistleblowers from acting
as qui tam relators unless they qualify as an “original
source.” Such a limitation is a mechanism to weed out
parasitical bounty claims or actions of which the
Government has prior knowledge.
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and
(C) is not exclusively derived from an
allegation made in a judicial or
administrative hearing, in a governmental
report, hearing, audit, or investigation, or
from the news media, unless the
whistleblower is a source of the
information.”
SEC ACT at §21F(a)(3). So long as a person bases his
claim on “original information,” any person (not just
an employee or insider) may file an SEC bounty
claim. Id.; see also Proposed Rule 21F at 7 (stating
“[p]roposed Rule 21F-2(c) makes clear . . . that, in
order to be eligible to be considered for an award, a
whistleblower must submit original information to the
Commission in accordance with all the procedures and
conditions described in Proposed Rules 21F-4, 21F-8,
and 21F-9.”). A whistleblower can file a claim pro se
or with counsel. Id. at §21F(d)(2). A whistleblower
represented by counsel. Id. at §21F(d)(2)(A). Before
an award is paid, the whistleblower’s identity shall be
revealed to the SEC and the SEC shall be provided
information about the whistleblower that it requests.
Id. at §21F(d)(2)(B). Failure to do so authorizes the
SEC to not pay the claim.
The SEC is required to consider the following
criteria when determining the amount of an award to
an SEC whistleblower:
(c) DETERMINATION OF AMOUNT OF
AWARD; DENIAL OF AWARD.—(1)
DETERMINATION OF AMOUNT OF
AWARD.—
(A) DISCRETION.—The determination
of the amount of an award made under
subsection (b) shall be in the discretion
of the Commission.
(B) CRITERIA.—In determining the
amount of an award made under
subsection (b), the Commission— (i)
shall take into consideration—
(I) the significance of the information
provided by the whistleblower to the
success of the covered judicial or
administrative action;
Whistleblowers in the Age of Stimulus
(II) the degree of assistance provided
by the whistleblower and any legal
representative of the whistleblower in
a covered judicial or administrative
action;
(III) the programmatic interest of the
Commission in deterring violations of
the securities laws by making awards
to whistleblowers who provide
information that lead to the successful
enforcement of such laws; and
(IV) such additional relevant factors
as the Commission may establish by
rule or regulation; and
(ii) shall not take into consideration the balance
of the Fund.
SEC ACT at §21F(c)(1) (“Determination of Amount of
Award”).
3. Who is Precluded from being Paid an
Award
So long as a whistleblower provides “original
information”, any natural person (but not an entity or
a company) may file an SEC bounty claim. Congress
restricts the SEC from paying an award to certain
people. SEC ACT at §21F(c)(2). The SEC is not
authorized to pay a claim: "
(A) to any whistleblower who is, or was at
the time the whistleblower acquired the
original information submitted to the
Commission, a member, officer, or
employee of—
(i) an appropriate regulatory agency;
(ii) the Department of Justice;
(iii) a self-regulatory organization;
(iv) the Public Company Accounting
Oversight Board; or
(v) a law enforcement organization;
(B) to any whistleblower who is convicted
of a criminal violation related to the
judicial or administrative action for which
the whistleblower otherwise could receive
an award under this section;
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(C) to any whistleblower who gains the
information through the performance of an
audit of financial statements required under
the securities laws and for whom such
submission would be contrary to the
requirements of section 10A of the
Securities Exchange Act of 1934 (15
U.S.C. 78j–1); or
(D) to any whistleblower who fails to
submit information to the Commission in
such form as the Commission may, by rule,
require.
Id. at §21F(c)(2). The SEC is also precluded from
paying an award to a whistleblower who “knowingly
and willfully makes any false, fictitious, or fraudulent
statement or representation; or . . . uses any false
writing or document knowing the writing or document
contains any false, fictitious, or fraudulent statement
or entry.” Id. at §21F(i).
4. Statute of Limitations to File Bounty
Claims
Congress placed no statute of limitations for
filing a SEC bounty claim. However, Congress
instructed the Commission to publish regulations,
which most likely will establish deadlines. See
DODD-FRANK ACT at §922, amending SEC ACT at
§21F(j) (requiring the Commission to publish rules for
the program).
5. The SEC’s Administrative Process
Congress envisions an administrative
adjudication process to be administered by the SEC.
The SEC must publish its regulations by April 21,
2011. The SEC is currently soliciting comments from
the public. Comments can be made at <
http://www.sec.gov/spotlight/dodd-
frank/whistleblower.shtml >.
6. No Right to Judicially Appeal an
SEC Bounty Determination
Unlike the Commodities and Futures Trade
Commission Whistleblower Incentive Program, see
infra, an SEC whistleblower has no right to appeal to
a U.S. District Court the denial or amount of an award
by the SEC. See DODD-FRANK ACT at §922,
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amending SEC ACT at §21F(f) (stating “[a]ny
determination made under this section, including
whether, to whom, or in what amount to make awards,
shall be in the discretion of the Commission.”).
C. New Reprisal Cause of Action for SEC
Whistleblowers that can be Filed in U.S. District
Court (no exhaustion of administrative remedies
required)
Congress created an anti-reprisal cause of action
to protect whistleblowers who provide information to
or assist the SEC in an investigation or judicial or
administrative action that is based upon the
whistleblower’s bounty claim and other protected
disclosures (e.g., reports of violations of law that the
SEC enforces). See DODD-FRANK ACT at §922,9
adding Section 21F(h)(1) to the SEC ACT. The
coverage of the action is broad. This provision
applies to all employers, prohibits “harassment” and
other acts of reprisal, permits a non-Governmental
employee to file in U.S. District Court, requires no
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§922 of the DODD-FRANK ACT amends Section 21F(h) of
the SEC ACT, which not provides provides:
PROTECTION OF WHISTLEBLOWERS.—(1)
PROHIBITION AGAINST RETALIATION.—
(A) IN GENERAL.—No employer may discharge,
demote, suspend, threaten, harass, directly or
indirectly, or in any other manner discriminate
against, a whistleblower in the terms and
conditions of employment because of any lawful
act done by the whistleblower—
(i) in providing information to the
Commission in accordance with this section;
(ii) in initiating, testifying in, or assisting in
any investigation or judicial or administrative
action of the Commission based upon or
related to such information; or
(iii) in making disclosures that are required or
protected under the Sarbanes-Oxley Act of
2002 (15 U.S.C. 7201 et seq.), the Securities
Exchange Act of 1934 (15 U.S.C. 78a et seq.),
including section 10A(m) of such Act (15
U.S.C. 78f(m)), section 1513(e) of title 18,
United States Code, and any other law, rule, or
regulation subject to the jurisdiction of the
Commission.
"
5
"
Chapter 9
administrative pre-suit filing, and voids10 arbitration
agreements. SEC ACT at §21f(h)(1)(A).11
Paragraph (b) of Proposed Rule 21F-2 would
further make clear that the anti-retaliation protections
set forth in Section 21F(h)(1) of the SEC ACT apply
irrespective of whether a whistleblower satisfies all
the procedures and conditions to qualify for an award
under the Commission’s whistleblower program. The
SEC states in its Proposed Rule 21F “[w]e believe the
statute extends the protections against employment
retaliation in Section 21F(h)(1) to any individual who
provides information to the Commission about
potential violations of the securities laws regardless of
whether the whistleblower fails to satisfy all of the
requirements for award consideration set forth in the
Commission’s rules.” Proposed Rule 21F at 7.
The SEC whistleblower cause of action has a
long statute of limitations.12 A whistleblower may
""""""""""""""""""""""""""""""""""""""""""""""""""""""""
10
§922(c) of the DODD-FRANK ACT added 18 U.S.C.
§1412A(e), which voids arbitration agreement. Here is the
new statutory language:
(e) NONENFORCEABILITY OF CERTAIN
PROVISIONS WAIVING RIGHTS AND
REMEDIES OR REQUIRING ARBITRATION
OF DISPUTES.—
(1) WAIVER OF RIGHTS AND
REMEDIES.—The rights and remedies
provided for in this section may not be waived
by any agreement, policy form, or condition of
employment, including by a predispute
arbitration agreement.
(2) PREDISPUTE ARBITRATION AGREE-
MENTS.—No predispute arbitration agreement
shall be valid or enforceable, if the agreement
requires arbitration of a dispute arising under
this section.
11
§922(h)(B)(i) provides:
(B) ENFORCEMENT.—
(i) CAUSE OF ACTION.—An individual who
alleges discharge or other discrimination in
violation of subparagraph (A) may bring an
action under this sub section in the appropriate
district court of the United States for the relief
provided in subparagraph (C).
"
$&""§922(c)(B)(iii) of the DODD-FRANK ACT provides:"
Whistleblowers in the Age of Stimulus
!
bring the action no later than six years after the
violation of the law (SEC ACT, SARBANES-OXLEY
ACT, among other laws) or three years after the date
when “facts material to the right of action are known
or reasonably should have been known” by the
whistleblower. SEC ACT at §21F(h)(1)(B)(iii)(I). In
any event, no action may be brought more than ten
years after the date of the violation. Id. at
§21F(h)(1)(B)(iii)(II).
The recoverable remedies include reinstatement
with seniority, back pay with interest, and
compensation for any special damages sustained as a
result of the discharge or discrimination, including
litigation costs, expert witness fees, and reasonable
attorneys fees. SEC ACT at §21F(h)(1)(C).13
"""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""
STATUTE OF LIMITATIONS.—
(I) IN GENERAL.—An action
subsection may not be brought—
(aa) more than 6 years after the date on which
the violation of subparagraph (A) occurred; or
(bb) more than 3 years after the date when
facts material to the right of action are known
or reasonably should have been known by the
employee alleging a violation of subparagraph
(A).
(II) REQUIRED ACTION WITHIN 10 YEARS.—
Notwithstanding sub clause (I), an action under this
subsection may not in any circumstance be brought
more than 10 years after the date on which the
violation occurs.
" Commission (CFTC) must pay awards, subject to
13
§922(h)(C) provides:
(C) RELIEF.—Relief for an individual prevailing
in an action brought under subparagraph (B) shall
include—
(i) reinstatement with the same seniority status
that the individual would have had, but for the
discrimination;
(ii) 2 times the amount of back pay otherwise
owed to the individual, with interest; and (iii)
compensation for litigation costs, expert
witness fees, and reasonable attorneys’ fees.
"
Chapter 9
D. Resources -- DODD-FRANK ACT’S SEC
Bounty Programs and Protections for
Whistleblowers Against Reprisal
• http://www.sec.gov/rules/proposed.shtml"
"
• Securities and Exchange Commission,
Proposed Rules for Implementing the
Whistleblower Provisions of Section 21F of
the Securities and Exchange Act of 1934,
Proposed Rule, 75 Fed. Reg. 70,488 (Nov. 17,
2010) (to be codified at 17 C.F.R. Parts 240
and 249) (available at:
http://www.federalregister.gov/articles/2010/1
1/17/2010-28186/proposed-rules-for-
implementing-the-whistleblower-provisions-
of-section-21f-of-the-securities)
• U.S. Security and Exchange Commission,
Annual Report on Whistleblower Program
(Oct. 2010)
under this
E. The Commodity Futures Trading
Commission Whistleblower Bounty Program and
Anti-Reprisal Protections for Whistleblowers
Title VII (Wall Street Transparency and
Accountability), Part II (Regulation of Swap Markets)
of the DODD-FRANK ACT contains provisions to
provide incentives and protections for another class of
whistleblowers. Section 748 of the DODD-FRANK
ACT amends the COMMODITY EXCHANGE ACT by
adding section 23, titled “Commodity Whistleblower
Incentives and Protection.” DODD-FRANK ACT at
