Agenda 4 Key Questions

Transcription

1 Whistleblower Crosscurrents The Limitations of Whistleblower Laws Charles L. Howard, Partner Shipman & Goodwin LLP SCCE s 10 th Annual Higher Education Compliance Conference Austin, Texas June 5, 2012 Charles L. Howard Agenda 4 Key Questions 1. What are the main features of whistleblower laws? 2. What are the problems with the way whistleblower laws work? 3. What are the limitations of other reporting channels? 2 1

2 Agenda 4 Key Questions 4. What else can be done? Guidance before reporting Ways to surface issues without having to become a whistleblower 3 The Whistleblower s Plight People who come forward to expose corruption risk their jobs, their personal relationships, and even their lives. Rather than being celebrated for their honesty and integrity, too often they end up alone and embittered. The sad truth is that in too many cases whistleblowers have gotten badly screwed

3 ... In the past few years, I ve come to know several of them well, and this includes people who have received large rewards for exposing frauds that robbed the government of hundreds of millions of dollars, and the truth is that many of them are sorry they ever got involved. The money they eventually received wasn t worth what they had to go through simply to do the right thing. Harry Markopolos, No One Would Listen, p. 64 (2010) 5 The Organization s Plight Who is really a whistleblower? Defensive claims of whistleblowing or retaliation Liability for retaliation over which there is little control 6 3

4 Whistleblower Laws in the U.S. Over 250 in various jurisdictions Federal and state Civil and criminal Well known and recent False Claims Act ( FCA ) SOX Dodd-Frank Act 7 Common Provisions Financial incentives (some) FCA Dodd-Frank Act Ban on retaliation (almost all) Cause of action for retaliation (many) 8 4

5 False Claims Act Civil War era legislation Government recoveries are greater than $25 billion in last 20 years Applies to false claims submitted to federal government Original information 9 False Claims Act (cont.) Permits private parties to assert claims: Filed in camera Sealed for at least 60 days to give government opportunity to intervene and proceed with care If government intervenes, it controls case and can dismiss or settle it (only 15-20% are accepted) 10 5

6 False Claims Act (cont.) If government declines to intervene, plaintiff may proceed with case Recovery for qui tam plaintiff: 15-25% of proceeds if government controls 25-30% if government does not accept 11 Dodd-Frank Wall Street and Consumer Protection Act ( Dodd-Frank Act ) SEC bounty for whistleblowers of 10%- 30% of SEC s recovery, but only if certain conditions met: Information voluntarily provided Original information Recovery is > $1 million Subject to factors within SEC discretion 12 6

7 Dodd-Frank Wall Street and Consumer Protection Act ( Dodd-Frank Act ) Anonymous complaints possible but only if represented by a lawyer Limited confidentiality provisions Ability to bring direct action in court for discrimination or retaliation (contrast with SOX) 13 Timing Limitations - Bounties Decision to become whistleblower (beginning) vs. recovery (end) Recovery can take years N. Engl. J. Med. (5/13/2010) study of successful FCA relators average recovery took 4.9 years (longest was 9 years) 14 7

8 Limitations Bounties (cont.) Uncertainty of recovery Dependent on government action/discretion Acceptance Settlement or litigation Recovery over $1 million Discretionary award Meeting eligibility standards Original information 15 Limitations Bounties (cont.) Not responsive to primary motivation One study 90% tried to report internally first N. Engl. J. Med. study 18 of 22 insiders tried to report inside first 22 of 26 felt that what they did was important for ethical or other psychological or spiritual reasons. 16 8

9 Limitations Ban on Retaliation The Data EEOC 37,334 claims (FY 2011)- more than age, race, sex or national origin 2011 National Business Ethics Survey Lower reports of observed misconduct than previously 35% still do not report misconduct (less than in past), BUT Increased retaliation against whistleblowers: 17 22% of those who reported misconduct experienced some form of retaliation (up from 12% in 2007) 18 9

10 Limitations Ban on Retaliation Case Studies Anne Mitchell Bobby Maxwell N. Engl. J. Med. 5/13/10 19 The Prosecution of Anne Mitchell February,

11 It occurred to Anne Mitchell as she was writing the letter that she might lose her job, which is why she chose not to sign it. But it was beyond her conception that she would be indicted and threatened with 10 years in prison for doing what she knew a nurse must: inform state regulators that a doctor at her rural hospital was practicing bad medicine. 21 The state and national nurses associations have called the prosecution an outrage. Mrs. Mitchell would seem to be protected by Texas whistle-blower laws

12 The nurses, who are highly regarded even by the administrator who dismissed them, said the case had stained their reputations and drained their savings. With felony charges pending, neither has been able to find work. 23 It has derailed our careers, and we re probably not going to be able to get them back on track again, said Mrs. Galle, 54, a grandmother who is depicted around town as the soft-spoken Thelma to Mrs. Mitchell s straight-shooting Louise

