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DAN HARGROVE

Mr. Hargrove represents whistleblowers. Prior to joining Waters & Kraus, LLP, Mr.Hargrove practiced with Hargrove & Rea, PC, Jenkens & Gilchrist, PC, and served forsix years on active duty with the U.S. Army JAG Corps (10th Mountain Division (LightInfantry) and deployed to the Middle East with the 82nd Airborne Division). Mr.Hargrove served as an Assistant Professor of Law at the U.S. Army JAG School from

2003 to 2011. He continues to serve in the Reserves, with the rank of LieutenantColonel. Mr. Hargrove was named The 2004 San Antonio Young Lawyer of the Year.

Admitted:

Supreme Court of the United StatesU.S. Court of Appeals, Fifth CircuitAll U.S. District Courts in TexasCourt of Federal ClaimsCourt of Appeals for the Armed ForcesAll Texas courts

Organizations:

Taxpayers Against FraudFederal Bar Association (San Antonio chapter Board Member)Society of American Military Engineers (Board Member)Texas Biomedical Research Institute, Founders CouncilReserve Officers AssociationAssociation of Military Surgeons of the United States

Practice Areas:

FALSE CLAIMS ACT (qui tam)Health Care FraudFederal Government Contracts

Education:

U.S. Army JAG School, LLM (Federal Procurement Law) 2003St. Marys University School of Law, JD 1994Texas A&M University, BS 1991 (Honors Program; Corps of

Cadets; ROTC Scholarship)Rotary International Exchange Student (Sweden) 1986

Waters & Kraus, LLP(San Antonio office)The Vogue Building

600 Navarro St., Floor 5San Antonio, Texas 78205(210) 349-0515(210) 349-3666 (f)

[email protected]

www.govtfraudlawyer.blogspot.com

NOTABLE PUBLICATIONS & RECENT PRESENTATIONS

Author, INVESTIGATING HEALTH CARE FRAUD, Association of Certified Fraud Examiners (forthcoming 2012)

Author & Presenter,Blowing the Dodd-Frank Act Whistle, State Bar of Texas Advanced Employment Law Course, Dallas (Jan.2012)

Presenter, Compliance and the Corporate Lawyer, In-House Counsel Conference, South Texas College of Law, Houston (July2011)

Author & Presenter, Whistleblowers in the Age of Stimulus, State Bar of Texas Advanced Employment Law Course, Austin (Jan.2011)

Author, Soldiers of Qui Tam Fortune -- Are Servicemembers Proper Plaintiffs Under the False Claims Act,34 GEORGE WASH.U.SCHOOL OF LAW PUBLIC CONTRACT LAW JOURNAL 45 (Fall 2004)

Author,Employment Protections for the Citizen-Soldier, Employment Law Strategist, Vol. 11, No. 8 (Dec. 2003)
mailto:[email protected]:[email protected]://www.waterskraus.com/http://www.waterskraus.com/http://www.govtfraudlawyer.blogspot.com/http://www.govtfraudlawyer.blogspot.com/http://www.govtfraudlawyer.blogspot.com/http://www.waterskraus.com/mailto:[email protected]

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RECENT CASES

United States ex rel. Dr. Black & Dr. Montiel v. Novo Nordisk Inc. (D. Ct. Md.) (Novo Nordisk Inc., a Danishpharmaceutical manufacturer, agreed to pay $25 million plus attorneys fees to resolve its civil liability arising fromthe illegal promotion of its drug, NovoSeven). Clickherefor the DoJ press release (June 10, 2011).

United States ex rel. Dr. Good v. Treehouse Clinics et al. (W.D. Tex.) (The Treehouse Clinics agreed to pay $1.4million plus attorneys fees for submitting false claims to TRICARE involving the treatment of special needschildren). Click here for the DoJ press release (Sep. 21, 2011).
http://www.justice.gov/opa/pr/2011/June/11-civ-764.htmlhttp://www.justice.gov/opa/pr/2011/June/11-civ-764.htmlhttp://www.justice.gov/opa/pr/2011/June/11-civ-764.htmlhttp://www.justice.gov/usao/txw/press_releases/index.htmlhttp://www.justice.gov/usao/txw/press_releases/index.htmlhttp://www.justice.gov/usao/txw/press_releases/index.htmlhttp://www.justice.gov/opa/pr/2011/June/11-civ-764.html

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Update on Whistleblowers in the Age of Stimulus (Blowing the Dodd-Frank Whistle) Chapter 22

i

TABLE OF CONTENTS

I. INTRODUCTION ................................................................................................................................................... 1

II. THE DODD-FRANK ACT OF 2010 ...................................................................................................................... 2A. Overview of the Dodd-Frank Acts Bounty Programs and Protections for Whistleblowers Against

Reprisal ............................................................................................................................................................ 2B. The SEC Whistleblower Incentive (Bounty) Program .................................................................................... 21. Introduction to the SEC Whistleblower Incentive Program (Section 922).............................................. 22. Who may File an SEC Whistleblower Bounty Claim ............................................................................. 33. Who is Precluded from being Paid an Award ......................................................................................... 44. No Amnesty ............................................................................................................................................. 45. The SEC Claim Procedures and Administrative Process ........................................................................ 46. No Right to Judicially Appeal an SEC Bounty Determination ............................................................... 5

C. Interplay of SEC Whistleblower Program and Company Internal Compliance Processes ............................. 5D. New Reprisal Cause of Action for SEC Whistleblowers that can be filed in U.S. District Court (no

exhaustion of administrative remedies required) ............................................................................................. 5E. Resources -- DODD-FRANK ACTS SECBounty Programs and Protections for Whistleblowers Against

Reprisal ............................................................................................................................................................ 7F. Funding of the SEC Whistleblower Program .................................................................................................. 7G. The Commodity Futures Trading Commission (CFTC) Whistleblower Bounty Program and Anti-Reprisal

Protections for Whistleblowers ....................................................................................................................... 71. Introduction to the CFTC Incentive (Bounty) Program (Section 748) .................................................... 82. Who may File a CFTC Bounty Claim ..................................................................................................... 83. Who is Precluded from being Paid a CFTC Bounty Claim ..................................................................... 94. No Amnesty ............................................................................................................................................. 95. The CFTC Claim Procedures and Administrative Process ...................................................................... 96. Whistleblower can Judicially Appeal the CFTCs Bounty Determination .............................................. 9

F. Interplay of the Whistleblower Award Program and Company Internal Compliance Processes: ................. 10G. New Reprisal Cause of Action for CFTC Whistleblowers ............................................................................ 10

1. Whistleblowers Protected Against Reprisal (no exhaustion of administrative remedies required) ....... 102. Arbitration Agreements Void ................................................................................................................ 10H. Resources -- DODD-FRANK ACTS CFTC Bounty Programs and Protections for Whistleblowers against

Reprisal .......................................................................................................................................................... 10I. New Reprisal Cause of Action for Whistleblowers in the Financial Services Industry (Section 1057

of the DODD-FRANK ACT) ............................................................................................................................. 101. Introduction to Section 1057 of the DODD-FRANK ACT........................................................................ 112. Who is Covered ..................................................................................................................................... 11

a. Employee ....................................................................................................................................... 11b. Employer........................................................................................................................................ 11

3. What is Protected ................................................................................................................................... 114. The Process (employee must exhaust administrative remedies before filing lawsuit) .......................... 11

a. Administrative ............................................................................................................................... 11b. Judicial ........................................................................................................................................... 11c. Burden of Proof ............................................................................................................................. 12

5. Remedies ............................................................................................................................................... 126. Arbitration Agreements Void ................................................................................................................ 12

J. Strengthening the SARBANES-OXLEY ACTS Whistleblower Protections ..................................................... 121. Introduction to the Existing SOX Whistleblower Protections ............................................................... 122. Sections 922 and 929A of the Dodd-Frank Act clarifies the SOX Whistleblower Claim ................. 12

III. THE PATIENT PROTECTION AND AFFORDABLE CARE ACT OF 2009 ................................................... 13A. Overview of the HEALTH CARE ACT............................................................................................................. 13B. Section 1558 Protections for Whistleblowers ............................................................................................ 13

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1. Introduction to Section 1558 - Scope of Coverage and Protections ...................................................... 132. Procedure and Limitations ..................................................................................................................... 133. Remedies ............................................................................................................................................... 134. Arbitration Agreements Void ................................................................................................................ 13

C. Reporting Requirements for Federally Funded Long-Term Care Facilities The ELDER JUSTICE ACT ...... 141. Timing ................................................................................................................................................... 142. Penalties ................................................................................................................................................. 14

IV. THE AMERICAN RECOVERY AND REINVESTMENT ACT OF 2009 (THE RECOVERY ACT) ........... 14A. Introduction ................................................................................................................................................... 14B. Retaliation Cause of Action for Whistleblowers ........................................................................................... 14

1. Who is Covered ..................................................................................................................................... 142. What is Protected ................................................................................................................................... 143. Administrative Process .......................................................................................................................... 154. Judicial Process...................................................................................................................................... 155. Arbitration Agreements Void ................................................................................................................ 156. Remedies ............................................................................................................................................... 157. Employee-Favorable Burden Of Proof .................................................................................................. 15

