What a Year
2023 was a spectacular year for whistleblowers. It’s unfortunate that organizations and the people that run them are committing fraud, but at least there is a check in place that allows individuals with knowledge of such crimes to report the behavior.
Settlements and judgments under the False Claims Act exceeded $2.68 billion in the fiscal year ending September 30, 2023. Of the $2.68 billion in settlements and judgments, over $1.8 billion related to the health care industry.
Whistleblowers filed 712 qui tam suits in fiscal year 2023, and this past year the Department of Justice (DOJ) reported settlements and judgments exceeding $2.3 billion in these and earlier-filed suits. The government and whistleblowers were party to 543 settlements and judgments, the highest number of settlements and judgments in a single year. Recoveries since 1986, when Congress substantially strengthened the civil False Claims Act, now total more than $75 billion.
During the 2023 fiscal year, the SEC Whistleblower Program issued nearly $600 million in whistleblower awards to 68 individual whistleblowers, the most ever in a fiscal year. These totals include a $279 million award, the single largest award in program history. The SEC has now awarded more than $1.9 billion to 397 individual whistleblowers since the beginning of the program in 2011. The whistleblower program also received a record 18,354 whistleblower tips over the course of the fiscal year, almost 50% more than the previous record set in FY 2022. The most common complaint categories reported by whistleblowers were Manipulation (24%), Offering Fraud (19%), Initial Coin Offerings and Crypto Asset Securities (14%), and Corporate Disclosures and Financials (10%).
New Whistleblower Program Announced
On March 7, 2024, the DOJ announced a pilot program to reward whistleblowers who alert prosecutors to “significant corporate or financial misconduct.” The goal of the program is to help the DOJ prosecute a full range of corporate and financial misconduct to fill the gaps from other limited programs, such as the SEC, the Commodity Futures Trading Commission (CFTC), and the Financial Crimes Enforcement Network (FinCEN). According to Deputy Attorney General Lisa Monaco, the DOJ is especially interested in tips relating to “criminal abuses of the U.S. financial system; foreign corruption cases outside of the jurisdiction of the SEC [Securities and Exchange Commission], including [Foreign Corrupt Practices Act (FCPA)] violations by non-issuers and violations of the recently enacted Foreign Extortion Prevention Act; and domestic corruptions cases, especially involving illegal corporate payments to government officials.” Monaco expressed the expectation that this program will work hand in glove with the DOJ’s other corporate enforcement policies to not only incentivize individuals to report misconduct, but also to drive companies to invest further in their own internal compliance programs and reporting systems.
Similar to other whistleblower policies, the DOJ policy requires the whistleblower to: (1) report information unknown to the government; (2) be the first to report; (3) not be involved in the underlying criminal activity; and (4) not have an existing financial disclosure incentive, such as through a qui tam action under the FCA or any other federal whistleblower program. Reward threshold limits to whistleblowers under this new law have not yet been established, but are expected to be in line with the SEC and CFTC programs. Whistleblowers will receive a portion of the resulting forfeiture only after all victims have been compensated.
Impact on Companies
This new law signals to companies the necessity to invest in internal systems to prevent and detect misconduct. Companies must also implement effective training programs to reinforce the policies and procedures. Because the law does not just apply to publicly traded companies, privately held companies must also heed the warning.
For companies not regulated by the SEC or CFTC, internal decision making largely turned on whether the DOJ would be likely to independently discover any potential conflict. Employees reporting misconduct would use a company’s internal reporting mechanisms, like a hotline, to raise concerns. However, as companies continue to invest in these internal channels and protect whistleblowers who use them, the DOJ’s new program creates challenges for companies encouraging their employees to report concerns internally instead of directly to the DOJ for a monetary payout.
In light of the uncertainty of whether an employee will bypass internal channels and go straight to the DOJ, companies are encouraged to voluntarily self-report. As noted by Monaco in her Keynote Remarks at the American Bar Association’s 39th National Institute on White Collar Crime, “When a business discovers that its employees broke the law, the company is far better off reporting the violation than waiting for DOJ to discover it. Now, when DOJ does discover the violation, the company can still reduce its exposure by proactively cooperating in our investigation. But I want to be clear: no matter how good a company’s cooperation, a resolution will always be more favorable with voluntary self-disclosure.” Accordingly, companies may now be more willing to voluntarily self-disclose conduct for fear that a whistleblower, with a large financial incentive, could beat them to the punch.
Other U.S. Attorney’s Offices are following suit. On March 18, 2024, U.S. Attorney Ismail Ramsey announced new policies underlying the whistleblower program in the Northern District of California and a similar program has been set up by the Attorney’s Office for the Southern District of New York. Both programs incentivize self-reporting by offering non-prosecution agreements, rather than financial awards, to potential whistleblowers who participated in the misconduct.
March 7, began the DOJ’s formal 90-day period sprint to develop and implement its pilot program, which will formally start later this year. We look forward to watching the developments of this program and seeing its implications.
If you have information about unethical or illegal activities involving waste, fraud, abuse, corruption, or dangers to public health and safety, we can help. Contact us to speak with an attorney.
The information provided here is for general purposes and should not be considered as legal advice.