13 They sounded internal alarms but felt they were not being heeded by administrators. 25 Anne Mitchell: The Aftermath Acquittal (4 days of trial) Collateral Damage: Civil Rights lawsuit ($750k settlement) Criminal charges and guilty verdicts against doctor, sheriff, prosecutor, and hospital administrator 26 13

14 Bobby Maxwell September, Nearly seven years after a government auditor charged that an oil company had cheated the government out of millions of dollars in royalties, a federal judge has ordered the company to pay nearly $23 million in penalties including $5.7 million to the auditor who uncovered the problem

15 But Mr. Maxwell s bosses at the minerals service were not persuaded by his claims, and he was let go by the agency after bringing the accusations. 29 This whole thing has been much more difficult than I ever imagined, Mr. Maxwell said. I was fired, I was ostracized, I was threatened. I think I was on the right side of history, but I also paid a tremendous price for it

16 Mr. Maxwell said that even if he collected his portion of the award, the majority of it is going to the attorneys, not to me. 31 The New England Journal of Medicine Special Report May 13, 2010 Whistleblowers Experiences in Fraud Litigation Against Pharmaceutical Companies 32 16

17 All relators in our sample received a share of the financial recovery. The amounts received ranged from $100,000 to $42 million, with a median of $3 million (net values, in 2009 dollars). 33 But a majority perceived their net recovery to be small relative to the time they spent on the case and the disruption and damage to their careers

18 After settlement, none of the 4 outsiders changed jobs, but only 2 of the 22 insiders remained employed in the pharmaceutical industry. 35 The prevailing sentiment was that the payoff had not been worth the personal cost

19 22 of 26 relators still felt that what they did was important for ethical and other psychological or spiritual reasons. 37 whereas retaliation is clearly prohibited by the FCA, our report suggests that the protections are not fully effective, particularly for insiders. Often retaliation was more subtle than overt harassment

20 The Problem: Internal reporting channels may be blocked Lack of checks and balances Uncertainty where to go or what will happen Not sure of information FEAR OF RETALIATION 39 Limitations: Ban on Retaliation Reasons Why Inadequate Feudal relationship Types of retaliation Direct Under the radar Peer Ripple Sum: Personal cost not worth potential financial reward

21 Limitations: Civil Remedy for retaliation Two questionable assumptions: 1. The law can protect you. 2. Money damages can make you whole. 41 Limitations: Civil Remedy for retaliation Human nature when someone breaks ranks Adversarial legal system Time to resolution Procedural constraints 42 21

22 Limitations: Other channels Peter Earle Wall Street Journal April 25, A slip up during a Federal securities investigation leads to the exposure of a key witness

23 Federal securities regulators inadvertently revealed the identity of a whistleblower during a probe of a firm that ran a stock trading platform 45 SEC officials said there is always a risk a whistleblower s identity might be disclosed during an investigation, but its practice has been to avoid unnecessarily revealing an informant s identity

24 The person shown the notebook said in an interview that he previously suspected Mr. Earle was an SEC informant. [His] desk was near Mr. Earle s and he said he recognized Mr. Earle s handwriting in the notebook. 47 Mr. Earle said he made other internal complaints about trading, and was fired on April 3, Pipeline s efforts at all junctures have been to malign me. That s one of the reasons I went to the SEC in the first place

25 Mr. Earle said he has been the target of ire from current and former Pipeline employees. He ran into a Pipeline executive while walking in early December, a little over a month after the SEC fined Pipeline $1 million and two of its executives $100,000 each. 49 Mr. Earle said he asked [Pipeline executive] Reid Curley, how he was doing. Just trying to clean up your wreckage, he said Mr. Curley responded

26 Limitations: Other channels HR and Compliance Police Duty to act management responsibilities Limited confidentiality like SEC Limited use where uncertainty, fear of loss of control, or fear of retaliation. 51 Limitations: Other channels Hotlines Cultural aversion by many Rarely used for fraud and abuse Often outsourced Still a reporting channel 52 26

27 Two Big Unasked Questions 1. How to provide timely guidance to someone deciding whether to report? 2. How to surface concerns about misconduct without forcing someone to become a whistleblower? 53 What Else is Needed Four key elements: 1. Independence of existing channels Checks and balances are important Non-management responsibilities 2. Able to provide information, guidance, or counseling to an employee before making a report

28 What Else is Needed Four key elements (cont.): 3. Confidentiality Able to have an off-the-record conversation 4. Strategies for how to surface issues with or without revealing identity of someone. 55 One Answer The Organizational Ombudsman An independent, neutral person with whom someone may speak confidentially (off the record) and informally about work-related concerns. Independent Neutral Informal Confidential 56 28

29 Advantages of Organizational Ombudsman Double duty workplace conflict and misconduct Knowledgeable resource Organizational culture Supplements but does not replace formal channels 57 Thank You 58 29