C. Additional Matters ......................................................................................................................................... 15

V. THE CONSUMER PRODUCT SAFETY COMMISSION REFORM ACT OF 2008 ........................................ 16A. Protections for the Consumer Safety Whistleblower .................................................................................... 16B. Who is Covered ............................................................................................................................................. 16C. What is Protected ........................................................................................................................................... 16D. Statute of Limitations .................................................................................................................................... 16E. Remedies ....................................................................................................................................................... 16F. Process ........................................................................................................................................................... 16G. Resources....................................................................................................................................................... 16

VI. RECENT AMENDMENTS TO THE FALSE CLAIMS ACT ............................................................................. 17A. The Fraud Enforcement and Recovery Act of 2009 ...................................................................................... 17

1. Expanding Protections to the Anti-Retaliation Cause of Action (31 U.S.C. 3730(h)) ........................ 17B. THE HEALTH CARE ACT Amended the Original Source Definition of the FALSE CLAIMS ACT ............... 18C. Section 1079A(b) of the DODD-FRANK ACT Amended the FALSE CLAIMS ACT by Explicitly Providing

a Three-year Statute of Limitations to bring a Retaliation Claim ................................................................. 19

VII.THE IRS WHISTLEBLOWER REWARD PROGRAM ..................................................................................... 19A. Introduction to the IRS Whistleblower Reward Program ............................................................................. 19B. Filing an IRS Informant Reward Claim ........................................................................................................ 19

1. 7623(b) Awards: .................................................................................................................................... 192. 7623(a) Claims: ..................................................................................................................................... 203. Full Disclosure ....................................................................................................................................... 204. Eligibility to File a Claim for Award ..................................................................................................... 205. Identity of the Whistleblower ................................................................................................................ 20

C. Appealing to the U.S. Tax Court ................................................................................................................... 20

D. Resources....................................................................................................................................................... 20

VIII. UNIQUE ISSUES FACING FEDERAL GOVERNMENT CONTRACTORS ........................................... 20A. Introduction ................................................................................................................................................... 20B. Whistleblower Protections for Contractor Employees .................................................................................. 21

1. Who and What is Protected ................................................................................................................... 212. Procedure ............................................................................................................................................... 213. Remedies, Enforcement, and Review .................................................................................................... 22

C. Recent changes to the Federal Acquisition Regulation Require Contractors to Disclose ............................. 22D. The Federal Awardee Performance and Integrity Information System ......................................................... 22

IX. CONCLUSION ..................................................................................................................................................... 23

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APPENDICES .............................................................................................................................................................. 25Appendix A ........................................................................................................................................................... 26Appendix B ........................................................................................................................................................... 31Appendix C ........................................................................................................................................................... 33Appendix D ........................................................................................................................................................... 37Appendix E ............................................................................................................................................................ 41

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1

WHISTLEBLOWERS IN THE AGEOF STIMULUS BLOWING THEDODD-FRANK WHISTLE

I. INTRODUCTIONWhile it may come as a surprise to many, the

Federal Government has insufficient legal andinvestigative resources to enforce the laws it passesand protect programs such as Medicare. Given thisreality, Congress is increasingly turning towhistleblowers to root out and report fraud. TheFALSE CLAIMS ACT, originally enacted during theCivil War,1 has proven to be the Governments mostpowerful and effective fraud-fighting tool. It has beenhugely successful, recovering over $25 billion for theGovernment since 1986 (when major amendmentswere made to the Act). Some of the recoveries havebeen astronomical. On September 2, 2009, theDepartment of Justice announced that Pfizer agreed tosettle a qui tam case for $2.3 billion, from which sixwhistleblowers were awarded payments of more than$102 million. In October 2010, GlaxoSmithKlinesettled with the Department of Justice for $750million in a qui tam case, from which thewhistleblower will receive $96 million. The FALSECLAIMS ACT, which primarily relies uponwhistleblowers to bring evidence of fraud to theGovernment,2 has two powerful weapons in itsarsenal. First, the FALSE CLAIMS ACT allows aprivate person to prosecute a qui tam3 action for

1 For a history of the FALSE CLAIMS ACT, see Dan L.Hargrove, Soldiers of Qui Tam Fortune: Do MilitaryService Members Have Standing to File Qui Tam Actions

Under the False Claims Act?, 34 PUB.CONT.L.J.45, 51-53(2004).

2 For the purposes of this article, Government means theUnited States Government, as opposed to othergovernments such as the State of Texas. While manystates, Texas included, have qui tam statutes, this articlefocuses on federal law. See, e.g., THE TEXAS MEDICAIDFRAUD PREVENTION LAW, TEX.HUM.RES.CODE 36.001-36.117 (providing for citizen qui tam actions as it relates to

fraud committed against the Texas Medicaid program).3 Qui tam (often shortened to Q.T.) is short for the Latinphrase qui tam pro domino rege quam pro se ipso in hac parte sequitur, which means who pursues this action onour Lord the Kings behalf as well as his own. VermontAgency of Natural Res. v. United States ex rel. Stevens, 529U.S. 765, 769 n.1 (2000) (citing 3 W. BLACKSTONE,COMMENTARIES ON THE LAW OF ENGLAND 160 (1768)). Aqui tam action is an action brought under a statute thatallows a private person to sue for a penalty, part of whichthe government or some specified public institution willreceive; also termed popular action. BLACKSS LAW

himself and on behalf of the Government againstpersons who commit fraud against the Government.31 U.S.C. 3729 et seq. The whistleblower, called arelator4, is entitled to be rewarded between ten tothirty percent of any amounts recovered by theGovernment plus attorney fees and costs. 31 U.S.C.3730(d). Second, recognizing that a whistlebloweracts at his peril, the FALSE CLAIMS ACT protects

whistleblowers in their employment by providing acause of action for acts of reprisal by an employer. 31U.S.C. 3730(h).

The success of the FALSE CLAIMS ACT hasencouraged Congress to place additional reliance uponwhistleblowers to ensure compliance with other laws.A number of statutes have recently been enacted that

DICTIONARY 1262 (7th ed. 1999). Blackstone explained quitam as follows:

More usually, these forfeitures created bystatute are given at large, to any commoninformer; or, in other words, to any suchperson or persons as will sue for the same:and hence such actions are called popularactions, because they are given to thepeople in general. Sometimes one part isgiven to the king, to the poor, or to somepublic use, and the other part to theinformer or prosecutor, and then the suit iscalled a qui tam action, because it isbrought by a person, qui tam pro dominorege quam pro se ipso in hac parte

sequitur. If the king therefore himselfcommences this suit, he shall have thewhole forfeiture. But if any one hathbegun a qui tam, or popular action, noother person can pursue it; and the verdictpassed upon the defendant in the first suitis a bar to all others, and conclusive evento the king himself.

4 Qui tam enlists the public in the recovery of civilpenalties and forfeitures. It rewards with a portion of therecovered proceeds those who sue in the governmentsname. Qui tam lives on in federal law only in the FALSECLAIMS ACT and in two minor examples found in patentand Indian protection laws. In Vermont Agency of Natural Resources v. United States ex rel. Stevens, the SupremeCourt identified four contemporary federal qui tam statutes:the FALSE CLAIMS ACT, the PATENT ACT, and two Indianprotection laws. 529 U.S. 765, 768-69 n.1 (2000), referringto 31 U.S.C. 3729-3733; 35 U.S.C. 292; 25 U.S.C. 81;and 25 U.S.C. 201, respectively. A fifth, not identified, 26U.S.C. 7341 (sale of untaxed, taxable property), appears tohave been rarely used. One of the Indian protectionstatutes, 25 U.S.C. 81, has since been amended so that itno longer authorizes a qui tam action.

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allow the Government to pay a bounty to awhistleblower.

This article surveys whistleblower laws that havebeen enacted since 2007. These laws can be dividedinto two categories. On one side of the ledger are thelaws that protect whistleblowers from acts of reprisalby employers. An example of such a law is Section1057 of the DODD-FRANK ACT, which protects

financial services industry employees who reportcertain violations of the law. On the other side of theledger are the laws, commonly called bounty orinformer laws, that reward informers who presentsevidence of fraud to the Government. The IRSWhistleblower Reward Program and the DODD-FRANK ACT Whistleblower Incentive Program areexamples of recently enacted bounty laws. Among allof the laws surveyed in this article, the FALSE CLAIMSACT is unique in that it is the only statute that has aqui tam provision, which permits a whistleblower tosue for himself and the Government with the

entitlement to be awarded a percentage of what theGovernment recovers.

II. THE DODD-FRANK ACT OF 2010A. Overview of the Dodd-Frank Acts Bounty

Programs and Protections for WhistleblowersAgainst ReprisalOn July 21, 2010, President Obama signed into

law the DODD-FRANK WALL STREET REFORM ANDCONSUMER PROTECTION ACT (DODD-FRANK ACT)73, Pub. L. No. 111-203, 124 Stat 1841, 111thCongress (July 21,2010). The DODD-FRANK ACT ismassive in scope and significantly changes the law asit relates to rewarding and protecting whistleblowers.It strengthens existing whistleblower protections andattempts to close loop-holes for employees in thefinancial services industry. Of significance is thecreation of bounty programs, new anti-reprisal causesof action that can be filed against employers thatretaliate against employers, and a new administrativeprocess for the adjudication of some of those bountyand reprisal claims. The bounty provisions are notspecifically qui tam actions, but do allow theGovernment to pay an award to an informer whopresents information that leads to a financial recoveryby the Government.

