can sec whistleblower claims be released in private settlement

If the government already has some knowledge of the fraud prior to the FCA suit, releases in private agreements may be enforced, thus restricting the whistleblower’s suit. The public policy role of the FCA is diminished if the government already had knowledge of the fraud.

Full Answer

What is the latest on the SEC Whistleblower Program?

On June 28, 2018, the SEC voted to propose several amendments to the rules governing the whistleblower program. The proposed amendments were published in the Federal Register on July 20, 2018 and were open for public comment thru September 18, 2018.

How does the Securities and Exchange Commission use whistleblowers?

Assistance and information from a whistleblower who knows of possible securities law violations can be among the most powerful weapons in the law enforcement arsenal of the Securities and Exchange Commission.

What is the Office of the whistleblower?

The Office of the Whistleblower was established to administer the SEC's whistleblower program. We understand that the decision to come forward with information about securities fraud or other wrongdoing is not one taken lightly, and we are here to answer any questions you may have.

Can a confidentiality agreement be actionable as “pretaliation?

Indeed in January 2018, the SEC reached a $340,000 settlement with asset manager Blackrock, Inc. The SEC prosecuted Blackrock for improperly including whistleblower waivers in separation agreements. Upfront confidentiality agreements prohibiting communication of wrongdoing to the SEC can also be actionable as “pretaliation.”

Can whistleblower claims be released?

Employers Regularly Require a Release of Whistleblower Claims. Employers regularly require a release as a condition of severance. They do so even when they promised the severance and employees rely on it.

Are SEC whistleblower complaints public?

The SEC treats all tips, complaints and referrals as confidential and nonpublic, and does not disclose such information to third parties, except in limited circumstances authorized by statute, rule, or other provisions of law.

Can a whistleblower receive settlement money?

The whistleblower may receive a reward of 10 percent to 30 percent of what the government recovers, if the SEC recovers more than $1 million. The SEC may increase the whistleblower award based on many factors, such as: How important the information that the whistleblower provided was to the enforcement action.

Does whistleblower protection apply to private companies?

The California Whistleblower Protection Act The Whistleblower Protection Act was amended in 2014, and now protects employees who report violations internally or to any external public body. Importantly, the Whistleblower Protection Act covers both public and private employers.

How do you get the SEC whistleblower award?

Whistleblowers may be eligible for an award when they voluntarily provide the SEC with original, timely, and credible information that leads to a successful enforcement action. Whistleblower awards can range from 10 percent to 30 percent of the money collected when the monetary sanctions exceed $1 million.

How do I get an SEC whistleblower award?

How do I apply for an award? Once the case you believe your information led to is posted, you must complete and return Form WB-APP within 90 calendar days to the Office of the Whistleblower via mail to 100 F Street, NE, Mail Stop 5631, Washington DC 20549, or by fax (703) 813-9322.

What is the average settlement for whistleblower retaliation?

The mathematical average of the total recoveries (settlements and judgments) for this time period is approximately $3.3 million, with an average whistleblower award of $562,000.

How much is a whistleblower settlement?

Cases take 38 months to resolve, on average, although some take years longer. Half of successful cases settle for $2 million or less, and the average whistleblower award in a $2 million case is about $320,000 -- provided there is only one whistleblower.

What is the largest award payout to a whistleblower?

approximately $200 millionThe Commodity Futures Trading Commission awarded approximately $200 million to a single whistleblower earlier this month based on the individual's “significant contribution” to the success of a CFTC action and two Related Actions by other enforcement agencies.

Who is not covered by the whistleblowing legislation?

Workers who make a disclosure under an organisation's whistleblowing policy should believe that they are acting in the public interest. This means in particular that personal grievances and complaints are not usually covered by whistleblowing law.

What are the 3 steps in the whistleblowing process?

The following is a generalized guide to whistleblowing.Identify the Issue. What is occurring and how do you know it?Document the Facts. ... Who Needs to Know. ... Make a Decision about Confidentiality. ... Make the Call or Submit Your Disclosure.

Who is protected under the Whistleblower Act?

The California Whistleblower Protection Act (the "Act"), which gives the California State Auditor the authority to receive and investigate complaints about improper governmental activities, also protects every state employee who files a complaint from suffering any retaliation by his or her state employer for having ...

How long do SEC whistleblower cases take?

two to four yearsHow long does it take for the SEC to investigate alleged securities violations? Longer than you might think. Typically, SEC investigations take two to four years to complete.

Who can be an SEC whistleblower?

You can reside in, or be a citizen of, any country in the world and be an SEC whistleblower. In fact, in 2014, the Commission paid out more than $30 million to a whistleblower living in a foreign country. And, every year, more than 10% of SEC tips come from foreign nationals.

Who is a famous whistleblower?

Along with Third Lieutenant Richard Marven, midshipman Shaw was a key figure in the passage of the first whistleblower law passed in the United States by the Continental Congress.

Is there a law protecting whistleblowers?

The California Whistleblower Protection Act (the "Act"), which gives the California State Auditor the authority to receive and investigate complaints about improper governmental activities, also protects every state employee who files a complaint from suffering any retaliation by his or her state employer for having ...

