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Whistleblowers in the Age of Stimulus Chapter 9 ! Whistleblowers in the Age of Stimulus Dan Hargrove Hargrove & Rea, P.C. Historic One Ten Broadway 110 Broadway, Suite 550 San Antonio, Texas 78205 (210) 223-9700 [email protected] www.Govtfraudlawyer.com State Bar of Texas Advanced Employment Law Course 2011 January 13-14, 2011 Austin, Texas CHAPTER 9

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Whistleblowers in the Age of Stimulus

Dan Hargrove

Hargrove & Rea, P.C. Historic One Ten Broadway

110 Broadway, Suite 550 San Antonio, Texas 78205

(210) 223-9700 [email protected]

www.Govtfraudlawyer.com

State Bar of Texas

Advanced Employment Law Course 2011

January 13-14, 2011 Austin, Texas

CHAPTER 9

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DAN HARGROVE

Mr. Hargrove represents businesses and individuals in matters involving federal government contracts, the FALSE CLAIMS ACT (qui tam), whistleblower actions, and health care fraud. Mr. Hargrove was named The 2004 San Antonio Young Lawyer of the Year by the San Antonio Young Lawyers Association, a Rising Star for 2004 & 2005 by TEXAS MONTHLY, and has been named as one of San Antonio’s best employment attorneys by SCENE IN SA MONTHLY.

PROFESSIONAL AFFILIATIONS

Admitted:

Supreme Court of the United States

U.S. Court of Appeals, Fifth Circuit

All U.S. District Courts in Texas

Court of Federal Claims

Court of Appeals for the Armed Forces

All Texas courts

Organizations:

Taxpayers Against Fraud

Federal Bar Association (San Antonio chapter Board Member)

Society of American Military Engineers (Board Member)

Southwest Foundation for Biomedical Research, Founder’s Council

Reserve Officers Association

San Antonio Trial Lawyers Association

PRACTICE AREAS

! FALSE CLAIMS ACT (qui tam)

! Health Care Fraud ! Federal Government Contracts

! Whistleblower Actions

BACKGROUND

Mr. Hargrove focuses his practice on the FALSE CLAIMS ACT (whistleblower and qui tam litigation), federal government contracts, and health care fraud. Before forming Hargrove & Rea, P.C., Mr. Hargrove practiced with Jenkens & Gilchrist,

P.C. and served for six years on active duty with the U.S. Army JAG Corps (10th Mountain Division (Light Infantry) and the

82nd Airborne Division) and deployed to the Middle East. He continues to serve in the Army Reserves, with the rank of

Lieutenant Colonel, and is an Assistant Professor of Law at the U.S. Army JAG School.

EDUCATION

! U.S. Army JAG School, LL.M. (Federal Procurement Law) 2003

! St. Mary’s University School of Law, J.D. 1994

! Texas A&M University, B.S. 1991 (Honors Program; Corps of Cadets; ROTC Scholarship)

! Rotary International Exchange Student (Sweden) 1986

NOTABLE PUBLICATION

Daniel L. Hargrove, 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 (2004)

CONTACT INFORMATION

Hargrove & Rea, PC

Historic One Ten Broadway, Suite 550

San Antonio, Texas 78205

www.govtfraudlawyer.com

(210) 223-9700 (o)

(210) 223-9708 (f) [email protected]

www.govtfraudlawyer.blogspot.com

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TABLE OF CONTENTS

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

II. THE DODD-FRANK ACT OF 2010 ..............................................................................................................2

A. Overview of the DODD-FRANK ACT’S Bounty Programs and Protections for

Whistleblowers Against Reprisal ..........................................................................................................2

B. The SEC Whistleblower (Bounty) Incentive Program ............................................................................2 1. Introduction to the SEC Incentive Program (Section 922) ...........................................................2

2. Who may File an SEC Bounty Claim...........................................................................................3

3. Who is Precluded from being Paid an Award...............................................................................4

4. Statute of Limitations to File a Bounty Claim..............................................................................4 5. The SEC’s Administrative Process...............................................................................................4

6. No Right to Judicially Appeal an SEC Bounty Determination ....................................................4

C. New Reprisal Cause of Action for SEC Whistleblowers that can be Filed in U.S. District Court (no exhaustion of administrative remedies required)...........................................5

D. Resources – DODD-FRANK ACT’S SEC Bounty Programs and Protections for

Whistleblowers Against Reprisal ............................................................................................................6 E. The Commodity Futures Trading Commission Whistleblower Bounty Program and

Anti-Reprisal Protections for Whistleblowers ........................................................................................6

1. Introduction to the CFTC Incentive (Bounty) Program (Section 748).........................................7

2. Who may File a CFTC Bounty Claim ..........................................................................................7 3. Who is Precluded from being Paid a CFTC Bounty Claim..........................................................8

4. Statute of Limitations....................................................................................................................8

5. The CFTC Administrative Process ...............................................................................................8 6. Whistleblower can Judicially Appeal the Commission’s Bounty Determination ........................9

F. New Reprisal Cause of Action for CFTC Whistleblowers ......................................................................9

1. Whistleblowers Protected Against Reprisal (no exhaustion of administrative remedies required) .......................................................................................................................9

2. Arbitration Agreements Void .......................................................................................................9

G. Resources – DODD-FRANK ACT’S CFTC Bounty Programs and Protections for

Whistleblowers Against Reprisal ............................................................................................................9 H. New Reprisal Cause of Action for Whistleblowers in the “Financial Services Industry”

(Section 1059 of the Dodd-Frank Act)..................................................................................................10

1. Introduction to Section 1057 of the DODD-FRANK ACT.............................................................10 2. Who is Covered...........................................................................................................................10

a. Emlpoyee .........................................................................................................................10

b. Employer .........................................................................................................................10

3. What is Protected ........................................................................................................................10 4. The Process (employee must exhaust administrative remedies before filing lawsuit) ...............10

a. Administrative .................................................................................................................11

b. Judicial ............................................................................................................................11 c. Burden of Proof ...............................................................................................................11

5. Remedies.....................................................................................................................................11

6. Arbitration Agreements Void .....................................................................................................11 I. Strengthening the SARBANES-OXLEY ACT’S Whistleblower Protections ..............................................11

1. Introduction to the Existing SOX Whistleblower Protections....................................................11

2. Sections 922 and 929A of the DODD-FRANK ACT “clarify” the SOX

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Whistleblower Claim ......................................................................................................................12

III. THE PATIENT PROTECTION AND AFFORDABLE CARE ACT OF 2009 ..........................................12

A. Overview of the HEALTH CARE ACT ....................................................................................................12 B. Section 1558 – Protections for Whistleblowers ....................................................................................12

1. Introduction to Section 1558 - Scope of Coverage and Protections ...........................................12

2. Procedure and Limitations ..........................................................................................................13

3. Remedies.....................................................................................................................................13 4. Arbitration Agreements Void .....................................................................................................13

C. Reporting Requirements for Federally Funded Long-Term Care Facilities –

The ELDER JUSTICE ACT .......................................................................................................................13 1. Timing.........................................................................................................................................13

2. Penalties ......................................................................................................................................14

IV. THE AMERICAN RECOVERY AND REINVESTMENT ACT OF 2009 (THE “RECOVERY ACT”) ........................................................................................................................14

A. Introduction ...........................................................................................................................................14 B. Retaliation Cause of Action for Whistleblowers ...................................................................................14

1. Who is Covered ..........................................................................................................................14

2. What is Protected ........................................................................................................................14 3. Administrative Process ...............................................................................................................15

4. Judicial Process...........................................................................................................................15

5. Arbitration Agreements Void .....................................................................................................15

6. Remedies.....................................................................................................................................15 7. Employee-Favorable Burden of Proof........................................................................................15

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

V. THE CONSUMER PRODUCT SAFETY COMMISSION REFORM ACT OF 2008 ................................16

A. Protections for the Consumer Safety Whistleblower ............................................................................16 B. Who is Covered .....................................................................................................................................16

C. What is Protected...................................................................................................................................16

D. Statute of Limitations ............................................................................................................................16

E. Remedies................................................................................................................................................16 F. Process ...................................................................................................................................................16

G. Resources...............................................................................................................................................17

VI. AMENDMENTS TO THE FALSE CLAIMS ACT ...................................................................................17

A. THE FRAUD ENFORCEMENT AND RECOVERY ACT of 2009 ..................................................................17

1. Expanding protections to the retaliation cause of action (31 U.S.C. §3730(h)) .........................17 B. THE HEALTHCARE ACT .........................................................................................................................18

C. Section 1079A(b) of the DODD-FRANK ACT.........................................................................................19

VII. THE IRS WHISTLEBLOWER REWARD PROGRAM .......................................................................................19

A. Introduction to the IRS Whistleblower Reward Program .....................................................................19 B. Filing an IRS Informant Reward Claim ................................................................................................20

1. 7623(b) Awards ..........................................................................................................................20

2. 7623(a) Claims............................................................................................................................20

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3. Full Disclosure............................................................................................................................20

4. Eligibility to File a Claim for Award..........................................................................................20 5. Identity of the Whistleblower .....................................................................................................21

C. Appealing to the U.S. Tax Court ...........................................................................................................21

D. Resources...............................................................................................................................................21

VIII. UNIQUE ISSUES FACING FEDERAL GOVERNMENT CONTRACTORS .......................................21

A. Introduction ..........................................................................................................................................21 B. Whistleblower Protections for Contractor Employees ..........................................................................22

1. Who and What is Protected ........................................................................................................22

2. Procedure ....................................................................................................................................22 3. Remedies, Enforcement, and Review .........................................................................................22

C. Recent Changes to the Federal Acquisition Regulation Require Contractors to Disclose ....................23

D. The Federal Awardee Performance and Integrity Information System ................................................23

IX. CONCLUSION ............................................................................................................................................24

APPENDIX .........................................................................................................................................Appendix 1

A. Major False Claims Act cases settled in 2010........................................................................Appendix 2

B. New Anti-Retaliation Legislation that Voids Arbitration Agreements ..................................Appendix 4 C. IRS Form 211 .........................................................................................................................Appendix 5

D. Proposed SEC Form WB-APP ...............................................................................................Appendix 8

E. Proposed CFTC Form TCR, TIP, Complaint or Referral .....................................................Appendix 14

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Whistleblowers in the Age of

Stimulus

I. INTRODUCTION

While it may come as a surprise to many, the

Federal Government has insufficient legal and investigative resources to enforce the laws it passes

and protect programs such as Medicare. Given this

reality, Congress is increasingly turning to whistleblowers to root out and report fraud. The

FALSE CLAIMS ACT, originally enacted during the

Civil War,1 has proven to be the Government’s most

powerful and effective fraud-fighting tool. It has been hugely successful, recovering over $25 billion for the

Government since 1986. Some of the recoveries have

been astronomical. On September 2, 2009, the Department of Justice announced that Pfizer agreed to

settle a qui tam case for $2.3 billion, from which six

whistleblowers were awarded payments of more than $102 million. In October 2010, GlaxoSmithKline

settled with the Department of Justice for $750

million in a qui tam case, from which the

whistleblower will receive $96 million. The FALSE

CLAIMS ACT, which primarily relies upon

whistleblowers to bring evidence of fraud to the

Government,2 has two powerful weapons in its arsenal. First, the FALSE CLAIMS ACT allows a

private citizen, on behalf of the Government, to

prosecute a qui tam3 action against those who commit

""""""""""""""""""""""""""""""""""""""""""""""""""""""""1 For a history of the FALSE CLAIMS ACT, see Dan L.

Hargrove, Soldiers of Qui Tam Fortune: Do Military

Service 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 the

United States Government, as opposed to other

governments such as the State of Texas. While many

states, Texas included, have qui tam statutes, this article

focuses on federal law. See, e.g., THE TEXAS MEDICAID

FRAUD 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 is short for the Latin phrase “qui tam pro

domino rege quam pro se ipso in hac parte sequitur,”

which means ‘who pursues this action on our Lord the

King’s behalf as well as his own.’” Vermont Agency of

Natural Res. v. United States ex rel. Stevens, 529 U.S. 765,

769 n.1 (2000) (citing 3 W. BLACKSTONE, COMMENTARIES

ON THE LAW OF ENGLAND 160 (1768)). A “qui tam action”

is “an action brought under a statute that allows a private

fraud against the Government. 31 U.S.C. §§3729 et

seq. The whistleblower, called a relator, is entitled to

be rewarded a percentage of what the Government

recovers, ranging from ten to thirty percent, plus attorneys fees and costs. 31 U.S.C. §3730(d).