§748, Pub. L. No. 111-203, 124 Stat. 1841 (2010). As
amended, Section 23 of the COMMODITY EXCHANGE
ACT directs that the Commodity Futures Trading
certain limitations and conditions, to whistleblowers
who voluntarily provide the CFTC with original
information about a violation of the COMMODITY
EXCHANGE ACT that leads to successful enforcement
of an action brought by the Commission that results in
monetary sanctions exceeding $1,000,000.
Congress established the CFTC as an
independent agency in 1974. The CFTC has
jurisdiction to regulate commodity futures and option
markets, which, over the years, has expanded from
agriculture products to a much broader bundle of
commodities such as the energy, agriculture, metals,
financial, and livestock industries. Five
6
Whistleblowers in the Age of Stimulus
!
commissioners, appointed by the President and
approved by the Senate, administer the CFTC.
On November 11, 2010, the CFTC issued but did
not publish in the Federal Register its proposed rules
for implementing the whistleblower provisions. See
Commodity Futures Trading Commission, Proposed
Rules for Implementing the Whistleblower Provisions
of Section 23 of the Commodity Exchange Act,
Proposed Rule, 75 Fed. Reg. 70,488 (Nov. 11, 2010)
(to be codified at 17 C.F.R. Part 165).14 As with the
SEC Whistleblower rules, the real legislative fight
will be over the content of the regulations. Because of
the proposed rules have yet to be officially published,
it is unknown when comments are due.15
1. Introduction to the CFTC Incentive
(Bounty) Program (Section 748)
Section 748 of the DODD-FRANK ACT amends
the COMMODITY EXCHANGE ACT16 and creates a
bounty program for whistleblowers who provide
original information to the CFTC that results in the
imposition of monetary sanctions greater than $1
million. This is not a qui tam action; rather, it is a
whistleblower bounty program. The provisions of the
CFTC bounty program mirror the SEC bounty
program. The CFTC program provides:
In any covered judicial or administrative
action, or related action, the Commission,
under regulations prescribed by the
Commission and subject to subsection (c),
shall pay an award or awards to 1 or more
whistleblowers who voluntarily provided
original information to the Commission
that led to the successful enforcement of
the covered judicial or administrative
action, or related action, in an aggregate
amount equal to—
(A) not less than 10 percent, in total, of
what has been collected of the monetary
""""""""""""""""""""""""""""""""""""""""""""""""""""""""
14
Securities and Exchange Commission, Proposed Rules
for Implementing the Whistleblower Provisions of Section
21F of the Securities and Exchange Act of 1934, Proposed
Rule, 75 Fed. Reg. 70,488 (Nov. 17, 2010) (to be codified
at 17 C.F.R. Parts 240 and 249).
15
It appears that the CFTC is already receiving comments.
See http://comments.cftc.gov (reference RIN number 3038-
AD04).
16
7 U.S.C. §§1 et seq.
7
"
Chapter 9
sanctions imposed in the action or
related actions; and
(B) not more than 30 percent, in total,
of what has been collected of the
monetary sanctions imposed in the
action or related actions.
See DODD-FRANK ACT at §748, to be codified at 7
U.S.C. §23(b)(1).17
Payments are made from the CFTC Protection
Fund. Id., to be codified at 7 U.S.C. §§23(a)(2) and
(g). The CFTC has the discretion to set the award
amount, but the DODD-FRANK ACT lists the criteria
that the CFTC should consider:
• The significance of the whistleblower’s
information to the success of the action
against the wrongdoer;
• The degree of the whistleblower’s assistance
(as well as counsel);
• The CFTC’s programmatic interest in
deterring violations of the COMMODITY
EXCHANGE ACT; and
• Additional relevant factors as established by
CFTC’s regulations.
Id., to be codified at 7 U.S.C. §23(c)(1)(B)(i).
Interestingly, however, the CFTC “shall not take into
consideration the balance of the Fund” when deciding
how much to award the whistleblower. Id., to be
codified at 7 U.S.C. §§23(c)(1)(B)(ii).
2. Who may File a CFTC Bounty Claim
A “whistleblower”, which is defined by the ACT,
who voluntarily provides “original information”, may
file a bounty claim. See DODD-FRANK ACT at §748,
amending §23(a)(7) of COMMODITY EXCHANGE ACT
(defining ‘‘WHISTLEBLOWER.—The term
‘whistleblower’ means any individual, or 2 or more
individuals acting jointly, who provides information
relating to a violation of this Act to the Commission,
""""""""""""""""""""""""""""""""""""""""""""""""""""""""
17
All citations are to the COMMODITY EXCHANGE ACT,
which was amended by §748 of the DODD-FRANK ACT to
create the CFTC whistleblower bounty program, to be
codified at 7 U.S.C. §§1 et seq.,
Whistleblowers in the Age of Stimulus
!
in a manner established by rule or regulation by the
Commission.”) (to be codified). The limitations of
“original information”18 is important, and is defined
by the COMMODITY EXCHANGE ACT at Section
23(a)(4) as information that:
(A) is derived from the independent
knowledge or analysis of a whistleblower;
(B) is not known to the Commission from
any other source, unless the whistleblower
is the original source of the information;
and
(C) is not exclusively derived from an
allegation made in a judicial or
administrative hearing, in a governmental
report, hearing, audit, or investigation, or
from the news media, unless the
whistleblower is a source of the
information.
A Whistleblower can file a claim pro se or with
counsel. Id., to be codified at 7 U.S.C. §23(d)(1).
The ACT permits a whistleblower to file a bounty
claim anonymously, but only if represented by
counsel. Id., to be codified at 7 U.S.C. §23(d)(2)(A).
Before an award is paid, the whistleblower’s identify
shall be revealed to the Commission and the
Commission shall be provided information about the
whistleblower that it requests. Id., to be codified at 7
U.S.C.§23(d)(2)(B).
3. Who is Precluded from being Paid a
CFTC Bounty Claim
It appears anyone can file a bounty claim, but
Congress restricts the Commission from paying an
award to certain people. Id., to be codified at 7
U.S.C.§23(c)(2). Here is the list of those who cannot
be paid an award:
(2) DENIAL OF AWARD.—No award
under subsection (b) shall be made—
""""""""""""""""""""""""""""""""""""""""""""""""""""""""
18
The term “original information” or “original source” is
important to bounty statutes. For example, the FALSE
CLAIMS ACT precludes certain whistleblowers from acting
as qui tam relators unless they qualify as an “original
source.” Such a limitation is a mechanism to weed out
parasitical bounty claims or actions of which the
Government has prior knowledge.
8
"
Chapter 9
(A) to any whistleblower who is, or
was at the time the whistleblower
acquired the original information
submitted to the Commission, a
member, officer, or employee of—
(i) an appropriate regulatory agency;
(ii) the Department of Justice;
(iii) a registered entity;
(iv) a registered futures association;
(v) a self-regulatory organization as
defined in section 3(a) of the
Securities Exchange Act of 1934
(15 U.S.C. 78c(a)); or
(vi) a law enforcement organization;
(B) to any whistleblower who is
convicted of a criminal violation related to
the judicial or administrative action for
which the whistleblower otherwise could
receive an award under this section;
(C) to any whistleblower who submits
information to the Commission that is
based on the facts underlying the covered
action submitted previously by another
whistleblower;
(D) to any whistleblower who fails to
submit information to the Commission in
such form as the Commission may, by rule
or regulation, require.
Id. Finally, a whistleblower who provides false
information to the Commission is subject to criminal
prosecution. Id., to be codified at 7 U.S.C. §23(m)
(citing 18 U.S.C. §1001).
4. Statute of Limitations
Congress placed no statute of limitations for
filing a bounty award. However, Congress instructed
the Commission to publish regulations, due by April
2011, which most likely will establish deadlines. See
DODD-FRANK ACT at §23(i) (requiring the
Commission to publish rules for the program).
5. The CFTC Administrative Process
Congress instructed the Commission to publish
regulations by April 2011. The Commission has
announced proposed rules but as of this article’s
Whistleblowers in the Age of Stimulus
!
publication date, those rules have yet to be published
in the Federal Register. See Commodity Futures
Trading Commission, Proposed Rules for
Implementing the Whistleblower Provisions of Section
23 of the Commodity Exchange Act, Proposed Rule,
__ Fed. Reg. _______ (2010) (to be codified at 17
C.F.R. Part 165) (available at:
http://www.cftc.gov/LawRegulation/DoddFrankAct/in
dex.htm). Congress, however, did provide some
general guidance about the process. Most notably is
the provision permitting a whistleblower to file a
bounty claim anonymously. Congress also authorized
the Commission to share the whistleblower’s
information with certain federal agencies, such as the
Department of Justice and regulatory entities, and
state attorneys general. The Commission is required
to keep confidential the identity of the whistleblower
when sharing such information.
6. Whistleblower can Judicially Appeal
the Commission’s Bounty
Determination
The Commission has the sole discretion to
determine “whether, to whom, or in what amount to
make awards.” Id., to be codified at 7
U.S.C.§23(f)(1). But the whistleblower may appeal
that decision “to the appropriate court of appeals of
the United States not more than 30 days after the
determination is issued by the Commission.” Id. at
§23(f)(2). The right to appeal is in contrast with the
SEC Whistleblower program,19 which does not permit
the whistleblower to appeal the SEC Commission’s
award determination.
F. New Reprisal Cause of Action for CFTC
Whistleblowers
1. Whistleblowers Protected Against
Reprisal (no exhaustion of
administrative remedies required)
Congress created an anti-reprisal cause of action to
protect whistleblowers who provide information to or
assist the CFTC in an investigation or judicial or
administrative action that is based upon the
whistleblower’s bounty claim. See DODD-FRANK
ACT at §748, amending §23(h) of COMMODITY
EXCHANGE ACT. The coverage of the action is broad.
This provision applies to all employers, prohibits
""""""""""""""""""""""""""""""""""""""""""""""""""""""""
19
DODD-FRANK ACT at §922.
9
"
Chapter 9
“harassment” and other acts of reprisal, permits a non-
Governmental employee to file in U.S. District Court,
and requires no administrative pre-suit filing. Id., to
be codified at 7 U.S.C. §§23(h)(1)(A) and (B). The
scope of the activity protected is also large. 20 A
whistleblower must bring the action no later than two
years after the date of adverse personnel action. Id., to
be codified at 7 U.S.C. §23(h)(1)(B)(iii). The
recoverable remedies include reinstatement with
seniority, back pay with interest, and compensation
for any special damages sustained as a result of the
discharge or discrimination, including litigation costs,
expert witness fees, and reasonable attorneys fees. Id.
, to be codified at 7 U.S.C. §23(h)(1)(C).
2. Arbitration Agreements Void
Section 23(h) of the COMMODITY EXCHANGE
ACT and Proposed Rule 165.19 provide that “the
rights and remedies provided for in this Part 165
[whistleblower protections] of the Commission’s
regulations may not be waived by any agreement,
policy, form, or condition of employment including by
a predispute arbitration agreement. No predispute
arbitration agreement shall be valid or enforceable, if
the agreement requires arbitration of a dispute arising
under this Part.”
G. Resources -- DODD-FRANK ACT’S CFTC
Bounty Programs and Protections for
Whistleblowers against Reprisal
• Commodity Futures Trading Commission,
Proposed Rules for Implementing the
Whistleblower Provisions of Section 23 of the
""""""""""""""""""""""""""""""""""""""""""""""""""""""""
20
As amended, Section 23(h)(1) of the COMMODITY
EXCHANGE ACT provides:
No employer may discharge, demote, suspend,
threaten, harass, directly or indirectly, or in any
other manner discriminate against, a
whistleblower in the terms and conditions of
employment because of any lawful act done by
the whistleblower—
(i) in providing information to the Commission
in accordance with subsection(b); or
(ii) in assisting in any investigation or judicial