The DODD-FRANK ACT whistleblower programsintend to shed light on company violations byproviding incentives for employees to report thoseviolations. Significantly, these programs do notrequire most employees to first use or to exhaustinternal compliance reporting processes to receive abounty award or protection from reprisal. Some typesof employees, however, are excluded being awarded abounty.

In May and August 2011, respectively, theSecurities and Exchange Commission (SEC or the

Commission) and Commodity Futures TradingCommission (CTFC) adopted final rules to implementthese whistleblower programs. Furthermore, theSECs new Office of the Whistleblower has launchedand started listing successful enforcement actionsfrom which whistleblowers can make claims forawards.5

B. The SEC Whistleblower Incentive (Bounty)Program1. Introduction to the SEC Whistleblower

Incentive Program (Section 922)Section 922 of the DODD-FRANK ACT, entitled

Whistleblower Protection, amended the SECURITIESEXCHANGE ACT of 19346 (SEC ACT) by creating abounty program (the Securities WhistleblowerIncentives and Protection program) forwhistleblowers who voluntarily provide originalinformation to the SEC about securities violationsthat result in the imposition of monetary sanctions

greater than $1,000,000.

7

The bounty amount canrange between ten to thirty percent of the moneycollected. Rather than being a qui tam action, it is awhistleblower bounty program.

Congress created and has funded the SECInvestor Protection Fund to make such awards. SECACT at 21f(g)(1). The SEC is to use the fund forpaying awards to whistleblowers as provided. Id. at21f(g)(2).

In addition, Section 922 enhances existingprotections to whistleblowers under the SARBANES-OXLEY ACT (H.R. 3763, Pub. L. 107-204, 116 Stat745, 107th Congress July 30, 2002). Finally, Section922 creates an entirely new whistleblower anti-reprisal cause of action that an employee can file inU.S. District Court against employers.

The SECs final rules implementing Section 922became effective on August 12, 2011. The rulesdefine important terms and outline procedures forapplying for awards and making decisions on bountyclaims. Before adopting the Final Rules, the SECconsidered comments from individuals,whistleblower advocacy groups, public companies,corporate compliance personnel, law firms andindividual lawyers, academics, professional

5See SECOFFICE OF THE WHISTLEBLOWER, Claim AnAward, (November 8, 2011), available athttp://www.sec.gov/about/offices/owb/owb-awards.shtml

6 15 U.S.C. 78a et seq.

7 To meet this $1,000,000 threshold, the SEC may alsoaggregate two smaller actions that arise from the samenucleus of operative facts. See 17 C.F.R. 240.21F-4(d)(2).

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associations, nonprofit organizations and audit firms8One significant change based upon comments relatedto employee use of internal compliance processes.Although not required to use such processes,employees who first report violations through thoseprocesses are allowed to receive additional bountyincentives. See infra.

2. Who may File an SEC Whistleblower BountyClaimA whistleblower who voluntarily provides

original information may file an SEC bounty claim.SEC ACT at 21f(a)(6) (stating whistleblowermeans any individual who provides, or 2 or moreindividuals acting jointly who provide, informationrelating to a violation of the securities laws to [the]Commission, in a manner established by rule orregulation by the Commission.); see also 17 C.F.R.240.21F-2(a) (stating [a] company or another entityis not eligible to be a whistleblower.).

A whistleblower must voluntarily submitoriginal information. 17 C.F.R. 240.21F-4(a)provides that the whistleblower must submitinformation before a request for information to thewhistleblower (or whistleblowers representative) ismade by the Commission, Congress or otherauthorized authority. Likewise, a whistleblower whohas a legal to duty to report original information to theCommission, Congress, or other authorized authoritydoes not voluntarily submit original information.Id. at 240.21F-4(a)(3).9

The definition of original information10 isimportant because it weeds out whistleblowers whodo not base their bounty claim on first-hand ororiginal source information. Original information is

8 SECURITIES AND EXCHANGE COMMISSION, FINAL RULE:IMPLEMENTATION OF THE WHISTLEBLOWER PROVISIONS OFSECTION 21F OF THE SECURITIES EXCHANGE ACT OF1934,SEC Release No. 34-64545; File No. S7-33-10 (adoptedMay 25, 2011) [hereafterAdopting Release].

9 The SEC clarified that the employee (and not theemployer) must have a duty to report information topreclude a whistleblower from eligibility (for failure to

meet the voluntariness requirement). Furthermore, anemployer cannot preclude employees from whistleblowereligibility by requiring all of them to sign a contract statingthey will report violations to an authorized authority. SeeAdopting Release, supra note 11 at 35-36.

10 The term original information or original source isimportant to bounty statutes. For example, the FALSECLAIMS ACT precludes certain whistleblowers from actingas qui tam relators unless they qualify as an originalsource. Such a limitation is a mechanism to weed outparasitical bounty claims or actions of which theGovernment has prior knowledge.

defined in the statute to mean information that:

(A) is derived from the independentknowledge or analysis of a whistleblower;

(B) is not known to the Commission fromany other source, unless the whistleblower isthe original source of the information; and

(C) is not exclusively derived from anallegation made in a judicial oradministrative hearing, in a governmentalreport, hearing, audit, or investigation, orfrom the news media, unless thewhistleblower is a source of theinformation. 11

SEC ACT at 21F(a)(3). So long as a personvoluntarily provides original information, anyperson (not just an employee or insider) may file an

SEC bounty claim. Id.; see also 17 C.F.R. 240.21F-8(stating that a whistleblower must also give theCommission information in the form and manner itrequires. The procedures for submitting informationand making a claim for an award are described in240.21F-9 through 240.21F-11)

A whistleblower can file a claim pro se or withcounsel; however, a whistleblower may file a bountyclaim anonymously only if represented by counsel. 17C.F.R. 240.21F-7(b)(1). Before an award is paid,the whistleblowers identity shall be revealed to theSEC and the SEC shall be provided any requestedinformation about the whistleblower. Id. at 240.21F-79(b)(3). Failure to do so authorizes the SEC to notpay the claim. As a practical matter and in order to besuccessful, most whistleblowers will want to revealtheir identity in order to work hand-in-hand with theSEC.

The bounty amount to be awarded is at thediscretion of the SEC and should not be influenced bythe balance in the Investor Protection Fund. However,the SEC is required to consider the following fourfactors that would increase the amount to be awardedto an SEC whistleblower.

(1) the significance of the informationprovided by the whistleblower to the successof the covered judicial or administrativeaction;

(2) the degree of assistance provided by thewhistleblower and any legal representative

11 17 C.F.R. 240. 21F-4(b) further defines independentknowledge and independent analysis.

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of the whistleblower in a covered judicial oradministrative action;

(3) the programmatic interest of theCommission in deterring violations of thesecurities laws by making awards towhistleblowers who provide informationthat lead to the successful enforcement of

such laws; and

(4) such additional relevant factors as theCommission may establish by rule orregulation.

SECACT at 21F(c)(1) (Determination of Amount ofAward).

17 C.F.R. 240.21F-6 adds additional relevantfactors to the consideration of award amount. Section240.21F-6(a) restates and further explains the criteriain the statute but also adds participation by

whistleblower in internal compliance systems to thelist. On the other hand, a whistleblower award may bereduced if the following factors are indicated:

1. Culpability of the whistleblower;2. Unreasonable reporting delay by the

whistleblower; and3. Interference with internal compliance and

reporting systems by the whistleblower.

Id. at 240.21F-6(b)(1)-(3).Finally, while not explicitly stated in the Act or

its implementing regulations, the SEC is very muchinterested in deterring future violations. Smallrecoveries paid by offenders may not sufficiently deterfuture wrongdoing. If offenders merely get a slap onthe wrist, then they may not be deterred fromcommitting future bad acts.

3. Who is Precluded from being Paid an AwardSo long as original information is voluntarily

provided, any natural person may file an SEC bountyclaim. However, Congress restricts the SEC frompaying an award to certain people. SEC ACT at21F(c)(2). The SEC is not authorized to pay a claimto any whistleblower who:

(A) is, or was at the time the whistlebloweracquired the original information submittedto the Commission, a member, officer, oremployee of

(i) an appropriate regulatory agency;(ii) the Department of Justice;(iii) a self-regulatory organization;(iv) the Public Company Accounting

Oversight Board; or

(v) a law enforcement organization;

(B) is convicted of a criminal violationrelated to the judicial or administrativeaction for which the whistleblowerotherwise could receive an award under thissection;

(C) gains the information through theperformance of an audit of financialstatements required under the securities lawsand for whom such submission would becontrary to the requirements of section 10Aof the Securities Exchange Act of 1934 (15U.S.C. 78j1); or

(D) fails to submit information to theCommission in such form as theCommission may, by rule, require.