Second, the FALSE CLAIMS ACT protects

whistleblowers in their employment by providing a

cause of action for acts of reprisal by an employer. 31 U.S.C. §3730(h).

The success of the FALSE CLAIMS ACT has encouraged Congress to further rely upon

whistleblowers to ensure compliance with the law. A

number of statutes have recently been enacted that

allow the Government to pay a “bounty” to a whistleblower. Recognizing a whistleblower acts at

his peril, Congress has also cloaked whistleblowers

with protections by creating causes of action for reprisals committed against them by their employers.

This article surveys these new whistleblower laws that

have been enacted since 2007. These laws can be divided into two categories. On one side of the ledger

are those laws that protect whistleblowers from acts of

reprisal by employers. An example of such a law is

Section 1057 of the DODD-FRANK ACT, which

"""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""person to sue for a penalty, part of which the government or

some specified public institution will receive—Also termed

popular action.—Often shortened to qui tam (Q.T.).”

BLACKS’S LAW DICTIONARY 1262 (7th ed. 1999).

Blackstone explained qui tam as follows:

More usually, these forfeitures created by

statute are given at large, to any common

informer; or, in other words, to any such person or persons as will sue for the same:

and hence such actions are called popular

actions, because they are given to the

people in general. Sometimes one part is

given to the king, to the poor, or to some

public use, and the other part to the

informer or prosecutor, and then the suit is

called a qui tam action, because it is

brought by a person, “qui tam pro domino

rege quam pro se ipso in hac parte

sequitur.” If the king therefore himself commences this suit, he shall have the

whole forfeiture. But if any one hath

begun a qui tam, or popular action, no

other person can pursue it; and the verdict

passed upon the defendant in the first suit

is a bar to all others, and conclusive even

to the king himself.

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protects financial services industry employees who

report certain violations of the law against reprisal by their employers. On the other side of the ledger are

those laws that reward or give a bounty to an informer

who presents evidence of fraud to the Government, commonly called “bounty or informer” laws. The IRS

Whistleblower Reward Program and the DODD-

FRANK ACT Whistleblower Incentive Program are

examples of recently enacted bounty laws. Among all of the laws surveyed in this article, the FALSE CLAIMS

ACT is unique in that it is the only statute that has a

qui tam provision, which permits a whistleblower to sue for himself and the Government with the

entitlement to be awarded a percentage of what the

Government recovers.4

II. THE DODD-FRANK ACT OF 2010

A. Overview of the DODD-FRANK ACT’S

Bounty Programs and Protections for

Whistleblowers Against Reprisal

On July 21, 2010, President Obama signed into

law the DODD-FRANK WALL STREET REFORM AND

CONSUMER PROTECTION ACT (DODD-FRANK ACT or

ACT). H.R. 4173, Pub. L. No. 111-203, 124 Stat 1841, 111th Congress (July 21, 2010). The DODD-FRANK

ACT is massive in scope and significantly changes the

law. It strengthens existing whistleblower protections and attempts to close “loop-holes” for employees in

the financial services industry. Of significance is the

ACT’S creation of bounty programs, new anti-reprisal claims that can be filed against employers, and a new

administrative process for the adjudication of some of

those reprisal and bounty claims. The bounty

provisions are not qui tam actions, but rather allow the Government to pay an award to an informer who

""""""""""""""""""""""""""""""""""""""""""""""""""""""""4 Qui tam enlists the public in the recovery of civil

penalties and forfeitures. It rewards with a portion of the

recovered proceeds those who sue in the government’s

name. Qui tam lives on in federal law only in the FALSE

CLAIMS ACT and in two minor examples found in patent

and Indian protection laws. In Vermont Agency of Natural

Resources v. United States ex rel. Stevens, the Supreme Court identified four contemporary federal qui tam statutes:

the FALSE CLAIMS ACT, the PATENT ACT, and two Indian

protection laws. 529 U.S. 765, 768-69 n.1 (2000), referring

to 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, 26

U.S.C. §7341 (sale of untaxed, taxable property), appears to

have been rarely used. One of the Indian protection

statutes, 25 U.S.C. §81, has since been amended so that it

no longer authorizes a qui tam action.

presents information that leads to a financial recovery

by the Government.

By April 21, 2011, the Securities and Exchange

Commission (SEC) is required to issue final regulations implementing the whistleblower

provisions of the DODD-FRANK ACT. On November

3, 2010, the SEC published its proposed

administrative rules for implementing the whistleblower provisions. See Proposed Rule, SEC

File Number S7-33-10 (“Proposed Rule 21F”)

(proposing to amend 17 C.F.R. Parts 240 and 249).5 Many believe that the real legislative fight will be

over the content of the regulations. Comments are

due by December 17, 2010.6 Further, the SEC’s

Division of Enforcement is in the process of establishing a Whistleblower Office. The SEC has

posted a vacancy announcement for a Senior Officer

to serve as head of the office and is in the process of evaluating applicants, with a selection expected in the

near future. Staffing of the Whistleblower Office will

proceed after the head is selected. Finally, the SEC’s Office of the Inspector General is required to issue a

report on the efficacy of the Act’s whistleblower

bounty program by December 2013 to evaluate the

merits of the program.

B. The SEC Whistleblower Incentive

(Bounty) Program

1. Introduction to the SEC

Whistleblower Incentive Program

(Section 922)

Section 922 of the DODD-FRANK ACT, entitled

“Whistleblower Protection,” amended the SECURITIES

EXCHANGE ACT of 19347 by creating a bounty

program for whistleblowers who provide “original

information” to the SEC about securities violations that result in the imposition of monetary sanctions

greater than $1 million. This new program is called

the “Securities Whistleblower Incentives and

Protection.” The SEC will award between ten to thirty percent of the money collected to a

whistleblower who voluntarily provides the SEC with

""""""""""""""""""""""""""""""""""""""""""""""""""""""""%" " Securities and Exchange Commission, Proposed Rules

for Implementing the Whistleblower Provisions of Section

21F of the Securities and Exchange Act of 1934, Proposed

Rule, 75 Fed. Reg. 70,488 (Nov. 17, 2010) (to be codified

at 17 C.F.R. Parts 240 and 249). 6 Available at: http://www.sec.gov/rules/proposed.shtml)."7 15 U.S.C. §§78a et seq.

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original information about a violation of the securities

laws that leads to a successful enforcement of an action brought by the SEC that results in monetary

sanctions exceeding $1,000,000. This is not a qui tam

action; rather, it is a whistleblower bounty program.

Congress created and has funded the SEC

Investor Protection Fund to make such awards. SEC

ACT at §21f(g)(1). The SEC is to use the fund for “paying awards to whistleblowers as provided.” Id. at

§21f(g)(2).

In addition, Section 922 enhances existing

protections to whistleblowers under the SARBANES-

OXLEY ACT. Finally, Section 922 creates an entirely

new whistleblower anti-reprisal cause of action that an employee can file in U.S. District Court against

employers.

2. Who may File an SEC Whistleblower

Bounty Claim "

A “whistleblower” who voluntarily provides “original information” may file an SEC bounty claim.

SEC ACT at §21f(a)(6) (stating “’whistleblower’

means any individual, or 2 or more individuals acting jointly who provide, information relating to a

violation of the securities laws to [the] Commission,

in a manner established by rule or regulation by the

Commission.”); see also Proposed Rule 21F at 6 (stating “a whistleblower must be a natural person; a

company or another entity is not eligible to receive a

whistleblower award.”). The definition of “original information”8 is important because it weeds out

whistleblowers who do not base their bounty claim on

first-hand or original source information. “Original information” is defined in the statute to mean

information that:

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

(B) is not known to the Commission from any other source, unless the whistleblower

is the original source of the information;

""""""""""""""""""""""""""""""""""""""""""""""""""""""""8 The term “original information” or “original source” is

important to bounty statutes. For example, the FALSE

CLAIMS ACT precludes certain whistleblowers from acting

as qui tam relators unless they qualify as an “original

source.” Such a limitation is a mechanism to weed out

parasitical bounty claims or actions of which the

Government has prior knowledge.

and

(C) is not exclusively derived from an

allegation made in a judicial or

administrative hearing, in a governmental report, hearing, audit, or investigation, or

from the news media, unless the

whistleblower is a source of the

information.”

SEC ACT at §21F(a)(3). So long as a person bases his

claim on “original information,” any person (not just an employee or insider) may file an SEC bounty

claim. Id.; see also Proposed Rule 21F at 7 (stating

“[p]roposed Rule 21F-2(c) makes clear . . . that, in

order to be eligible to be considered for an award, a whistleblower must submit original information to the

Commission in accordance with all the procedures and

conditions described in Proposed Rules 21F-4, 21F-8, and 21F-9.”). A whistleblower can file a claim pro se

or with counsel. Id. at §21F(d)(2). A whistleblower

may file a bounty claim anonymously, but only if represented by counsel. Id. at §21F(d)(2)(A). Before

an award is paid, the whistleblower’s identity shall be

revealed to the SEC and the SEC shall be provided

information about the whistleblower that it requests. Id. at §21F(d)(2)(B). Failure to do so authorizes the

SEC to not pay the claim.

The SEC is required to consider the following

criteria when determining the amount of an award to

an SEC whistleblower:

(c) DETERMINATION OF AMOUNT OF

AWARD; DENIAL OF AWARD.—(1)

DETERMINATION OF AMOUNT OF AWARD.—

(A) DISCRETION.—The determination of the amount of an award made under

subsection (b) shall be in the discretion

of the Commission.

(B) CRITERIA.—In determining the

amount of an award made under

subsection (b), the Commission— (i) shall take into consideration—

(I) the significance of the information provided by the whistleblower to the

success of the covered judicial or

administrative action;

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(II) the degree of assistance provided by the whistleblower and any legal

representative of the whistleblower in

a covered judicial or administrative action;

(III) the programmatic interest of the

Commission in deterring violations of the securities laws by making awards

to whistleblowers who provide

information that lead to the successful enforcement of such laws; and

(IV) such additional relevant factors

as the Commission may establish by rule or regulation; and

(ii) shall not take into consideration the balance of the Fund.

SEC ACT at §21F(c)(1) (“Determination of Amount of Award”).

3. Who is Precluded from being Paid an

Award

So long as a whistleblower provides “original

information”, any natural person (but not an entity or a company) may file an SEC bounty claim. Congress

restricts the SEC from paying an award to certain

people. SEC ACT at §21F(c)(2). The SEC is not authorized to pay a claim: "

(A) to any whistleblower who is, or was at

the time the whistleblower acquired the original information submitted to the

Commission, a member, officer, or

employee 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) to any whistleblower who is convicted

of a criminal violation related to the judicial or administrative action for which

the whistleblower otherwise could receive

an award under this section;

(C) to any whistleblower who gains the information through the performance of an

audit of financial statements required under

the securities laws and for whom such submission would be contrary to the

requirements of section 10A of the

Securities Exchange Act of 1934 (15

U.S.C. 78j–1); or

(D) to any whistleblower who fails to

submit information to the Commission in such form as the Commission may, by rule,

require.

Id. at §21F(c)(2). The SEC is also precluded from paying an award to a whistleblower who “knowingly

and willfully makes any false, fictitious, or fraudulent

statement or representation; or . . . uses any false writing or document knowing the writing or document

contains any false, fictitious, or fraudulent statement

or entry.” Id. at §21F(i).

4. Statute of Limitations to File Bounty

Claims

Congress placed no statute of limitations for

filing a SEC bounty claim. However, Congress

instructed the Commission to publish regulations, which most likely will establish deadlines. See

DODD-FRANK ACT at §922, amending SEC ACT at

§21F(j) (requiring the Commission to publish rules for the program).

5. The SEC’s Administrative Process

Congress envisions an administrative

adjudication process to be administered by the SEC.

The SEC must publish its regulations by April 21, 2011. The SEC is currently soliciting comments from

the public. Comments can be made at <

http://www.sec.gov/spotlight/dodd-

frank/whistleblower.shtml >.

6. No Right to Judicially Appeal an

SEC Bounty Determination

Unlike the Commodities and Futures Trade

Commission Whistleblower Incentive Program, see infra, an SEC whistleblower has no right to appeal to

a U.S. District Court the denial or amount of an award

by the SEC. See DODD-FRANK ACT at §922,

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amending SEC ACT at §21F(f) (stating “[a]ny

determination made under this section, including whether, to whom, or in what amount to make awards,

shall be in the discretion of the Commission.”).

