Blow The Whistle
What You Should Know
The law rewards people who expose fraud. And it protects them from retaliation by those who commit it. If you are aware of fraud against the government, or of wrongdoing in America’s financial markets, you should contact us promptly. We can help you put a stop to it while protecting your right to compensation. And we can do this at no upfront cost to you.
There are many different whistleblower programs operating at the federal, state, and even local level. They all offer substantial financial rewards to knowledgeable whistleblowers who expose wrongdoing with timely, high-quality information, but they reach different types of misconduct and have very different procedural requirements and remedies.
The False Claims Acts
The federal False Claims Act can be thought of as America’s original “whistleblower” program. Congress enacted it during the Civil War amid outrage over profiteers who had sold the Union Army shoddy supplies. The law has been amended several times since then, and the States have enacted similar legislation. Even some local governments, including the City of New York and Allegheny County, Pennsylvania, have their own false claims acts.
Under the federal False Claims Act, it is unlawful to knowingly present the government or its agents with a false or fraudulent claim for payment, or make a false record or statement material to such a claim. Additional provisions of the law prohibit other fraudulent devices, including conspiracy and the knowing concealment or misstatement of an obligation to pay the government. Violations have draconian consequences. In addition to civil penalties (currently as much as $21,916 per violation), the government can collect “treble damages” — in other words, three times its loss.
Unlike most other public laws, the False Claims Act can be enforced by private parties. A person with original information about a fraud against the government (known as a “relator”) may sue the defendant in the government’s name. The complaint must be filed under seal, and the relator must serve the government a copy of the complaint and the evidence in his possession. The confidentiality of the process allows the government to investigate the claim without tipping off the defendant.
Based on its investigation, the government may elect to intervene and assume control of the litigation. But even if the government declines intervention, the relator generally has the right to proceed with the action on his own. The relator’s share of any recovery depends on the government’s decision. If the government decides to intervene, the relator can receive as much as 25% of any recovery. If a recovery is achieved without the government’s intervention, the relator’s share may be as high as 30%.
The IRS Whistleblower Program
Tax evasion is one of the few types of fraud that is not actionable under the False Claims Act. Although a small handful of states (including New York) permit relators to pursue tax fraud on the government’s behalf, the federal statute bars these types of suits. The Internal Revenue Code partially fills this gap by authorizing the IRS to pay awards to whistleblowers with specific and credible information leading to the recovery of unpaid tax and other amounts.
The IRS has long had the power to make discretionary awards to whistleblowers out of funds recovered from noncompliant taxpayers. In 2006, Congress amended the law to require awards of as much as 30% of the recovered funds under some circumstances. In general, an award must be paid if the total amount in dispute exceeded $2,000,000, and the taxpayer (if an individual) had a gross income in excess of $200,000 for any taxable year at issue. The amount of the award is calculated as a percentage of the total proceeds recovered, including tax, interest, penalties, and other amounts.
Unlike relators under the False Claims Act, whistleblowers under the Internal Revenue Code cannot bring their own actions against noncompliant taxpayers. If the Internal Revenue Service declines to act on the whistleblower’s information, then that is the end of the road. For that reason, it is important that whistleblowers submit applications with specific and credible information backed by all available documents and supporting evidence. Competent counsel is indispensable.
The SEC Whistleblower Program
The SEC’s whistleblower program is modeled on the IRS program discussed above. The SEC adopted it in 2011 pursuant to the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010. The Act requires the SEC to make awards to whistleblowers who voluntarily provide original information leading to a successful enforcement action that results in total monetary sanctions of more than $1,000,000. Tips can be made anonymously (through counsel), and there are safeguards to protect whistleblowers from retaliation. Whistleblowers have received more than $100,000,000 in total awards under the program.
As with the IRS program, the government’s enforcement decision is unreviewable, and the whistleblower has no right to pursue a tip himself if the SEC declines to act. But unlike the other regimes described above, the SEC’s program is not targeted at government fraud. Any violation of the federal securities laws can support a whistleblower complaint. Tips that earned awards have exposed the following types of misconduct:
- Accounting irregularities, including misstatements of financial reports;
- Deficiencies in internal controls;
- Market manipulation;
- Unlawful retaliation against a whistleblower; and
- Ponzi schemes.
Each month, the SEC publishes a list of enforcement actions yielding recoveries in excess of the $1,000,000 threshold. Whistleblowers who submitted tips are responsible for reviewing each “Notice of Covered Action” and applying for any award they believe they are entitled to. An application must be made within 90 days of the posting of the notice.
Whistleblowing success depends on a careful combination of speed and preparation. As a general rule, only the first informant is entitled to an award, even if a later informant provides additional evidence related to the same violation. But the quality of the whistleblower’s information, and the degree of cooperation provided, are important considerations in determining the size of any award.
If you are aware of fraud against the government, or of misconduct in America’s financial markets, please contact us immediately for a free consultation. We have filed or counseled applications under many of the regimes described above, including the New York False Claims Act and the SEC and IRS whistleblower programs. Competent counsel can help you prepare a strong submission that persuasively explains the alleged wrongdoing while protecting your rights to compensation.