Id. at 21F(c)(2). The SEC is also precluded frompaying an award to a whistleblower who knowinglyand willfully makes any false, fictitious, or fraudulentstatement or representation; or . . . uses any falsewriting or document knowing the writing or documentcontains any false, fictitious, or fraudulent statementor entry. Id. at 21F(i).

4. No AmnestyAlthough whistleblowers who engage in culpable

conduct could be eligible for a bounty award, thewhistleblower provisions do not provide amnesty orimmunity to individuals who provide information tothe SEC. Thus, the SEC may still bring anenforcement action against a whistleblower based onconduct in connection with violations of federalsecurities laws. 17 C.F.R. 240.21F-15. Regardingpaying a whistleblower who has dirty hands, the SECwill consider the degree of culpability.

5. The SEC Claim Procedures andAdministrative ProcessThe SEC rules provide procedures for submitting

original information (17 C.F.R. 240.21F-9) andmaking a claim based on a successful SEC action (17C.F.R. 240.21F-10). The whistleblower can submitoriginal information electronically or can mail or faxForm TCR (Tip, Compliant or Referral) to the SECOffice of the Whistleblower. 17 C.F.R. 240.21F-9.If there is a successful SEC action based on thewhistleblowers information, the SEC puts out aNotice of Covered Action on the SEC website. Id.at 240.21F-10. The whistleblower then has 90 daysto make a claim for award based on the successful

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commission action by filing a Form WB-APP. Id.After the covered action has completely

concluded, the SEC evaluates bounty submissions12and makes a Preliminary Determination about anaward. Id. at 240.21F-10(d). The whistleblower has60 days to contest the award determination; otherwise,the preliminary determination becomes the FinalOrder of the SEC. Id. at 240.21F-10(h). 13

6. No Right to Judicially Appeal an SEC BountyDeterminationUnlike the CFTC Whistleblower Incentive

Program, seeinfra, an SEC whistleblower has no rightto appeal to a U.S. District Court the denial or amountof an award by the SEC. See DODD-FRANK ACT at922, amending SEC ACT at 21F(f) (stating [a]nydetermination made under this section, includingwhether, to whom, or in what amount to make awards,shall be in the discretion of the Commission.).

C. Interplay of SEC Whistleblower Program andCompany Internal Compliance ProcessesBefore adopting its final rules, the SEC received

many public comments encouraging it to require thatwhistleblowers first report violations internally toqualify for an award.14 Ultimately, the SEC did notinclude this requirement in its final rules. The SECrecognized, however, that internal complianceprograms play a significant role in achievingcompliance with securities laws.15 To betterincentivize whistleblowers to use internal complianceprocesses, the SEC made a number of changes to itsfinal rules. These changes provide benefits towhistleblowers who first report violations internally:

1. The Amount of Award Benefit: Awhistleblowers voluntary participation in anentitys internal compliance and reportingsystems is a factor that can increase theamount of the (bounty) award. Conversely,a whistleblowers interference with internalcompliance and reporting is a factor that can

12

The SEC may request additional information relating toeligibility or satisfaction of conditions for the award. 17C.F.R. 240.21F-10(d).

13 If the Whistleblower objects, the Claims Review Staffwill evaluate WB submission and objections and prepare aproposed final determination. Unless, any commissionerrequests full review of the decision, the proposed finaldetermination will be the Final Order. 17 C.F.R. 240.21F-10(h).

14SeeAdopting Release, supra note 10.

15SeeAdopting Release, supra note 10 at 32-34.

decrease the amount of the (bounty) award.See 17 C.F.R. 240.21F-6.

2. The Full Credit Benefit: If awhistleblower reports a violation internally,and that entity reports that information to theSEC, then all of the information provided bythe entity to the Commission will beattributed to whistleblower in determining

the award amount. See 17 C.F.R. 240.21F-4(c)(3).3. The Look-back Period Benefit: A

whistleblower who first reports to an entitysinternal compliance program of a possiblesecurities law violation, and within 120 daysreports to the SEC, could be an eligiblewhistleblower whose submission ismeasured as if it had been made at theearlier internal reporting date. See 17 C.F.R. 240.21F-4(b)(7) (this look-back period issignificant for determining which

whistleblower provided originalinformation).

D. New Reprisal Cause of Action for SECWhistleblowers that can be filed in U.S.District Court (no exhaustion ofadministrative remedies required)Congress created an anti-reprisal cause of action

to protect whistleblowers who provide information toor assist the SEC in an investigation or judicial oradministrative action that is based upon thewhistleblowers bounty claim and other protecteddisclosures (e.g., reports of violations of law that theSEC enforces). See DODD-FRANK ACT at 922,16

16 922 of the DODD-FRANK ACT amends Section 21F(h) ofthe SECACT, which provides:

PROTECTION OF WHISTLEBLOWERS.(1)PROHIBITION AGAINST RETALIATION.

(A) IN GENERAL.No employer maydischarge, demote, suspend, threaten, harass,directly or indirectly, or in any other mannerdiscriminate against, a whistleblower in the

terms and conditions of employment because ofany lawful act done by the whistleblower

(i) in providing information to theCommission in accordance with thissection;

(ii) in initiating, testifying in, or assistingin any investigation or judicial oradministrative action of the Commissionbased upon or related to such information;or

(iii) in making disclosures that are

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adding Section 21F(h)(1) to the SEC ACT. Thecoverage of the action is broad. This provisionapplies to all employers, prohibits harassment andother acts of reprisal, permits a non-Governmentalemployee to file in U.S. District Court, requires noadministrative pre-suit filing, and voids17 arbitrationagreements. SECACT at 21f(h)(1)(A).18

The anti-reprisal protections apply to

whistleblowers whether or not they qualify for anaward. 17 C.F.R. 240.21F-2(b)(ii). However, awhistleblower must have a reasonable belief that theinformation he or she provides relates to a possiblesecurities violation to qualify for anti-reprisalprotections. Id. at 240.21F-2(b)(i). The SECincluded this reasonable belief standard to alleviateconcerns that employees could submit bad faith or

required or protected under the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7201 et seq.),the Securities Exchange Act of 1934 (15U.S.C. 78a et seq.), including section10A(m) of such Act (15 U.S.C. 78f(m)),section 1513(e) of title 18, United StatesCode, and any other law, rule, or regulationsubject to the jurisdiction of theCommission.

17 922(c) of the DODD-FRANK ACT added 18 U.S.C.1412A(e), which voids arbitration agreements. Here is thenew statutory language:

(e) NONENFORCEABILITY OF CERTAINPROVISIONS WAIVING RIGHTS AND

REMEDIES OR REQUIRING ARBITRATIONOF DISPUTES.

(1) WAIVER OF RIGHTS ANDREMEDIES.The rights and remediesprovided for in this section may not bewaived by any agreement, policy form, orcondition of employment, including by apredispute arbitration agreement.

(2) PREDISPUTE ARBITRATIONAGREE- MENTS.No predisputearbitration agreement shall be valid orenforceable, if the agreement requires

arbitration of a dispute arising under thissection.

18 922(h)(B)(i) provides:

(B) ENFORCEMENT.

(i) CAUSE OF ACTION.Anindividual who alleges discharge or otherdiscrimination in violation of subparagraph(A) may bring an action under this subsection in the appropriate district court ofthe United States for the relief provided insubparagraph (C).

frivolous claims merely to obtain protection fromtermination.19

Employers may not require employees to waiveor limit their anti-retaliation rights under Section 21F.In its adopting release, the SEC stated becauseSection 21F is codified in the Exchange Act, it iscovered by Section 29(a) of the Exchange Act, whichspecifically provides that [a]ny condition, stipulation,

or provision binding any person to waive compliancewith any provision of this title or any rule orregulation thereunder . . . shall be void.20

The statute of limitations for whistleblowers whoallege reprisal is long.21 A whistleblower may bringthe action up to six years after the violation of the law(SEC ACT, SARBANES-OXLEY ACT, among otherlaws) or three years after the date when facts materialto the right of action are known or reasonably shouldhave been known by the whistleblower. SECACT at21F(h)(1)(B)(iii)(I). However, no action may bebrought more than ten years after the date of the

violation. Id. at 21F(h)(1)(B)(iii)(II).The recoverable remedies include reinstatementwith seniority, back pay with interest, andcompensation for any special damages sustained as aresult of the discharge or discrimination, includinglitigation costs, expert witness fees, and reasonableattorney fees. SECACTat 21F(h)(1)(C).22

19SeeAdopting Release, supra note 10 at 16.

20SeeAdopting Release, supra note 10 at 19-20.

21 922(c)(B)(iii) of the DODD-FRANK ACT provides:

STATUTE OF LIMITATIONS.

(I) IN GENERAL.An action under thissubsection may not be brought

(aa) more than 6 years after the date onwhich the violation of subparagraph (A)occurred; or

(bb) more than 3 years after the date whenfacts material to the right of action areknown or reasonably should have beenknown by the employee alleging a violationof subparagraph (A).

(II) REQUIRED ACTION WITHIN 10YEARS.Notwithstanding sub clause (I), anaction under this subsection may not in anycircumstance be brought more than 10 years afterthe date on which the violation occurs.