C. New Reprisal Cause of Action for SEC

Whistleblowers that can be Filed in U.S. District

Court (no exhaustion of administrative remedies

required)

Congress created an anti-reprisal cause of action

to protect whistleblowers who provide information to or assist the SEC in an investigation or judicial or

administrative action that is based upon the

whistleblower’s bounty claim and other protected

disclosures (e.g., reports of violations of law that the SEC enforces). See DODD-FRANK ACT at §922,9

adding Section 21F(h)(1) to the SEC ACT. The

coverage of the action is broad. This provision applies to all employers, prohibits “harassment” and

other acts of reprisal, permits a non-Governmental

employee to file in U.S. District Court, requires no

""""""""""""""""""""""""""""""""""""""""""""""""""""""""9 §922 of the DODD-FRANK ACT amends Section 21F(h) of

the SEC ACT, which not provides provides:

PROTECTION OF WHISTLEBLOWERS.—(1)

PROHIBITION AGAINST RETALIATION.—

(A) IN GENERAL.—No employer may discharge,

demote, suspend, threaten, harass, directly or

indirectly, or in any other manner discriminate

against, a whistleblower in the terms and

conditions of employment because of any lawful

act done by the whistleblower—

(i) in providing information to the Commission in accordance with this section;

(ii) in initiating, testifying in, or assisting in

any investigation or judicial or administrative

action of the Commission based upon or

related to such information; or

(iii) in making disclosures that are required or

protected under the Sarbanes-Oxley Act of

2002 (15 U.S.C. 7201 et seq.), the Securities

Exchange Act of 1934 (15 U.S.C. 78a et seq.), including section 10A(m) of such Act (15

U.S.C. 78f(m)), section 1513(e) of title 18,

United States Code, and any other law, rule, or

regulation subject to the jurisdiction of the

Commission.

"

administrative pre-suit filing, and voids10 arbitration

agreements. SEC ACT at §21f(h)(1)(A).11

Paragraph (b) of Proposed Rule 21F-2 would

further make clear that the anti-retaliation protections set forth in Section 21F(h)(1) of the SEC ACT apply

irrespective of whether a whistleblower satisfies all

the procedures and conditions to qualify for an award

under the Commission’s whistleblower program. The SEC states in its Proposed Rule 21F “[w]e believe the

statute extends the protections against employment

retaliation in Section 21F(h)(1) to any individual who provides information to the Commission about

potential violations of the securities laws regardless of

whether the whistleblower fails to satisfy all of the

requirements for award consideration set forth in the Commission’s rules.” Proposed Rule 21F at 7.

The SEC whistleblower cause of action has a long statute of limitations.12 A whistleblower may

""""""""""""""""""""""""""""""""""""""""""""""""""""""""10 §922(c) of the DODD-FRANK ACT added 18 U.S.C.

§1412A(e), which voids arbitration agreement. Here is the new statutory language:

(e) NONENFORCEABILITY OF CERTAIN

PROVISIONS WAIVING RIGHTS AND

REMEDIES OR REQUIRING ARBITRATION

OF DISPUTES.—

(1) WAIVER OF RIGHTS AND

REMEDIES.—The rights and remedies

provided for in this section may not be waived

by any agreement, policy form, or condition of

employment, including by a predispute arbitration agreement.

(2) PREDISPUTE ARBITRATION AGREE-

MENTS.—No predispute arbitration agreement

shall be valid or enforceable, if the agreement

requires arbitration of a dispute arising under

this section.

11 §922(h)(B)(i) provides:

(B) ENFORCEMENT.—

(i) CAUSE OF ACTION.—An individual who

alleges discharge or other discrimination in

violation of subparagraph (A) may bring an

action under this sub section in the appropriate

district court of the United States for the relief

provided in subparagraph (C).

"$&""§922(c)(B)(iii) of the DODD-FRANK ACT provides:"

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bring the action no later than six years after the

violation of the law (SEC ACT, SARBANES-OXLEY

ACT, among other laws) or three years after the date

when “facts material to the right of action are known

or reasonably should have been known” by the whistleblower. SEC ACT at §21F(h)(1)(B)(iii)(I). In

any event, no action may be brought more than ten

years after the date of the violation. Id. at

§21F(h)(1)(B)(iii)(II).

The recoverable remedies include reinstatement

with seniority, back pay with interest, and compensation for any special damages sustained as a

result of the discharge or discrimination, including

litigation costs, expert witness fees, and reasonable

attorneys fees. SEC ACT at §21F(h)(1)(C).13

"""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""STATUTE OF LIMITATIONS.—

(I) IN GENERAL.—An action under this

subsection may not be brought—

(aa) more than 6 years after the date on which

the violation of subparagraph (A) occurred; or

(bb) more than 3 years after the date when facts material to the right of action are known

or reasonably should have been known by the

employee alleging a violation of subparagraph

(A).

(II) REQUIRED ACTION WITHIN 10 YEARS.—

Notwithstanding sub clause (I), an action under this

subsection may not in any circumstance be brought

more than 10 years after the date on which the

violation occurs.

"13 §922(h)(C) provides:

(C) RELIEF.—Relief for an individual prevailing

in an action brought under subparagraph (B) shall

include—

(i) reinstatement with the same seniority status

that the individual would have had, but for the

discrimination;

(ii) 2 times the amount of back pay otherwise owed to the individual, with interest; and (iii)

compensation for litigation costs, expert

witness fees, and reasonable attorneys’ fees.

D. Resources -- DODD-FRANK ACT’S SEC

Bounty Programs and Protections for

Whistleblowers Against Reprisal

• http://www.sec.gov/rules/proposed.shtml"

"

• Securities and Exchange Commission,

Proposed Rules for Implementing the

Whistleblower Provisions of Section 21F of

the Securities and Exchange Act of 1934,

Proposed Rule, 75 Fed. Reg. 70,488 (Nov. 17,

2010) (to be codified at 17 C.F.R. Parts 240 and 249) (available at:

http://www.federalregister.gov/articles/2010/1

1/17/2010-28186/proposed-rules-for-

implementing-the-whistleblower-provisions-

of-section-21f-of-the-securities)

• U.S. Security and Exchange Commission, Annual Report on Whistleblower Program (Oct. 2010)

E. The Commodity Futures Trading

Commission Whistleblower Bounty Program and

Anti-Reprisal Protections for Whistleblowers

Title VII (Wall Street Transparency and

Accountability), Part II (Regulation of Swap Markets) of the DODD-FRANK ACT contains provisions to

provide incentives and protections for another class of

whistleblowers. Section 748 of the DODD-FRANK

ACT amends the COMMODITY EXCHANGE ACT by adding section 23, titled “Commodity Whistleblower

Incentives and Protection.” DODD-FRANK ACT at

§748, Pub. L. No. 111-203, 124 Stat. 1841 (2010). As amended, Section 23 of the COMMODITY EXCHANGE

ACT directs that the Commodity Futures Trading

Commission (CFTC) must pay awards, subject to certain limitations and conditions, to whistleblowers

who voluntarily provide the CFTC with original

information about a violation of the COMMODITY

EXCHANGE ACT that leads to successful enforcement of an action brought by the Commission that results in

monetary sanctions exceeding $1,000,000.

Congress established the CFTC as an

independent agency in 1974. The CFTC has

jurisdiction to regulate commodity futures and option

markets, which, over the years, has expanded from agriculture products to a much broader bundle of

commodities such as the energy, agriculture, metals,

financial, and livestock industries. Five

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commissioners, appointed by the President and

approved by the Senate, administer the CFTC.

On November 11, 2010, the CFTC issued but did

not publish in the Federal Register its proposed rules for implementing the whistleblower provisions. See

Commodity Futures Trading Commission, Proposed

Rules for Implementing the Whistleblower Provisions

of Section 23 of the Commodity Exchange Act, Proposed Rule, 75 Fed. Reg. 70,488 (Nov. 11, 2010)

(to be codified at 17 C.F.R. Part 165).14 As with the

SEC Whistleblower rules, the real legislative fight will be over the content of the regulations. Because of

the proposed rules have yet to be officially published,

it is unknown when comments are due.15

1. Introduction to the CFTC Incentive

(Bounty) Program (Section 748)

Section 748 of the DODD-FRANK ACT amends

the COMMODITY EXCHANGE ACT16 and creates a

bounty program for whistleblowers who provide original information to the CFTC that results in the

imposition of monetary sanctions greater than $1

million. This is not a qui tam action; rather, it is a

whistleblower bounty program. The provisions of the CFTC bounty program mirror the SEC bounty

program. The CFTC program provides:

In any covered judicial or administrative

action, or related action, the Commission,

under regulations prescribed by the Commission and subject to subsection (c),

shall pay an award or awards to 1 or more

whistleblowers who voluntarily provided

original information to the Commission that led to the successful enforcement of

the covered judicial or administrative

action, or related action, in an aggregate amount equal to—

(A) not less than 10 percent, in total, of

what has been collected of the monetary

""""""""""""""""""""""""""""""""""""""""""""""""""""""""14 Securities and Exchange Commission, Proposed Rules

for Implementing the Whistleblower Provisions of Section

21F of the Securities and Exchange Act of 1934, Proposed

Rule, 75 Fed. Reg. 70,488 (Nov. 17, 2010) (to be codified

at 17 C.F.R. Parts 240 and 249). 15 It appears that the CFTC is already receiving comments.

See http://comments.cftc.gov (reference RIN number 3038-

AD04). 16 7 U.S.C. §§1 et seq.

sanctions imposed in the action or

related actions; and

(B) not more than 30 percent, in total,

of what has been collected of the monetary sanctions imposed in the

action or related actions.

See DODD-FRANK ACT at §748, to be codified at 7 U.S.C. §23(b)(1).17

Payments are made from the CFTC Protection Fund. Id., to be codified at 7 U.S.C. §§23(a)(2) and

(g). The CFTC has the discretion to set the award

amount, but the DODD-FRANK ACT lists the criteria

that the CFTC should consider:

• The significance of the whistleblower’s

information to the success of the action against the wrongdoer;

• The degree of the whistleblower’s assistance (as well as counsel);

• The CFTC’s programmatic interest in

deterring violations of the COMMODITY

EXCHANGE ACT; and

• Additional relevant factors as established by CFTC’s regulations.

Id., to be codified at 7 U.S.C. §23(c)(1)(B)(i). Interestingly, however, the CFTC “shall not take into

consideration the balance of the Fund” when deciding

how much to award the whistleblower. Id., to be

codified at 7 U.S.C. §§23(c)(1)(B)(ii).

2. Who may File a CFTC Bounty Claim

A “whistleblower”, which is defined by the ACT,

who voluntarily provides “original information”, may

file a bounty claim. See DODD-FRANK ACT at §748,

amending §23(a)(7) of COMMODITY EXCHANGE ACT (defining ‘‘WHISTLEBLOWER.—The term

‘whistleblower’ means any individual, or 2 or more

individuals acting jointly, who provides information relating to a violation of this Act to the Commission,

""""""""""""""""""""""""""""""""""""""""""""""""""""""""17 All citations are to the COMMODITY EXCHANGE ACT,

which was amended by §748 of the DODD-FRANK ACT to

create the CFTC whistleblower bounty program, to be

codified at 7 U.S.C. §§1 et seq.,

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in a manner established by rule or regulation by the

Commission.”) (to be codified). The limitations of “original information”18 is important, and is defined

by the COMMODITY EXCHANGE ACT at Section

23(a)(4) as information that:

(A) is derived from the independent

knowledge or analysis of a whistleblower;

(B) is not known to the Commission from

any other source, unless the whistleblower

is the original source of the information; and

(C) is not exclusively derived from an

allegation made in a judicial or administrative hearing, in a governmental

report, hearing, audit, or investigation, or

from the news media, unless the whistleblower is a source of the

information.

A Whistleblower can file a claim pro se or with

counsel. Id., to be codified at 7 U.S.C. §23(d)(1).

The ACT permits a whistleblower to file a bounty

claim anonymously, but only if represented by counsel. Id., to be codified at 7 U.S.C. §23(d)(2)(A).

Before an award is paid, the whistleblower’s identify

shall be revealed to the Commission and the Commission shall be provided information about the

whistleblower that it requests. Id., to be codified at 7

U.S.C.§23(d)(2)(B).

3. Who is Precluded from being Paid a

CFTC Bounty Claim

It appears anyone can file a bounty claim, but

Congress restricts the Commission from paying an

award to certain people. Id., to be codified at 7 U.S.C.§23(c)(2). Here is the list of those who cannot

be paid an award:

(2) DENIAL OF AWARD.—No award under subsection (b) shall be made—

""""""""""""""""""""""""""""""""""""""""""""""""""""""""18 The term “original information” or “original source” is

important to bounty statutes. For example, the FALSE

CLAIMS ACT precludes certain whistleblowers from acting

as qui tam relators unless they qualify as an “original

source.” Such a limitation is a mechanism to weed out

parasitical bounty claims or actions of which the

Government has prior knowledge.

