August 23, 2023
A whistleblower is generally considered an individual who has knowledge of otherwise covert illegal or at least scandalous conduct in an organization who provides information of said conduct to the public and/or authorities. Just as a sports referee blows a whistle to call a foul or violation, a whistleblower blows a metaphorical whistle on cover-ups of wrongdoing to let others know what he or she has seen. This can occur in any number of contexts, i.e. on a school board, a competitive sports league, a university, a church denomination, or a business.
In the world of “whistleblower law”, a whistleblower has the ability to not only pursue the ends of justice by penalizing and disincentivizing illegal conduct, but also to obtain a financial reward for themselves as part of a successful whistleblower lawsuit. In fact, some individual plaintiffs have obtained millions of dollars in financial rewards apiece as a result of their efforts in bringing wrongdoing to light.
There are numerous state and federal laws covering a number of industries that provide financial incentives for whistleblowers. This article focuses on the Federal False Claims Act (FCA), its California counterpart the California False Claims Act (CFCA), and the SEC Whistleblower Program.
Whistleblower Protection Laws
The FCA makes it a criminal and civil violation for an individual or organization to defraud the federal government. In the 150+ years since the FCA was instituted, FCA litigation has become commonplace, and each year many whistleblowers with knowledge of such fraudulent activity – most often in the form of Medicare and Medicaid fraud, customs fraud, and military procurement fraud – successfully pursue FCA lawsuits, with many individual whistleblowers collecting multi-million dollar rewards for doing so in the process. A successful FCA plaintiff can obtain between 15% and 30% of the financial penalties imposed on the FCA defendant.
Like its federal counterpart, the CFCA provides significant financial incentives for whistleblowers with knowledge of fraud targeting the state government, and which are actually more generous by percentage than those provided by the FCA. Under the CFCA, a whistleblower who pursues a successful claim can receive as a financial reward anywhere between 15% to 33% of the financial penalties and fines levied against a defendant where the state government is a party to the litigation, and between 25% and 50% of such penalties and fines when the state government does not choose to join the litigation.
Pursuant to the SEC Whistleblower Program, a whistleblower who provides information to the SEC leading to a successful enforcement action leading to monetary sanctions exceeding $1 million is eligible to receive an award of between 10 and 30 percent of the monetary sanctions imposed in such an action. Past SEC enforcement actions have led to whistleblower rewards in the amounts of $114 million, $110 million, and $50 million, respectively.
Pursuing an FCA or CFCA Claim
To initiate an FCA claim, a plaintiff must file a qui tam complaint under seal in federal district court and serve a copy of the complaint and a written disclosure of substantially all material evidence and information the person possesses with the U.S. Attorney’s Office in the district where the complaint was filed.
The U.S. Attorney’s Office will then investigate the allegations contained in the complaint and written disclosure to determine whether it will intervene in the lawsuit. Generally, intervention by the federal government is a positive sign, as it not only indicates that the federal government believes it has a significant chance of success in winning the case, but also that the federal government will contribute resources to prosecuting the case. However, even if the government does not intervene in the case, a private FCA plaintiff may continue with the FCA claim.
The CFCA complaint process is similar. A CFCA complaint is drafted and provided to the California state Attorney General’s Office. State prosecutors will then determine whether to join the CFCA complaint. Regardless of whether the state joins the lawsuit, the CFCA complaint may continue against the alleged offenders.
Submitting an SEC Whistleblower Complaint
To submit a tip to the SEC in pursuit of a whistleblower reward, the SEC has provided an online portal to do so, and the tip may be mailed or faxed as well. The SEC will then evaluate the tip based on the evidence provided and type and magnitude of wrongdoing alleged. A person may submit a tip to the SEC Whistleblower Program anonymously, but that person must be represented by legal counsel to be eligible for a financial reward.
Any violation of federal securities laws may form the basis of a successful whistleblower tip, and the SEC is particularly interested in evidence of wrongdoing related to:
- Ponzi schemes, pyramid schemes, or high-yield investment programs
- Theft or misappropriation of funds or securities
- Manipulation of a security’s price or volume
- Insider trading
- Fraudulent or unregistered securities offerings
- False or misleading statements about a company
- Abusive naked short selling
- Bribery of foreign officials (Foreign Corrupt Practices Act or “FCPA” violations)
- Fraudulent conduct associated with municipal securities transactions or public pension plans
- Initial coin offerings (ICOs) and cryptocurrencies
Maintaining Anonymity and Protecting Against Retaliation
Because an FCA claim is filed under seal, the plaintiff’s identity will remain confidential for at least some period of time. However, it is incumbent upon the plaintiff themself to take steps to protect their identity from being known, i.e., only speaking about the lawsuit with their lawyer. FCA defendants are prohibited from taking retaliatory action against FCA plaintiffs, including firing or demoting that individual. Similar protections apply to CFCA plaintiffs.
An SEC whistleblower may also keep their identity confidential so long as they are represented by counsel, and similar anti-retaliation laws exist to provide protection to such whistleblowers.
In any case, it is important to work with experienced whistleblower counsel who can not only effectively guide you through the process of submitting your whistleblower claim or tip to achieve the highest possible financial reward, but also protect you from retaliation.
Contact a California Whistleblower Attorney Today
A plaintiff in a successful FCA lawsuit has the potential of obtaining a financial reward between 15% and 30% of the total penalties levied against the defendant. It is important to work with legal counsel with the experience to not only assist you in compiling and submitting your information in pursuit of obtaining the largest whistleblower reward possible – while at the same time protecting victims of fraud and promoting fair market competition – as well as the experience to protect you from retaliation and obtain justice on your behalf. If you have information that you believe may form the basis of an FCA claim, contact our office today to schedule a consultation with one of our attorneys to determine your next steps.