We represent whistleblowers under the Dodd-Frank Act, which includes coverage under the Securities and Exchange Act, Commodity Exchange Act, and the Foreign Corrupt Practices Act. We also represent and provide protection to government qui tam and tax fraud whistleblowers under the U.S. False Claims Act and provisions of the IRS Whistleblower Award program.
Internal whistleblowers are the best source of fraud detection. Period. And when they come forward to blow the whistle on corporate fraud, it’s crucial they remain anonymous; and also be rewarded award for their heroic act. Unfortunately, many brave whistleblowers who report fraud internally to compliance officials or company attorneys suffer harsh retaliation, which often results in termination, demotion, or worse.
If you have evidence of corporate fraud, you must keep quiet to avoid retaliation. Do not report fraud internally or speak about the fraud with anybody. To maintain anonymity, remain protected, and get the awards you deserve, you should contact an attorney who specializes in whistleblowing (not criminal defense) to help guide you through the process of collecting evidence, reporting fraud, and filing for an award.
Why You Should Choose Kohn, Kohn & Colapinto to Represent You
Our corporate fraud attorneys have been involved in hardening federal whistleblower law through dedicated public interest advocacy. Our firm met with the SEC and IRS on several occasions, speaking with key organizational officials and filing numerous SEC rulemaking and IRS rulemaking petitions and briefs. Our submissions have helped improved the SEC Whistleblower Reward Program, and the IRS Whistleblower Reward programs – leading to greater incentives for whistleblowers to speak up and file for rewards.
Our Firm’s Corporate Fraud and Qui Tam Cases
On September 19, 2018, news broke of $234 billion money laundering scheme. The scheme moved rubbles out of Russia, converted them to dollars at the Estonian branch of Danske Bank, and then moved the dollars to New York with the assistance of three correspondent banks (Bank of America, J.P Morgan, and Deutsche Bank).
Danske Bank admitted all of its internal controls designed to prevent money laundering had failed. The bank also revealed that the scheme had been reported to the highest levels of the bank by a whistleblower over four years before. The whistleblower’s identity was required to be secret. But it took only days for his name to leak out.
Soon the entire international banking world learned that the former Danske Bank manager Howard Wilkinson had exposed the largest money laundering scheme in history, and that the bank had tried to cover it up.
Birkenfeld was the first international banker to blow the whistle on illegal off-shore tax evasion in Switzerland by U.S. Citizens.
Kohn, Kohn and Colapinto and Athens-based Greek law firm of Pavlos K. Sarakis & Associates jointly represented Greek whistleblowers who proved that the multinational Swiss-based pharmaceutical company Novartis paid millions in bribes to illegally market drugs in violation of the Foreign Corrupt Practices Act. Novartis was required to pay over $300 million in sanctions and fines to the U.S. Securities and Exchange Commission (SEC) and the U.S. Department of Justice (DOJ).
Whistleblower Laws for Fighting Corporate Fraud
Federal qui tam laws and other major whistleblower reward programs cover a vast amount of corporate fraud activities. They also provide strong protections, contain strong anti-retaliation clauses, and mandatory reward provisions. These laws and programs are designed to incentivize whistleblowers to blow the whistle on white-collar crime and corporate fraud.
False Claims Act for Qui Tam Whistleblowers
Initially enacted by President Lincoln to curb rampant profiteering during the Civil War, the False Claims Act is the most effective whistleblower law ever passed to protect and reward whistleblowers who expose government contracting fraud.
Types of Fraud Against the Government and Corporate Frauds The False Claims Act Covers:
- Government Contracting Fraud – when government contractors overbill the federal government or state municipalities more than was provided, kickbacks, providing defective goods, violations of lease agreements, nonpayment, etc.