(A) to any whistleblower who is, or

was at the time the whistleblower acquired the original information

submitted to the Commission, a

member, officer, or employee of—

(i) an appropriate regulatory agency;

(ii) the Department of Justice;

(iii) a registered entity; (iv) a registered futures association;

(v) a self-regulatory organization as

defined in section 3(a) of the Securities Exchange Act of 1934

(15 U.S.C. 78c(a)); or

(vi) a law enforcement organization;

(B) to any whistleblower who is

convicted of a criminal violation related to

the judicial or administrative action for which the whistleblower otherwise could

receive an award under this section;

(C) to any whistleblower who submits

information to the Commission that is

based on the facts underlying the covered

action submitted previously by another whistleblower;

(D) to any whistleblower who fails to submit information to the Commission in

such form as the Commission may, by rule

or regulation, require.

Id. Finally, a whistleblower who provides false

information to the Commission is subject to criminal

prosecution. Id., to be codified at 7 U.S.C. §23(m) (citing 18 U.S.C. §1001).

4. Statute of Limitations

Congress placed no statute of limitations for

filing a bounty award. However, Congress instructed

the Commission to publish regulations, due by April 2011, which most likely will establish deadlines. See

DODD-FRANK ACT at §23(i) (requiring the

Commission to publish rules for the program).

5. The CFTC Administrative Process

Congress instructed the Commission to publish

regulations by April 2011. The Commission has

announced proposed rules but as of this article’s

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publication date, those rules have yet to be published

in the Federal Register. See Commodity Futures Trading Commission, Proposed Rules for

Implementing the Whistleblower Provisions of Section

23 of the Commodity Exchange Act, Proposed Rule, __ Fed. Reg. _______ (2010) (to be codified at 17

C.F.R. Part 165) (available at:

http://www.cftc.gov/LawRegulation/DoddFrankAct/in

dex.htm). Congress, however, did provide some general guidance about the process. Most notably is

the provision permitting a whistleblower to file a

bounty claim anonymously. Congress also authorized the Commission to share the whistleblower’s

information with certain federal agencies, such as the

Department of Justice and regulatory entities, and

state attorneys general. The Commission is required to keep confidential the identity of the whistleblower

when sharing such information.

6. Whistleblower can Judicially Appeal

the Commission’s Bounty

Determination

The Commission has the sole discretion to

determine “whether, to whom, or in what amount to

make awards.” Id., to be codified at 7 U.S.C.§23(f)(1). But the whistleblower may appeal

that decision “to the appropriate court of appeals of

the United States not more than 30 days after the determination is issued by the Commission.” Id. at

§23(f)(2). The right to appeal is in contrast with the

SEC Whistleblower program,19 which does not permit the whistleblower to appeal the SEC Commission’s

award determination.

F. New Reprisal Cause of Action for CFTC

Whistleblowers

1. Whistleblowers Protected Against

Reprisal (no exhaustion of

administrative remedies required)

Congress created an anti-reprisal cause of action to protect whistleblowers who provide information to or

assist the CFTC in an investigation or judicial or

administrative action that is based upon the whistleblower’s bounty claim. See DODD-FRANK

ACT at §748, amending §23(h) of COMMODITY

EXCHANGE ACT. The coverage of the action is broad. This provision applies to all employers, prohibits

""""""""""""""""""""""""""""""""""""""""""""""""""""""""19 DODD-FRANK ACT at §922.

“harassment” 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., to

be codified at 7 U.S.C. §§23(h)(1)(A) and (B). The

scope of the activity protected is also large. 20 A whistleblower must bring the action no later than two

years after the date of adverse personnel action. Id., to

be codified at 7 U.S.C. §23(h)(1)(B)(iii). The

recoverable remedies include reinstatement with seniority, back pay with interest, and compensation

for any special damages sustained as a result of the

discharge or discrimination, including litigation costs, expert witness fees, and reasonable attorneys fees. Id.

, to be codified at 7 U.S.C. §23(h)(1)(C).

2. Arbitration Agreements Void

Section 23(h) of the COMMODITY EXCHANGE

ACT and Proposed Rule 165.19 provide that “the rights and remedies provided for in this Part 165

[whistleblower protections] of the Commission’s

regulations may not be waived by any agreement, policy, form, or condition of employment including by

a predispute arbitration agreement. No predispute

arbitration agreement shall be valid or enforceable, if

the agreement requires arbitration of a dispute arising under this Part.”

G. Resources -- DODD-FRANK ACT’S CFTC

Bounty Programs and Protections for

Whistleblowers against Reprisal

• Commodity Futures Trading Commission,

Proposed Rules for Implementing the

Whistleblower Provisions of Section 23 of the

""""""""""""""""""""""""""""""""""""""""""""""""""""""""20 As amended, Section 23(h)(1) of the COMMODITY

EXCHANGE ACT provides:

No employer may discharge, demote, suspend,

threaten, harass, directly or indirectly, or in any

other manner discriminate against, a

whistleblower in the terms and conditions of

employment because of any lawful act done by

the whistleblower—

(i) in providing information to the Commission

in accordance with subsection(b); or

(ii) in assisting in any investigation or judicial

or administrative action of the Commission

based upon or related to such information.

"7 U.S.C. §23(h)(1).

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Commodity Exchange Act, Proposed Rule, __

Fed. Reg. _______ (2010) (to be codified at 17 C.F.R. Part 165) (available at:

http://www.cftc.gov/LawRegulation/DoddFra

nkAct/index.htm)

H. New Reprisal Cause of Action for

Whistleblowers in the “Financial Services

Industry” (Section 1057 of the DODD-FRANK ACT)

Title X of the DODD-FRANK ACT created the

Bureau of Consumer Financial Protection (Bureau). DODD-FRANK ACT at §1011. The Bureau has broad

powers to “regulate the offering and provision of

consumer financial products or services under the

Federal consumer financial laws.” Id. Congress obviously felt so strongly about this issue that it

bestowed upon the Bureau the status of an executive

agency. Id.

1. Introduction to Section 1057 of the DODD-

FRANK ACT

Section 1057 of the DODD-FRANK ACT creates a

whistleblower cause of action for employees of the

financial services industry. Internal complaints are protected. Similar to the other newly enacted

whistleblower claims (with the exception of CFTC

whistleblower claims), Section 1057 requires an employee to file a complaint with the Department of

Labor (DoL) for administrative adjudication. The

DoL has the authority to order broad remedies, which ultimately could be enforced by the DoL or by a civil

action can be prosecute by the employee in U.S.

District Court. As with the other newly enacted

whistleblower claims, Section 1057 provides a burden shifting mechanism favorable for employees.

However, Section 1957 has no qui tam or bounty

provision—it is merely an anti-reprisal cause of action.

2. Who is Covered

a. Employee

Section 1057(b) defines a “covered employee” to mean “any individual performing tasks related to the

offering or provision of a consumer financial product

or service.” The Bureau has yet to publish its regulations to further refine that statutory definition.

Regardless, the plain language of the statute protects a

broad spectrum of employees in industries ranging

from credit to banking to the mortgage industry.

b. Employer

Section 1057 covers employers who engage in

the offering or provision of a consumer financial

product or service. The scope of coverage also

encompasses affiliates who provide a related material service to the employer.

3. What is Protected

Section 1057(a)(1)-(4) lists the employee’s acts

that will be protected. An employer may not

terminate or discriminate against an employee (or the employee’s representative) who, whether in the scope

of his employment duties or outside of those duties,

engages in the following:

• “provided, caused to be provided, or is about

to provide or cause to be provided, information to the employer, the Bureau, or

any State, local, or Federal, government

authority or law enforcement agency relating

to any violation of, or any act or omission that the employee reasonably believes to be a

violation of [any law or regulation that is

subject to the Bureau’s jurisdiction]”;

• “testified or will testify in any proceeding

resulting from the administration or enforcement of any provision of [any law or

regulating that is subject to the Bureau’s

jurisdiction]”;

• “filed, instituted, or caused to be filed or

instituted any proceeding under any Federal

consumer financial law;” or

• objected to, or refused to participate in, any

activity, policy, practice, or assigned task that

the employee reasonably believed to be in violation of [any law or regulating that is

subject to the Bureau’s jurisdiction].”

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

4. The Process (employee must exhaust

administrative remedies before filing

lawsuit)

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a. Administrative

An employee is required to file an administrative

complaint with the Department of Labor (DoL) within

180 days after the date on which the discriminatory act occurred. DODD-FRANK ACT at §1057(c)(1)(A).

The DoL is then required to investigate the complaint

and notify the employer of the complaint and process.

Id. at §1057(c)(1)(B). Within sixty days considering the employer’s response, the DoL is required to issue

a determination. Id. at §1057(c)(2)(A). DoL has the

authority to issue a preliminary order for relief if it determines that a violation occurred. Within thirty

days of that order, either party may request a DoL

hearing. Id. at §1057(c)(2)(C). Within 120 days of

the DoL hearing, the DoL is required to issue a final order and can assess penalties, which includes

reinstatement with back pay, compensatory damages,

and attorneys fees and costs (including expert witness fees). Id. at §1057(c)(4)(B).

b. Judicial

If the DoL has failed to issue a final order 210

days after complaint was filed, or within 90 days after

the date of a preliminary order, the employee—but not the employer—may file a civil action in U.S. District

Court seeking a de novo review. Id. at

§1057(c)(4)(D). If removed, either party may request a jury trial. No later than 60 days after the DoL issues

a final order, either party may file a petition for review

with the circuit court of appeals. Id. at §1057(c)(4)(E).

c. Burden of Proof

The employee has the initial burden of proving

that his protected behavior was a “contributing factor

in the unfavorable personnel action” taken against him. Id. at §§1057(c)(3)(A) and (C). The burden then

shifts to the employer to prove, by clear and

convincing evidence, that it would have taken the

same unfavorable personnel action in the absence of the employee’s protected behavior. Id. at

§1057(c)(3)(B) and (C).

5. Remedies

a. The Department of Labor has the authority to assess the following penalties against the

employer:

• reinstatement of the employee to his former

position, with back pay, and restore the terms and conditions of his employment;

• compensatory damages; and

• attorneys fees and costs (to include expert

witness fees). DODD-FRANK ACT at

§1057(c)(4)(B).

b. A district court has the authority to

grant this relief:

• reinstatement with the same sonority status

that the employee would have had, but for

the discharge;

• back pay with interest; and

• compensation for “special damages

sustained as a result of the discharge or

discrimination” and litigation costs (which include attorney fees and expert witness

fees. DODD-FRANK ACT at

§1057(c)(4)(D)(ii).

6. Arbitration Agreements Void

Section 1057(d) makes void any agreement that requires arbitration for disputes under Section 1057,

except for those that are part of a collective bargaining

agreement. Finally, an employee may not waive the rights and remedies of Section 1057.

I. Strengthening the SARBANES-OXLEY

ACT’S Whistleblower Protections

1. Introduction to the Existing SOX

Whistleblower Protections

When enacted in 2002, the SARBANES-OXLEY

ACT contained a cause of action for whistleblowers

against their employers. 18 U.S.C. §1514A. Whistleblowers were protected for reporting

violations of SEC rules and regulations, federal crimes

involving securities and fraud, among other areas of protection. In order to gain the protected status, the

whistleblower was required to make a report to a

federal regulatory or law enforcement agency, member of Congress, or person with supervisory

authority over whistleblower. The whistleblower had

to file an administrative complaint with OSHA within

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ninety days after he became aware of violation. If the

Department of Labor issued no final decision within 180 days, then the whistleblower was permitted to file

a lawsuit in U.S. District Court.

For many reasons, however, whistleblowers were

generally unsuccessful in these actions. Few

whistleblowers actually prevailed. In an attempt to

encourage whistleblowers to report SEC rules violations, Congress “clarified” the SOX anti-

retaliation cause of action.

2. Sections 922 and 929A of the Dodd-Frank

Act “clarifies” the SOX Whistleblower

Claim

Congress clarified the SOX reprisal claim in

Section 929A of the DODD-FRANK ACT by expanding

the scope of coverage to employees of privately-held subsidiaries of publicly traded corporations.21 Many

SOX retaliation claims were dismissed because the

actual publicly traded corporation subject to SOX employed few employees. Most employees that

suffered retaliation after blowing the whistle were

employed by privately-held entities that were not

subject to SOX. Moreover, Section 922(b) further expands SOX coverage to employees of nationally

recognized statistical ratings organizations. DODD-

FRANK ACT at §922(c), amending 18 U.S.C. §1514A(a). Covered organizations include Moody’s

Investors Service Inc., A.M. Best Company Inc., and

Standard & Poor’s Ratings Service.