or administrative action of the Commission
based upon or related to such information.
"
7 U.S.C. §23(h)(1).
Whistleblowers in the Age of Stimulus
!
Commodity Exchange Act, Proposed Rule, __
Fed. Reg. _______ (2010) (to be codified at
17 C.F.R. Part 165) (available at:
http://www.cftc.gov/LawRegulation/DoddFra
nkAct/index.htm)
H. New Reprisal Cause of Action for
Whistleblowers in the “Financial Services
Industry” (Section 1057 of the DODD-FRANK ACT)
Title X of the DODD-FRANK ACT created the
Bureau of Consumer Financial Protection (Bureau).
DODD-FRANK ACT at §1011. The Bureau has broad
powers to “regulate the offering and provision of
consumer financial products or services under the
Federal consumer financial laws.” Id. Congress
obviously felt so strongly about this issue that it
bestowed upon the Bureau the status of an executive
agency. Id.
1. Introduction to Section 1057 of the DODD-
FRANK ACT
Section 1057 of the DODD-FRANK ACT creates a
whistleblower cause of action for employees of the
financial services industry. Internal complaints are
protected. Similar to the other newly enacted
whistleblower claims (with the exception of CFTC
whistleblower claims), Section 1057 requires an
employee to file a complaint with the Department of
Labor (DoL) for administrative adjudication. The
DoL has the authority to order broad remedies, which
ultimately could be enforced by the DoL or by a civil
action can be prosecute by the employee in U.S.
District Court. As with the other newly enacted
whistleblower claims, Section 1057 provides a burden
shifting mechanism favorable for employees.
However, Section 1957 has no qui tam or bounty
provision—it is merely an anti-reprisal cause of
action.
2. Who is Covered
a. Employee
Section 1057(b) defines a “covered employee” to
mean “any individual performing tasks related to the
offering or provision of a consumer financial product
or service.” The Bureau has yet to publish its
regulations to further refine that statutory definition.
Regardless, the plain language of the statute protects a
10
"
Chapter 9
broad spectrum of employees in industries ranging
from credit to banking to the mortgage industry.
b. Employer
Section 1057 covers employers who engage in
the offering or provision of a consumer financial
product or service. The scope of coverage also
encompasses affiliates who provide a related material
service to the employer.
3. What is Protected
Section 1057(a)(1)-(4) lists the employee’s acts
that will be protected. An employer may not
terminate or discriminate against an employee (or the
employee’s representative) who, whether in the scope
of his employment duties or outside of those duties,
engages in the following:
• “provided, caused to be provided, or is about
to provide or cause to be provided,
information to the employer, the Bureau, or
any State, local, or Federal, government
authority or law enforcement agency relating
to any violation of, or any act or omission that
the employee reasonably believes to be a
violation of [any law or regulation that is
subject to the Bureau’s jurisdiction]”;
• “testified or will testify in any proceeding
resulting from the administration or
enforcement of any provision of [any law or
regulating that is subject to the Bureau’s
jurisdiction]”;
• “filed, instituted, or caused to be filed or
instituted any proceeding under any Federal
consumer financial law;” or
• objected to, or refused to participate in, any
activity, policy, practice, or assigned task that
the employee reasonably believed to be in
violation of [any law or regulating that is
subject to the Bureau’s jurisdiction].”
DODD-FRANK ACT at 1057(a)(1)-(4).
4. The Process (employee must exhaust
administrative remedies before filing
lawsuit)
Whistleblowers in the Age of Stimulus
!
a. Administrative
An employee is required to file an administrative
complaint with the Department of Labor (DoL) within
180 days after the date on which the discriminatory
act occurred. DODD-FRANK ACT at §1057(c)(1)(A).
The DoL is then required to investigate the complaint
and notify the employer of the complaint and process.
Id. at §1057(c)(1)(B). Within sixty days considering
the employer’s response, the DoL is required to issue
a determination. Id. at §1057(c)(2)(A). DoL has the
authority to issue a preliminary order for relief if it
determines that a violation occurred. Within thirty
days of that order, either party may request a DoL
hearing. Id. at §1057(c)(2)(C). Within 120 days of
the DoL hearing, the DoL is required to issue a final
order and can assess penalties, which includes
reinstatement with back pay, compensatory damages,
and attorneys fees and costs (including expert witness
fees). Id. at §1057(c)(4)(B).
b. Judicial
If the DoL has failed to issue a final order 210
days after complaint was filed, or within 90 days after
the date of a preliminary order, the employee—but not
the employer—may file a civil action in U.S. District
Court seeking a de novo review. Id. at
§1057(c)(4)(D). If removed, either party may request
a jury trial. No later than 60 days after the DoL issues
a final order, either party may file a petition for review
with the circuit court of appeals. Id. at
§1057(c)(4)(E).
c. Burden of Proof
The employee has the initial burden of proving
that his protected behavior was a “contributing factor
in the unfavorable personnel action” taken against
him. Id. at §§1057(c)(3)(A) and (C). The burden then
shifts to the employer to prove, by clear and
convincing evidence, that it would have taken the
same unfavorable personnel action in the absence of
the employee’s protected behavior. Id. at
§1057(c)(3)(B) and (C).
5. Remedies
a. The Department of Labor has the
authority to assess the following penalties against the
employer:
11
"
Chapter 9
• reinstatement of the employee to his former
position, with back pay, and restore the terms
and conditions of his employment;
• compensatory damages; and
• attorneys fees and costs (to include expert
witness fees). DODD-FRANK ACT at
§1057(c)(4)(B).
b. A district court has the authority to
grant this relief:
• reinstatement with the same sonority status
that the employee would have had, but for
the discharge;
• back pay with interest; and
• compensation for “special damages
sustained as a result of the discharge or
discrimination” and litigation costs (which
include attorney fees and expert witness
fees. DODD-FRANK ACT at
§1057(c)(4)(D)(ii).
6. Arbitration Agreements Void
Section 1057(d) makes void any agreement that
requires arbitration for disputes under Section 1057,
except for those that are part of a collective bargaining
agreement. Finally, an employee may not waive the
rights and remedies of Section 1057.
I. Strengthening the SARBANES-OXLEY
ACT’S Whistleblower Protections
1. Introduction to the Existing SOX
Whistleblower Protections
When enacted in 2002, the SARBANES-OXLEY
ACT contained a cause of action for whistleblowers
against their employers. 18 U.S.C. §1514A.
Whistleblowers were protected for reporting
violations of SEC rules and regulations, federal crimes
involving securities and fraud, among other areas of
protection. In order to gain the protected status, the
whistleblower was required to make a report to a
federal regulatory or law enforcement agency,
member of Congress, or person with supervisory
authority over whistleblower. The whistleblower had
to file an administrative complaint with OSHA within
Whistleblowers in the Age of Stimulus
!
ninety days after he became aware of violation. If the
Department of Labor issued no final decision within
180 days, then the whistleblower was permitted to file
a lawsuit in U.S. District Court.
For many reasons, however, whistleblowers were
generally unsuccessful in these actions. Few
whistleblowers actually prevailed. In an attempt to
encourage whistleblowers to report SEC rules
violations, Congress “clarified” the SOX anti-
retaliation cause of action.
2. Sections 922 and 929A of the Dodd-Frank
Act “clarifies” the SOX Whistleblower
Claim
Congress clarified the SOX reprisal claim in
Section 929A of the DODD-FRANK ACT by expanding
the scope of coverage to employees of privately-held
subsidiaries of publicly traded corporations.21 Many
SOX retaliation claims were dismissed because the
actual publicly traded corporation subject to SOX
employed few employees. Most employees that
suffered retaliation after blowing the whistle were
employed by privately-held entities that were not
subject to SOX. Moreover, Section 922(b) further
expands SOX coverage to employees of nationally
recognized statistical ratings organizations. DODD-
FRANK ACT at §922(c), amending 18 U.S.C.
§1514A(a). Covered organizations include Moody’s
Investors Service Inc., A.M. Best Company Inc., and
Standard & Poor’s Ratings Service.
In addition, the DODD-FRANK ACT extended the
SOX reprisal claim statute of limitations from 90 to
180 days. DODD-FRANK ACT at §922(c)(1),
amending 18 U.S.C. §1514A(b)(2). Whistleblowers
may remove their claims to U.S. District Court and
have the right to a jury trial. Id. Finally, arbitration
agreements are void and a court is not authorized to
enforce waivers of a whistleblower’s rights under
SOX. DODD-FRANK ACT §922(c), amending 18
U.S.C. §1514A(e) (providing that any “agreement,
""""""""""""""""""""""""""""""""""""""""""""""""""""""""
21
Section 929A of the DODD-FRANK ACT provides:
Section 1514A of title 18, United States Code, is
amended by inserting ‘‘including any subsidiary or
affiliate whose financial information is included in
the consolidated financial statements of such
company’’ after ‘‘the Securities Exchange Act of
1934 (15 U.S.C. 78o(d))’’.
"
12
"
Chapter 9
policy form, or condition of employment, including a
predispute arbitration agreement” which waives the
rights and remedies afforded to SOX whistleblowers
to be “nonenforceable”.)
III. THE PATIENT PROTECTION AND
AFFORDABLE CARE ACT OF 2009
A. Overview of the HEALTH CARE ACT
THE PATIENT PROTECTION AND AFFORDABLE
CARE ACT OF 2009 (HEALTH CARE ACT or ACT) is a
massive piece of legislation. Pub. L. No. 111-148,
124 Stat. 119 (Mar. 21, 2010). Congress continued
its recent trend of relying upon whistleblowers to
enforce compliance of the laws it passes. Section
1558 creates a robust whistleblower cause of action
that protects employees against reprisal by employers.
Section 6703 is interesting in that it makes whistle
blowing mandatory—that is, Section 6703 requires an
employee to report crimes committed against residents
of federally funded long-term care facilities. Unlike
the DODD-FRANK ACT or the IRS Whistleblower
Program, however, Congress did not create a new
bounty program for whistleblowers. Such a new
bounty program was unnecessary most likely because
the qui tam provisions of the FALSE CLAIMS ACT have
proven to be extremely effective in combating health
care fraud.
B. Section 1558 – Protections for
Whistleblowers
1. Introduction to Section 1558 - Scope
of Coverage and Protections
Section 1558 prohibits an employer from
retaliating against an employee who blows the whistle
about violations of Title I of the ACT. (Title I is
expansive in its coverage, ranging from denial of
health care insurance due to pre-existing conditions to
failure to rebate excess premiums.) An employer may
not “discharge or in any manner discriminate against
any employee with respect to his or her compensation,
terms, conditions, or other privileges of employment
because the employee . . . [makes a protected report].”
HEATH CARE ACT. at §1558, amending §18C(a)(2) of
the FAIR LABOR STANDARDS ACT OF 1938. Protected
reports include internal reports to an employer, the
Federal Government, or a state attorney general about
“any violation of, or any act or omission the employee
reasonably believes to be a violation of [Title I of the
Whistleblowers in the Age of Stimulus
!
ACT].” Id. In addition to these internal and external
reports, the ACT protects an employee who “testified
or is about to testify in a proceeding” related to
violations of Title I of the ACT. Id. at §18C(a)(3).
The ACT also protects an employee who participates
or assists another in a proceeding related to violations
of Title I of the ACT. Id. at §18C(a)(4). Finally, the
ACT protects an employee who objects or refuses to
participate in “any activity, policy, practice, or
assigned task that the employee (or other such person)
reasonably believed to be in violation of [the ACT] or