- National Defense Contractor Fraud – defense contract fraud, where funds are shifted from one contract to another to profit, or the intentional inflation of costs
- Healthcare, Medicare or Medicaid Fraud – illegal marketing of drugs, upcoding or unbundling, COVID-19 fraud or other frauds where federal monies are involved
- Education & Financial Aid Fraud – for-profit colleges and universities violate the rules of the student loan programs improperly recruiting students to generate income
- Mortgage & Bank Fraud – bankers submitting fraudulent claims for government insurance based on wrongful foreclosures;
- Underpayments to Government – a reverse false claims action can occur when defendants knowingly make a false statement in order to avoid having to pay the government when payment is otherwise due
The False Claims Act qui tam provision empowers whistleblowers who have firsthand knowledge of frauds or violations to report them to the appropriate government officials and creates incentives, encouraging whistleblowers to work directly with government investigators, often in the capacity of a confidential informant.
Qui Tam and False Claims Act Whistleblower Rewards
Over the past 10 years, the Department of Justice has paid over $5 billion in whistleblower rewards. A False Claims Act whistleblower can receive between 15 and 30 percent of the total recovery the U.S. gets from the defendant. The FCA qui tam law sets mandatory minimum payments to whistleblowers to help convince “insiders” to take the risk of losing their jobs or suffering other harms. This mandatory minimum is enforceable in court. The guaranteed minimum payments, which are often in the millions of dollars, are essential for convincing potential whistleblowers to step forward.
IRS Whistleblower Program
Since 1867, the Secretary of the Treasury has been allowed to pay such amounts as he deems necessary “for detecting and bringing to trial and punishment persons guilty of violating the internal revenue laws or conniving at the same” under the Internal Revenue Act.
Types of Corporate Tax Fraud the IRS Whistleblower Program Covers:
- Offshore Tax Havens – a company knowingly moves money to a bank in another country to avoid reporting taxable income
- Shell Accounts – setting up multiple bank accounts and circulating money across these accounts to propagate tax benefits
- Money Laundering – the activity of masking or concealing the source of illegally-obtained money by transferring to foreign banks or legitimate businesses
- False Reporting – reporting incorrect information on tax returns, such as underreporting revenues or taxable income
- Falsely Operating Under Tax-Exempt Status – claiming a tax-exempt status to receive tax credits or deductions
- Pyramiding – withholding employee taxes and intentionally not remitting taxes to the IRS, then filing bankruptcy and starting another company
- False Payroll Tax Returns – preparing false payroll tax returns understating the number of wages on taxes owed
- Failure to Pay Payroll Taxes – failing to file employment tax returns are methods commonly used to evade employment taxes
The IRS is looking for solid information, not an “educated guess” or unsupported speculation. They are also looking for a significant Federal tax issue – this is not a program for resolving personal problems or disputes about a business relationship.
IRS Whistleblower Rewards
Over the past 9 years, the IRS has paid over $843 million in whistleblower rewards. The IRS Whistleblower Office pays money to people who blow the whistle on persons who fail to pay the tax that they owe. If the IRS uses information provided by the whistleblower, it can award the whistleblower up to 30 percent of the additional tax, penalty and other amounts it collects.
SEC Whistleblower Program
The SEC Whistleblower Program was created to provide monetary incentives for people to come forward with violations of federal securities laws. Furthermore, the program prohibits employer retaliation as a direct result of a whistleblower coming forward to the SEC with sensitive information.
Types of Corporate Fraud the SEC Whistleblower Reward Program Covers:
- Ponzi schemes, Pyramid schemes & High-yield investment programs – these schemes are fraudulent investing scam which generates returns for earlier investors with money taken from later investors.
- Theft or misappropriation of funds or securities – stock or investment fraud is a sneaky practice in the stock or commodities markets that lure investors to make purchase or sale decisions on the basis of falsified information, frequently resulting in major losses.
- Market Manipulation of a security’s price or volume – market manipulation refers to artificially inflating or deflating the price of a security or otherwise influencing the behavior of the market for personal gain.