In addition, the DODD-FRANK ACT extended the

SOX reprisal claim statute of limitations from 90 to

180 days. DODD-FRANK ACT at §922(c)(1), amending 18 U.S.C. §1514A(b)(2). Whistleblowers

may remove their claims to U.S. District Court and

have the right to a jury trial. Id. Finally, arbitration agreements are void and a court is not authorized to

enforce waivers of a whistleblower’s rights under

SOX. DODD-FRANK ACT §922(c), amending 18

U.S.C. §1514A(e) (providing that any “agreement,

""""""""""""""""""""""""""""""""""""""""""""""""""""""""21 Section 929A of the DODD-FRANK ACT provides:

Section 1514A of title 18, United States Code, is amended by inserting ‘‘including any subsidiary or

affiliate whose financial information is included in

the consolidated financial statements of such

company’’ after ‘‘the Securities Exchange Act of

1934 (15 U.S.C. 78o(d))’’.

"

policy form, or condition of employment, including a

predispute arbitration agreement” which waives the rights and remedies afforded to SOX whistleblowers

to be “nonenforceable”.)

III. THE PATIENT PROTECTION AND

AFFORDABLE CARE ACT OF 2009

A. Overview of the HEALTH CARE ACT

THE PATIENT PROTECTION AND AFFORDABLE

CARE ACT OF 2009 (HEALTH CARE ACT or ACT) is a massive piece of legislation. Pub. L. No. 111-148,

124 Stat. 119 (Mar. 21, 2010). Congress continued

its recent trend of relying upon whistleblowers to

enforce compliance of the laws it passes. Section 1558 creates a robust whistleblower cause of action

that protects employees against reprisal by employers.

Section 6703 is interesting in that it makes whistle blowing mandatory—that is, Section 6703 requires an

employee to report crimes committed against residents

of federally funded long-term care facilities. Unlike the DODD-FRANK ACT or the IRS Whistleblower

Program, however, Congress did not create a new

bounty program for whistleblowers. Such a new

bounty program was unnecessary most likely because the qui tam provisions of the FALSE CLAIMS ACT have

proven to be extremely effective in combating health

care fraud.

B. Section 1558 – Protections for

Whistleblowers

1. Introduction to Section 1558 - Scope

of Coverage and Protections

Section 1558 prohibits an employer from

retaliating against an employee who blows the whistle

about violations of Title I of the ACT. (Title I is expansive in its coverage, ranging from denial of

health care insurance due to pre-existing conditions to

failure to rebate excess premiums.) An employer may

not “discharge or in any manner discriminate against any employee with respect to his or her compensation,

terms, conditions, or other privileges of employment

because the employee . . . [makes a protected report].” HEATH CARE ACT. at §1558, amending §18C(a)(2) of

the FAIR LABOR STANDARDS ACT OF 1938. Protected

reports include internal reports to an employer, the Federal Government, or a state attorney general about

“any violation of, or any act or omission the employee

reasonably believes to be a violation of [Title I of the

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ACT].” Id. In addition to these internal and external

reports, the ACT protects an employee who “testified or is about to testify in a proceeding” related to

violations of Title I of the ACT. Id. at §18C(a)(3).

The ACT also protects an employee who participates or assists another in a proceeding related to violations

of Title I of the ACT. Id. at §18C(a)(4). Finally, the

ACT protects an employee who objects or refuses to

participate in “any activity, policy, practice, or assigned task that the employee (or other such person)

reasonably believed to be in violation of [the ACT] or

any order, rule, regulation, standard, or ban under [the ACT]. Id. at §18C(a)(5). As it relates to this last

protected activity, an employee need only show that

he had a reasonable belief, even if mistaken, that a

violation of Title I of the Act and its subsequent regulations and policies occurred.

2. Procedure and Limitations

Section 1558 simply incorporates the procedures,

burden-shifting framework, remedies and statute of limitations set forth in the CONSUMER PRODUCT

SAFETY 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 his administrative remedies by filing a complaint with the

Occupational Safety and Health Administration

(OSHA) within 180 days of the employee becoming aware of the employer’s act of reprisal. OSHA is

required to investigate the complaint and has authority

to order preliminary relief, including reinstatement. Either party can appeal OSHA’s determination to the

Department of Labor (DoL) for a de novo review by a

DoL administrative law judge. A DoL judge does not

have the authority, however, to stay an OSHA order of reinstatement. Either side can appeal the DoL judge’s

decision to the DoL Administrative Review Board,

and either party can appeal that decision to the circuit court of appeals in which the adverse action took

place. In the alternative, if the DoL fails to issue a

final decision within 120 days of the filing of the

employee’s complaint, or within 90 days of receiving a written determination from OSHA, the employee

can remove the claim to U.S. district court for a de

novo review, and either party can request trial by jury. 15 U.S.C. §2087(b)(4).

3. Remedies

An employer can be ordered to reinstate the

employee. In addition, the employee can be awarded

back pay with interest, “special damages,” attorneys

fees, litigation costs, and expert witness fees. Front pay can be awarded where reinstatement is not

feasible. THE PATIENT PROTECTION AND

AFFORDABLE CARE ACT OF 2009 at §1558, incorporating 15 U.S.C. §2087(b)(4) (CONSUMER

PRODUCT SAFETY IMPROVEMENT ACT OF 2008).

4. Arbitration Agreements Void

Consistent with the recent trend of voiding

arbitration agreements, the HEALTH CARE ACT

explicitly makes void arbitration agreements.

HEALTH CARE ACT at §1558, amending §18C(b)(2) of

the FLSA (providing “[t]he rights and remedies in this

section may not be waived by agreement, policy, form, or condition of employment.”).

C. Reporting Requirements for Federally

Funded Long-Term Care Facilities – The ELDER

JUSTICE ACT

The ELDER JUSTICE ACT, set out in Section 6703

of the HEALTH CARE ACT, requires whistle blowing.22

See HEALTH CARE ACT at §6703, amending Part A of

title XI of the SOCIAL SECURITY ACT. First, a covered entity must educate its employees of their

whistle blowing duties. Specifically, an owner or

operator of a long-term care facility that receives at least $10,000 in federal funds per year must inform its

employees that they are required to report crimes

committed against the facility’s residents. In turn, the facility’s employees are required to report to the

Secretary of Health and Human Services and to local

law enforcement “any reasonable suspicion of a crime

(as defined by the law of the applicable political subdivision) against any individual who is a resident

of, or is receiving care from, the facility.” Id.

1. Timing

""""""""""""""""""""""""""""""""""""""""""""""""""""""""22 Such mandatory whistle blowing appears to be the trend. For example, the FEDERAL ACQUISITION REGULATION was

amended, effective December 12, 2008, to require federal

government contractors to disclose credible evidence of

certain criminal acts and violations of the False Claims Act

committed by its employees or subcontractors. See

FEDERAL ACQUISITION REGULATION at ¶3.1003(a)(2)

(mandating self-disclosure and providing for suspension

and debarment for failure to self-disclose). See Part VIII of

this article, supra.

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If the events that raise suspicion result in serious

bodily injury, the suspected crime must be reported immediately and not more than “2 hours after forming

the suspicion.” All other suspected crimes must be

reported within 24 hours. Id. at § 1150B(b)(2).

2. Penalties

The failure to report a suspected crime can expose an employee, manager, or contractor to a civil

penalty of up to $300,000. Id. at § 1150B(c)(2)(A).

In addition, the ELDER JUSTICE ACT prohibits retaliation against an employee “because of lawful

acts done by the employee.” Id. at § 1150B(d)(1)(A).

If a long-term elderly care facility were to discharge,

threaten, harass, or otherwise retaliate against an employee for making or helping to make a report

about a crime being committed against residents of the

facility, the facility would face a civil monetary penalty of up to $200,000.00 or being excluded from

any federal healthcare program for two years. Id. at

§1150B(d)(2).

IV. THE AMERICAN RECOVERY AND

REINVESTMENT ACT OF 2009 (THE

“RECOVERY ACT”)

A. Introduction

The AMERICAN RECOVERY AND REINVESTMENT

ACT OF 2009 (the “RECOVERY ACT”)23 was an

amazing piece of legislation for many reasons. Pub. L 111-5, (February 17, 2009). In addition to the

hundreds of billions of dollars injected into the

economy, Congress also created perhaps the most

robust whistleblower protections ever enacted. Section 1553 of the RECOVERY ACT, called the

“McCaskill Amendment,” covers all who receive

funds under the RECOVERY ACT (to include state and local governmental entities), protects employee

internal disclosures, has a burden-shifting mechanism

favorable for employees, and allows for significant

remedies that can be prosecuted in federal court. But of course the McCaskill Amendment has a limited

shelf life because the RECOVERY ACT was a one-time

appropriation. Is should be noted that the RECOVERY

ACT has no qui tam or bounty provision; such an

incentive was unnecessary because the qui tam

provisions of the FALSE CLAIMS ACT can be used

""""""""""""""""""""""""""""""""""""""""""""""""""""""""23 Pub. L. 111-5.

when suing those who24 submit false claims as it

relates to RECOVERY ACT funds.

B. Retaliation Cause of Action for

Whistleblowers

1. Who is Covered

The McCaskill Amendment applies to any non-federal employer who receives funds under the

RECOVERY ACT. RECOVERY ACT at §1553(g)(4).

Covered employers include contractors, subcontractors, grantees, state and local governments,

and basically all other non–Federal employers who

receive a contract, grant, or other payment

appropriated or made available by the RECOVERY

ACT. A covered employee is “an individual

performing services on behalf of the employer” but

does not include any federal employee or military service member. RECOVERY ACT at §1553(g)(3). It

is not entirely clear whether contractors are covered.

2. What is Protected

Protected conduct includes a disclosure to a

person with supervisory authority over the employee (i.e., internal disclosures), a State or Federal

regulatory or law enforcement agency, a member of

Congress, a court or grand jury, the head of a Federal agency, or an inspector general about information that

the employee reasonably believes evidences:

• Gross mismanagement of an agency contract

or grant 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 that

governs an agency contract or grant related to

stimulus funds.

""""""""""""""""""""""""""""""""""""""""""""""""""""""""24 States and their governmental subdivisions are immune

from the FALSE CLAIMS ACT. They are, however, subject to

the McCaskill Amendment and can be sued for acts of

reprisal taken against their employees.

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RECOVERY ACT at §1553(a). The McCaskill

Amendment specifically protects so–called “duty speech” whistleblowing such as disclosures made by

employees in the ordinary course of performing their

job duties.

3. Administrative Process

The employee who believes he has been improperly retaliated against must file a complaint

with the inspector general (IG) for the agency that is

administering the stimulus funds. RECOVERY ACT at §1553(b)(1). For example, if the Department of

Transportation (DoT) is administering the funds, then

the employee would file his complaint with the DoT’s

IG. Unless the IG determines the action is frivolous, does not relate to covered funds, or has been resolved

in another Federal or State administrative proceeding,

the IG must conduct an investigation and make a determination on the merits of the whistleblower

retaliation claim no later than 180 days after receipt of

the complaint. RECOVERY ACT at §§1553(b)(1) and (2). Within 30 days of receiving an IG’s investigative

findings, the head of the agency shall determine

whether there has been a violation, in which event the

agency head can award the employee reinstatement, back pay, compensatory damages, and attorney fees.

RECOVERY ACT at §1553(c)(2).

4. Judicial Process

If an agency head has denied relief in whole or in part or has failed to issue a decision within 210 days

of the filing of a complaint, the employee can bring a

de novo action in federal court, which shall be tried by

a jury at the request of either party. RECOVERY ACT at §1553(c)(3).

5. Arbitration Agreements Void

The McCaskill Amendment explicitly states that

pre–dispute arbitration agreements do not apply to

RECOVERY ACT whistleblower claims, unless such waivers are part of a collective bargaining unit.

RECOVERY ACT at §§1553(d)(2) & (3). Moreover, an

employee may not waive his rights and remedies provided in the McCaskill Amendment, again, unless

such waivers are part of a collective bargaining unit.

RECOVERY ACT at §§1553(d)(1) & (3).

