Archive for September, 2013

Chief Sean McKessy Optimistic About Direction of SEC Whistleblower Program

When Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010, the creation of the SEC Office of the Whistleblower was heralded as a positive step in curbing fraud in federal securities transactions.  Yet, in the three years since its inception, the SEC has paid out only four relatively meager awards, despite thousands of claims pouring in to the office.  Although the SEC Whistleblower Program is undeniably new in comparison with the Lincoln-era False Claims Act, patience with this seemingly slow start has been thin as the program has found itself under fire for the lack of immediate results.

As a result, some whistleblowers have understandably questioned whether to file a claim and potentially jeopardize their professional careers with little chance of an ultimate award.  While more than 3,000 claims were filed in 2012, there is no way to count how many claims were not filed by reluctant whistleblowers unwilling to travel down a seemingly endless path.

Just last week, the Director of the SEC Office of the Whistleblower, Chief Sean McKessy, responded to these concerns with optimism for the program and promises of more awards on the horizon.  Chief McKessy’s interview, as reported by Rachel Ensign of the Wall Street Journal’s Risk & Compliance Journal, is attached below.

I find Chief McKessy’s statements to be motivating and evident of his commitment to ensuring that the SEC Whistleblower Program succeeds.  An unfortunate reality to almost any whistleblower case, whether brought through the False Claims Act or an individual government department, is that the process is slow and may take many years to reach a final resolution.  There is no reason to expect any less from the SEC program, which, by nature, will be faced with complex allegations and investigations.  I anticipate that, as rewards begin to be announced, the number of filed complaints will increase exponentially beyond the 3,000 that were filed last year.  For this reason, it remains important for potential whistleblowers to seek counsel and get their claims on file with the SEC as quickly as possible.

The James Hoyer law firm has many years of experience representing whistleblowers and advocating on their behalf, including claims submitted anonymously to the SEC.  If you believe you have information regarding a possible violation of federal securities laws or regulations and are considering submitting your information to the SEC, please contact James Hoyer for an evaluation of your claims.  Click here for more information about the firm and to submit your information electronically, or you may contact our office at 813-397-2300.

Written by Jillian Estes

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By Rachel Louise Ensign, Wall Street Journal

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Chief Sean X. McKessy

When Sean McKessy took the helm of the Securities and Exchange Commission’s new whistleblower office in early 2011, many businesses feared the program would destroy internal compliance efforts. Those concerns have subsided, he said, and the tips have started flowing in–3,001 of them in fiscal year 2012, to be exact. Now the big question is: when will the big whistleblower bounties start being awarded?

Risk & Compliance Journal spoke with Mr. McKessy about his experience launching the office and his plans for the future, which include enforcing the anti-retaliation provisions of the 2010 Dodd-Frank financial overhaul law, the legislation that established the SEC’s new whistleblower program.

We keep hearing that there’s a flood of whistleblower awards on their way. Can you be any more specific as to what to expect and when?

Mr. McKessy: I think it’s a fair question to ask, and I don’t hide from the question of “how come you have made only four payouts and when will you really start making more?” But I don’t really have a prediction for you.

Rather than characterize it as a flood of additional awards, I would say that logically speaking, the longer we get away from the statute that created the program, which was July 21, 2010, the more time we have for whistleblower tips to actually ripen into investigations, and those investigations to ripen into litigation and litigation to ripen into successful actions where we get over a million dollars in sanctions, all of which are required before we have any ability to pay anyone.

How do you decide which whistleblower tips to pursue?

Mr. McKessy: There are two sides of the scale, which are easy to deal with. Some tips that come in are extraordinarily specific, timely and credible. You don’t have to spend a lot of time realizing that those are good tips and you should find a home for additional enforcement resources.  On the other end of the spectrum, sometimes we get tips that are clearly either nonsensical or don’t relate to anything we have the authority to pursue.

It’s really the ones that are in that middle ground that become a little bit more difficult. In connection with those kinds of tips, we have our office of market intelligence, which is comprised of upwards of 50 lawyers, accountants and market professionals whose job it is to read intelligence including whistleblower tips and decide which ones merit additional enforcement resources.

Are you planning to enforce the anti-retaliation whistleblower provisions of Dodd-Frank?