22 922(h)(C) provides:

(C) RELIEF.Relief for an individualprevailing in an action brought undersubparagraph (B) shall include

(i) reinstatement with the same seniority

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E. Resources -- DODD-FRANK ACTS SECBountyPrograms and Protections for WhistleblowersAgainst Reprisal

SECOFFICE OF THE WHISTLEBLOWER, Claim AnAward, (November 8, 2011), available athttp://www.sec.gov/about/offices/owb/owb-awards.shtml

Securities and Exchange Commission, FinalRule: Implementation of the WhistleblowerProvisions of Section 21F of the SecuritiesExchange Act of1934, SEC Release No. 34-64545; File No. S7-33-10 (adopted May 25,2011) (available athttp://www.sec.gov/rules/final/2011/34-

64545.pdf)

U.S. Security and Exchange Commission,Annual Report on Whistleblower Program (Nov.2011)

Office of Whistleblower website, available atwww.sec.gov/whistleblower

F. Funding of the SEC Whistleblower ProgramAs of September 30, 2011, the Fund was fully

funded, with an ending balance of $452,788,043.74.

FY 2011 FY 2010Balance of Fund atbeginning of precedingfiscal year

$451,909,854 $0.00

Amounts deposited into orcredited to Fund duringpreceding fiscal year

$0.00 $451,909,854

Amount of earnings oninvestments duringpreceding fiscal year

$990,562 $0

Amount paid from Fundduring preceding fiscalyear to whistleblowers

$0 $0

Amount disbursed toOffice of the InspectorGeneral during precedingfiscal year

($112,372) $0.00

Balance of Fund at end ofthe preceding fiscal year

$452,788,043 $451,909,854

status that the individual would have had,but for the discrimination;

(ii) 2 times the amount of back payotherwise owed to the individual, withinterest; and (iii) compensation forlitigation costs, expert witness fees, andreasonable attorneys fees.

G. The Commodity Futures Trading Commission(CFTC) Whistleblower Bounty Program andAnti-Reprisal Protections for WhistleblowersCongress established the Commodity Futures

Trading Commission (CFTC) as an independentagency in 1974. The CFTC has jurisdiction toregulate commodity futures and option markets,which, over the years, have expanded from agriculture

products to a much broader bundle of commoditiessuch as the energy, agriculture, metals, financial, andlivestock industries. Five commissioners, appointedby the President and approved by the Senate,administer the CFTC.

Title VII (Wall Street Transparency andAccountability), Part II (Regulation of Swap Markets)of the DODD-FRANK ACT contains provisions toprovide incentives and protections for another class ofwhistleblowers. Section 748 of the DODD-FRANKACT amends the COMMODITY EXCHANGE ACT byadding section 23, titled Commodity Whistleblower

Incentives and Protection. DODD-FRANK ACT at748, Pub. L. No. 111-203, 124 Stat. 1841 (2010). Asamended, Section 23 of the COMMODITY EXCHANGEACT directs that the CFTC must pay awards, subjectto certain limitations and conditions, towhistleblowers who voluntarily provide it withoriginal information about a violation of theCOMMODITY EXCHANGE ACT, f that informationleads to a successful enforcement action brought bythe CFTC resulting in monetary sanctions exceeding$1,000,000.23

The CTFCs final rules for implementing thewhistleblower provisions became effective on October24, 2011. The Commission received more than 635comment letters24 addressing issues such as internalcompliance programs, exclusion of certain individualsfrom the program, procedures for submitting andmaking claims, and the anti-retaliation provisions.25 Inadopting its final rules, the CFTC stated that, whereappropriate and consistent with its statutory mandate,it had considered the SECs whistleblower rulemakingand endeavored to harmonize the two sets of rules.26As a result, many of the final rules are the same orsimilar to the SEC rules.

23 To meet this $1,000,000 threshold, the CTFC may alsoaggregate two smaller actions that arise from the samenucleus of operative facts. 17 C.F.R. 165.2( a)(1).

24 Public comments are available athttp://comments.cftc.gov/PublicComments/CommentList.aspx?id=916

2517 C.F.R. Part 165,Background and Summary.

26Id.
http://www.sec.gov/rules/final/2011/34-64545.pdfhttp://www.sec.gov/rules/final/2011/34-64545.pdfhttp://www.sec.gov/rules/final/2011/34-64545.pdfhttp://www.sec.gov/whistleblowerhttp://www.sec.gov/whistleblowerhttp://www.sec.gov/whistleblowerhttp://www.sec.gov/rules/final/2011/34-64545.pdfhttp://www.sec.gov/rules/final/2011/34-64545.pdf

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1. Introduction to the CFTC Incentive (Bounty)Program (Section 748)Section 748 of the DODD-FRANK ACT amends

the COMMODITY EXCHANGE ACT27 and creates abounty program for whistleblowers who provideoriginal information to the CFTC that results in theimposition of monetary sanctions greater than $1million. As with the SEC Whistleblower Program, the

CFTC program is not a qui tam action; it is awhistleblower bounty program. The CFTC programprovides:

In any covered judicial or administrativeaction, or related action, the Commission,under regulations prescribed by theCommission and subject to subsection (c),shall pay an award or awards to 1 or morewhistleblowers who voluntarily providedoriginal information to the Commission thatled to the successful enforcement of the

covered judicial or administrative action, orrelated action, in an aggregate amount equalto

(A) not less than 10 percent, in total, ofwhat has been collected of themonetary sanctions imposed in theaction or related actions; and

(B) not more than 30 percent, in total,of what has been collected of themonetary sanctions imposed in theaction or related actions.

See DODD-FRANKACT at 748, to be codified at 7U.S.C. 23(b)(1).28

Payments are made from the CFTC ProtectionFund. Id., to be codified at 7 U.S.C. 23(a)(2) and(g). The CFTC has the discretion to set the awardamount, but the DODD-FRANK ACT lists the criteriathat the CFTC should consider:

The significance of the whistleblowersinformation to the success of the action againstthe wrongdoer;

The degree of the whistleblowers assistance (aswell as counsel);

The CFTCs programmatic interest in deterringviolations of the COMMODITY EXCHANGE ACT;

27 7 U.S.C. 1 et seq.

28 All citations are to the COMMODITY EXCHANGE ACT,which was amended by 748 of the DODD-FRANK ACT tocreate the CFTC whistleblower bounty program, to becodified at 7 U.S.C. 1 et seq.,

and

Additional relevant factors as established byCFTCs regulations.

Id., to be codified at 7 U.S.C. 23(c)(1)(B)(i). TheCFTC shall not take into consideration the balance ofthe Fund when deciding how much to award thewhistleblower. Id., to be codified at 7 U.S.C.

23(c)(1)(B)(ii).The CTFC final rules clarify and expand on thelist of criteria that the CTFC will consider in makingan award. As with the SEC final rules, the CTFCadded participation in internal compliance systemsto the list of criteria that the CFTC would consider indeterming whether to raise the bounty amount. 17C.F.R. 165.9. Likewise, the rules include factors thatwill decrease the amount of the whistleblowers awardincluding: interference with internal compliance andreporting systems, culpability, and unreasonablereporting delay.Id.

2. Who may File a CFTC Bounty ClaimA whistleblower, who voluntarily provides

original information, may file a bounty claim. SeeDODD-FRANK ACT at 748, amending 23(a)(7) ofCOMMODITY EXCHANGE ACT (definingWHISTLEBLOWER.The term whistleblowermeans any individual who provides, or 2 or moreindividuals acting jointly who provide, informationrelating to a violation of this Act to the Commission,in a manner established by rule or regulation by theCommission.). The limitations of original

information

29

is important, and is defined by theCOMMODITY EXCHANGE ACT at Section 23(a)(4) asinformation that:

(A) is derived from the independentknowledge or analysis of a whistleblower;

(B) is not known to the CFTC from anyother source, unless the whistleblower is theoriginal source of the information; and (C)is not exclusively derived from an allegationmade in a judicial or administrative hearing,in a governmental report, hearing, audit, orinvestigation, or from the news media,unless the whistleblower is a source of the

29 The term original information or original source isimportant to bounty statutes. For example, the FALSECLAIMS ACT precludes certain whistleblowers from actingas qui tam relators unless they qualify as an originalsource. Such a limitation is a mechanism to weed outparasitical bounty claims or actions of which theGovernment has prior knowledge.

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F. Interplay of the Whistleblower AwardProgram and Company Internal ComplianceProcesses:In adopting its Final Rules, the CTFC also

clarified that it would incentivize whistleblowers touse company internal compliance processes. TheCTFC harmonized these incentives with those of theSEC. In particular, it repeated incentives offered by

the SEC:

1. Amount of Award Benefit: The CTFC willconsider use of internal complianceprocesses as a factor that positively affectsthe amount of the award. Conversely, theCFTC will consider interference withinternal compliance processes as a factorthat negatively affects the amount of theaward. 17 C.F.R. 169.9(b)(4), (c)(3)

2. The Full Credit Benefit: If awhistleblower reports original information

internally, and that entity later reports thatinformation to the CFTC, all of theinformation provided by entity to the CFTCwill be attributed to the whistleblower. Idat165.2(i)(3).