6. Remedies

At 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) compensatory

damages; and (4) attorneys fees and litigation costs. RECOVERY ACT at §1553(c)(2). If the employee

prosecutes his action in federal court, then he can be

awarded the same remedies. RECOVERY ACT at

§1553(c)(3). Where an agency files an action in federal court to enforce an order of relief for a

prevailing employee, the court may also award

exemplary damages. RECOVERY ACT at §1553(c)(4).

7. Employee-Favorable Burden Of

Proof

To prevail in a whistleblower action under the

McCaskill Amendment, an employee need not show

that the protected conduct was a significant or motivating factor in the reprisal, but instead must

merely prove that the protected conduct was a

“contributing factor” to the reprisal. RECOVERY ACT at §1553(c)(1). An employee need not present direct

evidence of retaliatory motive by the employer, but

instead can establish the “contributing factor” element

through temporal proximity or by demonstrating that the decision maker knew of the protected disclosure.

RECOVERY ACT at §1553(c)(1)(A)(i) and (ii). An

employer can avoid liability by demonstrating by “clear and convincing evidence,” a high evidentiary

burden, that it would have taken the same action in the

absence of the employee engaging in protected conduct. RECOVERY ACT at §1553(c)(1)(B).

C. Additional Matters

1. Section 3.907 of the FEDERAL ACQUISITION

REGULATION was amended to incorporate the

McCaskill Amendment, and applies to all RECOVERY

ACT contracts funded in whole or in part by that Act.

Contracting officers are instructed to use and include clause 52.203-15, Whistleblower Protections Under

the American Recovery and Reinvestment Act of

2009, in all solicitations and contracts funded in whole

or in part with Recovery Act funds.

2. The RECOVERY ACT web page is at

http://www.recovery.gov/Pages/default.aspx.

3. The Federal Acquisition Regulation is at

https://www.acquisition.gov/Far/.

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V. THE CONSUMER PRODUCT SAFETY

COMMISSION REFORM ACT OF 2008

A. Protections for the Consumer Safety

Whistleblower

Given the concerns about the safety of products intended for children, Congress enacted the

CONSUMER PRODUCT SAFETY COMMISSION REFORM

ACT (CPSC ACT). Pub. L. No. 110-314 (Aug. 14, 2008), codified at 15 U.S.C. § 2051 et seq. Congress

created new whistleblower protections for employees

of manufacturers, private labelers, distributors, or

retailers of consumer products. See 15 U.S.C. §2087. Covered employees are protected from discharge or

any other form of retaliation resulting from the

employee’s report to the employer, the Federal Government, or a state attorney general of information

relating to any violation of statutes or regulations

enforced by the U.S. Consumer Product Safety

Commission (CPSC).

B. Who is Covered

THE CPSC ACT covers employees of consumer product manufacturers, importers, private labelers

(owners of a brand or trademark on the private label of a consumer product), distributors, and retailers. 15

U.S.C. §2087(a). The CPSC regulates about 15,000

types of consumer products used in the home, schools and recreation. A "consumer product," as defined

under the CONSUMER PRODUCT SAFETY ACT,

generally means any article, or component part thereof, produced or distributed: (i) for sale to a

consumer for use in or around a permanent or

temporary household or residence, a school, in

recreation, or otherwise, or (ii) for the personal use, consumption or enjoyment of a consumer in or around

a permanent or temporary household or residence, a

school, in recreation, or otherwise. 15 U.S.C.

§2052(5).

C. What is Protected

An employer may not discharge or in any other manner retaliate against the employee because he

provided, caused to be provided or was about to

provide or cause to be provided to the employer, the federal government, or the attorney general of a state

information relating to any violation of, or any act or

omission that the employee reasonably believed to be

a violation of, the CPSC ACT or any other Act

enforced 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 in any manner retaliate against an employee because he

testified in, participated in or assisted in a proceeding

under the laws, orders, rules, regulations, standards or

bans enforced by the CPSC. Also, an employer may not discharge or in any manner retaliate against an

employee because he objected to, or refused to

participate in, any activity, policy, practice, or assigned task that he reasonably believed to be in

violation of any provision of the CPSC ACT or any

other Act enforced by the CPSC, or any order, rule,

regulation, standard or ban under any such Acts. 15 U.S.C. §2087(a)(2-4).

D. Statute of Limitations

A complaint setting forth the facts and

identifying the responsible party must be filed with the Secretary of Labor no later than 180 days after the

date on which the violation occurs. 15 U.S.C.

§2087(b)(1).

E. Remedies

A prevailing employee is entitled to: (1) reinstatement; (2) backpay; (3) compensatory

damages; and (4) attorney fees and litigation costs, to

include expert witness fees. 15 U.S.C. §2087(b)(3).

F. Process

The employee must file a complaint with the Department of Labor (DoL) within 180 days of the

employee first becoming aware of the retaliatory

adverse action. The Occupational Safety and Health Administration (OSHA) will investigate the claim and

can order preliminary relief, including reinstatement.

Either party can appeal OSHA’s determination by

requesting a de novo hearing before a DoL administrative law judge. Either party may seek

review of the administrative law judge’s decision

before the DoL’s Administrative Review Board. Either party can appeal the Board’s decision to the

appropriate circuit court of appeals. 15 US.C. §

2087(b)(5). If there is no final order issued by the Secretary of Labor within 210 days from the date the

complaint was filed, then the employee can remove

the case to U.S. District Court. 15 U.S.C. §

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2087(b)(4).

The CPSC ACT whistleblower must prove, by a

preponderance of the evidence, that (1) he engaged in

protected conduct; (2) the employer knew that the employee had engaged in protected conduct; (3) the

employer took adverse action against the employee;

and (4) the protected conduct contributed to the

employer’s decision to take an adverse action. 15 U.S.C. § 2087(b)(2)(B).

G. Resources

• The CPSIA web page:

http://www.cpsc.gov/about/cpsia/cpsia.html

• The U.S. Department of Labor, OSHA, The

Whistleblower Protection Program web page, is at: https://iforms.osha-

slc.gov/dep/oia/whistleblower/consumer-

product-industry-employees.html

• The OSHA office for Texas is in Dallas,

phone number (972) 850-4145.

VI. RECENT AMENDMENTS TO THE FALSE

CLAIMS ACT

With its qui tam

25 provision,26 protections for

whistleblowers,27 and powerful investigative

""""""""""""""""""""""""""""""""""""""""""""""""""""""""25 See notes 3 and 4, supra. 26 31 U.S.C. §3730(b)-(e). 27 31 U.S.C. §3730(h) provides:

Any employee who is discharged, demoted,

suspended, threatened, harassed, or in any

other manner discriminated against in the

terms and conditions of employment by his or

her employer because of lawful acts done by

the employee on behalf of the employee or

others in furtherance of an action under this

section, including investigation for, initiation

of, testimony for, or assistance in an action filed or to be filed under this section, shall be

entitled to all relief necessary to make the

employee whole. Such relief shall include

reinstatement with the same seniority status

such employee would have had but for the

discrimination, 2 times the amount of back

pay, interest on the back pay, and

compensation for any special damages

sustained as a result of the discrimination,

discovery tools,28 the FALSE CLAIMS ACT is the

Federal Government’s most effective fraud fighting tool. Since 2009, Congress has amended the FALSE

CLAIMS ACT in three separate pieces of legislation.

The most significant change to the FALSE CLAIMS

ACT occurred in 2009 with the enactment of THE

FRAUD ENFORCEMENT AND RECOVERY ACT of 2009.

Then in 2010, using the HEALTH CARE ACT, Congress

modified the “public disclosure bar” which was causing many meritorious qui tam cases to be

dismissed on jurisdictional grounds. And, most

recently in October 2010, Congress used the DODD-FRANK ACT to provide for a three-year statute of

limitations for anti-retaliation claims.

A. THE FRAUD ENFORCEMENT AND

RECOVERY ACT of 2009

1. Expanding Protections to the Anti-

Retaliation Cause of Action (31

U.S.C. §3730(h))

THE FRAUD ENFORCEMENT AND RECOVERY ACT

OF 2009 (FERA) amended the retaliation cause of action of the FALSE CLAIMS ACT. S. Res. 386, 111th

Cong., Pub. L. No. 111-21, 123 Stat. 1620-25

(enacted), to be codified at 31 U.S.C. §3730(h). Most

importantly, the amendments to Section 3730(h) widen the scope of protected conduct and expand the

zone of protected individuals. Prior to FERA, in order

to prevail on a “Section 3730(h) claim,” an employee had to prove his employer retaliated against him

because he was taking steps in furtherance of a qui

tam action.29 Reporting fraud or violations of the FALSE CLAIMS ACT was insufficient to establish a

retaliation claim. Section 3730(h) now protects an

employee who is taking steps to stop fraud by, for

example, making internal reports or refusing to participate in the misconduct that leads to fraud, false

claims, or violations of the FALSE CLAIMS ACT. A

"""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""""including litigation costs and reasonable

attorneys’ fees. An employee may bring an

action in the appropriate district court of the United States for the relief provided in this

subsection.

28 31 U.S.C. §3733 (authorizing the Attorney General, or

his delegate [U.S. Attorney] to issue civil investigative

demands). 29 See, e.g., United States ex rel. Yesudian v. Howard

University, 153 F.3d 731 (D.C. 1998) (listing elements for a

retaliation claims)."

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whistleblower is no longer required to prove he was

actually pursuing a qui tam action in order to

prosecute a relation claim.

Additionally, prior to FERA, Courts frequently concluded that the FALSE CLAIMS ACT did not cover

associational discrimination30 and retaliation against

subcontractors because they did not meet the technical definition of “employee.” FERA amended Section

3730(h) to explicitly protect the whistleblower’s

colleagues and family members. Contractors and

agents are also protected from retaliation.

Below is a redline version of the changes to

Section 3730(h) made by the FERA (the blue font is

new statutory language; the red font is the repealed

statutory language):

'h) Any employee whoRELIEF FROM

RETALIATORY ACTIONS.—

(1) IN GENERAL.—Any employee,

contractor, or agent shall be entitled to

all relief necessary to make that employee, contractor, or agent whole, if

that employee, contractor, or agent is

discharged, demoted, suspended,

threatened, harassed, or in any other manner discriminated against in the

terms and conditions of employment by

his or her employer because of lawful acts done by the employee, contractor, or

agent on behalf of the employee or,

contractor, or agent or associated others in furtherance of an action under this

section, including investigation for,

initiation of, testimony for, or assistance

in an action filed or to be filed under this section, shall be entitled to all relief

necessary to make the employee whole.

Such relief other efforts to stop 1 or more violations of this subchapter.

31 U.S.C. §3730(h).

B. THE HEALTH CARE ACT Amended the

“Original Source” Definition of the FALSE

CLAIMS ACT

""""""""""""""""""""""""""""""""""""""""""""""""""""""""30 For example, retaliation against the family members and

colleagues of those who have blown the whistle.

THE PATIENT PROTECTION AND AFFORDABLE

CARE ACT (HEALTH CARE ACT), amended the FALSE

CLAIMS ACT’S definition of “original source.” H.R.

3590, 111th Cong., Pub. L. 111–148, 124 Stat. 901-

902, §10104(j)(2) (amending 31 U.S.C. §3730(e)(4)) (enacted on Mar. 23, 2010).""This amendment expands

the scope of the “original source” exception to the

“public disclosure bar.” The amendment also shifts

the “public disclosure bar” from a jurisdictional prohibition to a more flexible standard, with

discretionary power held by the Department of

Justice. Under the former language, most courts held that a qui tam case had to be dismissed if the

allegations were based upon a “public disclosure”

because courts considered the public disclosure bar to

be jurisdictional.31 The sources of a public disclosure were many, ranging from records requests under the

FREEDOM OF INFORMATION ACT, to state criminal or

civil actions, and even to news media stories. Consequently, many meritorious qui tam actions were

dismissed because they were based on a “public

disclosure”, as that term had been construed by the courts. Congress, primarily Senator Charles Grassley

(a strong supporter of the FALSE CLAIMS ACT), sought

to amend the language of the public disclosure bar in

order to prevent courts from dismissing meritorious qui tam cases on the basis they were jurisdictionally

barred under the public disclosure bar.

The amendment to Section 3730(e)(4) also

narrows the definition of what constitutes publicly

disclosed information and expands the scope of the original source exception. The new language expands

the definition of “original source” by removing the

requirement that a qui tam relator have "direct"

knowledge of the facts underlying the allegations. It is now sufficient for a qui tam relator to simply have

"knowledge that is independent of and materially adds

to the publicly disclosed allegations . . . ." A qui tam relator's allegations can now be based on indirect or

secondhand information, provided those allegations

add to whatever information is already contained in

the public domain.

