Defending Corporations and Individuals in

Government Investigations

Ethics & Whistleblower Issues In Investigations

Daniel J. Fetterman

Mark P. Goodman

Reid Figel

Daniel Karson

Patrick Pericak

September 28, 2016

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Overview

Part I: Definition of “Whistleblower”

Part II: Whistleblower Programs

Part III: Dealing with Whistleblowers

Part IV: Ethical Considerations in Representations

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Part I: Definition of “Whistleblower”

Definition of Whistleblower

• Under Dodd-Frank, a “whistleblower” is defined as any person

who provides information relating to a violation of the securities

laws to the Securities and Exchange Commission or the

Commodity Futures Trading Commission.

• An individual may also qualify as a whistleblower under Dodd-

Frank if he or she reports a violation of the securities laws

internally and suffers employment retaliation as a result of doing

so.

• Under the False Claims Act, any person with evidence of fraud

against federal programs or contracts may file a qui tam suit.

Such persons are called “relators.”

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Part II: Whistleblower Programs

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Dodd-Frank & Sarbanes-Oxley

Dodd-Frank Act established several new whistleblower protections

for individuals employed in the financial services industry who

report violations of the securities or commodities laws.

Sarbanes-Oxley Act prohibits publicly traded companies from

taking adverse employment action against an employee who

provided information or assisted an investigation concerning a

violation of SOX, any SEC rule/regulation, or federal statute

relating to fraud against shareholders.

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SEC & CFTC

The SEC and CFTC both have whistleblower programs that allow a

whistleblower to submit tips concerning violations of the

securities or commodities laws.

To participate in the SEC program, for example, an individual must

(1) voluntarily provide (2) original information that (3) leads to the

successful enforcement by the SEC in which (4) the SEC obtains

monetary sanctions totaling more than $1 million.

False Claims Act (Qui Tam Suits)

The FCA has a whistleblower program allowing for relators to file

claims on behalf of the federal government.

Qui Tam plaintiffs can receive between 15-30% of the total

recovery from the defendant, whether through a favorable judgment

or settlement.

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SEC, CFTC, & FCA Programs:

Relevant Statistics

SEC Whistleblower Program (as of FY 2015)

• Paid more than $54 million to 22 whistleblowers since the program was created in

August 2011.

• In FY 2015 alone, more than $37 million was paid to eight whistleblowers. More

than 4,000 tips were submitted that year.

• Most ever awarded was $30 million to one individual in 2014.

CFTC Whistleblower Program (as of FY 2015)

• No awards in FY 2015, although one award granted in September 2015 is currently

on appeal.

• The office received 232 tips in FY 2015.

• In April 2016, CFTC awarded more than $10 million, the largest award made since

the inception of the program.

FCA (as of FY 2015)

• Lawsuits under the FCA have recovered more than $48 billion since 1986; $33

billion resulting from whistleblower suits (paying out $5.3 billion to relators)

• In 2015, the DOJ initiated 737 suits, 632 of which were based on whistleblower tips

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Part III: Dealing with Whistleblowers

Duties of In-House Counsel

• Address claim immediately

• CLO and/or compliance officer assemble an investigation

team

• Investigation Team

• Identify witnesses documents to be collected and

preserved (for investigation and any potential litigation)

• Emphasize importance of maintaining confidentiality

• Reinforce that retaliation is not permitted and vigilantly

ensure it does not occur

• Provide Upjohn warning to whistleblower

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Whistleblower Protection (Retaliation)

The definition of “adverse action” is expansive and can even include

disclosure of the whistleblower’s name.

– Under SOX, for example, an employee need only establish that the

employer’s action would have dissuaded a reasonable worker from

engaging in the protected activity.

– Employer can avoid liability by establishing it would have taken

the same adverse action absent the protected activity

Remedies include:

• Reinstatement;

• Double back pay;

• Compensation for any special damages including litigation costs and

reasonable attorneys’ fees

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Investigating a Whistleblower

• It is lawful and ethical to research the public record:

– Federal and state, civil and criminal proceedings

– Judgments, liens, bankruptcies

– Business affiliations

– Property ownership

– Social network postings that do not require pretexting for

purposes of “friending”

– Media reports

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Investigating a Whistleblower (cont’d)

• If the whistleblower is an employee, and the company has

relevant policies in force and in use acknowledged by

employees, the company may retrieve and examine:

– The contents of company issued computers

– Email in the company’s domain

– The employee’s use of the Internet through the company’s

server

– Telephone numbers called and received using the

company’s telephone exchange, which may be traceable to

identify persons called/calling

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Investigating a Whistleblower (cont’d)

• Care should be taken to avoid allegations of whistleblower

intimidation or retaliation

• Strategies such as surveillance and interviews of prospective

witnesses should be undertaken and deployed only with care and

consideration for the consequences of disclosure

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Part IV: Ethical Considerations in

Representation

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Rules of Professional Responsibility

• Communication with person Represented by Counsel (Rule 4.2)

– (a) In representing a client, a lawyer shall not communicate

or cause another to communicate about the subject of the

representation with a party the lawyer knows to be

represented by another lawyer in the matter, unless the

lawyer has the prior consent of the other lawyer or is

authorized to do so by law.

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Ethical Issues: Attorney Whistleblowers

• Part 205 (SOX) generally contemplates reporting material

violations “up the ladder”

• Under certain conditions, the Rules permit attorneys to submit

whistleblower reports.

• SEC conduct rule: lawyer may reveal confidential client

information to the SEC where he/she “reasonably believes

necessary” to:

• Prevent issuer from committing material violation likely

to cause substantial injury;

• Prevent issuer, in a SEC investigation or proceeding,

from committing perjury or perpetrating fraud;

• Rectify consequences of a material violation that

caused, or may cause, substantial injury

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Relevant Ethical Rules & Opinions:

Comments & Opinions on ABA Guidelines

• Part 205 (SOX) provides that an attorney who complies in good

faith with that statute shall not be subject to inconsistent

standards imposed by any state or jurisdiction where he/she is

admitted to practice.

• However, questions persist as to whether this preemption

clause actually has preemptive effect.

• California

• New York

• Washington

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Protecting Client Confidences

Model Rule 1.6:

• Permits disclosure of client information if the disclosure is

necessary “to establish a claim or defense on behalf of the

lawyer in a controversy between the lawyer and the client.”

ABA Formal Ethics Opinion:

• A wrongful termination claim is a “claim” within the meaning of

Model Rule 1.6.

– The vast majority of states have adopted this language

Courts in States with Model Rule 1.6:

• Because of this exception, the ethical rule regarding disclosure of

confidential information is not violated even if disclosure of client

confidences is necessary to bring the whistleblower claim.

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Protecting Client Confidences Model Rule 1.13:

• Under many states’ rules, where in-house counsel becomes aware

of a violation of the law that is likely to result in substantial injury to

the company, she is permitted to reveal confidential information to

the extent the lawyer reasonably believes necessary, after she has

reported violations internally and the organization has failed to act.

States with More Restrictive Ethical Rules:

• District of Columbia, Michigan, and New York:

• Limits use of confidential information to claims involving a fee.

• Violated if confidences are disclosed by in-house counsel in the

course of litigating a whistleblower claim, unless in-house

counsel can show that some other exception applies, such as

the crime-fraud exception.

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Reporting Ethical Violations to the

Appropriate Disciplinary Authority

• An attorney who violates his or her ethical obligations in pursuing

a whistleblower claim may face disciplinary proceedings.

• Model Rule 8.3(a): “A lawyer who knows that another lawyer has

committed a violation of the Rules of Professional Conduct that

raises a substantial question as to that lawyer’s honesty,

trustworthiness or fitness as a lawyer in other respects, shall

inform the appropriate professional authority.”

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Ethical Issues: Whistleblower Awards

• Dodd-Frank:

• Eligible for a bounty ranging between 10 and 30% of

sanctions collected where SEC enforcement action leads to

recovery of more than $1 million

• SEC may split an award between multiple whistleblowers

• Unclear whether attorney can collect whistleblower bounty

• “Original information” does not include information obtained

through a privileged communication or in connection with

the legal representation of a client.

• Exceptions: Disclosure otherwise permitted by SEC attorney

conduct rules, applicable state attorney conduct rules, or

“otherwise.”

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Legal and Ethical Considerations

Attorneys and Investigators must assure that investigative

strategies are lawful and ethical

• Hewlett Packard – 2006 – investigators seeking the source of

boardroom leaks unlawfully obtained telephone and bank records

through pretexts.

• Uber – 2015 – investigators contacted acquaintances and

colleagues of an antitrust plaintiff using improper pretexts to

acquire information. Meyer v. Kalanick and Uber 2016 WL

3981369 (SDNY 2016).

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