G. New Reprisal Cause of Action for CFTCWhistleblowers

1. Whistleblowers Protected Against Reprisal(no exhaustion of administrative remediesrequired)Congress created an anti-reprisal cause of action

to protect whistleblowers who provide information toor assist the CFTC in an investigation or judicial oradministrative action that is based upon thewhistleblowers bounty claim. See DODD-FRANKACT at 748, amending 23(h) of COMMODITYEXCHANGE ACT. The coverage of the action is broad.This provision applies to all employers, prohibitsharassment and other acts of reprisal, permits a non-Governmental employee to file in U.S. District Court,and requires no administrative pre-suit filing. Id., tobe codified at 7 U.S.C. 23(h)(1)(A) and (B).

The scope of the activity protected is also large.31

31 As amended, Section 23(h)(1) of the COMMODITYEXCHANGE ACT provides:

No employer may discharge, demote, suspend,threaten, harass, directly or indirectly, or in anyother manner discriminate against, awhistleblower in the terms and conditions ofemployment because of any lawful act done bythe whistleblower

(i) in providing information to theCommission in accordance with

A whistleblower must bring the action no later thantwo years after the date of adverse personnel action.Id., to be codified at 7 U.S.C. 23(h)(1)(B)(iii). Therecoverable remedies include reinstatement withseniority, back pay with interest, and compensationfor any special damages sustained as a result of thedischarge or discrimination, including litigation costs,expert witness fees, and reasonable attorney fees. Id. ,

to be codified at 7 U.S.C. 23(h)(1)(C).Similar to the SEC program, the anti-reprisalprotections apply whether or not the whistleblowerqualifies for an award. Likewise, to limit potentialabuse, the protections apply only if the whistleblowermaintains a reasonable belief that the informationprovided relates to a possible securities violation. 17C.F.R. 165.2 (p)(2)(i).

2. Arbitration Agreements VoidSection 23(h) of the COMMODITY EXCHANGE

ACT and 17 C.F.R.165.19 provide that the rights

and remedies provided for in this Part 165[whistleblower protections] of the Commissionsregulations may not be waived by any agreement,policy, form, or condition of employment including bya predispute arbitration agreement. No predisputearbitration agreement shall be valid or enforceable, ifthe agreement requires arbitration of a dispute arisingunder this Part.

H. Resources -- DODD-FRANK ACTS CFTCBounty Programs and Protections forWhistleblowers against Reprisal

Commodity Futures Trading Commission 17C.F.R. Part 165 (available at:http://www.cftc.gov/ucm/groups/public/@lrfederalregister/documents/file/2011-20423a.pdf)

I. New Reprisal Cause of Action forWhistleblowers in the Financial ServicesIndustry (Section 1057 of the DODD-FRANKACT)Title X of the DODD-FRANK ACT created the

Bureau of Consumer Financial Protection (theBureau). DODD-FRANK ACT at 1011. The Bureauhas broad powers to regulate the offering andprovision of consumer financial products or servicesunder the Federal consumer financial laws. Id.

subsection(b); or

(ii) in assisting in any investigation or judicial or administrative action of theCommission based upon or related to suchinformation.

7 U.S.C. 23(h)(1).

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Congress obviously felt so strongly about theimportance of such regulation that the Bureau wasbestowed the status of an executive agency. Id.

1. Introduction to Section 1057 of the DODD-FRANK ACTSection 1057 of the DODD-FRANK ACT creates a

whistleblower cause of action for employees of the

financial services industry. Among other things, thissection protects employees who provide informationreasonably believed to be a violation of theCONSUMER FINANCIAL PROTECTION ACT OF 2010(Title X of the DODD-FRANK ACT) or any other lawsubject to jurisdiction of the Bureau to their employersor to the government .

Section 1057 requires an employee to file acomplaint with the Department of Labor (DoL) foradministrative adjudication. The DoL has theauthority to order broad remedies, which ultimatelycould be enforced by the DoL. The employee has a

right to file a civil action in U.S. District Court. Aswith the other newly enacted whistleblower claims,Section 1057 provides a burden-shifting mechanismfavorable for employees. However, Section 1057 hasno qui tam or bounty provisionit is merely an anti-reprisal cause of action.

2. Who is Covereda. Employee

Section 1057(b) defines a covered employee tomean any individual performing tasks related to theoffering or provision of a consumer financial productor service. As of the end of 2011, the Bureau had notpublished its regulations to further refine that statutorydefinition. Regardless, the plain language of thestatute protects a broad spectrum of employees inindustries ranging from credit agencies to the bankingto the mortgage industries.

b. EmployerSection 1057 covers employers who engage in

the offering or provision of a consumer financialproduct or service. The scope of coverage alsoencompasses affiliates who provide a related materialservice to the employer.

3. What is ProtectedSection 1057(a)(1)-(4) lists the employees acts

that will be protected. An employer may notterminate or discriminate against an employee (or theemployees representative) who, whether in the scopeof his employment duties or outside of those duties,engages in the following:

provided, caused to be provided, or is about toprovide or cause to be provided, information to

the employer, the Bureau, or any State, local, orFederal, government authority or lawenforcement agency relating to any violation of,or any act or omission that the employeereasonably believes to be a violation of [any lawor regulation that is subject to the Bureausjurisdiction];

testified or will testify in any proceedingresulting from the administration or enforcementof any provision of [any law or regulating that issubject to the Bureaus jurisdiction];

filed, instituted, or caused to be filed or institutedany proceeding under any Federal consumerfinancial law; or

objected to, or refused to participate in, anyactivity, policy, practice, or assigned task that theemployee reasonably believed to be in violationof [any law or regulating that is subject to theBureaus jurisdiction].

DODD-FRANK ACT at 1057(a)(1)-(4).

4. The Process (employee must exhaustadministrative remedies before filing lawsuit)

a. AdministrativeAn employee is required to file an administrative

complaint with the Department of Labor (DoL) within180 days after the date on which the discriminatoryact occurred. DODD-FRANK ACT at 1057(c)(1)(A).The DoL is then required to investigate the complaintand notify the employer of the complaint and process.Id. at 1057(c)(1)(B). The employer then must be

afforded an opportunity to respond to the complaint.But no later than 60 day after the complaint was filed,the DoL is required to issue a determination ofwhether the complaint has merit. Id. at1057(c)(2)(A). A preliminary order for relief can beissued by the DoL if it determines that a violationoccurred. Within 30 days of that order, either partymay request a DoL hearing. Id. at 1057(c)(2)(C).Within 120 days of that hearing, the DoL is requiredto issue a final order and can assess the penaltiesdiscussed in a later section

b. JudicialIf the DoL has failed to issue a final order 210days after complaint was filed, or within 90 days afterthe date of a preliminary order, the employeebut notthe employermay file a civil action in U.S. DistrictCourt seeking a de novo review. Id. at1057(c)(4)(D). If the case is removed for such areview, either party may request a jury trial. No laterthan 60 days after the DoL issues a final order, eitherparty may file a petition for review with the circuitcourt of appeals. Id. at 1057(c)(4)(E).

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c. Burden of ProofThe employee has the initial burden of proving

that his protected behavior was a contributing factorin the unfavorable personnel action taken againsthim. Id. at 1057(c)(3)(A) and (C). The burden thenshifts to the employer to prove, by clear andconvincing evidence, that the same unfavorablepersonnel action would have been taken in the

absence of the employees protected behavior. Id. at1057(c)(3)(B) and (C).

5. Remedies

a. The Department of Labor has the authorityto assess the following penalties against theemployer:

reinstatement of the employee to his formerposition, with back pay, and restore the termsand conditions of his employment;

compensatory damages; and

attorney fees and costs (to include expertwitness fees). DODD-FRANK ACT at1057(c)(4)(B).

b. A district court has the authority to grant:

reinstatement with the same seniority statusthat the employee would have had, but forthe discharge;

back pay with interest; and compensation for special damages

sustained as a result of the discharge ordiscrimination and litigation costs (whichinclude attorneys fees and expert witnessfees. DODD-FRANK ACT at1057(c)(4)(D)(ii).

6. Arbitration Agreements VoidSection 1057(d) makes void any agreement that

requires arbitration for disputes under Section 1057,except for those that are part of a collective bargainingagreement. Finally, an employee may not waive therights and remedies of Section 1057.

J. Strengthening the SARBANES-OXLEY ACTSWhistleblower Protections

1. Introduction to the Existing SOXWhistleblower ProtectionsWhen enacted in 2002, the SARBANES-OXLEY

ACT (SOX) contained a cause of action forwhistleblowers against their employers. 18 U.S.C.1514A. Among other areas of protection,whistleblowers were protected for reporting violationsof SEC rules and regulations, federal crimes involvingsecurities and fraud. To gain the protected status, the

whistleblower was required to make a report to afederal regulatory or law enforcement agency,member of Congress, or person with supervisoryauthority over the whistleblower. The whistleblowerhad to file an administrative complaint with OSHAwithin 90 days after he became aware of violation. Ifthe Department of Labor issued no final decisionwithin 180 days, the whistleblower was permitted to

file a lawsuit in U.S. District Court.For many reasons, however, few whistleblowerswere actually prevailed in these actions. In an attemptto encourage whistleblowers to report SEC rulesviolations, Congress clarified the SOX anti-retaliation cause of action.