any order, rule, regulation, standard, or ban under [the
ACT]. Id. at §18C(a)(5). As it relates to this last
protected activity, an employee need only show that
he had a reasonable belief, even if mistaken, that a
violation of Title I of the Act and its subsequent
regulations and policies occurred.
2. Procedure and Limitations
Section 1558 simply incorporates the procedures,
burden-shifting framework, remedies and statute of
limitations set forth in the CONSUMER PRODUCT
SAFETY IMPROVEMENT ACT OF 2008. Pub. L. No.
110-314 (Aug. 14, 2008), codified at 15 U.S.C.
§2087(b). An employee must first exhaust his
administrative remedies by filing a complaint with the
Occupational Safety and Health Administration
(OSHA) within 180 days of the employee becoming
aware of the employer’s act of reprisal. OSHA is
required to investigate the complaint and has authority
to order preliminary relief, including reinstatement.
Either party can appeal OSHA’s determination to the
Department of Labor (DoL) for a de novo review by a
DoL administrative law judge. A DoL judge does not
have the authority, however, to stay an OSHA order of
reinstatement. Either side can appeal the DoL judge’s
decision to the DoL Administrative Review Board,
and either party can appeal that decision to the circuit
court of appeals in which the adverse action took
place. In the alternative, if the DoL fails to issue a
final decision within 120 days of the filing of the
employee’s complaint, or within 90 days of receiving
a written determination from OSHA, the employee
can remove the claim to U.S. district court for a de
novo review, and either party can request trial by jury.
15 U.S.C. §2087(b)(4).
3. Remedies
An employer can be ordered to reinstate the
employee. In addition, the employee can be awarded
13
"
Chapter 9
back pay with interest, “special damages,” attorneys
fees, litigation costs, and expert witness fees. Front
pay can be awarded where reinstatement is not
feasible. THE PATIENT PROTECTION AND
AFFORDABLE CARE ACT OF 2009 at §1558,
incorporating 15 U.S.C. §2087(b)(4) (CONSUMER
PRODUCT SAFETY IMPROVEMENT ACT OF 2008).
4. Arbitration Agreements Void
Consistent with the recent trend of voiding
arbitration agreements, the HEALTH CARE ACT
explicitly makes void arbitration agreements.
HEALTH CARE ACT at §1558, amending §18C(b)(2) of
the FLSA (providing “[t]he rights and remedies in this
section may not be waived by agreement, policy,
form, or condition of employment.”).
C. Reporting Requirements for Federally
Funded Long-Term Care Facilities – The ELDER
JUSTICE ACT
The ELDER JUSTICE ACT, set out in Section 6703
of the HEALTH CARE ACT, requires whistle blowing.22
See HEALTH CARE ACT at §6703, amending Part A of
title XI of the SOCIAL SECURITY ACT. First, a
covered entity must educate its employees of their
whistle blowing duties. Specifically, an owner or
operator of a long-term care facility that receives at
least $10,000 in federal funds per year must inform its
employees that they are required to report crimes
committed against the facility’s residents. In turn, the
facility’s employees are required to report to the
Secretary of Health and Human Services and to local
law enforcement “any reasonable suspicion of a crime
(as defined by the law of the applicable political
subdivision) against any individual who is a resident
of, or is receiving care from, the facility.” Id.
1. Timing
""""""""""""""""""""""""""""""""""""""""""""""""""""""""
22
Such mandatory whistle blowing appears to be the trend.
For example, the FEDERAL ACQUISITION REGULATION was
amended, effective December 12, 2008, to require federal
government contractors to disclose credible evidence of
certain criminal acts and violations of the False Claims Act
committed by its employees or subcontractors. See
FEDERAL ACQUISITION REGULATION at ¶3.1003(a)(2)
(mandating self-disclosure and providing for suspension
and debarment for failure to self-disclose). See Part VIII of
this article, supra.
Whistleblowers in the Age of Stimulus
!
If the events that raise suspicion result in serious
bodily injury, the suspected crime must be reported
immediately and not more than “2 hours after forming
the suspicion.” All other suspected crimes must be
reported within 24 hours. Id. at § 1150B(b)(2).
2. Penalties
The failure to report a suspected crime can
expose an employee, manager, or contractor to a civil
penalty of up to $300,000. Id. at § 1150B(c)(2)(A).
In addition, the ELDER JUSTICE ACT prohibits
retaliation against an employee “because of lawful
acts done by the employee.” Id. at § 1150B(d)(1)(A).
If a long-term elderly care facility were to discharge,
threaten, harass, or otherwise retaliate against an
employee for making or helping to make a report
about a crime being committed against residents of the
facility, the facility would face a civil monetary
penalty of up to $200,000.00 or being excluded from
any federal healthcare program for two years. Id. at
§1150B(d)(2).
IV. THE AMERICAN RECOVERY
REINVESTMENT ACT OF 2009
“RECOVERY ACT”)
A. Introduction
The AMERICAN RECOVERY AND REINVESTMENT
ACT OF 2009 (the “RECOVERY ACT”)23 was an
amazing piece of legislation for many reasons. Pub. L
111-5, (February 17, 2009). In addition to the
hundreds of billions of dollars injected into the
economy, Congress also created perhaps the most
robust whistleblower protections ever enacted.
Section 1553 of the RECOVERY ACT, called the
“McCaskill Amendment,” covers all who receive
funds under the RECOVERY ACT (to include state and
local governmental entities), protects employee
internal disclosures, has a burden-shifting mechanism
favorable for employees, and allows for significant
remedies that can be prosecuted in federal court. But
of course the McCaskill Amendment has a limited
shelf life because the RECOVERY ACT was a one-time
appropriation. Is should be noted that the RECOVERY
ACT has no qui tam or bounty provision; such an
incentive was unnecessary because the qui tam
provisions of the FALSE CLAIMS ACT can be used
""""""""""""""""""""""""""""""""""""""""""""""""""""""""
23
Pub. L. 111-5.
"
Chapter 9
when suing those who24 submit false claims as it
relates to RECOVERY ACT funds.
B. Retaliation Cause of Action for
Whistleblowers
1. Who is Covered
The McCaskill Amendment applies to any non-
federal employer who receives funds under the
RECOVERY ACT. RECOVERY ACT at §1553(g)(4).
Covered employers include contractors,
subcontractors, grantees, state and local governments,
and basically all other non–Federal employers who
receive a contract, grant, or other payment
appropriated or made available by the RECOVERY
ACT. A covered employee is “an individual
performing services on behalf of the employer” but
does not include any federal employee or military
service member. RECOVERY ACT at §1553(g)(3). It
is not entirely clear whether contractors are covered.
2. What is Protected
AND
(THE Protected conduct includes a disclosure to a
person with supervisory authority over the employee
(i.e., internal disclosures), a State or Federal
regulatory or law enforcement agency, a member of
Congress, a court or grand jury, the head of a Federal
agency, or an inspector general about information that
the employee reasonably believes evidences:
• Gross mismanagement of an agency contract
or grant relating to stimulus funds;
• A gross waste of stimulus funds;
• A substantial and specific danger to public
health or safety related to the implementation
or use of stimulus funds;
• An abuse of authority related to the
implementation or use of stimulus funds; or
• A violation of a law, rule, or regulation that
governs an agency contract or grant related to
stimulus funds.
""""""""""""""""""""""""""""""""""""""""""""""""""""""""
24
States and their governmental subdivisions are immune
from the FALSE CLAIMS ACT. They are, however, subject to
the McCaskill Amendment and can be sued for acts of
reprisal taken against their employees.
14
Whistleblowers in the Age of Stimulus
!
RECOVERY ACT at §1553(a). The McCaskill
Amendment specifically protects so–called “duty
speech” whistleblowing such as disclosures made by
employees in the ordinary course of performing their
job duties.
3. Administrative Process
The employee who believes he has been
improperly retaliated against must file a complaint
with the inspector general (IG) for the agency that is
administering the stimulus funds. RECOVERY ACT at
§1553(b)(1). For example, if the Department of
Transportation (DoT) is administering the funds, then
the employee would file his complaint with the DoT’s
IG. Unless the IG determines the action is frivolous,
does not relate to covered funds, or has been resolved
in another Federal or State administrative proceeding,
the IG must conduct an investigation and make a
determination on the merits of the whistleblower
retaliation claim no later than 180 days after receipt of
the complaint. RECOVERY ACT at §§1553(b)(1) and
(2). Within 30 days of receiving an IG’s investigative
findings, the head of the agency shall determine
whether there has been a violation, in which event the
agency head can award the employee reinstatement,
back pay, compensatory damages, and attorney fees.
RECOVERY ACT at §1553(c)(2).
4. Judicial Process
If an agency head has denied relief in whole or in
part or has failed to issue a decision within 210 days
of the filing of a complaint, the employee can bring a
de novo action in federal court, which shall be tried by
a jury at the request of either party. RECOVERY ACT
at §1553(c)(3).
5. Arbitration Agreements Void
The McCaskill Amendment explicitly states that
pre–dispute arbitration agreements do not apply to
RECOVERY ACT whistleblower claims, unless such
waivers are part of a collective bargaining unit.
RECOVERY ACT at §§1553(d)(2) & (3). Moreover, an
employee may not waive his rights and remedies
provided in the McCaskill Amendment, again, unless
such waivers are part of a collective bargaining unit.
RECOVERY ACT at §§1553(d)(1) & (3).
6. Remedies
15
"
Chapter 9
At the administrative level, the agency head has
authority to order the employer to make whole the
employee. Such an order can include: (1)
reinstatement; (2) back pay; (3) compensatory
damages; and (4) attorneys fees and litigation costs.
RECOVERY ACT at §1553(c)(2). If the employee
prosecutes his action in federal court, then he can be
awarded the same remedies. RECOVERY ACT at
§1553(c)(3). Where an agency files an action in
federal court to enforce an order of relief for a
prevailing employee, the court may also award
exemplary damages. RECOVERY ACT at §1553(c)(4).
7. Employee-Favorable Burden Of
Proof
To prevail in a whistleblower action under the
McCaskill Amendment, an employee need not show
that the protected conduct was a significant or
motivating factor in the reprisal, but instead must
merely prove that the protected conduct was a
“contributing factor” to the reprisal. RECOVERY ACT
at §1553(c)(1). An employee need not present direct
evidence of retaliatory motive by the employer, but
instead can establish the “contributing factor” element
through temporal proximity or by demonstrating that
the decision maker knew of the protected disclosure.
RECOVERY ACT at §1553(c)(1)(A)(i) and (ii). An
employer can avoid liability by demonstrating by
“clear and convincing evidence,” a high evidentiary
burden, that it would have taken the same action in the
absence of the employee engaging in protected
conduct. RECOVERY ACT at §1553(c)(1)(B).
C. Additional Matters
1. Section 3.907 of the FEDERAL ACQUISITION
REGULATION was amended to incorporate the
McCaskill Amendment, and applies to all RECOVERY
ACT contracts funded in whole or in part by that Act.
Contracting officers are instructed to use and include
clause 52.203-15, Whistleblower Protections Under
the American Recovery and Reinvestment Act of
2009, in all solicitations and contracts funded in whole
or in part with Recovery Act funds.
2. The RECOVERY ACT web page is at
http://www.recovery.gov/Pages/default.aspx.
3. The Federal Acquisition Regulation is at
https://www.acquisition.gov/Far/.
Whistleblowers in the Age of Stimulus
!
V. THE CONSUMER PRODUCT SAFETY
COMMISSION REFORM ACT OF 2008
A. Protections for the Consumer Safety
Whistleblower
Given the concerns about the safety of products
intended for children, Congress enacted the
CONSUMER PRODUCT SAFETY COMMISSION REFORM
ACT (CPSC ACT). Pub. L. No. 110-314 (Aug. 14,
