Whistleblowers

March 1, 2019

Texas Claims under the SEC’s Whistleblower Program

Over the past few decades, government regulators have begun to keep a much closer eye on the conduct of those in charge at large corporations. However, regulators may not be privy to all the inner-workings of a corporation, and given the number of corporations and lack of available resources to ferret out the wrongdoers, corporate misconduct flew under the radar for years. More recently, however, the Securities and Exchange Commission (SEC) started the SEC whistleblower program, which relies on employee whistleblowers to report violations of U.S. securities laws.

Under the SEC whistleblower program, an employee who voluntarily reports information that assists the SEC in recovering amounts of more than $1 million is eligible for a financial award. The amount of the award ranges between 10% to 30% of the monetary sanctions collected by the government. These funds are paid out of a separate fund called the Investor Protection Fund, rather than with company proceeds.

To be eligible for a reward through the SEC Whistleblower program, a reporting employee must be able to show the following:

The information provided relates to a violation of U.S. securities law or relates to the bribery of a foreign official;
The information was provided voluntarily, and not in response to questioning or an investigation;
The information was based on personal knowledge, and not publicly available records; and
The information must result in a new investigation or significantly contribute to an existing investigation.

February 1, 2019

The National Defense Authorization Act and the Protections It Provides to Texas Contractors and Employees

by Eric Dama

The federal government has certain laws ultimately designed to prevent the misuse or waste of federal funds. Thus, to encourage federal employees to “blow the whistle” on those engaging in misconduct, lawmakers passed the Whistleblower Protection Act (WPA). Under the WPA, government employees who report certain acts of misconduct are protected from an employer’s retaliation.

For decades, the federal government has relied upon non-government private contractors to perform certain government functions. However, the WPA only applies to government employees. Thus, to extend the whistleblower protections of the WPA to private government contractors, Congress included certain protections in the National Defense Authorization Act (NDAA).

As noted above, the NDAA provides protections to private contractors hired by the federal government when they report waste, fraud, or abuse in federal government contracts and grants. The NDAA also covers whistleblowers who are employees of private contractors, as well as subcontractors and anyone else working on a government contract or grant.

December 21, 2018

Texas Whistleblowers Are Protected from Employer Retaliation

by Eric Dama

Employees of organizations are privy to all sorts of information that is not available to the public. Thus, it is not uncommon for an employee to discover that their employer is defrauding the government. When an employee discovers their employer is engaging in fraud, they can blow the whistle on their employer’s illegal conduct by filing a Texas qui tam lawsuit.

A qui tam lawsuit is essentially a whistleblower claim. The term qui tam is short for the Latin term, “qui tam pro domino rege quam pro se ipso in hac parte sequitur,” which roughly translates to “he who brings the action for the king as well as himself.” The idea behind a qui tam lawsuit is to incentivize those with knowledge that an organization is defrauding the government to come forward.

An employee who has knowledge of an employer’s fraud can file a civil lawsuit under the False Claims Act seeking to recover compensation for the employer’s fraud on behalf of the government. Once a qui tam lawsuit is filed, it is kept under seal while the Justice Department investigates the claim. During this period, the subject is not made aware they are under investigation.

February 2, 2018

Can government workers be fired for exercising their right to free speech?

by Eric Dama

The First Amendment prevents the federal, state, and local governments from infringing on rights of religion, press, speech, assembly, and petition. While workers of private companies are not protected from being fired for what they say, government workers may be protected from retaliation for exercising some of their First Amendment rights. Specifically, they are protected with regard to speech when talking about issues believed to be of public concern. They are not protected from retaliation for everything they say, however.

In 1968 the Supreme Court ruled in Pickering v. Board of Education that a government worker’s interest in remarking on issues of public concern needed to be balanced against the government’s interest as an employer in increasing the efficiency of public services that it offers through its workers. The Court noted that government workers are often in the best position to know any problems within government agencies, and those problems should be transparent, so the public can decide how best to address them. In that case, the Supreme Court also said that this type of speech isn’t protected if it knowingly or recklessly includes false statements. Critical to this case was that the teacher plaintiff was speaking more as a citizen than as a government employee when writing the letter to the editor with which the school district took issue and for which it terminated him.