The amendment to Section 3730(e)(4) also means

that a “public disclosure” resulting from a government report, hearing, audit or investigation must be from a

federal government source in order to bar a qui tam

""""""""""""""""""""""""""""""""""""""""""""""""""""""""31 See, e.g., United States ex rel. Quinn v. Springfield

Terminal Ry., 14 F.3d 645 (D.C. Cir. 1994) (concluding a

court would not have jurisdiction over a qui tam case where

the allegations were based upon a public disclosure).

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relator's claim. Public disclosures in state or local

government reports or proceedings will no longer trigger the jurisdictional bar. Finally, despite their

inclusion in a health care statute, the amendment to

the FALSE CLAIMS ACT is not limited to qui tam cases involving federal health care programs. Rather, the

amendment applies to every qui tam case.

Below is the new language of Section 3730(e)(4)

made by the HEALTH CARE ACT:

(A) The court shall dismiss an action or

claim under this section, unless opposed by the Government, if substantially the

same allegations or transactions as alleged

in the action or claim were publicly disclosed--(i) in a Federal criminal, civil,

or administrative hearing in which the

Government or its agent is a party; (ii) in a

congressional, Government Accountability Office, or other Federal

report, hearing, audit, or investigation; or

(iii) from the news media, unless the action is brought by the Attorney General

or the person bringing the action is an

original source of the information.

(B) For purposes of this paragraph,

“original source'” means an individual

who either (i) prior to a public disclosure under subsection (e)(4)(a), has voluntarily

disclosed to the Government the

information on which allegations or transactions in a claim are based, or (2)

who has knowledge that is independent of

and materially adds to the publicly

disclosed allegations or transactions, and who has voluntarily provided the

information to the Government before

filing an action under this section.

C. 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

Section 1079A of the DODD-FRANK ACT established a three-year statute of limitations in which

to file retaliation lawsuit. Section 3730(h) of the

FALSE CLAIMS ACT now provides: “LIMITATION ON BRINGING CIVIL ACTION.—A civil action

under this subsection [3730(h)] may not be brought

more than 3 years after the date when the retaliation

occurred.’’). H.R. 4173, 111th Cong., Pub. L. No. 111-203, 124 Stat. 2079 (§1079A) (enacted),

amending 31 U.S.C. §3730(h). This explicit statute of

limitation brings much-needed clarity in the wake of the Supreme Court’s decision in Graham County Soil

& Water Conservation Dist. v. U.S. ex rel. Wilson,

545 U.S. 409 (2005), which held that the most closely

analogous state statute of limitations applies to a FALSE CLAIMS ACT retaliation claim.

Finally, Section 1079A of the DODD-FRANK ACT clarified what appears to be a grammatical error in the

FERA amendments. Section 3730(h) of the FALSE

CLAIMS ACT now provides an employee will be

protected for “lawful acts done by the employee, contractor, or agent or associated others in furtherance

of an action under this section or other efforts to stop

1 or more violations of [False Claims Act].” This was a minor change.

For additional information about the False Claims Act, visit www.govtfraudlawyer.com.

VII. THE IRS WHISTLEBLOWER REWARD

PROGRAM

A. Introduction to the IRS Whistleblower

Reward Program

The TAX RELIEF AND HEALTH CARE ACT of 2006 (ACT), signed into law on December 20, 2006,

amended the INTERNAL REVENUE CODE to provide

rewards for turning in tax cheats. U.S.C. §7623. According to the IRS, the “primary purpose behind

the Act was to provide incentives for people with

knowledge of significant tax noncompliance to provide that information to the IRS.”32 The new

program generally requires the IRS to pay rewards to

whistleblowers if the information presented

substantially contributes to the collection of money by the IRS. The law created the IRS Whistleblower

Office to receive, evaluate, and to determine whether

to pay the whistleblower an award.

It is interesting to note that since 1867, the IRS

possessed the authority to pay awards to tax whistleblowers. What is now Section 7623(a) of Title

""""""""""""""""""""""""""""""""""""""""""""""""""""""""32 IRS Whistleblower Office, Annual Report to Congress

on the Use of Section 7623 at 2 (2009) (on file with the

author).

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26 has its origins in 1867 law. The original law

allowed the Treasury Secretary “to pay such sums as he deems necessary for detecting and bringing to trial

and punishment [a] person guilty of violating the

internal revenue laws or conniving at the same.” Such awards were discretionary. Now such rewards are

required to be paid.

The IRS has funded a robust IRS Whistleblower

Program. The new program focuses on large claims.

To qualify for the expanded rewards, $2 million of

taxes, penalties, and interest must be involved. Individual taxpayers must have $200,000 of taxable

income in any year. The reward is from fifteen to

thirty percent of the tax collected, depending upon the extent to which the whistleblower contributed to the

additional collection. If the IRS determines that the

whistleblower’s information was not the original source of information, but still contributes to the

additional collection, the IRS can award up to ten

percent of the amount collected. Informants have the

right to petition the Tax Court within thirty days of receiving the IRS’s reward determination. Unlike the

FALSE CLAIMS ACT, however, the whistleblower is

not authorized to prosecute a claim in court if the

federal government chooses to not do so.

B. Filing an IRS Informant Reward Claim

A whistleblower, with or without counsel, must submit his claim on an IRS Form 211 (“Application for Award for Original Information). The IRS then

makes a determination whether the claim meets the

criteria of a Section 7623(b) whistleblower claim or, if

not, if the claim meets the criteria of a Section 7623(a) detection of underpayment or fraud claim. 7623(a)

claims are sent to Ogden, Utah for determination.

7623(b) claims are determined at the IRS

Whistleblower Office in Washington, D.C.

1. 7623(b) Awards:

To qualify for a whistleblower award under

section 7623(b), the information must:

• Relate to a tax noncompliance matter in which

the tax, penalties, interest, additions to tax and additional amounts in dispute exceed

$2,000,000; and

• Relate to a taxpayer, and in the case of an

individual taxpayer, one whose gross income

exceeds $200,000 for at least one of the tax

years in question.

Id. at § 7623(b)(5). If the information meets the

above criteria and substantially contributes to a decision by the IRS to take administrative or judicial

action that results in the collection of tax, penalties,

interest, additions to tax and additional amounts, then the IRS will pay an award of at least fifteen percent,

but not more than thirty percent of what the IRS

collects. 26 U.S.C. at § 7623(b)(1). However, similar

to the original source doctrine of the FALSE CLAIMS

ACT, the IRS has authority to reduce the award to ten

percent if the claim is based upon specific allegations

disclosed in certain public information (e.g., government audit reports). Id. at § 7623(b)(2). The

IRS also has the authority to reduce the award or not

give an award if the whistleblower planned and initiated the actions that led to the tax underpayment.

Id. at § 7623(b)(3).

2. 7623(a) Claims:

If the whistleblower’s information submitted

under the IRS Form 211 does not meet the criteria of

Section 7623(b), the IRS Whistleblower Office will

send the claim to Ogden, Utah for processing as a potential Section 7623(a) claim, which relates to

detection of underpayment of taxes and fraud.

3. Full Disclosure

If the whistleblower withholds available

information, then the whistleblower bears the risk that

withheld information may not be considered by the

Whistleblower Office in making any award determination. If the documents or supporting

evidence are known to the whistleblower but not in his

possession, then the whistleblower is instructed to

describe the documents and identify their location to the best of his ability. The IRS also instructs

whistleblowers to provide substantiating

documentation.

4. Eligibility to File a Claim for Award

Almost any person, other than certain present or

former federal employees, is eligible to file a claim for

reward. See 26 C.F.R. §301.7623-1(b)(1) and (2). Those former and current employees that are barred

from filing a claim include an “officer or employee of

the Department of the Treasury at the time the

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individual came into possession of information

relating to violations of the internal revenue laws, or at the time the individual divulged such information.”

Id. However, “any other current or former federal

employee is eligible to file a claim for reward if the information provided came to the individual's

knowledge other than in the course of the individual's

official duties.” Id. Finally, the claim survives the

death of the whistleblower. 26 C.F.R. §301.7623-

1(b)(3).

5. Identity of the Whistleblower

By regulation, the IRS is not allowed to reveal of the identity of the whistleblower. 26 C.F.R.

§301.7623-1(e).

C. Appealing to the U.S. Tax Court

The TAX RELIEF AND HEALTH CARE ACT of

2006 authorized the whistleblower to appeal the IRS

Whistleblower Program’s determination regarding an award to Tax Court. 26 U.S.C. §7623(b)(4). Such

appeals must be filed within thirty days of the IRS

Whistleblower Program’s determination. Id.

Recently, the Tax Court held that it had jurisdiction to review a decision by the Tax Whistleblower Office

declining to pursue a whistleblower’s claim for a

reward. See Cooper v. Commissioner, 135 T.C. No. 4 (July 9, 2010).

D. Resources

• The IRS Whistleblower – Informant

Program web page:

(http://www.irs.gov/compliance/article

/0,,id=180171,00.html )

• IRS Notice 2008-4 (available on the

web page cited above)

• IRS Form 211 (available on the web page cited above or click on the link)

• IRS Whistleblower Office, Annual Report to Congress on the Use of

Section 7623

• Whistleblower – Information Regulations were codified at 26 CFR

301.7623-1.

• www.taxwhistleblowerblog.com

• Joel D. Hesch, Reward: Collecting

Millions for reporting Tax Evasion (Your Complete Guide to the IRS

Whistleblower’s Reward Program)

(ISBN 978-0-9819357-2-0 published

by LU Books, available at Amazon.com)

• http://taxprof.typepad.com/

VIII. UNIQUE ISSUES FACING FEDERAL

GOVERNMENT CONTRACTORS

A. Introduction

Federal Government contracting (primarily military and NASA) has historically been big business

for Texas. Texas has some of the most important and

largest military installations in the Department of Defense’s inventory, all of which award billions of

dollars in contracts.33 Major defense contractors are

headquartered or have a substantial presence in Texas,

such as Raytheon, AT&T, Halliburton, KBR, Valero, Texas Instruments, among dozens of others34. These

contractors employ thousands of Texans. Most

recently, Texas did well in the latest round of Base Realignment and Closure (BRAC), resulting in tens of

thousands of service members, civil service

employees, and contractors and their employees relocating to various military installations and cities in

Texas.

Given the large presence of this industry in Texas, employment lawyers should be knowledgeable

of the unique whistleblowing rules that apply to

Government contractors. Government contractors are prohibited from retaliating against their employees

""""""""""""""""""""""""""""""""""""""""""""""""""""""""33 For example, El Paso has Fort Bliss. Kileen has Fort

Hood (the world’s largest military installation). San

Antonio, which calls itself “Military City USA,” has Fort

Sam Houston (headquarters for military medicine),

Lackland Air Force Base (the Air Force’s largest training

base), and Randolph Air Force Base (headquarters for Air

Education Training Center, one of the largest commands in

the Air Force). Fort Worth is home to the U.S. Army Corps of Engineers – West, which awards billions of dollars of

contracts. 34 See www.fedspending.org for searchable databases

about who is receiving federal contracts.

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who engage in whistleblowing. Perhaps most

significant of all, the FEDERAL ACQUISITION

REGULATION was amended, effective December 12,

2008, to require Government contractors to self report

to the Government certain crimes and violations of the FALSE CLAIMS ACT committed by their employees

and subcontractors—a contractor’s failure to do so

could be the basis for a ban from contracting with the

Government. Moreover, the Government is now keeping score. The Government created the Federal

Awardee Performance and Integrity Information

System (FAPIIS), a new database. The FAPIIS will keep records to determine whether contractors are

“responsible” and therefore eligible for future

government awards. A violation of the FALSE

CLAIMS ACT or violations of various statutes (to include those that protect whistleblowers) is some of

the information that the Government has begun to

keep in the FAPIIS.

B. Whistleblower Protections for Contractor

Employees

1. Who and What is Protected

The FEDERAL ACQUISITION REGULATION (FAR) regulates some aspects of the employment relationship

between a federal Government contractor and its

employees. This FAR protection for whistleblowers implements 10 U.S.C. §2409 and 41 U.S.C. §265, as

amended by Sections 6005 and 6006 of the FEDERAL

ACQUISITION STREAMLINING ACT OF 1994 (Pub. L. 103-355). It is not always clear, however, if the FAR

applies to a particular employment situation. Some

companies, for example, do Government work only.

