whistleblower-1Whistleblowers are an increasing risk under new federal regulations that allow anyone inside a company, or with information about a company, to remain anonymous in reporting allegations of fraud. Evaluating risk relating to industry insiders with access to key information has never been more important. Maybe it is someone on the inside, in the government, or with an outside company, who believes he or she can prove an entity or industry is perpetrating a fraud for its own power grab or merely for financial gain.

In the past, the risks of blowing the whistle were palpably high. However, the age of the anonymous whistleblower has suddenly spawned. Whether it is related to anger over the decline of civil liberties in the early 2000s, or as a result of events like the financial crisis and industry-wide banking and securities scandals of the mid to late 2000s -- blowing the whistle has increasingly become a common occurrence. Indeed, recent laws and regulations are specifically designed to have enough muster to protect and reward the whistleblower who acts within the bounds of the law.

whistleblower-2"Whistleblower" is a term that was coined in the 1970s by consumer advocate Ralph Nader to describe an individual who has information or evidence about fraud perpetrated against the government. Until recently, it was also the person who could be fired for cause and who then received little or no protection in the justice system, where appellate courts systematically whittled away at the statutes or regulations.

The Financial crisis of 2008 precipitated change, which began in 2010 when the Dodd-Frank Wall Street Reform and Consumer Protection Act was signed into law and created the Securities and Exchange Commission's Office of the Whistleblower. The Dodd-Frank Act also created the Consumer Financial Protection Bureau.

The Dodd-Frank Act, effective since 2012, targets financial, corporate and stock fraud and rewards a whistleblower with the chance to recover 10-30% of any recovery by the SEC of more than $1 million from the fraudulent party. For federal whistleblower complaints, the Whistleblower Protection Enhancement Act of 2012, and the Presidential Executive Order known as Presidential Policy Directive 19, are intended to enhance protection from retaliation for federal whistleblowers whose prior protections were seriously eroded by the United States Court of Appeals for the Federal Circuit.

Under the Dodd-Frank Act, a whistleblower is someone who voluntarily supplies the SEC with original information that leads to the successful enforcement by the SEC of a federal court or administrative action that results in the collection of $1 million or more in fines or penalties.

A $12 million award to a whistleblower in 2013, and larger awards expected in the future, will likely encourage future tippers. For the SEC's purpose, original information means that

  • it is received by the SEC from the whistleblower before the SEC or the agency asks for it directly from the whistleblower or the whistleblower's representative,
  • it is based upon the whistleblower's independent knowledge or analysis, not already be known to the Commission, and
  • it cannot be derived exclusively from certain public sources.

A whistleblower tip can come from anywhere in the world.

Some of the fraud considered by the SEC includes

  • fraud related to the preparation of financial statements or issuer reporting and disclosure;
  • short selling;
  • insider trading;
  • industry wide fraudulent practices;
  • overcharging or government billing for services never provided;
  • kickbacks relating to government contracts; and
  • loan and grants fraud.

The Dodd-Frank Act allows the whistleblower to be anonymous if the whistleblower files the tip, complaint or referral with the SEC through a lawyer. This isn't just a way for Congress to create work for private lawyers. Through a lawyer, the whistleblower can remain anonymous while the SEC evaluates the claim and decides whether to act upon it. The whistleblower's lawyer acts as go between to provide information and assist the SEC in the claim while keeping the whistleblower's identity protected. But certain procedures must be met before that anonymity applies:

1The lawyer must certify that he or she has verified the identity of the whistleblower and will identify the whistleblower within 7 days of a demand if the SEC has reason to believe the whistleblower has provided false information. For the average whistleblower this means that If the SEC decides not to act on the tip, the whistleblower need never be disclosed.

2Should the SEC decide to bring an action against the person or entity based upon the information the whistleblower provides, and make a recovery exceeding $1 million, the whistleblower can either end his or her involvement or must timely file a claim form to request the reward.

3At that time, the whistleblower must make him or herself known to the SEC in the claim form filed through the whistleblower's lawyer. The whistleblower has the right to otherwise remain anonymous if a claim is approved and paid.

Government employees also have protections under the Dodd-Frank Act, SEC Rules, the Whistleblower Protection Enhancement Act, various other statutes, and by Executive Order against retaliation or dismissal as a result of the whistleblower's revelations.

