Defending Corporations and Individuals in Government Investigations Ethics & Whistleblower Issues In Investigations Daniel J. Fetterman Mark P. Goodman Reid Figel Daniel Karson Patrick Pericak September 28, 2016
Overview Part I: Definition of Whistleblower Part II: Whistleblower Programs Part III: Dealing with Whistleblowers Part IV: Ethical Considerations in Representations 2
Part I: Definition of Whistleblower 3
Definition of Whistleblower Under Dodd-Frank, a whistleblower is defined as any person who provides information relating to a violation of the securities laws to the Securities and Exchange Commission or the Commodity Futures Trading Commission. An individual may also qualify as a whistleblower under Dodd- Frank if he or she reports a violation of the securities laws internally and suffers employment retaliation as a result of doing so. Under the False Claims Act, any person with evidence of fraud against federal programs or contracts may file a qui tam suit. Such persons are called relators. 4
Part II: Whistleblower Programs 5
Dodd-Frank & Sarbanes-Oxley Dodd-Frank Act established several new whistleblower protections for individuals employed in the financial services industry who report violations of the securities or commodities laws. Sarbanes-Oxley Act prohibits publicly traded companies from taking adverse employment action against an employee who provided information or assisted an investigation concerning a violation of SOX, any SEC rule/regulation, or federal statute relating to fraud against shareholders. 6
SEC & CFTC The SEC and CFTC both have whistleblower programs that allow a whistleblower to submit tips concerning violations of the securities or commodities laws. To participate in the SEC program, for example, an individual must (1) voluntarily provide (2) original information that (3) leads to the successful enforcement by the SEC in which (4) the SEC obtains monetary sanctions totaling more than $1 million. 7
False Claims Act (Qui Tam Suits) The FCA has a whistleblower program allowing for relators to file claims on behalf of the federal government. Qui Tam plaintiffs can receive between 15-30% of the total recovery from the defendant, whether through a favorable judgment or settlement. 8
SEC, CFTC, & FCA Programs: Relevant Statistics SEC Whistleblower Program (as of FY 2015) Paid more than $54 million to 22 whistleblowers since the program was created in August 2011. In FY 2015 alone, more than $37 million was paid to eight whistleblowers. More than 4,000 tips were submitted that year. Most ever awarded was $30 million to one individual in 2014. CFTC Whistleblower Program (as of FY 2015) No awards in FY 2015, although one award granted in September 2015 is currently on appeal. The office received 232 tips in FY 2015. In April 2016, CFTC awarded more than $10 million, the largest award made since the inception of the program. FCA (as of FY 2015) Lawsuits under the FCA have recovered more than $48 billion since 1986; $33 billion resulting from whistleblower suits (paying out $5.3 billion to relators) In 2015, the DOJ initiated 737 suits, 632 of which were based on whistleblower tips 9
Part III: Dealing with Whistleblowers 10
Duties of In-House Counsel Address claim immediately CLO and/or compliance officer assemble an investigation team Investigation Team Identify witnesses documents to be collected and preserved (for investigation and any potential litigation) Emphasize importance of maintaining confidentiality Reinforce that retaliation is not permitted and vigilantly ensure it does not occur Provide Upjohn warning to whistleblower 11
Whistleblower Protection (Retaliation) The definition of adverse action is expansive and can even include disclosure of the whistleblower s name. Under SOX, for example, an employee need only establish that the employer s action would have dissuaded a reasonable worker from engaging in the protected activity. Employer can avoid liability by establishing it would have taken the same adverse action absent the protected activity Remedies include: Reinstatement; Double back pay; Compensation for any special damages including litigation costs and reasonable attorneys fees 12
Investigating a Whistleblower It is lawful and ethical to research the public record: Federal and state, civil and criminal proceedings Judgments, liens, bankruptcies Business affiliations Property ownership Social network postings that do not require pretexting for purposes of friending Media reports 13
Investigating a Whistleblower (cont d) If the whistleblower is an employee, and the company has relevant policies in force and in use acknowledged by employees, the company may retrieve and examine: The contents of company issued computers Email in the company s domain The employee s use of the Internet through the company s server Telephone numbers called and received using the company s telephone exchange, which may be traceable to identify persons called/calling 14