Mr. McKessy: Yes. I think our office has a role to play in pursuing cases where we think companies have not acted in good faith with respect to people who have reported to us.

Obviously I can’t go into any details, but I will say that we are working with enforcement staff and our general counsel’s office on a number of matters that at least have the initial indicia of a fact-pattern that shows that a company didn’t treat their employees in good faith when a report was made to us.

The commission has the authority to enforce the anti-retaliation provisions in Dodd-Frank. We are actively looking for ways to be proactive in pursuing, under appropriate circumstances, a retaliation claim, either as an add-on to an instance where there was substance to the underlying report, but also if we are given evidence that a person reported to us in good faith and it turned out that they were wrong, but they had reason to believe that what they reported to us was true and the company took unfortunate employment action just because they reported to us.

I myself am asking our enforcement staff to be on the lookout for one of these stand-alone retaliation cases.

What has the process been like for deciding whether a whistleblower deserves an award and how much of an award they should get?

Mr. McKessy: The process of deciding whether a whistleblower deserves an award I would characterize as more of a science than an art, since the rules set forth various eligibility criteria. But the rules provide an extraordinary amount of discretion to our office when deciding the size of the award. That I would characterize as the art part.

In the first award, we awarded a [maximum] 30% payout. The whistleblower was very persistent in reporting to us and making sure we were paying attention to the conduct, then worked with us throughout the proceedings and helped us get to the finish line in a very efficient manner. We thought it met a paradigm of the ideal whistleblower.

The second award, we had three whistleblowers, and awarded 15% to be split evenly. That was an instance where we had whistleblowers that had some very important information which put us on the investigation, but they weren’t in the position where they could give us ongoing assistance. It fell short of the maximum award, but they each did more than the minimum.

I would be lying if I said it was a very mathematical, scientific, step-by-step process. Where it becomes a bit of a challenge is when you have to make these calls: what does a 30% case look like versus a 10% case versus a 13% case versus a 28% case?

Did your years in the private sector play a role in the way you’ve set up and run the whistleblower program?

Mr. McKessy: Only when you have worked in-house do you know what it means to be an employee of a company. I think I have a tremendous amount of sympathy for our potential whistleblowers and understand some of the headwinds. Your instincts are to be loyal to your company and not to necessarily report wrongdoing externally.

I also had a perspective on internal compliance functions. I was in house when Sarbanes-Oxley was passed and I was tasked with building a number of the compliance enhancements in light of the requirements of Sarbanes-Oxley. So I also have an appreciation for some of the anxiety when a regulator sets up a new process or a new regime.

Companies were wary of your program before it began. Does that sentiment remain?

Mr. McKessy: I believe that some of that anxiety has subsided. What I’m hearing is contrary to the concern that we would be destroying internal compliance.

What I hear is that companies are generally investing more in internal compliance as a result of our whistleblower program so that if they have an employee who sees something, they’ll feel incentivized to report it internally and not necessarily come to us.

The vast majority of people who come to us about their current or former company do say they tried to report internally.

Similarly, the concern that we would be inundated with a bunch of nonsense and we didn’t have the resources to handle the tips that came in, so far I think has proven to be unfounded.

 

Valery Bogomolny, Former Owner of Los Angeles Medical Equipment Company Indicted in $4 M. Medicare Fraud Scheme

A former owner of a Los Angeles medical equipment supply company has been indicted for allegedly engaging in a $4 million Medicare fraud scheme.

Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division, U.S. Attorney André Birotte Jr. of the Central District of California, Special Agent in Charge Glenn R. Ferry of the Los Angeles Region of the U.S. Department of Health and Human Services Office of Inspector General (HHS-OIG), and Assistant Director in Charge Bill L. Lewis of the FBI’s Los Angeles Field Office made the announcement.

Valery Bogomolny, 41, of Los Angeles, Calif., was indicted in the Central District of California on six counts of health care fraud, each of which carries a maximum penalty of 10 years in prison upon conviction. Bogomolny was taken into custody on Sept. 27, 2013, and the indictment was unsealed following his initial appearance in federal court that afternoon.

