Different Ways to Blow the Whistle

1. Federal False Claims Act

The oldest statute under which whistleblowers have been able to obtain an award is the Federal False Claims Act, first established in 1863 and significantly amended in 1986 to provide for more streamlined processing and more generous awards, among other changes. Under the current regime, individuals with “original information” called “relators” must first inform their local U.S. Attorney General of the eminent filing of their qui tam action, which they then file under seal in U.S. Federal District Court. If the U.S. Attorney decides to join the action on behalf of the U.S. Government, they are termed to have intervened, and will then prosecute the action. If they choose not to, the relator may prosecute the action on their own.

2. Sarbanes-Oxley (“SOX”)

SOX was enacted into law in 2002 after the very public corporate frauds involving Enron, WorldCom and Tyco in an effort to protect investors and the markets that rely on accurate accounting to establish properly valuations. One of the most public events that predated SOX was the failure Enron, where Arthur Andersen (one of the “big five” accounting firms at the time) helped perpetrate wide-spread fraud and was found guilty for criminal charges of crimes that were only realized upon Enron’s collapse.

SOX changed the corporate landscape by establishing, among other things, obligations on behalf of individuals with knowledge (including attorneys) to report up and report out to the U.S. Government accounting violations by publicly traded companies and certain other entities and individuals, who work for such companies. In exchange, SOX provides protection to these whistleblowers in certain circumstances, but provides no monetary incentives, creating a stick but no carrot situation.

3. Dodd-Frank

Dodd-Frank was enacted after the “Great Recession” that spanned 2007 through 2009 and the substantial “bailouts” received from banking entities that were termed “too big to fail.” Dodd-Frank provides rewards for individuals who provide “original information” to the SEC Office of the Whistleblower, DOJ or Commodities Futures Trading Commission relating to violations of the securities laws, Foreign Corrupt Practices Act or commodities laws, One of the most important features of Dodd-Frank and the award system for whistleblowers who provide original information to the SEC that leads to a penalty for securities violations under certain circumstances. There are also anti-retaliatory provisions in Dodd-Frank.

4. Internal Revenue Code 7623(a) and (b)

Under section 7623(b) of the IRS Code, whistleblowers can be awarded between 15% and 30% (with a few exceptions) as an award in any case they provide original information on in which more than $2,000,000 are in dispute. There are no limits to how much an individual may collect. Subsection (a) addressed situations that do not qualify under (b). Cases handled under subsection (a) do not require that an award be issued, nor do they contain a statutory minimum percentage for any award. Awards under subsection (a) are handled at the discretion of the Internal Revenue Service. Under the IRC, the IRS does not pay awards until after all of the subject’s appeal rights have been exhausted which may take years.

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