- Insider trading – the trading of stock of a public company, or other securities based on material, nonpublic information about the company. In many countries, trading based on insider-only information is illegal.
- Fraudulent or unregistered securities offering – shares that are considered “Unregistered” have far less investor protections. In consequence, companies sell these shares to qualified investors only. To be considered a qualified investor, one must be a high-net-worth individual or a high-income investor.
- Abusive naked short selling – selling an asset without first burrowing the security or checking whether the security can be burrowed.
Almost any individual who reports securities violations to the Commission can become eligible for monetary awards from the SEC Whistleblower Program. Both U.S. citizens and foreign nationals, within or outside of an organization, can be an SEC whistleblower. However, companies cannot qualify as whistleblowers.
SEC Whistleblower Rewards
Over the past 8 years, the SEC has paid whistleblowers more than $750 million in rewards. Those who report securities fraud are entitled to an award of 10% and 30% of the monetary sanctions collected in legal actions brought by the SEC and other authoritative parties. The rules require that the SEC consider many factors when determining the amount, which vary from case to case.
CFTC Whistleblower Program
The CFTC whistleblower reward program, established in 2010 under the Dodd-Frank Act, pays whistleblower awards to eligible individuals who voluntarily provide the CFTC with original information on violations of the Commodity Exchange Act that leads to a successful enforcement action resulting in monetary sanctions exceeding $1,000,000.
- Manipulation or fixing of benchmark rates such as LIBOR, ISDAFIX and global foreign exchange rates
- Illegal, off-exchange precious metals transactions
- Disruptive trading of futures or swaps, including spoofing—bidding or offering with the intent to cancel the bid or offer before execution
- False statements to the CFTC or the National Futures Association
- Forex trading scams
- Violating prior CFTC orders
CFTC Whistleblower Rewards
Under the CTFC Whistleblower Reward Program, rewards are mandatory for qualified whistleblowers and are in the range of 10% and 30% of the collected proceeds. Employers cannot retaliate against whistleblowers or prevent potential whistleblowers from communicating with the CFTC.
Foreign Corrupt Practices Act
The Foreign Corrupt Practices Act (FCPA), enacted by congress in 1977, is a U.S. anti-corruption law that prohibits the payment of anything of value to foreign government officials in order to obtain a business advantage.
The Act is intended to stop corrupt practices, create a level playing field for honest businesses, and restore public confidence in the integrity of the marketplace. The FCPA requires publicly traded corporations to make and keep books and records that accurately reflect the transactions of the corporation in order to ensure that no bribes were paid.
- Using bribes to gain business – paying a foreign official in order to win business in the foreign official’s country – creating an unfair advantage
- Using bribes to approve a project – gifting money or other items of value to a foreign official in exchange for government approval on a business venture
- Using bribes to induce a doctor’s endorsement – using financial incentives to get a doctor to endorse or use a certain product
- Using bribes to gain business from political figures – bribing foreign government officials or foreign political parties as a means of gaining business through political influence
- Failing to keep proper books and records – keeping incomplete or inaccurate records
Foreign Corrupt Practices Act Whistleblower Rewards
In 2010, as part of the Dodd-Frank Act, whistleblowers can obtain monetary rewards for disclosing violations of anti corruption laws contained in the Foreign Corrupt Practices Act. The various reward programs to-date are listed below. However, note that being rewarded for courageous whistleblowing in foreign corruption cases is often complex. The reward amount is based on the sanction amount which in turn is assessed based on a variety of factors, which are often case-specific.
Sarbanes Oxley Act (SOX)
The Sarbanes-Oxley Act of 2002 is a federal law that established major auditing and financial regulations for public companies. In response to the collapse of two multibillion dollar publicly traded companies – ENRON and WORLDCOM – lawmakers created the legislation to help protect shareholders, employees and the public from accounting errors and fraudulent financial practices. It also required publicly traded companies to establish independent Audit Committees, and confidential employee concerns programs.