According to court documents, Bogomolny was the owner and president of Royal Medical Supply, a durable medical equipment (DME) supply company located in Los Angeles. From approximately January 2006 through October 2009, he allegedly engaged in a scheme to commit health care fraud through the operation of Royal by providing medically unnecessary power wheelchairs and other DME to Medicare beneficiaries and submitting false and fraudulent claims to Medicare. Court documents allege that Bogomolny knew the prescriptions and medical documents were fraudulent and that some of the beneficiaries did not receive the DME, yet he certified to Medicare with the submission of each claim that the DME was received and was medically necessary.

Read rest of story here

 

James Hoyer Military Whistleblower Shares Insights

Retired Air Force Lt Col Timothy Ferner is a rare breed.  He is one of the few military officers to come forward as a whistleblower, putting his career on the line, to expose waste and abuse. His successful case gives hope to many other military officers and enlisted men and women who’ve tried to report concerns through the chain of command, only to be ostracized and retaliated against for trying to do the right thing.
 

Using the Freedom of Information Act to Support a False Claims Act Case?

There is no doubt that a whistleblower who has documents supporting his allegations will be much more prepared to prove his allegations than a whistleblower who is acting just on a hunch.  In fact, many qui tam attorneys require some sort of validating information or documentation before proceeding with the case.

When searching for documents, there is a very fine line that cannot be crossed without jeopardizing the case.  This blog recently covered the potential obstacles that may arise when a whistleblower seeks to use internal corporate documents.  This post addresses another commonly-considered, but potentially hazardous method of obtaining supporting information – a Freedom of Information Act, or “FOIA,” request.

FOIA Requests and the Public Disclosure Bar          

Nearly every government office and department is subjected to the Freedom of Information Act, a transparency provision which allows private citizens to seek disclosure of government documents, records or information.  Each government department has its own set of rules and procedures for making a FOIA request, as well as its own method for responding to a proper request.  While there are nine standard exceptions and three special law enforcement exceptions that prevent documents from being publicly disclosed, most records are ultimately obtainable.  In the Fiscal Year 2012, more than 93% of FOIA requests resulted in full or partial records disclosures.

With such an attractive and available source of federal government records, it is not a surprise that potential whistleblowers with suspicions of fraud may feel compelled to make FOIA requests to support their allegations.  However, the federal False Claims Act contains a provision known as the “public disclosure bar” which generally prohibits whistleblowers from bringing qui tam suits based on publicly available information, including federal “reports, hearings, audits or investigations.”

On May 16, 2011, the United States Supreme Court issued an unprecedented opinion in Schindler Elevator Corp. v. United States ex rel. Kirk, 131 S.Ct. 1885 (2011), holding that the government’s response to a FOIA request, even one filed by a whistleblower looking for corroborative evidence of fraud, is a “report” for purposes of the public disclosure bar.

Daniel Kirk was a veteran working at Schindler Elevator Corporation when he developed suspicions that the company was falsifying reports to the federal government by overstating the number of veterans it employed in government contract work.  Kirk’s wife filed three FOIA requests to the Department of Labor and, in response, received reports which corroborated Kirk’s beliefs.  Based in part on the supporting documents, Kirk filed a qui tam lawsuit against Schindler Elevator on behalf of the federal government.

Schindler Elevator sought to dismiss the case, arguing that the case was subject to the public disclosure bar because the responses to the  FOIA requests were effectively public reports made by the government.  The Second Circuit found in favor of Kirk, but Schindler appealed to the Supreme Court.

The Supreme Court reversed the lower court’s decision, finding in favor of Schindler in a 5-to-3 decision (Justice Kagan did not participate).  The Court reasoned that the ordinary meaning of a government “report” includes responses to FOIA requests and that “anyone could have filed the same FOIA request and then filed the same suit.”  Justice Thomas further called Kirk’s suit “a classic example of the opportunistic litigation” that the False Claims Act forbids.  Justice Ginsburg wrote a strong dissent, warning that the majority opinion “weakens the force of the FCA as a weapon against fraud….”

Much discussion and legal analysis has followed Schindler Elevator, particularly because Kirk appeared to have personal, first-hand knowledge of the fraud that was confirmed by the FOIA-produced records.  His situation was plainly unique from a third-party corporate outsider who stumbled upon some indication of fraud purely by reviewing government documents.  However, because the Court did not take the opportunity to distinguish between those who used FOIA-obtained information to support first-hand knowledge and those who used FOIA-obtained information to entirely form the basis of qui tam suit, potential whistleblowers must be careful to completely avoid this issue.