2008), codified at 15 U.S.C. § 2051 et seq. Congress
created new whistleblower protections for employees
of manufacturers, private labelers, distributors, or
retailers of consumer products. See 15 U.S.C. §2087.
Covered employees are protected from discharge or
any other form of retaliation resulting from the
employee’s report to the employer, the Federal
Government, or a state attorney general of information
relating to any violation of statutes or regulations
enforced by the U.S. Consumer Product Safety
Commission (CPSC).
B. Who is Covered
THE CPSC ACT covers employees of consumer
product manufacturers, importers, private labelers
(owners of a brand or trademark on the private label
of a consumer product), distributors, and retailers. 15
U.S.C. §2087(a). The CPSC regulates about 15,000
types of consumer products used in the home, schools
and recreation. A "consumer product," as defined
under the CONSUMER PRODUCT SAFETY ACT,
generally means any article, or component part
thereof, produced or distributed: (i) for sale to a
consumer for use in or around a permanent or
temporary household or residence, a school, in
recreation, or otherwise, or (ii) for the personal use,
consumption or enjoyment of a consumer in or around
a permanent or temporary household or residence, a
school, in recreation, or otherwise. 15 U.S.C.
§2052(5).
C. What is Protected
An employer may not discharge or in any other
manner retaliate against the employee because he
provided, caused to be provided or was about to
provide or cause to be provided to the employer, the
federal government, or the attorney general of a state
information relating to any violation of, or any act or
omission that the employee reasonably believed to be
a violation of, the CPSC ACT or any other Act
16
"
Chapter 9
enforced by the CPSC, or any order, rule, regulation,
standard or ban under any such Acts. 15 U.S.C.
§2087(a)(1).
In addition, an employer may not discharge or in
any manner retaliate against an employee because he
testified in, participated in or assisted in a proceeding
under the laws, orders, rules, regulations, standards or
bans enforced by the CPSC. Also, an employer may
not discharge or in any manner retaliate against an
employee because he objected to, or refused to
participate in, any activity, policy, practice, or
assigned task that he reasonably believed to be in
violation of any provision of the CPSC ACT or any
other Act enforced by the CPSC, or any order, rule,
regulation, standard or ban under any such Acts. 15
U.S.C. §2087(a)(2-4).
D. Statute of Limitations
A complaint setting forth the facts and
identifying the responsible party must be filed with
the Secretary of Labor no later than 180 days after the
date on which the violation occurs. 15 U.S.C.
§2087(b)(1).
E. Remedies
A prevailing employee is entitled to: (1)
reinstatement; (2) backpay; (3) compensatory
damages; and (4) attorney fees and litigation costs, to
include expert witness fees. 15 U.S.C. §2087(b)(3).
F. Process
The employee must file a complaint with the
Department of Labor (DoL) within 180 days of the
employee first becoming aware of the retaliatory
adverse action. The Occupational Safety and Health
Administration (OSHA) will investigate the claim and
can order preliminary relief, including reinstatement.
Either party can appeal OSHA’s determination by
requesting a de novo hearing before a DoL
administrative law judge. Either party may seek
review of the administrative law judge’s decision
before the DoL’s Administrative Review Board.
Either party can appeal the Board’s decision to the
appropriate circuit court of appeals. 15 US.C. §
2087(b)(5). If there is no final order issued by the
Secretary of Labor within 210 days from the date the
complaint was filed, then the employee can remove
the case to U.S. District Court. 15 U.S.C. §
Whistleblowers in the Age of Stimulus
!
2087(b)(4).
The CPSC ACT whistleblower must prove, by a
preponderance of the evidence, that (1) he engaged in
protected conduct; (2) the employer knew that the
employee had engaged in protected conduct; (3) the
employer took adverse action against the employee;
and (4) the protected conduct contributed to the
employer’s decision to take an adverse action. 15
U.S.C. § 2087(b)(2)(B).
G. Resources
• The CPSIA web page:
http://www.cpsc.gov/about/cpsia/cpsia.html
• The U.S. Department of Labor, OSHA, The
Whistleblower Protection Program web page,
is at: https://iforms.osha-
slc.gov/dep/oia/whistleblower/consumer-
product-industry-employees.html
• The OSHA office for Texas is in Dallas,
phone number (972) 850-4145.
VI. RECENT AMENDMENTS TO THE FALSE
CLAIMS ACT
With its qui tam25 provision,26 protections for
whistleblowers,27 and powerful investigative
""""""""""""""""""""""""""""""""""""""""""""""""""""""""
25
26
See notes 3 and 4, supra.
31 U.S.C. §3730(b)-(e).
27
31 U.S.C. §3730(h) provides:
Any employee who is discharged, demoted,
suspended, threatened, harassed, or in any
other manner discriminated against in the
terms and conditions of employment by his or
her employer because of lawful acts done by
the employee on behalf of the employee or
others in furtherance of an action under this
section, including investigation for, initiation
of, testimony for, or assistance in an action
filed or to be filed under this section, shall be
entitled to all relief necessary to make the
employee whole. Such relief shall include
reinstatement with the same seniority status
such employee would have had but for the
discrimination, 2 times the amount of back
pay, interest on the back pay, and
compensation for any special damages
sustained as a result of the discrimination,
17
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Chapter 9
discovery tools,28 the FALSE CLAIMS ACT is the
Federal Government’s most effective fraud fighting
tool. Since 2009, Congress has amended the FALSE
CLAIMS ACT in three separate pieces of legislation.
The most significant change to the FALSE CLAIMS
ACT occurred in 2009 with the enactment of THE
FRAUD ENFORCEMENT AND RECOVERY ACT of 2009.
Then in 2010, using the HEALTH CARE ACT, Congress
modified the “public disclosure bar” which was
causing many meritorious qui tam cases to be
dismissed on jurisdictional grounds. And, most
recently in October 2010, Congress used the DODD-
FRANK ACT to provide for a three-year statute of
limitations for anti-retaliation claims.
A. THE FRAUD ENFORCEMENT AND
RECOVERY ACT of 2009
1. Expanding Protections to the Anti-
Retaliation Cause of Action (31
U.S.C. §3730(h))
THE FRAUD ENFORCEMENT AND RECOVERY ACT
OF 2009 (FERA) amended the retaliation cause of
action of the FALSE CLAIMS ACT. S. Res. 386, 111th
Cong., Pub. L. No. 111-21, 123 Stat. 1620-25
(enacted), to be codified at 31 U.S.C. §3730(h). Most
importantly, the amendments to Section 3730(h)
widen the scope of protected conduct and expand the
zone of protected individuals. Prior to FERA, in order
to prevail on a “Section 3730(h) claim,” an employee
had to prove his employer retaliated against him
because he was taking steps in furtherance of a qui
tam action.29 Reporting fraud or violations of the
FALSE CLAIMS ACT was insufficient to establish a
retaliation claim. Section 3730(h) now protects an
employee who is taking steps to stop fraud by, for
example, making internal reports or refusing to
participate in the misconduct that leads to fraud, false
claims, or violations of the FALSE CLAIMS ACT. A
"""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""
including litigation costs and reasonable
attorneys’ fees. An employee may bring an
action in the appropriate district court of the
United States for the relief provided in this
subsection.
28
31 U.S.C. §3733 (authorizing the Attorney General, or
his delegate [U.S. Attorney] to issue civil investigative
demands).
29
See, e.g., United States ex rel. Yesudian v. Howard
University, 153 F.3d 731 (D.C. 1998) (listing elements for a
retaliation claims)."
Whistleblowers in the Age of Stimulus
!
whistleblower is no longer required to prove he was
actually pursuing a qui tam action in order to
prosecute a relation claim.
Additionally, prior to FERA, Courts frequently
concluded that the FALSE CLAIMS ACT did not cover
associational discrimination30 and retaliation against
subcontractors because they did not meet the technical
definition of “employee.” FERA amended Section
3730(h) to explicitly protect the whistleblower’s
colleagues and family members. Contractors and
agents are also protected from retaliation.
Below is a redline version of the changes to
Section 3730(h) made by the FERA (the blue font is
new statutory language; the red font is the repealed
statutory language):
'h) Any employee whoRELIEF FROM
RETALIATORY ACTIONS.—
(1) IN GENERAL.—Any employee,
contractor, or agent shall be entitled to
all relief necessary to make that
employee, contractor, or agent whole, if
that employee, contractor, or agent is
discharged, demoted, suspended,
threatened, harassed, or in any other
manner discriminated against in the
terms and conditions of employment by
his or her employer because of lawful
acts done by the employee, contractor, or
agent on behalf of the employee or,
contractor, or agent or associated others
in furtherance of an action under this
section, including investigation for,
initiation of, testimony for, or assistance
in an action filed or to be filed under this
section, shall be entitled to all relief
necessary to make the employee whole.
Such relief other efforts to stop 1 or
more violations of this subchapter.
31 U.S.C. §3730(h).
B. THE HEALTH CARE ACT Amended the
“Original Source” Definition of the FALSE
CLAIMS ACT
""""""""""""""""""""""""""""""""""""""""""""""""""""""""
30
For example, retaliation against the family members and
colleagues of those who have blown the whistle.
18
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Chapter 9
THE PATIENT PROTECTION AND AFFORDABLE
CARE ACT (HEALTH CARE ACT), amended the FALSE
CLAIMS ACT’S definition of “original source.” H.R.
3590, 111th Cong., Pub. L. 111–148, 124 Stat. 901-
902, §10104(j)(2) (amending 31 U.S.C. §3730(e)(4))
(enacted on Mar. 23, 2010).""This amendment expands
the scope of the “original source” exception to the
“public disclosure bar.” The amendment also shifts
the “public disclosure bar” from a jurisdictional
prohibition to a more flexible standard, with
discretionary power held by the Department of
Justice. Under the former language, most courts held
that a qui tam case had to be dismissed if the
allegations were based upon a “public disclosure”
because courts considered the public disclosure bar to
be jurisdictional.31 The sources of a public disclosure
were many, ranging from records requests under the
FREEDOM OF INFORMATION ACT, to state criminal or
civil actions, and even to news media stories.
Consequently, many meritorious qui tam actions were
dismissed because they were based on a “public
disclosure”, as that term had been construed by the
courts. Congress, primarily Senator Charles Grassley
(a strong supporter of the FALSE CLAIMS ACT), sought
to amend the language of the public disclosure bar in
order to prevent courts from dismissing meritorious
qui tam cases on the basis they were jurisdictionally
barred under the public disclosure bar.
The amendment to Section 3730(e)(4) also
narrows the definition of what constitutes publicly
disclosed information and expands the scope of the
original source exception. The new language expands
the definition of “original source” by removing the
requirement that a qui tam relator have "direct"
knowledge of the facts underlying the allegations. It
is now sufficient for a qui tam relator to simply have
"knowledge that is independent of and materially adds
to the publicly disclosed allegations . . . ." A qui tam
relator's allegations can now be based on indirect or
secondhand information, provided those allegations
add to whatever information is already contained in
the public domain.
The amendment to Section 3730(e)(4) also means
that a “public disclosure” resulting from a government
report, hearing, audit or investigation must be from a
federal government source in order to bar a qui tam
""""""""""""""""""""""""""""""""""""""""""""""""""""""""
31
See, e.g., United States ex rel. Quinn v. Springfield
Terminal Ry., 14 F.3d 645 (D.C. Cir. 1994) (concluding a
court would not have jurisdiction over a qui tam case where
the allegations were based upon a public disclosure).