A court deciding whether a government worker was impermissibly subjected to retaliation under the First Amendment must look at: (1) whether the plaintiff was involved in an activity protected by the Constitution, (2) whether the government’s actions injured the plaintiff, such that an ordinary person would be deterred from continuing with those activities, (3) whether the injurious actions stemmed at least partly from utilizing one’s constitutional rights, (4) whether the worker’s speech was about a subject of public interest, and (5) whether the worker’s interest as a citizen in talking about public interest matters outweighs the government’s interest in efficient service provision.

January 18, 2018

What is the SEC whistleblower program?

by Eric Dama

The SEC whistleblower program was established by Congress as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The Dodd-Frank Act is one of several financial reforms, another of which was the Sarbanes Oxley Act, which was passed in 2002.

The whistleblower program gives awards to eligible whistleblowers who voluntarily give original information to the SEC that results in successful SEC enforcement actions with civil sanctions that are greater than $1 million. A whistleblower is an individual or several individuals acting jointly. Corporations and similar entities cannot be considered whistleblowers.

To be considered original information for the purposes of an award, a Texas whistleblower has to include information derived from their independent knowledge or analysis, and it can’t be known by the SEC already from another source, except when the whistleblower is the original source because they first reported the information to the Department of Labor and Department of Justice, which provided the information to the SEC. The information can’t be exclusively derived from allegations made in government reports or judicial and administrative hearings unless the whistleblower is a source of the information. Independent knowledge must be facts that are not gotten from sources that are publicly available. The whistleblower might have observed the facts first-hand but can also get knowledge via experience or discussion.

January 12, 2018

How does Sarbanes-Oxley protect whistleblowers in Texas?

by Eric Dama

The Sarbanes-Oxley Act of 2002 (Sarbanes Oxley) is a federal law that provides protection to those who work for publicly traded companies and who inform authorities about SEC regulation violations or federal law violations connected to fraud against corporate shareholders. The law prohibits retaliation, discrimination, or harassment in the workplace against Texas whistleblowers.

Retaliation is any adverse change to the whistleblower’s terms and conditions of employment, and it can include anything from a simple reprimand to termination or blackballing. It’s not just those who work directly for publicly traded companies who are protected, but also agencies, contractors, and subcontractors of publicly traded companies.

The law includes as protected whistleblower activity any reports sent to federal law enforcement and regulatory agencies about violations, as well as reports to a supervisor, investigators within the company, and Congress. Employees who testify or who are involved in regulatory proceedings and other shareholder fraud proceedings are also protected.

December 15, 2017

How to blow the whistle on government fraud in Texas

by Eric Dama

The False Claims Act (FCA) is a federal law that allows you to blow the whistle on unscrupulous companies, individuals, or contractors who defraud the government by bringing fraudulent claims or contracts. The FCA covers any federally funded contract or program. However, the FCA doesn’t cover securities fraud or tax fraud. Securities fraud is covered by the Dodd-Frank Act and the Foreign Corrupt Practices Act. Tax fraud is covered by the Tax Relief and Health Care Act.

When you have personal knowledge of fraud against the United States or Texas government, whether it’s at your workplace or another workplace, you can bring a Texas qui tam action to court. A qui tam lawsuit is one in which action is taken on the government’s behalf.

There are both federal and state False Claims Acts. Under these laws, you can pursue a qui tam action against an entity that has wronged the government. In a federal case, you file a sealed complaint of fraud based on your private knowledge about the wrongdoing. For example, in one federal case arising in Texas, a relator claimed that the defendants violated the FCA by submitting reimbursement claims of hospice care expenses for patients who weren’t eligible for MHB, when the necessary doctor’s certifications incorrectly certified that they were terminally ill.