In sum, the Schindler Elevator case stands for the proposition that a potential whistleblower may face severe consequences if he receives a response to a FOIA request prior to filing a False Claims Act case on the same issue.  Any potential whistleblower should consult with experienced qui tam counsel before making a FOIA request to discuss methods for properly obtaining corroborating evidence that will minimize the risk to a case’s ultimate success.

If you believe you have information regarding fraud against the government and are considering bring a False Claims Act case, please contact James Hoyer for an evaluation of your claims.  Click here for more information about the firm and to submit your information electronically, or you may contact our office at 813-397-2300.

Written by Jesse Hoyer

 

JPMorgan Chase Agrees to Pay $200 Million and Admits Wrongdoing to Settle SEC Charges

Washington D.C., Sept. 19, 2013

The Securities and Exchange Commission today charged JPMorgan Chase & Co. with misstating financial results and lacking effective internal controls to detect and prevent its traders from fraudulently overvaluing investments to conceal hundreds of millions of dollars in trading losses.

 The SEC previously charged two former JPMorgan traders with committing fraud to hide the massive losses in one of the trading portfolios in the firm’s chief investment office (CIO). The SEC’s subsequent action against JPMorgan faults its internal controls for failing to ensure that the traders were properly valuing the portfolio, and its senior management for failing to inform the firm’s audit committee about the severe breakdowns in CIO’s internal controls.

 JPMorgan has agreed to settle the SEC’s charges by paying a $200 million penalty, admitting the facts underlying the SEC’s charges, and publicly acknowledging that it violated the federal securities laws.

Read rest of story here

 

James Hoyer Produces FBI Tribute Video

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Pictured left to right:
Angie Moreschi, Producer; Al Scudieri, Society President; Ray Batvinis, Society History Chairman; Larry Wiezycki, Director of Photography

James Hoyer Lead Investigator Al Scudieri is President of the Society of Former Special Agents of the FBI.  This week, he presided over the organization’s national convention in Sun Valley, Idaho.  Every year, the Society pays tribute to agents killed in the line of duty in the region where the annual conference is held. This year, the James Hoyer Law Firm was honored to donate the services of its production team to produce a tribute video in memory of agents Jack Coler and Ron Williams.

Agents Coler and Williams were killed on the Pine Ridge Indian Reservation in South Dakota in 1975.  The two were attempting to serve a warrant on a kidnapping suspect when they were ambushed and wounded in a shootout.  Then, unable to escape, they were executed at close range.

The video below is a celebration of the promising lives lost in that  tragedy nearly 40 years ago.  Our thanks to the family and friends of agents Coler and Williams, who shared their thoughts and memories of these two brave agents.

 

 

Gustave Drivas, the “No Show” Doctor, Sentenced to 151 Months in Prison in Connection with $77 Million Medicare Fraud

Gustave Drivas, M.D., 58, of Staten Island, N.Y., was sentenced to serve 151 months in prison for his role as a “no show” doctor in a $77 million Medicare fraud scheme. The State of New York revoked Dr. Drivas’s medical license earlier this year.

Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division, U.S. Attorney Loretta E. Lynch of the Eastern District of New York, Assistant Director in Charge George Venizelos of the FBI’s New York Field Office and Special Agent in Charge Thomas O’Donnell of the U.S. Department of Health and Human Services Office of Inspector General (HHS-OIG) made the announcement.

Drivas was convicted by a jury on April 8, 2013, of health care fraud conspiracy and health care fraud after a seven-week trial. He was acquitted of kickback conspiracy. Including Drivas, 13 individuals have been convicted of participating in the massive fraud scheme, either through guilty pleas or trial convictions. In addition to the prison term, U.S. District Judge Nina Gershon of the Eastern District of New York sentenced Drivas to three years of supervised release with a concurrent exclusion from Medicare, Medicaid and all Federal health programs, ordered him to forfeit $511,000 and ordered him to pay restitution in the amount of $50.9 million.

