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2 Whistleblowers: What US and Multinational Employers Need to Know Panelists: Bucky P. Mansuy Assistant General Counsel, Lockheed Martin Corp. Nicholas J. Nastasi, Jr. Vice-Chair, White Collar and Government Enforcement Group, Saul Ewing LLP October 15,

3 Applicable Federal Laws Section 21F of the Securities Exchange Act of 1934 (Dodd-Frank, Section 922 ) False Claims Act, 31 U.S.C Significant potential awards for successful whistleblowers bringing suit 3

4 Dodd-Frank Retaliation Prohibited No employer may discharge, demote, suspend, threaten, harass, directly or indirectly, or in any other manner discriminate against a whistleblower for providing information to the SEC in accordance with Section 21F or SOX False Claims Act Provides protection to qui tam relators who are discharged, demoted, suspended, or threatened in their employment as a result of action under the Act 4

5 Applicable State Laws Pennsylvania Whistleblower Law, 43 P.S et seq. Protects reports (or an expected report) to employer or agency Delaware Whistleblowers Protection Act, 74 Del. Laws 1701, et seq. Protects reports (or potential reports) to public body, and internal reports New Jersey False Claims Act, 2A:32C-1, et seq. Provides for qui tam suits and retaliation protection 5

6 Date Industry Monetary Fine Whistleblower Award Aug Mortgage Co. $160 million $31 million July 2012 Recent Whistleblower Awards Large Pharmaceutical $3 billion ($1 billion criminal $2 billion Civil) At least $300 million Sept Large Company Tax Fraud Est. $18 billion in hidden assets for recovery $104 million Oct Large Bank Tax Avoidance $ million in corporate tax recovery $38 million 6

7 Scenario 1 Dudley Do-Right, an employee of Military Contracts-R-Us, heard that his company was just awarded a large military contract from the U.S. government for warehouse construction in Afghanistan. He observed that immediately after the award was announced, his supervisor, William Wrongdoer, left for an extravagant vacation to Thailand, changed his lifestyle and bought an expensive sports car. He suspects (incorrectly) William has received a kickback. William claims he recently inherited a great deal of money He reports internally through the corporate hotline. What do you do? 7

8 Company Response Compliance officer should report to General Counsel GC should conduct a thorough investigation Interview all relevant employees and collect all relevant documents William claims he inherited a great deal of money from his great aunt, May What should you do, if anything to confirm? After you conclude no wrongdoing occurred: Reflect on whether compliance and reporting procedures are working correctly and implement any changes needed Provide limited information to Dudley 8

9 Scenario 2 Green World, Inc. (a small environmental company) plans to divest a business unit to a competitor. On the eve of closing, rumors circulate that massive layoffs are coming. The CEO receives an from an anonymous source (who claims to be an ex-employee) that details numerous environmental violations. The CEO is adamant the the allegations are false; he wants to report the employee whom he suspects is behind the to the authorities. The CEO applies pressure internally and advocates for no investigation for fear the claim will hold up the deal. 9

10 To: CEO From: Anonymous Re: GreenWorld, Inc. Environmental Violations I know about your skeletons the illegal dumping of 500,000 barrels of oil on Property A in Oklahoma and the leaching of chemicals into the ground water from Green World s dumping on Property B. If you do not meet the following demands by NOON tomorrow I will release this information to the buyer, the government and the media. Here are my demands: Give all employees a 25% raise and a guaranteed Christmas bonus of 10% of salary. There is no profit in it for me. I simply want Green World to do the right thing. What do you do? 10

11 Company Response Compliance and GC should consider appropriate steps Whether to involve outside counsel? GC to conduct a thorough investigation Balance desire for immediate action against suspected individual by focusing investigation on: (1) whether allegations are true (2) implications for sale of company Interview all relevant employees Disclose fact of and investigation to purchasing company Attempt to identify likely culprit who sent the Conduct forensic analysis of Consider termination of the employee 11

12 Scenario 3 Billy Beancounter works at Big Bank. The head of his business unit has asked subordinates to make personal donations to Crooked Politician, with the promise of a hidden reimbursement in order to circumvent limits on corporate political contributions. Bank reimbursed employees for the political contributions under the guise of travel reimbursements. Billy fears the scheme is about to be detected and, deciding to save himself before being found out, Billy reports the conduct to supervisors, leaving out his own participation. During the internal investigation, Bank determines Billy participated in the scheme. What do you do? 12

13 Company Response Supervisors should report issue to Bank s Chief of Compliance and General Counsel, who should conduct an investigation Should other departments be involved, i.e. H.R.? Consider whether to terminate Billy given participation in the scheme Consider internal policies Prepare for potential that Billy might pursue a retaliation claim despite his involvement in the fraud? 13

14 Takeaways A thorough investigation of all claims of wrongdoing should be undertaken Recording, tracking and follow-up are key Create corporate atmosphere that encourages reporting with protections for reporting employees not involved in wrongdoing Provide multiple avenues for reporting including anonymity Create strong tone at the top regarding compliance Conduct regular compliance audits and share results with employees Conduct regular training for all employees Create strong compliance department with Board oversight 14

15 Questions? Bucky P. Mansuy, Lockheed Martin Corp. Nicholas J. Nastasi, Jr., Saul Ewing LLP 15

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