WHISTLEBLOWERS AN HISTORICAL OVERVIEW FROM THE CIVIL WAR TO DODD-FRANK PAUL FIORELLI, J.D., M.B.A.,C.C.E.P PROFESSOR OF LEGAL STUDIES, XAVIER UNIVERSITY FIORELLI@XAVIER.EDU, (513)745-2050 1 Agenda BOUNTY Dodd-Frank PROTECTION Sarbanes-Oxley Dodd-Frank 2 Civil War 1863 1943 WWII Star Wars 1986 2009 3
Shoddy - poor sleezy stuff, woven open enough for sieves, and then filled with shearman s dust... Soldiers, on the first day s march or in the earliest storm, found their clothes, overcoats, and blankets, scattering to the wind in rags or dissolving into their primitive elements of dust under the pelting rain. Civil War 4 Civil War 5 You can sell anything to the government at almost any price you ve got the guts to ask. Jim Fisk Civil War 6
False Claims Act passed by Congress on March 2, 1863 Before the FBI and DoJ Private bar brought lawsuits on behalf of the government "qui tam pro domino rege quam pro se ipso in hac parte sequitur," he who brings an action for the king as well as for himself." Double damages fines, plus $2,000 civil fine per violation Relator entitled to 50% of the amount recovered Civil War 1863 7 Professional Relators Waited outside courthouse After Government filed criminal claim they copied this information into a Civil False Claims Actions Collecting 50% of the Government s claim 1943 WWII 8 Congress changed FCA Give DoJ supporting evidence DoJ had 60 days to intervene Relator could receive fair & reasonable compensation 10% cap if Government intervened 25% if they did not 1943 WWII 9
Strategic Defense Initiative doubled Defense spending, fraud also increased 1986 FCA Amendments From $2,000 to $10,000 per violation From Double to Triple damages Relator - increased from 10% cap to 10-20% if the government intervened Increased from 10-25% to 20-35% Star Wars 1986 10 Awards Fraud Enforcement and Recovery Act (FERA) Troubled Asset Relief Program (TARP) Congress wanted to make sure individuals could sue, unscrupulous mortgage brokers and Wall Street financiers. 2009 FERA 11 Qui Tam Awards Qui Tam Awards 10000000000 9767949095 7500000000 5000000000 2500000000 4149188395 5888379685 0 1085574146 128468802 1987-1991 1992-1996 1997-2001 2002-2006 2007-2011 Fraud Statistic - Overview, October 1, 1987-September 30, 2011, Civil Division, U.S. Department of Justice http://www.crowell.com/pdf/falseclaimstat.pdf 12
WHISTLEBLOWER PROTECTION Sarbanes-Oxley Dodd- Frank 13 Sarbanes-Oxley I ve seen a mini-explosion of Once high-performing, whistleblower claims by people well-respected employees who are marginal performers, if blow the whistle, suddenly not malingerers. they become, in retrospect, terrible, if not Victor Schacter, employment incompetent, employees. partner, Fenwick & West Jeffrey Ross, plaintiffs attorney, Dickson Ross 14 Sarbanes-Oxley 301 806 1107 15
Section 301 Audit Committees of Publicly held companies Establish procedures for the receipt, retention & treatment of complaints Re: accounting, internal accounting controls, or auditing matters Confidential, anonymous reporting 16 Section 806 18 USC 1514A (2005) - Whistleblower Protection (Sec. 806) No publicly traded company will discharge, demote or threaten an employee who reasonably believes a securities fraud or SEC violation has occurred, and reports to: Federal regulatory or law enforcement agency Member of Congress or Congressional committee Supervisor or person with authority to investigate File with D.O.L. (OSHA handles investigation and prosecution) Entitled to compensatory damages, reinstatement, back pay (with interest), litigation expenses and reasonable attorneys fees 17 Section 1107 Whoever knowingly with the intent to retaliate, takes ANY ACTION harmful to ANY PERSON, including interference with the lawful employment or livelihood of ANY PERSON for providing to the law enforcement officer ANY TRUTHFUL INFORMATION relating to the commission, or possible commission of ANY FEDERAL OFFENSE, shall be fined under this title, or imprisoned for not more than 10 years, or both. 18 USC 1513 - Retaliating against a witness, victim or informant. 18
Dodd-Frank 922 of Dodd-Frank amended Securities Exchange Act of 1934 19 922 Bounty Provision Anti-retaliation provisions 20 922 - Bounty Amended Securities Exchange Act of 1934 If SEC levies sanction exceeding $1,000,000 Whistleblower providing original information entitled to 10-30% of the sanctions imposed Applies to both public and private companies 21
922 - Bounty Whistleblower may report to the SEC without reporting internally first May create a tension, and incentive to let problems fester, to grow larger for bigger bounty 22 Dealing with Concerns Possible Problem Identification Contact your supervisor Contact the Director of Operational Risk or Employee Relations Contact your supervisor s supervisor May 25, 2011 SEC Adopts Rules for Whistleblowers under Dodd-Frank Contact the Helpline/Hotline 23 SEC COMPLIANCE LINE 24 24
25 25 26 26 922- Anti-retaliation Protection of Whistleblowers No employer may discharge, demote, suspend, threaten, harass... or discriminate against a whistleblower... Relief Reinstatement with same seniority 2 x back pay owed litigation costs, expert witness, reasonable attorneys fees 27
28 29 Action Items Increase Awareness Promote a sense of Agency Help Employees Feel Secure Help Employees Develop a Sense of Connectedness 30
Awareness resources available to employees who have questions Behaviors the company considers wrong (for managers) the situations that constitute reports of misconduct 31 Agency Demonstrate to employees that they make a difference when they report Communications campaign Acknowledge and reward reporter s courage 32 Security Communicate the well-being of the company Provide resources to seek advice In high risk situations, give increased support Provide stories about those who reported, and were supported by the company 33
Connectedness Give opportunities for employees to connect around common interests in ethics Support employee involvement in their communities 34 Support Train managers to respond to reports Develop ombuds programs Provide rewards to employees who report Offer support to families of employees who report misconduct 35 Listening to the Quietest Voice in the Room If everyone has a sense of long-term stewardship over our assets every day, then people will also start to speak up more if they have concerns. I want us to sharpen our everyday attitude to operational and technical risk, to ensure it is the norm for people on the frontline to speak about risk, and for managers to listen. Bob Dudley, CEO of BP Replaced former CEO, Tony Haywood July 27, 2010 I don t assume that I always know the answer to something. I can draw on years of experience and intuition, but we need to be constantly enquiring and learning and listening to everyone including the quietest voice in the room. We have to keep thinking the unthinkable be it operational, financial or compliance risk. Nobody has all the answers. Only by working together and making the most of everyone s capabilities will we begin to move the company forward. 36
ALL THAT IS NECESSARY FOR EVIL TO TRIUMPH IS FOR GOOD MEN (AND WOMEN) TO DO NOTHING. EDMUND BURKE 37 ANY QUESTIONS? Please Contact Paul Fiorelli Fiorelli@xavier.edu (513)745-2050 38