Read rest of story here

 

A Race to the Courthouse: Why Being First Matters in Qui Tam Cases

A major point of emphasis in nearly every discussion of bringing a qui tam case is filing the case as early as possible.  Though there are several reasons for this, the most important is due to a part of the False Claims Act known as the “first-to-file bar.”  In sum, the first-to-file bar creates a literal “race to the courthouse” where the runner-up can be completely excluded from the proceeds of a successful qui tam lawsuit just by being in “second (or third, or fourth…) place.”  This means that, even if an investigation leads to a successful recovery, the so-called “later-filed relator” may walk away empty-handed while the first-filed relator reaps a significant financial award.

Section 3730(b)(5) of the Federal False Claims Act says,

          When a person brings an action under this subsection, no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.

In other words, when a person files a qui tam complaint, no one else can file a complaint against the same defendant for the same fraud while the first case is pending.  Though the language of the statute is relatively short, there are several key parts which are equally important when determining whether a case is impacted by the first-to-file bar.

Is the First Case Pending?

The first-to-file bar does not create a permanent ban for all time against a defendant who has faced a qui tam allegations.[1]  However, the bar is in effect for the life of the first case – from the time is it is filed under seal until the time it is dismissed, settled or tried to a verdict.  In re Natural Gas Royalties Qui Tam Litigation (CO2 Appeals), 556 F.3d 956, 964 (10th Cir. 2009)(“The ‘pending’ requirement much more effectively vindicates the goal of encouraging relators to file; it protects the potential award of a relator while his claim remains viable, but, when he drops his action another relator who qualifies as an original source may pursue his own.”)

It can be very difficult to know whether there is a pending qui tam case which would impact a later-filed case.  Of course, if a case has been unsealed, it will appear on the publicly-accessible federal court docket, and there may well be media articles covering the case.  A major difficulty is presented by sealed cases, which by nature are not readily discoverable by the public.  On occasion, a whistleblower may hear water-cooler conversation about another employee filing a qui tam case, or experienced qui tam counsel may be able to read the tea leaves to interpret common corporate practices by a company involved in a False Claims Act investigation.  But, while these may be strong clues, it is impossible to know with certainty whether another qui tam case has been filed and remains under seal.

It is important to remember that for purposes of the first-to-file bar, it does not matter whether the later-filed relator had actual knowledge of the first-filed complaint.  It is strictly a matter of being first-in-time.

What is a “Related Action” for Purposes of the First-to-File Bar?

Later-filed cases are only precluded by the first-to-file bar if it is a “related action based on the facts underlying the pending action.”  While that standard is broad, it is not all-encompassing, meaning that a defendant is not automatically protected from all other qui tam cases just by virtue of one case existing.  There has been extensive case law developed around the issue of what constitutes “a related action based on the facts underlying the pending action” and ultimately a first-filed and later-filed complaint will require a head-to-head comparison to see whether the first-to-file bar is invoked.  U.S. ex rel. LaCorte v. SmithKline Beecham Clinical Laboratories, Inc., 149 F.3d 227, 234 (11th Cir. 1994)

Two complaints do not need to be identical for the first-filed complaint to preclude the later-filed complaint.  U.S. ex rel. Batiste v. SLM Corp., 659 F.3d 1204, 1208 (D.C. Cir. 2011).  If the first-filed complaint provided the information necessary to set the government on the trail of fraud, then it will bar any later-filed complaints that would be traveling on the same trail.  LaCorte, 149 F.3d at 232-34.  The bar is exception-free.  U.S. ex rel. Lujan v. Hughes Aircraft Co., 243 F.3d 1181, 1187 (9th Cir. 2001).

However, there are situations where the first-to-file bar does not prohibit a second complaint.  For example, if a complaint alleges a similar fraudulent scheme but identifies different defendant companies than an earlier-filed complaint, then the later-filed complaint may still survive.  In re Natural Gas Royalties Qui Tam Litigation (CO2 Appeals), 556 F.3d at 962.  Similarly, if the later-filed complaint identifies the same defendants but an entirely unique fraudulent scheme, then the later-filed complaint will likely not be subject to the first-to-file bar.  U.S. ex rel. Heineman-Guta v. Guidant Corp., 874 F.Supp.2d 35, 38 (D.Mass. July 5, 2012).

