Whistleblower Protection Blog : Whistleblower Lawyer & Attorney : National Whistleblower Legal Defense and Education Fund : Whistleblower Protection, Fraud Claims : Washington DC

A new documentary about the infamous Madoff scandal opens in theaters across the country on Friday August 26th. I am looking forward to seeing Chasing Madoff on Friday and learning more about Harry Markopolos’ struggle to blow the whistle on a financial fraud that rocked the US economy. I highly recommend taking a few minutes to watch the trailer – it just may sell you on going to see the film.

If you are in the Washington DC area, I hope you will join us at the E Street Cinema (555 11th Street, NW) for Friday’s 7:40 pm showing. National Whistleblowers Center President Michael D. Kohn will give a short informative talk after the film detailing the new developments in whistleblower protection since the Madoff scandal. There will be a Q&A session following the talk. The DC premiere event is co-sponsored by Cohen Media Group.

 The Story You Don't Know Behind the Crime You Can't Forget!

Chasing Madoff is produced, written and directed by Jeff Prosserman and is based on the New York Times best seller “No One Would Listen” by Harry Markopolos. The film tells the story of whistleblower Harry Markopolos’ ten-year struggle to expose the harrowing truth behind the Madoff Ponzi scheme. Markopolos and his team pieced together the evidence proving that Madoff was a fraud and tried relentlessly to alert the public. In the end, his whistleblowing led to what Jon Chesto of the Patriot Ledger called a “wake-up call for the SEC [Securities and Exchange Commission].” Congress also passed the Dodd-Frank Wall Street Reform Act to protect and reward whistleblowers like Markopolos who report fraud to the government. Hopefully, the next Markopolos will have more luck alerting the public.

For more information about the film and to find a theater near you click here.

Coming Soon: A review of Chasing Madoff by my colleague Richard Renner

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The National Whistleblowers Center (NWC) and the National Employment Lawyers Association (NELA) filed an amicus brief this week in Villanueva v. Core Laboratories NV, a case pending at the U.S. Department of Labor's Administrative Review Board (ARB). The brief argues that SOX should protect whistleblower William Villanueva, even though he worked for Core's subsidiary in Columbia.

Core Laboratories NV is a publicly traded company based in Houston, Texas.  It provides services to the petroleum industry. For 16 years, William Villanueva worked as CEO of Saybolt Columbia, Core's subsidiary.

In 2008, Villanueva sent emails to corporate executives in Houston reporting how other company executives were engaged in tax transfer schemes that falsely transferred profits to low-tax Curacao, an island in the Caribbean Sea. He also reported that Core accountants in Columbia were making false claims to evade the Columbian value added tax (VAT). After Villanueva refused to sign a false tax return, Core fired him.

Villanueva file a complaint with the Department of Labor (DOL) claiming that he was fired in retaliation for raising his concerns. He claimed that his discharge violated the 2002 Sarbanes-Oxley Act (SOX). An administrative law judge (ALJ) granted Core's motion to dismiss on grounds that Villanueva worked outside the U.S. Villanueva appealed to the ARB.  Earlier this Summer, the ARB asked for amicus briefs on whether SOX can apply to the employees of off-shore subsidiaries. It also asked for discussion about the effect of the U.S. Supreme Court's decision in Morrison v. National Australia Bank, 130 S. Ct. 2869 (2010).

Our amicus brief argues that Villanueva's case does not raise issues of extraterritorial application of SOX since his protected activity consisted of emails sent to the U.S., and the decision to fire him was made in the U.S. In the alternative, it argues that the very nature of SOX (enacted after Enron and other companies abused off-shore subsidiaries to defraud shareholders) requires that SOX apply to all subsidiaries of companies traded in the U.S. stock markets. This argument builds on the ARB's decision in Johnson v. Siemens Building Technologies, ARB No. 08-032, ALJ No. 2005-SOX-0151 (ARB March 31, 2011). In Johnson, the ARB held that SOX has always protected the employees of subsidiaries of publicly traded companies.

Many thanks go to R. Scott Oswald and Nicholas Woodfield of The Employment Law Group for leading the research and writing for this brief, and also to Rebecca Hamburg of NELA for working with the team that includes Stephen M. Kohn and myself of NWC. This brief will hopefully assist the ARB in expanding SOX's coverage so that it can be effective in protecting our stock markets from frauds committed anywhere in the world. In the meantime, it would be wise for whistleblowers with extraterritoriality issues to preserve their claims until the ARB issues its decision here.

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Today is a big day for corporate fraud detection. The Security and Exchange Commission’s (SEC) Final Rules implementing the whistleblower provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act go into effect. The SEC has simultaneously launched a new Office of the Whistleblower website today. This website will become a vital resource for whistleblowers and their counsel to navigate the SEC whistleblower process to make disclosures and claim an award. You can access the website at this link: http://www.sec.gov/whistleblower and you may review the 170 cases that are now eligible for an award at this link: http://www.sec.gov/about/offices/owb/owb-awards.shtml.

Why is the website so important? It can mean the difference between a whistleblower receiving or not receiving a financial award under Dodd-Frank. The SEC Whistleblower Office will publish a list of cases that the SEC considers “covered actions” under the Dodd-Frank. An individual then has ninety (90) calendar days from the date that “covered action” is posted to apply for an award from SEC Whistleblower Office. The application does not mean that a whistleblower will automatically receive an award, but if the whistleblower does not submit an application they will have no chance receiving an award.