Investigating a Whistleblower (cont d) Care should be taken to avoid allegations of whistleblower intimidation or retaliation Strategies such as surveillance and interviews of prospective witnesses should be undertaken and deployed only with care and consideration for the consequences of disclosure 15
Part IV: Ethical Considerations in Representation 16
Rules of Professional Responsibility Communication with person Represented by Counsel (Rule 4.2) (a) In representing a client, a lawyer shall not communicate or cause another to communicate about the subject of the representation with a party the lawyer knows to be represented by another lawyer in the matter, unless the lawyer has the prior consent of the other lawyer or is authorized to do so by law. 17
Ethical Issues: Attorney Whistleblowers Part 205 (SOX) generally contemplates reporting material violations up the ladder Under certain conditions, the Rules permit attorneys to submit whistleblower reports. SEC conduct rule: lawyer may reveal confidential client information to the SEC where he/she reasonably believes necessary to: Prevent issuer from committing material violation likely to cause substantial injury; Prevent issuer, in a SEC investigation or proceeding, from committing perjury or perpetrating fraud; Rectify consequences of a material violation that caused, or may cause, substantial injury 18
Relevant Ethical Rules & Opinions: Comments & Opinions on ABA Guidelines Part 205 (SOX) provides that an attorney who complies in good faith with that statute shall not be subject to inconsistent standards imposed by any state or jurisdiction where he/she is admitted to practice. However, questions persist as to whether this preemption clause actually has preemptive effect. California New York Washington 19
Protecting Client Confidences Model Rule 1.6: Permits disclosure of client information if the disclosure is necessary to establish a claim or defense on behalf of the lawyer in a controversy between the lawyer and the client. ABA Formal Ethics Opinion: A wrongful termination claim is a claim within the meaning of Model Rule 1.6. The vast majority of states have adopted this language Courts in States with Model Rule 1.6: Because of this exception, the ethical rule regarding disclosure of confidential information is not violated even if disclosure of client confidences is necessary to bring the whistleblower claim. 20
Protecting Client Confidences Model Rule 1.13: Under many states rules, where in-house counsel becomes aware of a violation of the law that is likely to result in substantial injury to the company, she is permitted to reveal confidential information to the extent the lawyer reasonably believes necessary, after she has reported violations internally and the organization has failed to act. States with More Restrictive Ethical Rules: District of Columbia, Michigan, and New York: Limits use of confidential information to claims involving a fee. Violated if confidences are disclosed by in-house counsel in the course of litigating a whistleblower claim, unless in-house counsel can show that some other exception applies, such as the crime-fraud exception. 21
Reporting Ethical Violations to the Appropriate Disciplinary Authority An attorney who violates his or her ethical obligations in pursuing a whistleblower claim may face disciplinary proceedings. Model Rule 8.3(a): A lawyer who knows that another lawyer has committed a violation of the Rules of Professional Conduct that raises a substantial question as to that lawyer s honesty, trustworthiness or fitness as a lawyer in other respects, shall inform the appropriate professional authority. 22
Ethical Issues: Whistleblower Awards Dodd-Frank: Eligible for a bounty ranging between 10 and 30% of sanctions collected where SEC enforcement action leads to recovery of more than $1 million SEC may split an award between multiple whistleblowers Unclear whether attorney can collect whistleblower bounty Original information does not include information obtained through a privileged communication or in connection with the legal representation of a client. Exceptions: Disclosure otherwise permitted by SEC attorney conduct rules, applicable state attorney conduct rules, or otherwise. 23
Legal and Ethical Considerations Attorneys and Investigators must assure that investigative strategies are lawful and ethical Hewlett Packard 2006 investigators seeking the source of boardroom leaks unlawfully obtained telephone and bank records through pretexts. Uber 2015 investigators contacted acquaintances and colleagues of an antitrust plaintiff using improper pretexts to acquire information. Meyer v. Kalanick and Uber 2016 WL 3981369 (SDNY 2016). 24