If a whistleblower learns of a first-filed, pending complaint, experienced qui tam counsel will conduct an exacting comparison of the two complaints to determine if there are unique aspects or whether the cases overlap entirely.  The relators and their counsel may reach an agreement on how to proceed, or the government or the judge can assist in the process.  There may even be situations where a second-filed complaint would be precluded by the first-to-file bar, but the two relators resolve to work together to present a stronger case against the defendants.  Experienced qui tam counsel will present a relator with all viable options before determining how to proceed.

Conclusion

Beyond just the first-to-file bar, there are additional reasons why a relator should come forward as early as possible to report fraudulent conduct.  From a purely ethical standpoint, the sooner the fraud is reported, the sooner it can be stopped.  Additionally, the timeliness of a relator’s complaint is considered in the factors that determine the relator’s share at the end of a successful case.  Simply put, a relator is given additional consideration if he came forward with evidence of the fraud as soon as the scheme was apparent, rather than waiting months or years while the government continued to be victimized.

The most important thing a relator can do to avoid the first-to-file bar is to seek out qui tam counsel as soon as he is aware of fraud against the government.  A relator who comes to the first meeting with well-organized and documented allegations will be valuable in moving the case forward quickly and efficiently.  Because the potential consequences of being the second-filed relator are so severe, the relator should expect a sense of urgency to get a case investigated and filed as soon as possible.  Being available and helpful during this period may make the ultimate difference in whether a case can proceed or whether it is precluded by the first-to-file bar.

If you believe you have information regarding fraud against the government and are considering bring a False Claims Act case, please contact James Hoyer for an evaluation of your claims.  Click here for more information about the firm and to submit your information electronically, or you may contact our office at 813-397-2300.

Written by Jillian Estes



[1] Once a case is resolved and unsealed, there may be other issues such as the Public Disclosure Bar or claim preclusion that effectively preclude a relator from moving forward with a qui tam case.  These are unique from the first-to-file bar and should be given careful consideration by a whistleblower and his attorneys before filing.

 

Middleman Settles in Defense Contractor Whistleblower Case

The U.S. government has announced a settlement with the middleman at the center of a wide-ranging scheme to obtain defense contracts by circumventing the bidding process.  Steven Stallings acted as a broker agent inappropriately securing government contracts for major defense contractor SAIC without going through required contract procedures.  Stallings, who worked for the New Mexico Institute of Mining and Technology at the time, but was based in Valrico, Florida, has agreed to pay the government $105,000 for his role in the fraud.  Stallings settlement comes on the heels of a larger settlement for nearly $6 million with SAIC.

Stallings has also agreed to cooperate fully with investigations currently pending by the United States into other entities, including another contract broker located in Crane, Indiana, Lawrence Solliday.  Solliday was director of the Naval Surface Warfare Center and also worked for SAIC.  The settlement does not preclude any possible criminal charges against Stallings that could result from the investigation.

The case was brought to light by whistleblower Timothy Ferner, who is a client of the James Hoyer Law Firm.  Ferner is a retired Lieutenant Colonel with the Air Force and was stationed at Nellis Air Force Base in Las Vegas, Nevada, where many of the inappropriate contract orders were executed.

“This is the second settlement in this case, which resulted from the brave actions of our whistleblower coming forward and putting his career on the line,” said James Hoyer Partner Elaine Stromgren. “It’s very important, because it shows that the government is not only holding the company, SAIC, accountable but also the individual who played such a significant role in executing this impropriety.”

Stallings was the key contact between SAIC and military personnel at multiple Department of Defense entities, including Nellis Air Force Base and MacDill Air Force Base in Tampa, Florida. Stallings claimed to be a high ranking government official who had authority to bypass the bidding process, which was not true.  As a result, the settlement agreement says “Stallings caused SAIC to submit to GSA (General Services Agency) over 360 invoices for work on various Task Orders under the BPA (Blanket Purchase Agreement).”  Stallings actions led to SAIC being awarded millions of dollars in improper government funding.

