Morgan Stanley is in the news once again for whistleblower retaliation in a new lawsuit that mentions some of the same staff members involved in the last suit against them. Progenics was found guilty of retaliation, NuVasive ended up paying an FCA settlement and the Senate, SEC and DOJ all have critical news updates your CCO must know.
Morgan Stanley Being Sued for $20M for Whistleblower Retaliation
Two former Morgan Stanley brokers have sued the firm and a branch manager for $20M in damages saying they were terminated in retaliation for blowing the whistle on alleged fraudulent activity and violations of securities laws. The brokers, Jaime Feldman and her husband, James Boland, were terminated in 2011 after the firm said they did not meet performance requirements. But the two, who are no longer registered, said the performance issues were a pretext for firing them after they levied a number of allegations at their former firm including that unlicensed trainees were cold calling prospects with misleading scripts, brokers were changing client risk profiles, and advisers were working from home without proper supervision. Feldman reported the concerns to the branch manager, David Turetzky, who was “indifferent” and told her to leave his office. The next month Turetzsky moved to terminate them based on substandard performance.
A Morgan Stanley spokeswoman said that there is no merit to the complaints and that the two advisers were trainees and have made a number of claims since they were terminated in 2011, none of which have been found to have any merit. This case is the second time that an employee from the 52nd street branch has sued Morgan Stanley for wrongful termination in a whistleblower suit. In 2012, Clifford Jagodzinski, a risk officer who was mentioned in the Bolands’ complaint, sued the firm for $1M, claiming he was told by Turetzky not to report alleged violations, including improper Treasury trades, drug use by an adviser and advisers working from home without registering their home office as an alternative work location.
NuVasive Pays $15M & Whistleblower Gets $2.2M in FCA Settlement
Medical device maker NuVasive Inc. agreed to pay the US $13.5M to resolve allegations that it paid kickbacks to induce doctors to use the company’s spinal fusion system. The settlement resolves a lawsuit filed under the whistleblower provisions of the False Claims Act by Kevin Ryan, a former NuVasive sales rep, who will receive about $2.2M. Between 2008 and 2013, NuVasive promoted the use of a spine-fusion system called CoRoent for surgical applications not approved or cleared by the FDA. The DOJ said “NuVasive caused physicians and hospitals to submit false claims to federal health care programs for certain spine surgeries that were not eligible for reimbursement.” The settlement also resolved allegations that NuVasive paid kickbacks to doctors so they would use the CoRoent System in spine fusion surgeries.
The federal Anti-Kickback Statute bans incentive payments to doctors for procedures reimbursed by Medicare and Medicaid. Since January 2009, the DOJ has recovered more than $24.8B through False Claims Act cases, with more than $15.9B of that amount recovered in cases involving fraud against federal health care programs. The federal share of the NuVasive civil settlement was about $12.6M and the state Medicaid share was just over $900K.
Progenics Pharmaceuticals To Pay $1.66M for Whistleblower Retaliation
A federal jury ordered biotechnology company Progenics Pharmaceuticals to pay $1.66M after finding that it retaliated against a former chemist in violation of whistleblower protections enacted after the Enron scandal. Jurors in Manhattan federal court found in favor of Julio Perez, who claimed he was fired in 2008 after complaining to the company that it had issued a false and misleading press release about a drug trial. There is a ton more detail here if you really want to read it… or the Nyquil just won’t kick in.
News Your CCO Needs to Know
Senate Unanimously Passes Antitrust Bill That Criminalizes Whistleblower Retaliation
The US Senate has passed a bill that, if enacted, would expand protection for third-party whistleblowers who report criminal antitrust activity to the DOJ. The change means a company would have a new threat hanging over its head as it decides whether to divulge antitrust activity and apply for leniency. Under DOJ guidelines, the first company to report an antitrust conspiracy can receive immunity from criminal prosecution; but if someone else first reports, the chance for immunity goes out the window. So if the whistleblower beats the company to the punch, there would be no leniency. And if the bill becomes law, the company could not retaliate against the whistleblower, who could be an employee, contractor or agent.
