The SEC has been busy this past month (as always). SEC Chair May Jo White shared that the SEC is less than thrilled with reports that some companies are trying to restrict employees from receiving whistleblower awards. As you may recall from previous digests, the SEC tends to get its hackles up at even the mention of restricting whistleblower actions. (In short: Just don’t do it. Don’t even think about it.) Even though the SEC has been working hard, they have quite a backlog, as uncovered by The Wall Street Journal. You can read about that, the recent Supreme Court ruling on a False Claims Act case and DaVita’s whistleblower settlement, in this month’s digest.
SCOTUS Ruling Gives Companies Partial Win in Whistleblower Suits
The False Claims Act allows any private citizen to bring a civil lawsuit alleging fraud against the government and share in the winnings; as such it is the country’s major whistleblower law. The Supreme Court handed down an important FCA decision recently, ruling that whistleblowers don’t get extra time to file civil FCA lawsuits when the US is at war, in a win for military contractors Halliburton and KBR. The court’s ruling could end most legal claims by whistleblower Benjamin Carter, who did contracting work in Iraq in 2005 and alleged the companies fraudulently billed the government for water purification work that wasn’t actually performed. The contractors denied the allegations.
A key issue in the case was the meaning of the Wartime Suspension of Limitations Act which extends the time for bringing cases of fraud against the government while the US is at war. The Supreme Court said, in a rare unanimous decision, the law only suspends time limits during wartime for the prosecution of criminal cases alleging fraud against the US. Civil lawsuits like Carter’s don’t get extra time. The relevant version of Carter’s lawsuit wasn’t filed until mid-2011, which makes most of his claims untimely under the normal FCA statute of limitations. However, the justices also ruled against the contractors on one issue, rejecting their arguments that once a whistleblower files a lawsuit, all later lawsuits alleging the same claims should be prohibited even if the first case was dismissed.
SEC Reviewing Efforts by Some Companies to Restrict Employees From Receiving Whistleblower Awards
The SEC is looking into whether some companies are trying to force employees to sign agreements to forgo receiving whistleblower awards from the government to be eligible for severance pay, SEC Chair Mary Jo White said. Speaking at Northwestern University, White stopped short of saying whether the agency was investigating the issue, but strongly implied that the SEC is not happy about these tactics.
The SEC has been focusing recently on cases in which companies have tried to force employees who discover possible misconduct to sign confidentiality agreements. In April, the SEC sued KBR for such a practice, marking the first whistleblower protection case tied to restrictive language in confidentiality agreements. In May, the SEC also awarded $600K to a whistleblower at hedge fund Paradigm Capital Management who experienced retaliation from his employer and reported it to regulators. Paradigm was sued by the SEC over the retaliation last June and agreed to pay $2.2M to settle. White, in her speech, defended the SEC’s interpretation of the whistleblower retaliation rules, after some in the legal community have questioned whether the agency has overreached. White said the rules are clear, and that any agreement which forces employees to get pre-approval to report misconduct to the SEC creates a “chilling” effect. She added, however, that there is no sweeping prohibition on the use of confidentiality agreements, and companies can still use them to protect attorney-client privilege, trade secrets and the like.
SEC Backlog Delays Whistleblower Awards
The Wall Street Journal reported that the SEC has a serious backlog in paying tipsters. Of the 297 whistleblowers who have applied for awards since 2011, about 247 (~83%)have not received a decision from the SEC, according to data obtained by The Wall Street Journal in response to a public-records request. Some of the award claims have been delayed more than 2 years.
The SEC’s whistleblower program imposes strict deadlines on claimants; at least 6 people have been denied an award because they didn’t submit their claims in time, but there are no time limits for how long the SEC can wait to respond to claims. Experts worry that long delays, if allowed to persist, could deter future tipsters. Senior officials at the SEC have recently asked staff in its whistleblower office about the backlog.
The SEC has publicized each of the 17 whistleblower awards it has made since 2012, when it began making such payments using new powers from the Dodd-Frank. The agency has also released statistics about the number of tips it has received and other data about the program, but its reports don’t detail how many claimants are waiting for a decision about an award. The agency denied 3 separate public-records requests by the Journal last year for this data before releasing the figures in response to an appeal. Tipsters submit formal applications for awards when they want to claim a bounty after an SEC enforcement action is completed. The agency has finished reviewing about 50 award claims, 17 of those applicants have been given awards, including one of more than $30M last year to an unnamed tipster.
An SEC spokesman declined to give any further breakdown of the backlog, including the age of the outstanding claims. The data show that the agency hasn’t finished the months-long review process for most applications. Senator Chuck Grassley (R – Iowa), said the agency’s backlog is a cause for concern, adding that he doesn’t want the agency’s program to reach a point “where people have felt they’ve put their livelihoods on the line and heard nothing but radio silence in return.”
DaVita to Pay $450M in Whistleblower Lawsuit over Deliberately Wasting Drugs to Receive Higher Medicare Payments
DaVita HealthCare Partners Inc, one of the largest U.S. kidney dialysis providers, said it agreed to pay $450M to settle a whistleblower lawsuit accusing it of deliberately wasting medicines in order to receive higher Medicare payments. The lawsuit alleged that DaVita used larger-than-necessary medicine vials to unnecessarily spread medicine dosages across multiple treatments, knowing that Medicare would pay for what it considered “unavoidable” waste. DaVita made the terms public when it reported a first-quarter loss that reflected a $298M after-tax charge for the settlement. The company set aside $495M for the accord, including $45M for legal fees and costs. The suit was brought by 2 whistleblowers, Alon Vainer, a nephrologist who has worked in dialysis clinics in Georgia, and Daniel Barbir, a registered nurse. The company also announced it would spend $25M annually on compliance efforts.
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For More Information About Compliance Training, Check Out These Resources:
- Blog Post: April Whistleblower News Digest | Consider Targeted Anti-Retaliation Training as part of Your Ethics and Compliance Training Program
- eBook: Whistleblowers: Another Record-Breaking Year in the Making?
- Blog Post: 3 New Developments in Whistleblower Retaliation (Hint: Preventing Retaliation Takes More Than an Anonymous Whistleblower Hotline)