Whistleblowers in the Age of Stimulus
!
relator's claim. Public disclosures in state or local
government reports or proceedings will no longer
trigger the jurisdictional bar. Finally, despite their
inclusion in a health care statute, the amendment to
the FALSE CLAIMS ACT is not limited to qui tam cases
involving federal health care programs. Rather, the
amendment applies to every qui tam case.
Below is the new language of Section 3730(e)(4)
made by the HEALTH CARE ACT:
(A) The court shall dismiss an action or
claim under this section, unless opposed
by the Government, if substantially the
same allegations or transactions as alleged
in the action or claim were publicly
disclosed--(i) in a Federal criminal, civil,
or administrative hearing in which the
Government or its agent is a party; (ii) in a
congressional, Government
Accountability Office, or other Federal
report, hearing, audit, or investigation; or
(iii) from the news media, unless the
action is brought by the Attorney General
or the person bringing the action is an
original source of the information.
(B) For purposes of this paragraph,
“original source'” means an individual
who either (i) prior to a public disclosure
under subsection (e)(4)(a), has voluntarily
disclosed to the Government the
information on which allegations or
transactions in a claim are based, or (2)
who has knowledge that is independent of
and materially adds to the publicly
disclosed allegations or transactions, and
who has voluntarily provided the
information to the Government before
filing an action under this section.
C. Section 1079A(b) of the DODD-FRANK
ACT Amended the FALSE CLAIMS ACT by
Explicitly Providing a Three-year Statute of
Limitations to bring a Retaliation Claim
Section 1079A of the DODD-FRANK ACT
established a three-year statute of limitations in which
to file retaliation lawsuit. Section 3730(h) of the
FALSE CLAIMS ACT now provides: “LIMITATION
ON BRINGING CIVIL ACTION.—A civil action
under this subsection [3730(h)] may not be brought
19
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more than 3 years after the date when the retaliation
occurred.’’). H.R. 4173, 111th Cong., Pub. L. No.
111-203, 124 Stat. 2079 (§1079A) (enacted),
amending 31 U.S.C. §3730(h). This explicit statute of
limitation brings much-needed clarity in the wake of
the Supreme Court’s decision in Graham County Soil
& Water Conservation Dist. v. U.S. ex rel. Wilson,
545 U.S. 409 (2005), which held that the most closely
analogous state statute of limitations applies to a
FALSE CLAIMS ACT retaliation claim.
Finally, Section 1079A of the DODD-FRANK ACT
clarified what appears to be a grammatical error in the
FERA amendments. Section 3730(h) of the FALSE
CLAIMS ACT now provides an employee will be
protected for “lawful acts done by the employee,
contractor, or agent or associated others in furtherance
of an action under this section or other efforts to stop
1 or more violations of [False Claims Act].” This was
a minor change.
For additional information about the False
Claims Act, visit www.govtfraudlawyer.com.
VII. THE IRS WHISTLEBLOWER REWARD
PROGRAM
A. Introduction to the IRS Whistleblower
Reward Program
The TAX RELIEF AND HEALTH CARE ACT of
2006 (ACT), signed into law on December 20, 2006,
amended the INTERNAL REVENUE CODE to provide
rewards for turning in tax cheats. U.S.C. §7623.
According to the IRS, the “primary purpose behind
the Act was to provide incentives for people with
knowledge of significant tax noncompliance to
provide that information to the IRS.”32 The new
program generally requires the IRS to pay rewards to
whistleblowers if the information presented
substantially contributes to the collection of money by
the IRS. The law created the IRS Whistleblower
Office to receive, evaluate, and to determine whether
to pay the whistleblower an award.
It is interesting to note that since 1867, the IRS
possessed the authority to pay awards to tax
whistleblowers. What is now Section 7623(a) of Title
""""""""""""""""""""""""""""""""""""""""""""""""""""""""
32
IRS Whistleblower Office, Annual Report to Congress
on the Use of Section 7623 at 2 (2009) (on file with the
author).
Whistleblowers in the Age of Stimulus
!
26 has its origins in 1867 law. The original law
allowed the Treasury Secretary “to pay such sums as
he deems necessary for detecting and bringing to trial
and punishment [a] person guilty of violating the
internal revenue laws or conniving at the same.” Such
awards were discretionary. Now such rewards are
required to be paid.
The IRS has funded a robust IRS Whistleblower
Program. The new program focuses on large claims.
To qualify for the expanded rewards, $2 million of
taxes, penalties, and interest must be involved.
Individual taxpayers must have $200,000 of taxable
income in any year. The reward is from fifteen to
thirty percent of the tax collected, depending upon the
extent to which the whistleblower contributed to the
additional collection. If the IRS determines that the
whistleblower’s information was not the original
source of information, but still contributes to the
additional collection, the IRS can award up to ten
percent of the amount collected. Informants have the
right to petition the Tax Court within thirty days of
receiving the IRS’s reward determination. Unlike the
FALSE CLAIMS ACT, however, the whistleblower is
not authorized to prosecute a claim in court if the
federal government chooses to not do so.
B. Filing an IRS Informant Reward Claim
A whistleblower, with or without counsel, must
submit his claim on an IRS Form 211 (“Application
for Award for Original Information). The IRS then
makes a determination whether the claim meets the
criteria of a Section 7623(b) whistleblower claim or, if
not, if the claim meets the criteria of a Section 7623(a)
detection of underpayment or fraud claim. 7623(a)
claims are sent to Ogden, Utah for determination.
7623(b) claims are determined at the IRS
Whistleblower Office in Washington, D.C.
1. 7623(b) Awards:
To qualify for a whistleblower award under
section 7623(b), the information must:
• Relate to a tax noncompliance matter in which
the tax, penalties, interest, additions to tax and
additional amounts in dispute exceed
$2,000,000; and
• Relate to a taxpayer, and in the case of an
individual taxpayer, one whose gross income
20
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exceeds $200,000 for at least one of the tax
years in question.
Id. at § 7623(b)(5). If the information meets the
above criteria and substantially contributes to a
decision by the IRS to take administrative or judicial
action that results in the collection of tax, penalties,
interest, additions to tax and additional amounts, then
the IRS will pay an award of at least fifteen percent,
but not more than thirty percent of what the IRS
collects. 26 U.S.C. at § 7623(b)(1). However, similar
to the original source doctrine of the FALSE CLAIMS
ACT, the IRS has authority to reduce the award to ten
percent if the claim is based upon specific allegations
disclosed in certain public information (e.g.,
government audit reports). Id. at § 7623(b)(2). The
IRS also has the authority to reduce the award or not
give an award if the whistleblower planned and
initiated the actions that led to the tax underpayment.
Id. at § 7623(b)(3).
2. 7623(a) Claims:
If the whistleblower’s information submitted
under the IRS Form 211 does not meet the criteria of
Section 7623(b), the IRS Whistleblower Office will
send the claim to Ogden, Utah for processing as a
potential Section 7623(a) claim, which relates to
detection of underpayment of taxes and fraud.
3. Full Disclosure
If the whistleblower withholds available
information, then the whistleblower bears the risk that
withheld information may not be considered by the
Whistleblower Office in making any award
determination. If the documents or supporting
evidence are known to the whistleblower but not in his
possession, then the whistleblower is instructed to
describe the documents and identify their location to
the best of his ability. The IRS also instructs
whistleblowers to provide substantiating
documentation.
4. Eligibility to File a Claim for Award
Almost any person, other than certain present or
former federal employees, is eligible to file a claim for
reward. See 26 C.F.R. §301.7623-1(b)(1) and (2).
Those former and current employees that are barred
from filing a claim include an “officer or employee of
the Department of the Treasury at the time the
Whistleblowers in the Age of Stimulus
!
individual came into possession of information
relating to violations of the internal revenue laws, or
at the time the individual divulged such information.”
Id. However, “any other current or former federal
employee is eligible to file a claim for reward if the
information provided came to the individual's
knowledge other than in the course of the individual's
official duties.” Id. Finally, the claim survives the
death of the whistleblower. 26 C.F.R. §301.7623-
1(b)(3).
5. Identity of the Whistleblower
By regulation, the IRS is not allowed to reveal of
the identity of the whistleblower. 26 C.F.R.
§301.7623-1(e).
C. Appealing to the U.S. Tax Court
The TAX RELIEF AND HEALTH CARE ACT of
2006 authorized the whistleblower to appeal the IRS
Whistleblower Program’s determination regarding an
award to Tax Court. 26 U.S.C. §7623(b)(4). Such
appeals must be filed within thirty days of the IRS
Whistleblower Program’s determination. Id.
Recently, the Tax Court held that it had jurisdiction to
review a decision by the Tax Whistleblower Office
declining to pursue a whistleblower’s claim for a
reward. See Cooper v. Commissioner, 135 T.C. No. 4
(July 9, 2010).
D. Resources
• The IRS Whistleblower – Informant
Program web page:
(http://www.irs.gov/compliance/article
/0,,id=180171,00.html )
• IRS Notice 2008-4 (available on the
web page cited above)
• IRS Form 211 (available on the web
page cited above or click on the link)
• IRS Whistleblower Office, Annual
Report to Congress on the Use of
Section 7623
• Whistleblower – Information
Regulations were codified at 26 CFR
301.7623-1.
21
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Chapter 9
• www.taxwhistleblowerblog.com
• Joel D. Hesch, Reward: Collecting
Millions for reporting Tax Evasion
(Your Complete Guide to the IRS
Whistleblower’s Reward Program)
(ISBN 978-0-9819357-2-0 published
by LU Books, available at
Amazon.com)
• http://taxprof.typepad.com/
VIII. UNIQUE ISSUES FACING FEDERAL
GOVERNMENT CONTRACTORS
A. Introduction
Federal Government contracting (primarily
military and NASA) has historically been big business
for Texas. Texas has some of the most important and
largest military installations in the Department of
Defense’s inventory, all of which award billions of
dollars in contracts.33 Major defense contractors are
headquartered or have a substantial presence in Texas,
such as Raytheon, AT&T, Halliburton, KBR, Valero,
Texas Instruments, among dozens of others34. These
contractors employ thousands of Texans. Most
recently, Texas did well in the latest round of Base
Realignment and Closure (BRAC), resulting in tens of
thousands of service members, civil service
employees, and contractors and their employees
relocating to various military installations and cities in
Texas.
Given the large presence of this industry in
Texas, employment lawyers should be knowledgeable
of the unique whistleblowing rules that apply to
Government contractors. Government contractors are
prohibited from retaliating against their employees
""""""""""""""""""""""""""""""""""""""""""""""""""""""""
33
For example, El Paso has Fort Bliss. Kileen has Fort
Hood (the world’s largest military installation). San
Antonio, which calls itself “Military City USA,” has Fort
Sam Houston (headquarters for military medicine),
Lackland Air Force Base (the Air Force’s largest training
base), and Randolph Air Force Base (headquarters for Air
Education Training Center, one of the largest commands in
the Air Force). Fort Worth is home to the U.S. Army Corps
of Engineers – West, which awards billions of dollars of
contracts.
34
See www.fedspending.org for searchable databases
about who is receiving federal contracts.
Whistleblowers in the Age of Stimulus
!
who engage in whistleblowing. Perhaps most
significant of all, the FEDERAL ACQUISITION
REGULATION was amended, effective December 12,
2008, to require Government contractors to self report