The type of fraud the government looks for, among private citizens or companies that are regulated by government or work with government under government funding or contracts, include:

  • tax fraud,
  • securities fraud,
  • health care fraud,
  • mortgage or loan fraud and
  • any violations of a law, rule or regulation, gross mismanagement of money or funding, abuse of authority or substantial and serious threats to public health or safety.

Managing risk relating to the Dodd-Frank Act has never been more important. Anyonymous claims are pouring into the CFPB. The Office of the Whistleblower reported that in 2013 more than 3000 tips were provided from all over the country and worldwide, with most domestic claims from California, New York, Florida, Texas, New Jersey, Illinois, Nevada, Ohio, Washington and Pennsylvania. The highest incidence of international tips were from the U.K., Canada, China and Russia.

The Sanford Law Firm is based in Houston, Texas and represents clients nationwide and in international settings. For more information, to get a free and confidential evaluation, or to complete a confidential contact form, visit www.SanfordPLLC.com, or call the Sanford Law Firm at 713-524-6677 or toll free at 877-967-6953.

About the Author:


Shelly A. Sanford was licensed as a lawyer by the State of Texas in 1992 and has represented individuals, companies and governmental entities in litigation involving allegations of fraud. Ms. Sanford has a domestic and international practice. She has served on multiple federal MDL steering committees for individual plaintiffs, and has been appointed to the steering committee for governmental actions involving allegations of pharmaceutical fraud.

Ms. Sanford is a 1989 graduate of the University of Texas at Austin and 1992 graduate of St. Mary's University School of Law.  

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arbitrationThe right to agree to arbitrate a potential dispute is widely recognized by courts in the U.S. and in most foreign jurisdictions. Deciding whether to arbitrate a potential dispute is usually made at the contract stage of the business relationship and is defined specifically within the contract.

The pros of commercial arbitration are important. Foremost, the arbitration proceedings are private and keep to a minimum the risk of airing a dispute in the public courts or news media. Arbitration is sometimes faster than traditional litigation and is often more flexible as far as scheduling hearings and the final proceedings. Generally arbitration has less complicated rules and procedures, and has a stable venue where the parties are not bounced from court to court. The selected arbitrator or abitrators are also more likely to be familiar with industry and industry standards and are less likely to act emotionally (as a jury might), thereby ensuring more stable recoveries. Attending hearings by alternate media is more common and helps to keep the costs of travel or sending a lawyer to a hearing lower than with traditional litigation.

The most recognized cons of arbitrating a claim include that the arbitration award is generally final with little right to appeal; the proceedings are not open so the right to public assertions about a claim or claimant is extremely limited; the proceedings are getting more costly and slower; and there is sometimes a question about whether an arbitrator is objective. Also, the loser is generally going to pay costs and fees of the other party depending on how the agreement is drafted or what rules apply.

Arbitration clauses in contractual relationships can be simple or complex, depending upon the location of the parties and the type of business contemplated. It is worth the time and effort to negotiate all factors on the front end, but if an arbitrable dispute arises from a contract where the clauses are not fully vetted in advance, there are plenty of experienced lawyers in the area to assist with an analysis and options.

Shelly2013About the Author: Shelly A. Sanford has represented individuals and companies  in U.S. and international arbitration proceedings. She is certified by the University of Houston's White Resolution Center in domestic and international arbitration. Ms. Sanford has also studied arbitration and litigation proceedings in foregin countries, such as the U.K. and Switzerland.


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June 1, 2011 -- The Consumer Product Safety Commission and Bell Sports of California announced the recall of some 31,100 full-face bicycle helmets because there is a risk the plastic buckle will break and leave the rider exposed to head injuries. The helmets were manufactured in Taiwan and were sold in Walmart stores across the nation as well as on Amazon.com for around $50-60 each. For pictures of the helmets at issue or more information on the recall and what to do with a recalled device, see the link below: http://tinyurl.com/3rtnx7l Add a comment
May 26, 2011 -- The Joint Panel for Multi-District Litigation has consolidated federal litigation involving failure of the Depuy Pinnance hip replacement system in the Northern District of Texas before the Honorable James E. Kinkeade. This follows the August 2010 Depuy hip implant recall and signals further problems for metal on metal hip replacement systems. For the Panel transfer Order, please see: http://tinyurl.com/4yw9lkv Add a comment

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