Why was Blackrock prosecuted?

The SEC prosecuted Blackrock for improperly including Whistleblower waivers in separation agreements. Upfront confidentiality agreements prohibiting communication of wrong-doing to the SEC can also be actionable as “pretaliation.”.

Why won't the courts enforce FCA liability?

These courts reason that the government’s awareness of the fraud eliminates the public policy argument justifying these awards.

Can a whistleblower know what facts their employer has disclosed?

Moreover, a potential whistleblower may not know what facts, if any, their employer has disclosed. Furthermore, sometimes a potential relator has already disclosed information to the government through a pre-filing disclosure or tip to the government before filing an FCA complaint in court.

Is Ladas good for whistleblowers?

Ladas represents relatively good news for whistleblowers who have already signed a release, as it suggests that employers who haven’t been fully candid with the government may not be able to enforce the agreement even in jurisdictions that would otherwise permit it.

Can whistleblowers be punished?

Some Whistleblower Programs Forbid and Punish Waivers of Whistleblower Awards. Some whistleblower laws, such as the SEC whistleblower program, specifically forbid waivers of the right to a reward. Any release that requests you do so unenforceable. Moreover, it constitutes a separate illegal act on the part of the employer.

Do employers have to release whistleblower claims?

Employers Regularly Require a Release of Whistleblower Claims. Employers regularly require a release as a condition of severance. They do so even when they promised the severance and employees rely on it. A company aware of potential liability has an even greater incentive to structure severance payments to buy former employees’ silence.

Is there still a need for caution when considering a release?

There is Still A Need For Caution When Considering a Release. However, for whistleblowers who haven’t signed releases, there’s still a need for caution. Determining which disclosures will be deemed sufficient to justify a release is a highly fact-dependent inquiry.

Significantly Contributing to the Success of an Action

Yes. Even if the SEC already has information about a particular securities law violation, you can still qualify for an award if your information “significantly contributes” to the success of a resulting SEC enforcement action.

About the authors

Jason Zuckerman, Principal of Zuckerman Law, litigates whistleblower retaliation, qui tam, wrongful discharge, and other employment-related claims.

What was Melissa Higgins' release?

The release included claims that Higgins might allege against HealthSouth as related to her termination. Shortly after Higgins’ employment ended, she filed an FCA qui tam suit, including a retaliation claim. Higgins alleged she raised concerns about billing practices within HealthSouth and was forced to resign because of those complaints. In defense against her retaliation claim, HealthSouth presented the Severance Agreement that Higgins signed, including the release.

Why did the Higgins decision help employers?

The Higgins decision provides additional support for employers seeking to enforce releases against former employees who allege their termination was in retaliation for protected whistleblower conduct. To improve the likelihood that a release will be upheld, employers should:

Why are Qui Tam releases enforced?

These courts have enforced releases because the public policy concerns implicated by qui tam fraud releases are not presented by releases of retaliation claim. Retaliation is a private employment claim, not a claim of fraud on the government.

What factors are considered in a release?

The court considered several factors, including: (1) the education and business experience of the individual who signs the release (the releaser); (2) the amount of time that the releaser has to consider the agreement before signing it; (3) the clarity of the agreement; (4) whether the releaser could have consulted with an attorney; (5) whether the employer encouraged or discouraged the releaser from consulting with an attorney; and (6) the benefit provided to the releaser for the release. Many courts also consider a seventh factor, whether the releaser was able to negotiate the terms of the agreement.

Can a whistleblower release a fraud claim?

Although a whistleblowing employee typically cannot release fraud claims against her employer brought on behalf of the United States under the False Claims Act (FCA), courts have demonstrated a willingness to enforce properly executed waivers of retaliation claims under the FCA.

Is Qui Tam enforceable?

Although the government’s public interest in qui tam claims is frequently found to outweigh the interest in enforcing the release of such claims, courts have in limited circumstances enforced qui tam releases where they have found the allegations of fraud were sufficiently disclosed to the government. And separate from fraud claims, releases of whistleblower retaliation claims may be enforceable.

What is the cease and desist order against Health Net?

The cease-and-desist order against Health Net included a $340,000 penalty and an obligation to contact former employees to inform them that the separation agreements that they signed between August 2011 and October 2015 do not prevent them from seeking or obtaining a whistleblower incentive award from the SEC. There was no new language required because the company had already removed the offending provision, but despite doing so, the company was still proactively required to contact former employees to remediate the past use of the provision at issue.

Has the cease and desist order been ratified?

It bears noting that the position taken in the cease-and-desist orders issued by the SEC in these two matters has not been ratified by the courts. Moreover, the SEC’s position is limited to its interpretation of its own Rule 21F-17 and has no impact outside the SEC (for example, in the federal civil False Claims Act arena).

Is the SEC committed to prosecuting violations of Rule 21F-17?

It is clear that SEC is fully committed to investigating and prosecuting violations of Rule 21F-17 and that it holds a liberal view of what “impedes” an employee from communicating with it. Employers subject to the SEC’s jurisdiction (including, but not limited to, any publicly traded company) should therefore:

Is the SEC's remedial language conflicting with the EEOC's?

