Whistleblowers

FREDERICK D. LIPMAN is a partner with the international law firm of Blank Rome LLP and is also the president of the Association of Audit Committee Members, Inc. He has more than fifty years of experience in the areas of corporate governance, mergers and acquisitions, private equity, and IPOs. He has appeared on CNBC, CNN, Bloomberg, and Chinese television as a national commentator on business topics and has been quoted in the Wall Street Journal, the New York Times, USA Today, Forbes, and other business publications.

• Foreword xiii Acknowledgments xvIntroduction 1PART I: THE WHISTLEBLOWERS AND THE DODD-FRANK INCENTIVESChapter 1: The Dramatic Expansion of Whistleblower Awards under Dodd-Frank 11Whistleblower Provisions of Dodd-Frank 13What Is “Original Information”? 14What Are Violations of the Federal Securities Laws? 15Rule 10b-5: Market Manipulation 19Violating the Accounting Standards 20False Financial Statements by Public Companies 20Other Securities Laws 22Protections for Whistleblowers 23Commodity Exchange Act 23Notes 25Chapter 2: The Remarkable Story of Cheryl Eckard and the $96 Million Bounty under the False Claims Act 27Who Is Cheryl Eckard? 27Eckard’s Post-termination Activities 28Eckard’s Superiors 29Background Allegations 30Alleged Violations 31Timeline of Eckard’s Alleged Activities 33The Lessons of Glaxo 40Notes 42Chapter 3: The Pfi zer Whistleblowers Who Collected Over $100 Million under the False Claims Act 45John Kopchinski 46Bextra 47The Complaint 48Pfizer Lessons 51Notes 53PART II: DISINCENTIVES AND FACTORS MOTIVATING PUBLIC DISCLOSUREChapter 4: Disincentives to Internal Whistleblowers 57Financial Disincentives 58Nonfi nancial Disincentives 59Contractual Commitments and Fiduciary Duties 60Ethics Resource Center Survey 61Reinstatement as a Remedy 62Empirical Study 65Notes 67Chapter 5: Women as Whistleblowers: Factors Motivating Public Whistleblowing 69Sherron Watkins 69Cynthia Cooper 71Coleen Rowley 71External Reporting by Internal Whistleblowers 72Whistleblower Anonymity 74Notes 74PART III: ORGANIZATIONAL BEST PRACTICESChapter 6: Why Should Organizations Adopt a Robust Whistleblower System? 79Diminishment of Shareholder Wealth 80Boards of Directors 81We Were Duped! 82Executive Whistleblowers 84Why Independent Directors Cannot Rely Solely on Independent or Internal Auditors 86Legal Standard 89Caremark 90Recommended Strategy 91Criminal Liability of an Organization 92Responsible Corporate Officer Doctrine 93The Acme Markets Case 94The U.S. Department of Justice Criminal Guidelines 96The Disadvantages of a Robust Whistleblower System 97Notes 98Chapter 7: Establishing a Robust Whistleblower System 103Problems with the Current Whistleblower System 104Initial Steps 107Elements of a Robust Whistleblower Policy 108Independent Directors Must Be in Charge 109The Whistleblower Program Must Be Independently Administered 111Whistleblower Complaints Should be Investigated by Independent Counsel Reporting Directly to the Independent Directors 113There Should Be No Presumption that Anonymous Complaints Are Less Deserving of Investigation 117Motivations and Personality of the Whistleblower Are Not Relevant to the Truth of the Allegations 118Absolute Protection of Whistleblowers’ Identity Is Essential 119Assess the Effectiveness of Hotlines and Provide Employee Compliance Training 123Independent Counsel Should Report the Status and Results of the Investigation 124Internal Whistleblowers Should Receive Meaningful Monetary Rewards 125The Whistleblower Policy Must Be Communicated Effectively 127There Should Be Milder Sanctions for Whistleblowers Involved in Illegal Group Activity 130Retaliation Claims Should Be Independently Investigated 131The Director of Corporate Compliance Should Become the Eyes and Ears of the Independent Directors 132Major Dos and Don’ts for CEOs 134Notes 135PART IV: STATUTORY INCENTIVES AND SEC AWARD REGULATIONSChapter 8: The False Claims Act: Qui Tam Cases 141What Is a False Claim? 142False Claims Act Bounties 144U.S. Department of Justice Memorandum 146Statute of Limitations 149Notes 150Chapter 9: IRS Whistleblowers 153Section 7623(b): Mandatory Whistleblower Awards 155Reduction of Award Percentage 156Section 7623(a): Discretionary Awards 157Form 211 158IRS Whistleblowers Awards 159IRS Award Determinations 160Award Administrative Proceedings 162Appeal to Tax Court 164Duration of Process and Award Payment 164Confi dentiality of Whistleblower 165Right to Counsel 165IRS Contracts 165Disqualifi cation of U.S. Treasury Department Federal Employees 166Notes 167Chapter 10: Other Statutory Incentives and Protections for Whistleblowers 169Act to Prevent Pollution from Ships 169False Patent Marking Statute 170U.S. Tariff Act of 1930 172State False Claims Statutes 173Whistleblower Protections 179Barker v. UBS 180Other Statutory Whistleblower Protections 185Notes 186Chapter 11: A Step-by-Step Guide to SEC Whistleblowers Awards under Dodd-Frank 189Summary 190SEC Investor Protection Fund 194Does the Whistleblower Need an Attorney? 195Step-by-Step Guide 196Determining Whether the Over $1 Million Threshold Is 202Satisfied Determining the Amount of an Award 202Must an Employee Comply with the Company’s Internal Compliance Program? 204Confidentiality 205Nonwaiver of Whistleblower Rights 205Appeals 205Anti-retaliation Provision 206Notes 206Appendix 1: IRS Form 211 207Appendix 2: SEC Form TCR: Tip, Complaint or Referral 211Appendix 3: SEC Form WB-APP: Application for Award for Original Information Submitted Pursuant to Section 21F of the Securities Exchange Act of 1934 229Appendix 4: SEC Whistleblower Rules 239About the Author 265Index 267