2. Sections 922 and 929A of the Dodd-Frank Actclarifies the SOX Whistleblower ClaimIn Section 929A of the DODD-FRANK ACT,

Congress clarified the SOX reprisal claim byexpanding the scope of coverage to employees of

privately-held subsidiaries of publicly tradedcorporations.32 Many SOX retaliation claims weredismissed because the publicly traded corporationactually subject to SOX regulations employed fewemployees. Many employees who suffered retaliationafter blowing the whistle were employed by privately-held entities that were not subject to SOX. Moreover,Section 922(b) further expands SOX coverage toemployees of nationally recognized statistical ratingsorganizations, such as Moodys Investors Service Inc.,A.M. Best Company Inc., and Standard & PoorsRatings Service. DODD-FRANK ACT at 922(c),amending 18 U.S.C. 1514A(a).

In addition, the DODD-FRANK ACT extended theSOX reprisal claim statute of limitations from 90 to180 days. DODD-FRANK ACT at 922(c)(1),amending 18 U.S.C. 1514A(b)(2). Whistleblowersmay remove their claims to U.S. District Court andhave the right to a jury trial. Id. Finally, arbitrationagreements that waive the rights and remediesafforded to SOX whistleblowers are void and a courtis not authorized to enforce waivers of awhistleblowers rights under SOX. DODD-FRANKACT 922(c), amending 18 U.S.C. 1514A(e)

32 Section 929A of the DODD-FRANK ACT provides:

Section 1514A of title 18, United States Code, isamended by inserting including any subsidiaryor affiliate whose financial information isincluded in the consolidated financial statementsof such company after the SecuritiesExchange Act of 1934 (15 U.S.C. 78o(d)).

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III. THE PATIENT PROTECTION ANDAFFORDABLE CARE ACT OF 2009

A. Overview of the HEALTH CARE ACTTHE PATIENT PROTECTION AND AFFORDABLE

CARE ACT OF 2009(HEALTH CARE ACT or ACT)is amassive piece of legislation. Pub. L. No. 111-148,124 Stat. 119 (Mar. 21, 2010). In enacting this Act,Congress continued its recent trend of relying upon

whistleblowers to enforce compliance of the laws itpasses. Section 1558 creates a robust whistleblowercause of action that protects employees againstreprisal by employers. Section 6703 is interesting inthat it makes whistle blowing mandatory foremployees to report crimes committed againstresidents of federally funded long-term care facilities.Unlike the DODD-FRANK ACT or the IRSWhistleblower Program, however, Congress did notcreate a new bounty program for whistleblowers in thehealth care arenamore than likely because the quitam provisions of the FALSE CLAIMS ACT have proven

to be extremely effective in combating health carefraud.

B. Section 1558 Protections for Whistleblowers1. Introduction to Section 1558 - Scope of

Coverage and ProtectionsSection 1558 prohibits an employer from

retaliating against an employee who blows the whistleabout violations of Title I of the ACT. (Title I isexpansive in its coverage, ranging from denial ofhealth care insurance due to pre-existing conditions tofailure to rebate excess premiums.) An employer maynot discharge or in any manner discriminate againstany employee with respect to his or her compensation,terms, conditions, or other privileges of employmentbecause the employee . . . [makes a protected report].HEATH CARE ACT. at 1558, amending 18C(a)(2) ofthe FAIR LABOR STANDARDS ACT OF 1938. Protectedreports include internal reports to an employer, theFederal Government, or a state attorney general aboutany violation of, or any act or omission the employeereasonably believes to be a violation of [Title I of theACT]. Id. In addition to these internal and externalreports, the ACT protects an employee who testifiedor is about to testify in a proceeding related toviolations of Title I of the ACT. Id. at 18C(a)(3).The ACT also protects an employee who participatesor assists another in a proceeding related to violationsof Title I of the ACT. Id. at 18C(a)(4). Finally, theACT protects an employee who objects or refuses toparticipate in any activity, policy, practice, orassigned task that the employee (or other such person)reasonably believed to be in violation of [the ACT] orany order, rule, regulation, standard, or ban under[theACT]. Id. at 18C(a)(5). As it relates to this lastprotected activity, an employee need only show thathe had a reasonable belief, even if mistaken, that a

violation of Title I of the Act and its subsequentregulations and policies occurred.

2. Procedure and LimitationsSection 1558 simply incorporates the procedures,

burden-shifting framework, remedies and statute oflimitations set forth in the CONSUMER PRODUCTSAFETY IMPROVEMENT ACT OF 2008. Pub. L. No.

110-314 (Aug. 14, 2008), codified at 15 U.S.C.2087(b). An employee must first exhaust hisadministrative remedies by filing a complaint with theOccupational Safety and Health Administration(OSHA) within 180 days of the employee becomingaware of the employers act of reprisal. OSHA isrequired to investigate the complaint and has authorityto order preliminary relief, including reinstatement.Either party can appeal OSHAs determination to theDepartment of Labor (DoL) for a de novo review by aDoL administrative law judge. A DoL judge does nothave the authority, however, to stay an OSHA order of

reinstatement. Either side can appeal the DoL judgesdecision to the DoL Administrative Review Board,and either party can appeal that decision to the circuitcourt of appeals in which the adverse action tookplace. In the alternative, if the DoL fails to issue afinal decision within 120 days of the filing of theemployees complaint, or within 90 days of receivinga written determination from OSHA, the employeecan remove the claim to U.S. district court for a denovo review, and either party can request trial by jury.15 U.S.C. 2087(b)(4).

3. RemediesAn employer can be ordered to reinstate theemployee and possibly be required to pay back paywith interest, special damages, attorney fees,litigation costs, and expert witness fees. Front (oradvance) pay can be awarded where reinstatement isnot feasible. THE PATIENT PROTECTION ANDAFFORDABLE CARE ACT OF 2009 at 1558,incorporating 15 U.S.C. 2087(b)(4) (CONSUMERPRODUCT SAFETY IMPROVEMENT ACT OF 2008).

4. Arbitration Agreements VoidConsistent with the recent trend of voiding

arbitration agreements, the HEALTH CARE ACTexplicitly makes void arbitration agreements.HEALTH CARE ACTat 1558, amending 18C(b)(2) ofthe FLSA (providing [t]he rights and remedies in thissection may not be waived by agreement, policy,form, or condition of employment.).

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C. Reporting Requirements for Federally FundedLong-Term Care Facilities The ELDERJUSTICE ACTThe ELDER JUSTICE ACT,set out in Section 6703

of the HEALTH CARE ACT, requires whistle blowingfor certain activities.33 See HEALTH CARE ACT at6703, amending Part A of title XI of the SOCIALSECURITY ACT. The owner or operator of a covered

entity must educate its employees of their whistleblowing duties in the event of crimes committedagainst the facilitys residents. Specifically, for thissection, a covered entity is a long-term care facilitythat receives at least $10,000 in federal funds per year

In turn, the facilitys employees are required toreport to the Secretary of Health and Human Servicesand to local law enforcement any reasonablesuspicion of a crime (as defined by the law of theapplicable political subdivision) against any individualwho is a resident of, or is receiving care from, thefacility. Id.

1. TimingIf the events that raise suspicion result in serious

bodily injury, the suspected crime must be reportedimmediately and not more than 2 hours after formingthe suspicion. All other suspected crimes must bereported within 24 hours.Id. at 1150B(b)(2).

2. PenaltiesFailure to report a suspected crime can expose an

employee, manager, or contractor to a civil penalty ofup to $300,000. Id. at 1150B(c)(2)(A). In addition,the ELDER JUSTICE ACT prohibits retaliation againstan employee because of lawful acts done by theemployee. Id. at 1150B(d)(1)(A). If a long-termelderly care facility were to discharge, threaten,harass, or otherwise retaliate against an employee formaking or helping to make a report about a crimebeing committed against residents of the facility, thefacility would face a civil monetary penalty of up to$200,000 or being excluded from any federalhealthcare program for two years. Id. at1150B(d)(2).

33 Such mandatory whistle blowing appears to be the trend.For example, the FEDERAL ACQUISITION REGULATION wasamended, effective December 12, 2008, to require federalgovernment contractors to disclose credible evidence ofcertain criminal acts and violations of the False Claims Actcommitted by its employees or subcontractors. SeeFEDERAL ACQUISITION REGULATION at 3.1003(a)(2)(mandating self-disclosure and providing for suspensionand debarment for failure to self-disclose). See Part VIII ofthis article, supra.

IV. THE AMERICAN RECOVERY ANDREINVESTMENT ACT OF 2009 (THERECOVERY ACT)

A. IntroductionThe AMERICAN RECOVERY AND REINVESTMENT

ACT OF 2009 (the RECOVERY ACT)34 is an uniquepiece of legislation for many reasons. Pub. L 111-5,(February 17, 2009). In addition to the hundreds of

billions of dollars in appropriations, Congress alsocreated perhaps the most robust whistleblowerprotections ever. Section 1553 of the RECOVERYACT, called the McCaskill Amendment, covers allpersons who or entities (including state and localgovernments) that receive funds under the RECOVERYACT, protects employee internal disclosures, has aburden-shifting mechanism favorable for employees,and allows for significant remedies that can beprosecuted in federal court. But the McCaskillAmendment has a limited shelf life because theRECOVERY ACT was a one-time appropriation. It

should be noted that the RECOVERY ACT has no quitam or bounty provision; such an incentive wasunnecessary because the qui tam provisions of theFALSE CLAIMS ACT can be used when suing those35who or that submit false claims as they relate toRECOVERY ACT funds.