Section 806 of Sarbanes-Oxley creates a federal civil right of action on behalf of any employee of a publicly traded company, or any employee of a contractor of a publicly traded company, who is subject to discrimination in retaliation for engaging in protected whistleblower conduct, such as reporting corporate fraud or accounting abuses.
Protected activity is narrowly defined as complaining internally to supervisors, complaining to regulators, or complaining in connection with an investigation that the company violated a federal rule related to fraud on shareholders. An employee who complains about violations of state governments regulation, without reference to possible federal regulation violations, is not engaged in protected activity under Sarbanes-Oxley.
An employee engages in protected whistleblower conduct by providing information that he or she reasonably believes is a violation of:
- Federal mail, wire, bank, or securities fraud
- Federal law relating to fraud against shareholders
- Any rule or regulation of the Securities and Exchange Commission (SEC)
Section 806 of SOX extends its protection to any whistleblower who is an officer, employee, contractor, subcontractor, or agent of a publicly traded company, subsidiary of a publicly traded company or a nationally recognized statistical ratings organization.
Sarbanes Oxley Act Whistleblower Rewards
When Congress passed SOX, they explicitly incorporated all of its provisions into the Securities and Exchange Act. They included a provision allowing the SEC to enforce every provision of SOX pursuant to its authorities under the Exchange Act. In other words, a violation of SOX is a violation of the Securities and Exchange Act.
The Dodd-Frank Act, which does contain an explicit whistleblower qui tam or reward law, provides for paying whistleblowers compensation for any violation of the securities laws. Thus, a whistleblower who identified violation of SOX must apply for an award using the rules governing the Dodd-Frank Act.
Anti-Retaliation and Remedies
The SEC, IRS and False Claims Act whistleblower laws have strong anti-retaliation laws, all of which permit whistleblowers to file cases in federal court and request a jury trial. The IRS and Sarbanes Oxley Act whistleblower protection laws are substantially similar.
Employees must file their original complaints with the Department of Labor within 180 days of the time the whistleblower learns that he or she will be subjected to discrimination, harassment, or retaliation.
If you prevail in a corporate fraud or qui tam whistleblowing case after filing a qui tam action, the DOL is required to grant you the standard relief available in most employment cases. This relief includes a full “make whole” remedy that can be crafted around the specific terms and conditions of the job and/or benefits you lost. This includes reinstatement, back pay, payment for lost benefits, special damages, attorney fees, expert witness fees and costs. Front pay may also be available.
The DOL has the authority to issue “affirmative relief,” such as requiring a company to post an apology for the retaliation or other forms of injunctive-type relief.
Anonymity & Confidentiality
The best way to prevent retaliation is for your company not to know who you are. If they do not know who the whistleblower is, it is hard to retaliate.
In addition to paying rewards, the SEC permits whistleblowers to file cases anonymously and confidentiality. The IRS strictly protects whistleblower confidentiality, and the Justice Department regularly grants whistleblowers confidential informant status and requires that False Claims Act cases be filed under “seal” in federal court.
Non-disclosure agreements cannot prohibit whistleblowers from filing reward cases. You should not make any disclosures to your supervisor or company compliance office until after you consult an experienced whistleblower attorney.
Corporate Fraud Resources
If you’re serious about blowing the whistle, you need to know how to protect yourself using various federal and state laws. The New Whistleblower Handbook, written by founder Stephen Kohn, is a step-by-step guide to doing what’s right and protecting yourself.
The book contains twenty-one clear and comprehensive rules that fully explain “how” to effectively blow the whistle on corporate fraud and potentially qualify for financial rewards. It is very important that you review this resource in order to determine what laws may protect you and whether you need to take immediate action to protect your rights.
60 Minutes Birkenfeld Case: Banking: A Crack In the Swiss Vault
60 Minutes Wilkinson Case: Danske Bank Whistleblower