The SEC listed 170 actions that are covered under the Dodd-Frank Act today. That means that the clock is rolling for whistleblowers to submit their form on those cases. The National Whistleblowers Center strongly encourages whistleblowers to check out this page so they do not miss their opportunity to apply for a financial reward.

The SEC Whistleblower Office website also allows individuals to submit a tip online, provides answers to frequently asked questions, and has a list of supplemental resources about Dodd-Frank whistleblower awards, including the Final Rules.

If you are looking for legal representation to assist you in reporting fraud to the SEC the National Whistleblowers Center’s sister organization the National Whistleblower Legal Defense and Education may be able to help you. You can submit a confidential intake form to the Attorney Referral Service by clicking here.

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Today, Tax Analysts published an article about how Internal Revenue Service (IRS) guidelines can result in whistleblower awards being unfairly reduced. The Government Accountability Project, No FEAR Coalition and National Whistleblowers Center sent a letter to IRS Commissioner Shulman on August 10, 2011 requesting that the IRS immediately revise their Internal Revenue Manual’s factors for determining whether a whistleblower should have a reduced award because the whistleblower “planned and initiated” an action.

The IRS whistleblower law was designed to protect and encourage individuals to report tax fraud. The IRS whistleblower law was modeled after the False Claims Act , which recognized that it “takes a rouge to catch a rouge.” Congress correctly recognized that not everyone stepping forward would have the cleanest hands - they may have participated in the fraud on the lowest levels. However, you need these individuals who have detailed inside knowledge in order to expose the masterminds of the scheme.

The IRS whistleblower law allows the IRS to offer reduced award amounts to a whistleblower who “planned and initiated” a tax evasion. Therefore, how the IRS determines whether a whistleblower is a planner or initiator is very important. These factors will determine if a whistleblower receives his or her reward.

The group letter explains that the “planned and initiated” factors created by the IRS depart significantly from traditional understanding as reflected in Congessional intent, caselaw, and clear stautory language. The factors provide that “anyone who contributes or advises” or "knew or should have known that the activity may lead to tax noncompliance” could be found to have planned and initiated an action. This precariously wide net could “conceivably capture every whistleblower” and would “eviscerate the policy of encouraging whistleblowers.”

Dean Zerbe, national managing director at Alliantgroup LP and Special Counsel at the National Whistleblowers Center, correctly stated to Tax Analysts that “the limitation on whistleblower awards for somone who planned and initiated only applies to an individual who is the chief architect or chief wrongdoers – the Bernie Madoffs of the world,” and by, “giving a straight-arm to the most valuable whistleblowers,” the IRS has undermined the success of the law. Reuben A. Guttman of Grant & Eisenhofer PA agreed and stated that, “there is a difference between someone carefully designing an evasive tax structure and a second-year associate who merely helps carry out the plan.”

The IRS factors for determining who is a planner or initiator should be immediately revised to focus on the “principal architects” or “chief wrongdoer” of the fraud scheme.

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Julia Davis, a notable whistleblower who prevailed in her struggle against the Department of Homeland Security, recently released an article concerning the reintroduction of the Senate version of the Whistleblower Protection Enhancement Act (S. 743). Ms. Davis notes that one of the main supporters and architects of the current law to protect federal employees, the Whistleblower Protection Act, has referred to it as a “Frankenstein” and how the reform bill (WPEA, S. 743) that is intended to correct the current law, is dangerously close to becoming the “Bride of Frankenstein.” Ms. Davis concisely explains how S. 743 is “replete with deceptive guillotines masquerading as haircut machines” and includes most of the problems that were in the prior version of the bill (S. 372) from last Congress. For example, the Senate bill gives the Merit Systems Protection Board new powers to summarily dismiss a whistleblowers case, allows for an extremely limited right to seek a jury trial in federal court for a small number of employees, and lacks meaningful protections or court access for national security whistleblowers.

Ms. Davis along with the National Whistleblowers Center, Federal Ethics Center, National Security Whistleblowers Coalition, No FEAR Coalition and numerous citizen activists publicly opposed prior efforts to pass a whistleblower bill just for the sake of saying that a bill was passed. In December of 2010, we pointed out seven major flaws or shortcomings in the predecessor Senate WPEA bill, S. 372, that failed to pass the last Congress. 

When the WPEA was reintroduced in the Senate in April of 2011 as S. 743, the Senate sponsors agreed to fix one of the most glaring problems with the bill. Convincing the Senate to make this one important change was no small feat, particularly when powerful Washington lobbyists and groups were working feverishly behind the scenes to urge Congress to pass the badly flawed bill without making any corrections so they could claim a legislative victory. In the face of those odds we prevailed in forcing the Senate to make one truly important change to the WPEA. That was only possible because thousands of citizen activists responded to the call to pressure Congress to correct this problem with the bill.

However, our work is not done. The Senate has only fixed one of the seven major problems with the bill. If we truly want the WPEA to be a true enhancement and not an illusory reform then additional improvements and changes to the bill are needed.

President Obama promised true reform, and court access for all federal employee whistleblowers, during his campaign and we still expect him to fulfill his promise.

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