Lt Col Ferner became suspicious that normal contract procedures were bypassed and repeatedly reported his concerns to his supervisor.  He was alarmed that his superiors condoned and wanted to cover up the violation.  When no action was taken, he felt compelled to report his concerns to the Office of Investigative Services.  That led to retaliation against him for going over his supervisor’s head.  Lt Col Ferner was ultimately fired from his position and transferred to a job with little responsibility.  He felt filing a whistleblower lawsuit was the only way to expose the wrongdoing and recover the taxpayer dollars inappropriately obtained by SAIC.

“Lt Col Ferner is a testament to courage in the face of institutional pressure to keep quiet and go along. Thanks to his perseverance, the American taxpayers have not only recovered some of the money wasted, but also can rest assured that there will be increased scrutiny on these types of blanket contracts moving forward,” said Stromgren.

As provided under the qui tam provision of the False Claims Act, Ferner will receive a portion of the settlement as a reward for bringing the fraud to light.

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Overview of the SEC Whistleblower Program

The Whistleblower Program is designed to aid the SEC’s efforts to protect investors from those who violate the securities laws by encouraging those who are aware of misconduct to come forward to report it to us so that prompt and effective action can be taken to prevent or stop the misconduct.”

—Sean X. McKessy, Chief, Office of the Whistleblower

In response to the fiscal crisis of the late-2000s, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010.  Commonly referred to as “Dodd-Frank,” the legislation restored much of the regulatory authority that had deteriorated over the previous decades.  The authors of the legislation recognized the crucial role that whistleblowers have served in exposing corporate fraud and protecting the public coffers.  Therefore, as part of these reforms, Dodd-Frank created the Securities and Exchange Commission’s Office of the Whistleblower.

The Office of the Whistleblower rewards citizens for exposing violations of the federal securities laws and offers protections in the event that employers retaliate against employees who report the abuse to the Securities and Exchange Commission (“SEC”).  Specifically, Dodd-Frank authorizes the SEC to provide monetary awards to eligible individuals who come forward with high-quality, original information that leads to a SEC enforcement action in which over $1,000,000 in sanctions is ordered. The range for awards is between 10% and 30% of the money collected.  Prior to Dodd-Frank, whistleblowers could seek rewards from the SEC of up to only 10% of regulatory penalties.

According the SEC, an eligible whistleblower “is a person who voluntarily provides us with original information about a possible violation of the federal securities laws that has occurred, is ongoing, or is about to occur.”  If the information provided causes the SEC to initiate a new investigation, re-open a previously closed investigation, or pursue a new line of inquiry in connection with an ongoing investigation, and the SEC brings a successful enforcement action based at least in part on the information provided, the whistleblower may be entitled to a reward.

This is an exciting and promising development in the ongoing fight against taxpayer fraud.  The whistleblower program began operating in August 2011 and the first award was made just one year later in August 2012.  That first whistleblower received nearly $50,000, which was 30% of the amount collected in an SEC enforcement action against the perpetrators of the scheme.  Most recently, the SEC said three unnamed whistleblowers would each receive 5% of any sanctions collected in a Massachusetts federal court case against an investment fund that swindled its investors of nearly $2 million.  The SEC said in an administrative order that the whistleblowers “voluntarily provided original information to the commission that led to the successful enforcement” of the matter.

This is only the beginning.  According to Sean McKessy, chief of the SEC’s Office of the Whistleblower, “we are likely to see more awards at a faster pace now that the program has been up and running and the tips we have gotten are leading to successful cases.”

One of the primary reasons the SEC’s whistleblower bounty program is beginning to show signs of success is the number of safeguards in place to protect citizens who provide helpful tips.  Among the numerous protections afforded by Office of the Whistleblower, anyone wishing to provide information pertaining to securities fraud may do so anonymously.  However, in order to do so, you must have an attorney represent you in connection with your submission and you must also provide the attorney with a completed form signed under penalty of perjury at the time you make your anonymous submission.

The James Hoyer law firm has many years of experiencing representing whistleblowers and advocating on their behalf, including claims submitted anonymously to the SEC.  If you believe you have information regarding a possible violation of federal securities laws or regulations and are considering submitting your information to the SEC, please contact James Hoyer for an evaluation of your claims.  Click here for more information about the firm and to submit your information electronically, or you may contact our office at 813-397-2300.

Written by Sean Keefe