Thus, it appears that the SEC’s remedial language, at least in the BlueLinx matter, may be overly broad and conflict with guidance from the EEOC on acceptable waivers of monetary awards from the agency. Similarly, various state and local laws will likely allow employees to waive the right to monetary recovery, which would also conflict with the SEC’s remedial language. Employers should take this apparent conflict into consideration when analyzing potential revisions to their separation agreements, rather than simply cutting and pasting the SEC’s remedial language from the BlueLinx case into their own agreements. It may be sufficient just to carve out the whistleblower programs created by the Dodd-Frank amendments to the Securities Exchange Act and Commodity Exchange Act, and perhaps other specific bounty award programs, or to simply remain silent on the issue of eligibility to receive monetary awards.

Why did the Fourth Circuit rule that the release was not invalid?

Purdue Pharma et al., No. 09-1202, 600 F.3d 319 (4th Cir. 2010), the Fourth Circuit also concluded that public policy did not invalidate the release because the government had knowledge of the fraud. In this case, the relator contacted the government to determine whether there was interest in pursuing a claim but did not reveal the particulars during the discussions. The government was independently investigating the relator’s employer and already had in its possession a document suggesting the claims which would be brought forth by relator. During the course of the government’s investigation and prior to the filing of a qui tam lawsuit, Radcliffe accepted a severance package offered as part of a workforce reduction. He received a benefits package including more than $40,000 in salary payments that he would not have received if he did not sign the release. In considering whether the release barred the relator’s lawsuit under the False Claims Act, the Fourth Circuit Court of Appeals initially dismissed the argument that the Attorney General needed to consent to the release. It then examined the question of whether the False Claims Act was covered by the language of the release, determining that Radcliffe did have “an interest in the lawsuit” prior to the filing of the complaint which could be waived. Finally, the court examined whether an overriding public policy interest warranted declaring the agreement unenforceable. It concluded that the public interest does not warrant invalidating a pre-filing release between private parties when the government is aware of the claims prior to the filing of the suit. It therefore upheld the lower court’s decision to dismiss the complaint.

Why do employers ask departing employees to sign a release?

Because of the cost to defend against lawsuits, employers frequently ask departing employees to sign a release waiving some or all claims against the company. The release is generally packaged as part of a severance or separation agreement to provide additional compensation to the employee in order to protect the company against potential lawsuits. If there has been prior litigation between you and your employer, the settlement agreement may also contain a waiver that could be relevant.

Why did the government conduct an investigation into the Qui Tam complaint?

The government only learned of the misconduct and conducted an investigation because the qui tam complaint was filed. The court concluded that the False Claims Act would be seriously impaired if private suits were discouraged by the enforcement of releases entered into without the government’s consent or knowledge.

What was the case in Hall v. Teledyne Wah Chang?

In United States ex rel. Hall v. Teledyne Wah Chang Albany, 104 F.3d 230 (9th Cir. 1997), the relator signed a settlement agreement from a state court action involving allegations of wrongful termination against his employer. Prior to the filing of the state court complaint, he had informed the Nuclear Regulatory Commission about his concerns and filed a complaint with the Department of Labor regarding his employer’s termination for reporting safety issues in the nuclear power industry. The Ninth Circuit held that the release was enforceable because public policy did not favor invalidating it when the government had investigated the information prior to the release’s signing.

What was the Court of Appeals decision in Ritchie v. Lockheed Martin Corp.?

Lockheed Martin Corp., 558 F.3d 1161, 1171 (10th Cir. 2009). In Ritchie, while enforcing the signed release, the Court of Appeals rejected the contention that the government did not have a full understanding of the facts when the release was signed by the relator. The disclosures were sufficient to satisfy the public interest in uncovering fraud because the “federal government had ample opportunity to uncover and prosecute any fraud that had taken place.” Id. at 1170. A form of this argument was also made and rejected in Radcliffe. The government there had not completed its investigation prior to the signing of the release.

Did Radcliffe get a severance package?

During the course of the government’s investigation and prior to the filing of a qui tam lawsuit, Radcliffe accepted a severance package offered as part of a workforce reduction. He received a benefits package including more than $40,000 in salary payments that he would not have received if he did not sign the release.

Is the Dodd-Frank Act valid?

Because the Dodd-Frank Act specifically prohibits the waiver of the rights and remedies of the whistleblower provisions, it makes it unlikely that the agreement is valid. However, corporate attorneys are clever and will attempt to use any ambiguity in the law in their favor, so it still needs to be reviewed by an attorney to account for the nuances of the specific agreement.

Employers Regularly Require A Release of Whistleblower Claims

Some Whistleblower Programs Forbid and Punish Waivers of Whistleblower Awards

• Some whistleblower laws, such as the SEC whistleblower program, specifically forbid waivers of the right to a reward. Any release that requests you do so unenforceable. Moreover, it constitutes a separate illegal act on the part of the employer. Indeed in January 2018, the SEC reached a $340,000 settlementwith asset manager Blackrock, Inc. The SEC ...

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