to the Government certain crimes and violations of the
FALSE CLAIMS ACT committed by their employees
and subcontractors—a contractor’s failure to do so
could be the basis for a ban from contracting with the
Government. Moreover, the Government is now
keeping score. The Government created the Federal
Awardee Performance and Integrity Information
System (FAPIIS), a new database. The FAPIIS will
keep records to determine whether contractors are
“responsible” and therefore eligible for future
government awards. A violation of the FALSE
CLAIMS ACT or violations of various statutes (to
include those that protect whistleblowers) is some of
the information that the Government has begun to
keep in the FAPIIS.
B. Whistleblower Protections for Contractor
Employees
1. Who and What is Protected
The FEDERAL ACQUISITION REGULATION (FAR)
regulates some aspects of the employment relationship
between a federal Government contractor and its
employees. This FAR protection for whistleblowers
implements 10 U.S.C. §2409 and 41 U.S.C. §265, as
amended by Sections 6005 and 6006 of the FEDERAL
ACQUISITION STREAMLINING ACT OF 1994 (Pub. L.
103-355). It is not always clear, however, if the FAR
applies to a particular employment situation. Some
companies, for example, do Government work only.
In that scenario, the FAR and its protections for
whistleblowers will most likely apply to the
contractor, depending on the size of the contractor or
its contracts. Other contractors do business with the
Government and the private sector. In that scenario, it
is not always clear if the FAR regulates the
employment relationship between the contractor and
all of its employees.
Regardless, it should be assumed that the FAR
protects employees of Government contractors who
blow the whistle. The FAR provides that
“Government contractors shall not discharge, demote
or otherwise discriminate against an employee as a
reprisal for disclosing information to a Member of
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Chapter 9
Congress, or an authorized official of an agency35 or
of the Department of Justice36, relating to a substantial
violation of law related to a contract (including the
competition for or negotiation of a contract).” FAR
3.903. Internal disclosures are not protected. See 10
U.S.C. §2409; 41 U.S.C. §265.
2. Procedure
The FAR provides that an employee who
believes he was discriminated against because of his
protected whistleblowing may file a complaint with
the Inspector General (IG)37 of the agency that
awarded the contract. FAR 3.904(a). In his
complaint, the employee must identify the “substantial
violation of law giving rise to the disclosure; the
nature of the disclosure giving rise to the
discriminatory act; and the specific nature and date of
the reprisal.” FAR 3.904(b). Unfortunately, no statute
of limitations is set out. If the IG determines the
complaint merits further investigation, then the IG is
required to conduct an investigation and issue a
written report to the agency head. FAR 3.905(b). The
contractor and employee are entitled to a copy of the
report, and have thirty days to submit a written
response to the agency head. FAR 3.904(c) and (d).
Upon accepting the IG’s report, the agency head has
authority to order the contractor to take certain
actions. The employee, however, has no private cause
of action that can be prosecuted in an administrative
court or in U.S. District Court.
3. Remedies, Enforcement, and Review
An agency head that determines a contractor
violated FAR 3.903 has the authority to:
""""""""""""""""""""""""""""""""""""""""""""""""""""""""
35
FAR 3.901 defines “’Authorized official of an agency”
[to mean] an officer or employee responsible for
contracting, program management, audit, inspection,
investigation, or enforcement of any law or regulation
relating to Government procurement or the subject matter
of the contract.”
36
FAR 3.901 defines “’Authorized official of the
Department of Justice’” [to mean] any person responsible
for the investigation, enforcement, or prosecution of any
law or regulation.”
37
FAR ¶3.901 defines “’Inspector General’” [to mean] an
Inspector General appointed under the Inspector General
Act of 1978, as amended. In the Department of Defense
that is the DoD Inspector General. In the case of an
executive agency that does not have an Inspector General,
the duties shall be performed by an official designated by
the head of the executive agency.”"
Whistleblowers in the Age of Stimulus
!
(1) Order the contractor to take
affirmative action to abate the reprisal.
(2) Order the contractor to reinstate the
person to the position that the person
held before the reprisal, together with
the compensation (including back
pay), employment benefits, and other
terms and conditions of employment
that would apply to the person in that
position if the reprisal had not been
taken.
(3) Order the contractor to pay the
complainant an amount equal to the
aggregate amount of all costs and
expenses (including attorneys fees and
expert witnesses’ fees) that were
reasonably incurred by the
complainant for, or in connection
with, bringing the complaint regarding
the reprisal.
FAR 3.906(a). If the contractor fails to comply with
the agency head’s order, then the agency head “shall
request the Department of Justice to file an action for
enforcement of such order in the United States district
court.” FAR 3.906(b) (emphasis added). In such an
action, the court may grant “appropriate relief,
including injunctive relief and compensatory and
exemplary damages.” Id. Within sixty days of the
agency head’s order, either party “may obtain review
of the order’s conformance with the law, and this
subpart, in the United States Court of Appeals for a
circuit in which the reprisal is alleged in the order to
have occurred.” FAR 3.906(c).
C. Recent changes to the Federal Acquisition
Regulation Require Contractors to Disclose
The FAR was amended,38 effective December 12,
2008, to require federal government contractors with a
contract in an amount greater than $5,000,000 and
more than 120 days in duration, to timely disclose “to
the Government . . . credible evidence of a violation of
Federal criminal law involving fraud, conflict of
interest, bribery, or gratuity violations found in Title
""""""""""""""""""""""""""""""""""""""""""""""""""""""""
38
The rule implements THE CLOSE THE CONTRACTOR
FRAUD LOOPHOLE ACT, Pub. Law 110– 252, Title VI,
Chapter 1.
23
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Chapter 9
18 of the United States Code or a violation of the civil
False Claims Act.” FAR 3.1003. A contractor’s
failure to disclose can be the basis for a suspension or
debarment. FAR 3.1003(a)(2). As reflected in the
preamble to the FAR amendment, requiring
contractors to self-report is a “sea change” in the
law.39 One area that contractors may be required to
report would be a violation of the anti-retaliation
provision of the FALSE CLAIMS ACT (Section
3730(h)). As shown above in Part VI of this article,
the Section 3730(h) was amended to further enhance
the protections for whistleblowers. In order to be
protected, the whistleblower must merely be
performing acts to stop a violation of the FALSE
CLAIMS ACT.
D. The Federal Awardee Performance and
Integrity Information System
As shown above, contractors are now required to
self-report crimes and violations of the FALSE CLAIMS
ACT. The Government collects that information. Due
to recent legislation, the Government will disseminate
and make available such derogatory information
throughout the Government. Effective April 22, 2010,
the FAR was amended to implement the Federal
Awardee Performance and Integrity Information
System (FAPIIS). 75 Fed. Reg. 14059 (Mar. 23,
2010). The stated purpose of the FAPIIS is to
enhance the Government’s ability to evaluate whether
contractors are responsible and ethical.40 There are
four basic categories of information that a contractor
must report:
• Criminal Convictions: A contractor must
provide information about whether it or any of
its principals has, within the last five years, in
connection with the award or performance of
a federal contract or grant, been subject to a
criminal proceeding—at the federal or state
level—that resulted in a criminal conviction.
""""""""""""""""""""""""""""""""""""""""""""""""""""""""
39
Fed. Reg. Vol. 73, No. 219 at 67069 (stating “[t]here is
no doubt that mandatory disclosure is a ‘‘sea change’’ and
‘‘major departure’’ from voluntary disclosure, but DoJ and
the OIGs point out that the policy of voluntary disclosure
has been largely ignored by contractors for the past 10
years.”()"
40
THE DUNCAN HUNTER NATIONAL DEFENSE
AUTHORIZATION ACT FOR FISCAL YEAR 2009 at
§872.
Whistleblowers in the Age of Stimulus
!
• Civil Liability: A contractor must provide
information about whether it or any of its
principals has, within the last five years, in
connection with the award or performance of
a federal contract or grant, been subject to a
civil proceeding - at the federal or state level -
that resulted in a finding of fault and liability
and required payment of a monetary fine,
penalty, reimbursement, restitution, or
damages of $5000 or more.
• Administrative Proceedings: A contractor
must provide information about whether it or
any of its principals has, within the last five
years, in connection with the award or
performance of a federal contract or grant,
been subject to an administrative
proceeding—at the federal or state level—that
resulted in a finding of fault and liability and
required the payment of a monetary fine or
penalty of $5,000 or more, or the payment of
any reimbursement, restitution, or damages in
excess of $100,000. An “administrative
proceeding” is defined as a "non-judicial
process that is adjudicatory in nature in order
to make a determination of fault or liability."
The following administrative proceedings are
examples: Securities and Exchange
Commission, Civilian Board of Contract
Appeals, and Armed Services Board of
Contract Appeals. But agency actions such as
contract audits, site visits, corrective plans, or
inspection of deliverables, are not
administrative proceedings.
• Settlements: A contractor must provide
information about whether, within the last five
years, in connection with the award or
performance of a federal contract or grant, a
federal or state criminal, civil, or
administrative proceeding was disposed of by
consent or compromise with an
acknowledgment of fault by the contractor, if
the proceeding could have led to any of the
reportable events discussed above.
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Chapter 9
IX. CONCLUSION
The enactment of the these new bounty and anti-
reprisal laws appears to be a recognition by Congress
that the Government lacks resources to effectively
police its entitlement programs such as Medicare.
Congress is also concerned that too often individuals
and businesses have run afoul of laws such as the
SECURITIES AND EXCHANGE ACT with impunity. The
tremendous success of the FALSE CLAIMS ACT has
encouraged Congress to further rely upon
whistleblowers to ensure compliance with the law and
to report fraud. Laws such as the DODD-FRANK ACT
and the HEALTH CARE ACT are massive in their scope,
and the regulations have yet to be written. The full
scope of the power and protection that the
Government will bestow upon whistleblowers has yet
to be determined. One thing is certain. Congress has
unleashed whistleblowers in just about every industry.
Because whistleblowers act at their peril, Congress
has sought to protect them. Most importantly,
however, Congress has given a huge financial
incentive to whistleblowers to blow the whistle by
creating several bounty programs. The cocoon of
protections that a whistleblower now enjoys, coupled
with the financial carrot for reporting fraud, is sure to
root out fraud. Perhaps the next Bernie Madoff will
be turned in before it is too late, preventing the loss of
many people’s life savings. Perhaps the next crooked
physician who falsely bills Medicare will be stopped,
saving taxpayer dollars. Whistleblowers will be a
serious check and balance on malfeasance and fraud.
Those so inclined to commit fraud and break the law
do so at their own peril with the threat that their
employees have an incentive to blow the whistle on
their nefarious acts.
Whistleblowers in the Age of Stimulus Chapter 9