In that scenario, the FAR and its protections for whistleblowers will most likely apply to the

contractor, depending on the size of the contractor or

its contracts. Other contractors do business with the Government and the private sector. In that scenario, it

is not always clear if the FAR regulates the

employment relationship between the contractor and

all of its employees.

Regardless, it should be assumed that the FAR protects employees of Government contractors who

blow the whistle. The FAR provides that “Government contractors shall not discharge, demote

or otherwise discriminate against an employee as a

reprisal for disclosing information to a Member of

Congress, or an authorized official of an agency35 or

of the Department of Justice36, relating to a substantial violation of law related to a contract (including the

competition for or negotiation of a contract).” FAR

3.903. Internal disclosures are not protected. See 10

U.S.C. §2409; 41 U.S.C. §265.

2. Procedure

The FAR provides that an employee who believes he was discriminated against because of his

protected whistleblowing may file a complaint with the Inspector General (IG)37 of the agency that

awarded the contract. FAR 3.904(a). In his

complaint, the employee must identify the “substantial violation of law giving rise to the disclosure; the

nature of the disclosure giving rise to the

discriminatory act; and the specific nature and date of the reprisal.” FAR 3.904(b). Unfortunately, no statute

of limitations is set out. If the IG determines the

complaint merits further investigation, then the IG is

required to conduct an investigation and issue a written report to the agency head. FAR 3.905(b). The

contractor and employee are entitled to a copy of the

report, and have thirty days to submit a written response to the agency head. FAR 3.904(c) and (d).

Upon accepting the IG’s report, the agency head has

authority to order the contractor to take certain

actions. The employee, however, has no private cause of action that can be prosecuted in an administrative

court or in U.S. District Court.

3. Remedies, Enforcement, and Review

An agency head that determines a contractor

violated FAR 3.903 has the authority to:

""""""""""""""""""""""""""""""""""""""""""""""""""""""""35 FAR 3.901 defines “’Authorized official of an agency”

[to mean] an officer or employee responsible for

contracting, program management, audit, inspection,

investigation, or enforcement of any law or regulation

relating to Government procurement or the subject matter

of the contract.” 36 FAR 3.901 defines “’Authorized official of the

Department of Justice’” [to mean] any person responsible for the investigation, enforcement, or prosecution of any

law or regulation.” 37 FAR ¶3.901 defines “’Inspector General’” [to mean] an

Inspector General appointed under the Inspector General

Act of 1978, as amended. In the Department of Defense

that is the DoD Inspector General. In the case of an

executive agency that does not have an Inspector General,

the duties shall be performed by an official designated by

the head of the executive agency.”"

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(1) Order the contractor to take

affirmative action to abate the reprisal.

(2) Order the contractor to reinstate the

person to the position that the person held before the reprisal, together with

the compensation (including back

pay), employment benefits, and other

terms and conditions of employment that would apply to the person in that

position if the reprisal had not been

taken.

(3) Order the contractor to pay the

complainant an amount equal to the aggregate amount of all costs and

expenses (including attorneys fees and

expert witnesses’ fees) that were reasonably incurred by the

complainant for, or in connection

with, bringing the complaint regarding

the reprisal. FAR 3.906(a). If the contractor fails to comply with

the agency head’s order, then the agency head “shall

request the Department of Justice to file an action for enforcement of such order in the United States district

court.” FAR 3.906(b) (emphasis added). In such an

action, the court may grant “appropriate relief,

including injunctive relief and compensatory and exemplary damages.” Id. Within sixty days of the

agency head’s order, either party “may obtain review

of the order’s conformance with the law, and this subpart, in the United States Court of Appeals for a

circuit in which the reprisal is alleged in the order to

have occurred.” FAR 3.906(c).

C. Recent changes to the Federal Acquisition

Regulation Require Contractors to Disclose

The FAR was amended,38 effective December 12,

2008, to require federal government contractors with a

contract in an amount greater than $5,000,000 and more than 120 days in duration, to timely disclose “to

the Government . . . credible evidence of a violation of

Federal criminal law involving fraud, conflict of

interest, bribery, or gratuity violations found in Title

""""""""""""""""""""""""""""""""""""""""""""""""""""""""38 The rule implements THE CLOSE THE CONTRACTOR

FRAUD LOOPHOLE ACT, Pub. Law 110– 252, Title VI,

Chapter 1.

18 of the United States Code or a violation of the civil

False Claims Act.” FAR 3.1003. A contractor’s failure to disclose can be the basis for a suspension or

debarment. FAR 3.1003(a)(2). As reflected in the

preamble to the FAR amendment, requiring contractors to self-report is a “sea change” in the

law.39 One area that contractors may be required to

report would be a violation of the anti-retaliation

provision of the FALSE CLAIMS ACT (Section 3730(h)). As shown above in Part VI of this article,

the Section 3730(h) was amended to further enhance

the protections for whistleblowers. In order to be protected, the whistleblower must merely be

performing acts to stop a violation of the FALSE

CLAIMS ACT.

D. The Federal Awardee Performance and

Integrity Information System

As shown above, contractors are now required to

self-report crimes and violations of the FALSE CLAIMS

ACT. The Government collects that information. Due to recent legislation, the Government will disseminate

and make available such derogatory information

throughout the Government. Effective April 22, 2010,

the FAR was amended to implement the Federal Awardee Performance and Integrity Information

System (FAPIIS). 75 Fed. Reg. 14059 (Mar. 23,

2010). The stated purpose of the FAPIIS is to enhance the Government’s ability to evaluate whether

contractors are responsible and ethical.40 There are

four basic categories of information that a contractor must report:

• Criminal Convictions: A contractor must provide information about whether it or any of

its principals has, within the last five years, in connection with the award or performance of

a federal contract or grant, been subject to a

criminal proceeding—at the federal or state

level—that resulted in a criminal conviction.

""""""""""""""""""""""""""""""""""""""""""""""""""""""""39 Fed. Reg. Vol. 73, No. 219 at 67069 (stating “[t]here is

no doubt that mandatory disclosure is a ‘‘sea change’’ and

‘‘major departure’’ from voluntary disclosure, but DoJ and

the OIGs point out that the policy of voluntary disclosure

has been largely ignored by contractors for the past 10

years.”()"40 THE DUNCAN HUNTER NATIONAL DEFENSE

AUTHORIZATION ACT FOR FISCAL YEAR 2009 at

§872.

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• Civil Liability: A contractor must provide

information about whether it or any of its principals has, within the last five years, in

connection with the award or performance of

a federal contract or grant, been subject to a civil proceeding - at the federal or state level -

that resulted in a finding of fault and liability

and required payment of a monetary fine,

penalty, reimbursement, restitution, or

damages of $5000 or more.

• Administrative Proceedings: A contractor must provide information about whether it or

any of its principals has, within the last five

years, in connection with the award or performance of a federal contract or grant,

been subject to an administrative

proceeding—at the federal or state level—that resulted in a finding of fault and liability and

required the payment of a monetary fine or

penalty of $5,000 or more, or the payment of

any reimbursement, restitution, or damages in excess of $100,000. An “administrative

proceeding” is defined as a "non-judicial

process that is adjudicatory in nature in order to make a determination of fault or liability."

The following administrative proceedings are

examples: Securities and Exchange

Commission, Civilian Board of Contract Appeals, and Armed Services Board of

Contract Appeals. But agency actions such as

contract audits, site visits, corrective plans, or inspection of deliverables, are not

administrative proceedings.

• Settlements: A contractor must provide

information about whether, within the last five

years, in connection with the award or performance of a federal contract or grant, a

federal or state criminal, civil, or

administrative proceeding was disposed of by consent or compromise with an

acknowledgment of fault by the contractor, if

the proceeding could have led to any of the

reportable events discussed above.

IX. CONCLUSION

The enactment of the these new bounty and anti-

reprisal laws appears to be a recognition by Congress

that the Government lacks resources to effectively police its entitlement programs such as Medicare.

Congress is also concerned that too often individuals

and businesses have run afoul of laws such as the SECURITIES AND EXCHANGE ACT with impunity. The

tremendous success of the FALSE CLAIMS ACT has

encouraged Congress to further rely upon

whistleblowers to ensure compliance with the law and to report fraud. Laws such as the DODD-FRANK ACT

and the HEALTH CARE ACT are massive in their scope,

and the regulations have yet to be written. The full scope of the power and protection that the

Government will bestow upon whistleblowers has yet

to be determined. One thing is certain. Congress has unleashed whistleblowers in just about every industry.

Because whistleblowers act at their peril, Congress

has sought to protect them. Most importantly,

however, Congress has given a huge financial incentive to whistleblowers to blow the whistle by

creating several bounty programs. The cocoon of

protections that a whistleblower now enjoys, coupled with the financial carrot for reporting fraud, is sure to

root out fraud. Perhaps the next Bernie Madoff will

be turned in before it is too late, preventing the loss of

many people’s life savings. Perhaps the next crooked physician who falsely bills Medicare will be stopped,

saving taxpayer dollars. Whistleblowers will be a

serious check and balance on malfeasance and fraud. Those so inclined to commit fraud and break the law

do so at their own peril with the threat that their

employees have an incentive to blow the whistle on

their nefarious acts.

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APPENDIX

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Appendix A

Major FALSE CLAIMS ACT cases settled in 2010

MAJOR FALSE CLAIMS ACT CASES

RESOLVED IN FISCAL YEAR 2010

Company Amount Date Allegation

GlaxoSmithKline $750 million 10/26/2010 Deceit related to product contamination and dosage

irregularities at GSK’s manufacturing facility in

Puerto Rico.

Allergan $600 million

($225 million to resolve civil allegations and a $375 million

criminal fine.)

9/1/2010 Off-label marketing practices involving Botox

AstraZeneca $520 million 4/27/2010 Illegally marketed the anti-psychotic drug Seroquel

Novartis

Pharmaceuticals

$422.5 million

($237.5 million to resolve civil allegations and a $185 million

criminal fine)

9/30/2010 Unapproved promotion of Trileptal

Forest

Laboratories

$313 million

($149 million to resolve civil claims, a $150 million criminal

penalty, and $14 million in forfeiture).

9/15/2010 Marketed Levothroid without FDA approval and unlawfully promoted Celexa and Lexapro for

pediatric use

Elan Corporation $203.5 million 7/15/2010 Improperly sold and marketed Zonegran

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Teva

Pharmaceuticals

$169 million 7/26/2010 Inflated prices reported to Medicaid

WellCare Health

Plans

$137.5 million 8/9/2010 Defrauded Medicare and Medicaid programs in

several states

Mylan,

AstraZeneca, and

Ortho-McNeil

$124 million 10/19/2009 Companies improperly classified certain drugs to

evade rebate obligations

Omnicare and IVAX

Pharmaceuticals

$112 million 11/3/2009 Omnicare engaged in kickback schemes with several parties, including IVAX

Health Alliance of Greater

Cincinnati and

Christ Hospital

$108 million 5/21/2010 Kickbacks to doctors in exchange for referring

cardiac patients to hospital

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Appendix B

NEW ANTI-RETALITION LEGISLATION THAT

VOIDS ARBIRATION AGREEMENTS

NEW LEGISLATION VOIDING

ARBITRATION AGREEMENTS

AMENDMENTS TO THIS LAW

DODD-FRANK ACT at §922(c) (Whistleblower Protection)

Amending 18 U.S.C. §1514A(e)

DODD-FRANK ACT at §748

(Commodity Whistleblower Incentives and Protection)

Amending COMMODITY EXCHANGE ACT at §23(n);

Proposed Rule 165.19

DODD-FRANK ACT at §1057(d) (Bureau of Consumer Financial Protection—Employee

Protection for Whistleblowers)

New law

DODD-FRANK ACT at §922(c) Amending 18 U.S.C. §1514A(e) - the SARBANES-OXLEY ACT

THE PATIENT PROTECTION AND AFFORDABLE CARE ACT OF

2009 at §1558

Amending §18C(b)(2) of the FAIR LABOR

STANDARDS ACT]

AMERICAN RECOVERY AND REINVESTMENT ACT OF 2009

§1553 “McCaskill Amendment” (d)(1)-(3) New law

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Appendix C

IRS Form 211

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Appendix D

Proposed SEC Form WB-APP

Application for Award for Original Information Submitted Pursuant to

Section 21F of the Securities Exchange Act of 1934

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Proposed SEC Whistleblower Process for Determining Awards Based Upon A “Related Action”:

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Appendix E

Proposed CFTC Form TCR, TIP, Complaint or Referral

Notice of Commodity Futures Trading Commission Proposed Rules to

Implement the Whistleblower Incentives and Protections of Section 748 of

the DODD-FRANK ACT

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