The Senate unanimously passed the Criminal Antitrust Anti-Retaliation Act of 2015, introduced by Sen. Charles Grassley, R-Iowa. “Violators of antitrust laws put businesses and our economic wellbeing at risk, so whistleblowers who call attention to violators should be praised, not punished,” Grassley said in a statement. “Unfortunately, these folks often face retribution at work for their efforts to correct misconduct,” he added. “The [bill] protects these individuals from workplace retaliation and abuse [and] may also serve as a deterrent of future misconduct.” The bill was also unanimously passed by the Senate last session but the House did not act on it. The reintroduced measure now goes to the House for renewed consideration.
New SEC Guidance Confirms Expansive View on Whistleblower Protections
The SEC published fresh guidance on who qualifies for whistleblower protections under the Dodd-Frank Act, which confirms that a person is not required to report misconduct to the SEC’s Office of the Whistleblower to qualify for the expanded anti-retaliation protections under the law. The interpretive guidance, posted to the SEC’s website, clears up confusion about the word “whistleblower” as it appears in 2 different rules implementing Section 21F of the Securities Exchange Act. That section was created by Dodd-Frank to establish whistleblower protections and to create rewards for anyone who brings useful information to the SEC about corporate misconduct.
The question was whether a person must report possible misconduct to the SEC for the purpose of seeking a whistleblower reward—rewards are addressed by Rule 21F-9(a)—to qualify for anti-retaliation protections defined by Rule 21F-2(b)(1). The answer, according to the SEC: no. As soon as a person reports misconduct via internal channels such as compliance hotline, or to any part of the SEC at all (rather than the Office of the Whistleblower specifically), he or she qualifies for the anti-retaliation provisions granted under Rule 21F-2(b)(1). Compliance Week’s Matt Kelly said that compliance officers should find comfort in that interpretation, since it avoids creating a 2-tier system of whistleblowers, where those who go directly to the SEC seeking rewards also qualify for anti-retaliation protections, while those who work with the internal compliance department first do not.
The DOJ Hires Expert to Evaluate Target Company Compliance Programs: Big Step in Recognizing Value of Compliance
The FCPA blog has a piece on recent reports that the DOJ is hiring a compliance expert to help evaluate whether to charge corporations that fail to detect and prevent wrongdoing by employees. The compliance expert will review whether the target company had a robust compliance program or one that was window dressing — or something in between. A candidate has been reportedly offered the position and is undergoing the background check process. The position is in the DOJ’s criminal division, which prosecutes health care, securities and FCPA violations, among others. This development apparently won’t directly affect the antitrust division, which sometimes has policies different from the criminal division. There have been a couple of small steps already toward crediting compliance programs in charging decisions and enforcement actions. As you know, in 2012 the DOJ said it credited Morgan Stanley’s compliance program in a decision not to bring an enforcement action the company for FCPA violations in China. The DOJ’s hiring of a compliance expert is a much bigger and more important step in recognizing the value of compliance programs.
Prospective Clients Investigating Compliance
A survey of around 180 financial services professionals by Cipperman Compliance Services found 70% said prospective clients have asked to review their organization’s compliance polices or interview compliance personnel. The results drive home the point that compliance is becoming an integral part of a firm’s operations. The survey also found 63% of respondents saying they have a compliance committee at their firm, up from 48% in 2014—while 88% said they have conducted a compliance review in the last year, up from 67% in the prior year’s survey. Despite heightened awareness of compliance, only 53% said their firms were spending up to 5% of their total revenue on compliance. “Firms are choosing to vest these duties with committees and individuals whose sole responsibility is compliance, as opposed to wearing multiple hats, which has proven to be the most effective means of maintaining a culture of compliance,” said Todd Cipperman, managing principal.