APPENDIX

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Whistleblowers in the Age of Stimulus Chapter 9

!
Appendix A
Major FALSE CLAIMS ACT cases settled in 2010

MAJOR FALSE CLAIMS ACT CASES

RESOLVED IN FISCAL YEAR 2010

Company Amount Date Allegation

GlaxoSmithKline $750 million 10/26/2010 Deceit related to product contamination and dosage
irregularities at GSK’s manufacturing facility in
Puerto Rico.

Allergan $600 million 9/1/2010 Off-label marketing practices involving Botox

($225 million to resolve civil

allegations and a $375 million
criminal fine.)

AstraZeneca $520 million 4/27/2010 Illegally marketed the anti-psychotic drug Seroquel

Novartis $422.5 million 9/30/2010 Unapproved promotion of Trileptal

Pharmaceuticals
($237.5 million to resolve civil
allegations and a $185 million
criminal fine)

Forest $313 million 9/15/2010 Marketed Levothroid without FDA approval and
Laboratories unlawfully promoted Celexa and Lexapro for
($149 million to resolve civil pediatric use
claims, a $150 million criminal
penalty, and $14 million in
forfeiture).

Elan Corporation $203.5 million 7/15/2010 Improperly sold and marketed Zonegran

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Whistleblowers in the Age of Stimulus Chapter 9

!
Teva $169 million 7/26/2010 Inflated prices reported to Medicaid
Pharmaceuticals

WellCare Health $137.5 million 8/9/2010 Defrauded Medicare and Medicaid programs in
Plans several states

Mylan, $124 million 10/19/2009 Companies improperly classified certain drugs to

AstraZeneca, and evade rebate obligations
Ortho-McNeil

Omnicare and $112 million 11/3/2009 Omnicare engaged in kickback schemes with
IVAX several parties, including IVAX
Pharmaceuticals

Health Alliance $108 million 5/21/2010 Kickbacks to doctors in exchange for referring
of Greater cardiac patients to hospital
Cincinnati and
Christ Hospital

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Whistleblowers in the Age of Stimulus Chapter 9

!
Appendix B

NEW ANTI-RETALITION LEGISLATION THAT

VOIDS ARBIRATION AGREEMENTS

NEW LEGISLATION VOIDING AMENDMENTS TO THIS LAW

ARBITRATION AGREEMENTS

DODD-FRANK ACT at §922(c) Amending 18 U.S.C. §1514A(e)

(Whistleblower Protection)
DODD-FRANK ACT at §748 Amending COMMODITY EXCHANGE ACT at §23(n);
(Commodity Whistleblower Incentives and Protection) Proposed Rule 165.19
DODD-FRANK ACT at §1057(d) New law
(Bureau of Consumer Financial Protection—Employee
Protection for Whistleblowers)
DODD-FRANK ACT at §922(c) Amending 18 U.S.C. §1514A(e) - the SARBANES-
OXLEY ACT
THE PATIENT PROTECTION AND AFFORDABLE CARE ACT OF Amending §18C(b)(2) of the FAIR LABOR
2009 at §1558 STANDARDS ACT]
AMERICAN RECOVERY AND REINVESTMENT ACT OF 2009 New law
§1553 “McCaskill Amendment” (d)(1)-(3)

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Whistleblowers in the Age of Stimulus Chapter 9

Appendix C

IRS Form 211

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Whistleblowers in the Age of Stimulus Chapter 9

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Whistleblowers in the Age of Stimulus Chapter 9

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Appendix D

Proposed SEC Form WB-APP

Application for Award for Original Information Submitted Pursuant to

Section 21F of the Securities Exchange Act of 1934

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Whistleblowers in the Age of Stimulus Chapter 9

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Whistleblowers in the Age of Stimulus Chapter 9

"

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Whistleblowers in the Age of Stimulus Chapter 9

Proposed SEC Whistleblower Process for Determining Awards Based Upon A “Related Action”:

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Whistleblowers in the Age of Stimulus Chapter 9

!
Appendix E
Proposed CFTC Form TCR, TIP, Complaint or Referral

Notice of Commodity Futures Trading Commission Proposed Rules to

Implement the Whistleblower Incentives and Protections of Section 748 of
the DODD-FRANK ACT

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Whistleblowers in the Age of Stimulus Chapter 9

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