B. Retaliation Cause of Action forWhistleblowers

1. Who is CoveredThe McCaskill Amendment applies to any non-

federal employer who receives funds under theRECOVERY ACT. RECOVERY ACT at 1553(g)(4).Covered employers include contractors,subcontractors, grantees, state and local governments,and basically all other nonFederal employers whoreceive a contract, grant, or other paymentappropriated or made available by the RECOVERYACT. A covered employee is an individualperforming services on behalf of the employer butdoes not include any federal employee or militaryservice member. RECOVERY ACT at 1553(g)(3).

2. What is ProtectedProtected conduct includes a disclosure to a

person with supervisory authority over the employee(i.e., internal disclosures), a State or Federalregulatory or law enforcement agency, a member ofCongress, a court or grand jury, the head of a Federal

34 Pub. L. 111-5.

35 States and their governmental subdivisions are immunefrom the FALSE CLAIMS ACT. They are, however, subject tothe McCaskill Amendment and can be sued for acts ofreprisal taken against their employees.

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agency, or an inspector general about information thatthe employee reasonably believes evidences:

Gross mismanagement of an agency contract orgrant relating to stimulus funds;

A gross waste of stimulus funds; A substantial and specific danger to public health

or safety related to the implementation or use of

stimulus funds; An abuse of authority related to the

implementation or use of stimulus funds; or

A violation of a law, rule, or regulation thatgoverns an agency contract or grant related tostimulus funds.

RECOVERY ACT at 1553(a). The McCaskillAmendment specifically protects socalled dutyspeech whistleblowing such as disclosures made byemployees in the ordinary course of performing theirjob duties.

3. Administrative ProcessThe employee who believes he has been

improperly retaliated against must file a complaintwith the inspector general (IG) for the agency that isadministering the stimulus funds. RECOVERY ACT at1553(b)(1). For example, if the Department ofTransportation (DoT) is administering the funds, thenthe employee would file his complaint with the DoTsIG. Unless the IG determines the action is frivolous,does not relate to covered funds, or has been resolvedin another Federal or State administrative proceeding,

the IG must conduct an investigation and make adetermination on the merits of the whistleblowerretaliation claim no later than 180 days after receipt ofthe complaint. RECOVERY ACT at 1553(b)(1) and(2). Within 30 days of receiving an IGs investigativefindings, the head of the appropriate agency shalldetermine whether there has been a violation, in whichevent the agency head can award the employee certainremedies.

4. Judicial ProcessIf an agency head has denied relief in whole or in

part or has failed to issue a decision within 210 daysof the filing of a complaint, the employee can bring ade novo action in federal court, which shall be tried bya jury at the request of either party. RECOVERY ACTat 1553(c)(3).

5. Arbitration Agreements VoidThe McCaskill Amendment explicitly states that

predispute arbitration agreements do not apply toRECOVERY ACT whistleblower claims, unless suchwaivers are part of a collective bargaining unit.RECOVERY ACT at 1553(d)(2) & (3). Moreover, an

employee may not waive his rights and remediesprovided in the McCaskill Amendment, again, unlesssuch waivers are part of a collective bargaining unit.RECOVERY ACT at 1553(d)(1) & (3).

6. RemediesAt the administrative level, the agency head has

authority to order the employer to make whole the

employee. Such an order can include: (1)reinstatement; (2) back pay; (3) compensatorydamages; and (4) attorney fees and litigation costs.RECOVERY ACT at 1553(c)(2). If the employeesaction is prosecuted in federal court, then he can beawarded the same remedies. RECOVERY ACT at1553(c)(3). Where an agency files an action infederal court to enforce an order of relief for aprevailing employee, the court may also awardexemplary or punitive damages. RECOVERY ACT at1553(c)(4).

7. Employee-Favorable Burden Of ProofTo prevail in a whistleblower action under theMcCaskill Amendment, an employee need not showthat the protected conduct was a significant ormotivating factor in the reprisal, but instead mustmerely prove that the protected conduct was acontributing factor to the reprisal. RECOVERY ACTat 1553(c)(1). An employee need not present directevidence of retaliatory motive by the employer, butinstead can establish the contributing factor elementthrough temporal proximity or by demonstrating thatthe decision maker knew of the protected disclosure.RECOVERY ACT at 1553(c)(1)(A)(i) and (ii). Anemployer can avoid liability by demonstrating thehigh evidentiary burden of clear and convincingevidence, that the same action would have been takenin the absence of the employee engaging in protectedconduct. RECOVERY ACT at 1553(c)(1)(B).

C. Additional Matters

1. Section3.907of the FEDERAL ACQUISITIONREGULATION was amended to incorporatethe McCaskill Amendment, and applies toall RECOVERY ACT contracts funded inwhole or in part by that Act. Contractingofficers are instructed to use and includeclause52.203-15, Whistleblower Protectionsunder the American Recovery andReinvestment Act of 2009, in allsolicitations and contracts funded in wholeor in part with Recovery Act funds.

2. The RECOVERY ACT web page is athttp://www.recovery.gov/Pages/default.aspx

3. The Federal Acquisition Regulation is athttps://www.acquisition.gov/Far/.
https://www.acquisition.gov/far/html/Subpart%203_9.html#wp1080541https://www.acquisition.gov/far/html/Subpart%203_9.html#wp1080541https://www.acquisition.gov/far/html/Subpart%203_9.html#wp1080541https://www.acquisition.gov/far/html/52_200_206.html#wp1144881https://www.acquisition.gov/far/html/52_200_206.html#wp1144881https://www.acquisition.gov/far/html/52_200_206.html#wp1144881http://www.recovery.gov/Pages/default.aspxhttp://www.recovery.gov/Pages/default.aspxhttps://www.acquisition.gov/Far/https://www.acquisition.gov/Far/https://www.acquisition.gov/Far/http://www.recovery.gov/Pages/default.aspxhttps://www.acquisition.gov/far/html/52_200_206.html#wp1144881https://www.acquisition.gov/far/html/Subpart%203_9.html#wp1080541

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V. THE CONSUMER PRODUCT SAFETYCOMMISSION REFORM ACT OF 2008

A. Protections for the Consumer SafetyWhistleblowerGiven the concerns about the safety of products

intended for children, Congress enacted theCONSUMER PRODUCT SAFETY COMMISSION REFORMACT (CPSC ACT). Pub. L. No. 110-314 (Aug. 14,

2008), codified at 15 U.S.C. 2051 et seq. Congresscreated new whistleblower protections for employeesof manufacturers, private labelers, distributors, orretailers of consumer products. See 15 U.S.C. 2087.Covered employees are protected from discharge orany other form of retaliation resulting from theemployees report to the employer, the FederalGovernment, or a state attorney general of informationrelating to any violation of statutes or regulationsenforced by the U.S. Consumer Product SafetyCommission (CPSC).

B. Who is CoveredThe CPSC regulates about 15,000 types ofconsumer products used in the home, schools andrecreation. THE CPSC ACT covers employees ofconsumer product manufacturers, importers, privatelabelers (owners of a brand or trademark on theprivate label of a consumer product), distributors, andretailers. 15 U.S.C. 2087(a). A "consumer product,"as defined under the CONSUMER PRODUCT SAFETYACT, generally means any article, or component partthereof, produced or distributed: (i) for sale to aconsumer for use in or around a permanent or

temporary household or residence, a school, inrecreation, or otherwise, or (ii) for the personal use,consumption or enjoyment of a consumer in or arounda permanent or temporary household or residence, aschool, in recreation, or otherwise. 15 U.S.C.2052(5).

C. What is ProtectedAn employer may not discharge or in any other

manner retaliate against an employee who provided,caused to be provided or was about to provide orcause to be provided to the employer, the federalgovernment, or the attorney general of a stateinformation relating to any violation of, or any act oromission that the employee reasonably believed to bea violation of, the CPSC ACT or any other Actenforced by the CPSC, or any order, rule, regulation,standard or ban under any such Acts. 15 U.S.C.2087(a)(1).

In addition, an employer may not discharge or inany manner retaliate against an employee fortestifying, participating, or assisting in a proceedingunder the laws, orders, rules, regulations, standards orbans enforced by the CPSC. Also, an employer may

not discharge or in any manner retaliate against anemployee who objected to or refused to participate in,any activity, policy, practice, or assigned task that hereasonably believed to be in violation of any provisionof the CPSC ACT or any other Act enforced by theCPSC, or any order, rule, regulation, standard or banunder any such Acts. 15 U.S.C. 2087(a)(2-4).

D. Statute of LimitationsA complaint setting forth the facts andidentifying the responsible party must be filed withthe Secretary of Labor no later than 180 days after thedate on which the violation occurs. 15 U.S.C.2087(b)(1).

E. RemediesA prevailing employee is entitled to: (1)

reinstatement; (2) back pay; (3) compensatorydamages; and (4) attorney

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