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

The newly created federal Consumer Financial Protection Bureau (CFPB) has issued a call to whistleblowers. The CFPB is seeking "knowledgeable sources with information about potential violations of Federal consumer financial laws." They can submit their information by email to whistleblower@cfpb.gov, or they can call toll-free at (855) 695-7974.

The CFPB announcement recognizes that Section 1057 of the Dodd-Frank Act creates a new whistleblower protection for employees. Employees are protected when they (1) raise concerns about compliance with the federal consumer protection laws enforced by the Bureau, (2) testify in enforcement proceedings, (3) initiate proceedings, or (4) refuse to take action they believe would violate the laws enforced by the Bureau.

I would add a couple of suggestions.  Anyone considering a formal disclosure about illegality or fraud at work could benefit from a consultation with a whistleblower attorney before they make their disclosure.  An experienced attorney can help write an effective disclosure that will make it easier for a judge to say, "that is protected activity." An attorney can provide an objective assessment about the risk of being discovered, and how to protect against retaliation. Whistleblowers should also know that the time limit to file a written complaint with OSHA about any retaliation against a consumer finance whistleblower is 180 days from the employee's first notice of the employer's retaliatory action. Whistleblowers are welcome to seek a referral to a attorney through the Attorney Referral Service of the National Whistleblower Legal Defense and Education Fund.

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Last week, a House Subcommittee "marked-up" a bill that would seriously undercut the strength of the whistleblower protections in the Dodd-Frank Act.  This Subcommittee is the Capital Markets and Government Sponsored Enterprises Subcommittee of the House Financial Services Committee. Their mark-up of H.R. 2483 sends it to the full Committee for consideration.

Take action to stop the bill.

H.R. 2483 would add a requirement for Dodd-Frank awards that the whistleblower first make disclosures to company management before disclosing them to the Securities and Exchange Committee (SEC). Regular readers here will remember the intense campaign last year and earlier this year over whether the SEC would impose such a requirement in its Dodd-Frank regulations. Stephen Kohn, Executive Director of the National Whistleblowers Center (NWC), met with each SEC Commissioner to explain why a requirement for internal disclosures would subject some whistleblowers to retaliation and deter them from reporting violations. We submitted a 16-page letter with 36 pages of attachments about the importance of encouraging whistleblowers to make reports through whatever channels they believe will be best in their circumstances. The NWC released a report showing that the qui tam provisions of the False Claims Act have not diminished internal reports of fraud. Corporations led their own campaign to set up hurdles and loopholes to trip up whistleblowers with a requirement to tell company management first. They sought exclusions to disqualify some whistleblowers altogether. NWC opposed the corporate campaign.

In the end, the SEC issued final regulations that largely sided in favor of whistleblowers.  Internal reporting was encouraged, but not required. Whistleblowers could judge for themselves whether internal channels would be effective.  If they reported internally, that report could still protect their status as the first to disclose the violation. The SEC cited NWC's comments 44 times in explaining its final decisions on the regulations.

The corporate lobby was not happy. They have now turned to Rep. Michael Grimm (R-NY) to push through the bill to mandate that whistleblowers make their reports internally. This freshman, elected with Tea Party support, has introduced H.R. 2483. He cynically calls this bill the "Whistleblower Improvement Act of 2011."  To be clear, this bill will not improve the rights of whistleblowers.  It will improve the ways in which company managers can discover who is blowing the whistle, and it can block Dodd-Frank awards to whistleblowers who fail to expose themselves to their managers.  Rep. Carolyn Maloney (D-NY) calls the bill the “Throw the Whistleblowers to the Wolves Act.”

Would company managers really use the internal reports to discover who is blowing the whistle and then retaliate against them? Rep. Grimm introduced an amendment last week that will specifically remind managers that they are not allowed to retaliate. Apparently, the 2002 Sarbanes-Oxley Act (SOX) was not quite enough to stop retaliation.  Corporate managers needed not just a law, but the law and a reminder to follow the law.  Will whistleblowers now feel safe that they can report their boss' violations without fear of retaliation? I don't think so.

Is there really any problem with the SEC whistleblower program that has to be fixed? Not according to SEC Chairman Mary Schapiro. The Wall Street Journal's Market Watch reports that Schapiro has sent a letter to Rep. Barney Frank (D-MA) saying that the SEC's whistleblower program is  already providing "significant benefits." She asked that the whistleblower program be allowed to work to show its effectiveness, and that attempts to change it are premature. She notices the obvious in saying that requiring internal reports would have a "chilling effect." Our friends at the Project on Government Oversight (POGO) agree. POGO's Michael Smallberg says H.R. 2483 would, "chill the flow of high-quality insider tips, imperil the safety and livelihood of whistleblowers, and give law-breaking companies an accountability escape hatch." Market Watch says that while Rep. Grimm's bill may advance in the House, it has "zero chance" in the Senate.  There, Senators on both sides of the aisle have recognized the value whistleblowers provide to law enforcement, investors, taxpayers and the public interest.

Take action to stop the bill.

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Mary Schroeder worked for the Greater New Orleans Federal Credit Union (GNOFCU) as manager of the collections, lending and call center departments. On June 19, 2008, after two years with GNOFCU, Schroeder made a fateful call to the National Credit Union Administration (NCUA) to report that GNOFCU had made fraudulent loans. She also called the FBI. She reported her concerns to GNOFCU's Supervisory Committee. An internal audit partially confirmed that some loans were made in violation of policy. Meanwhile, the boss' assistant invited Schroeder's assistant over for dinner and learned that Schroeder had called the NCUA. Within days, the boss (CEO Janet Sanders) was talking to the HR director about how to confront Schroeder and "avoid the appearance of any retaliation." They began by demoting Schroeder for making "negative comments that might stimulate discord" and that show "poor judgment on your part." Then they peppered Schroeder's file with employee complaints about her "attitude" and "management style." Schroeder retained an attorney who helped her make more complaints to the NCUA and FBI.  An NCUA audit eventually found that some GNOFCU loans were fraudulent, but the audit blamed the borrowers and not GNOFCU employees or managers.  On October 8, 2008, GNOFCU fired Schroeder.

This morning, a panel of the U.S. Court of Appeals for the Fifth Circuit ruled in favor of Mary Schroeder. It reversed a summary judgment and held that a jury could decide that Sanders acted against Schroeder "as retaliation for her complaints to the NCUA[.]" It also held, at page 16, that a jury could decide if GNOFCU violated a Louisiana whistleblower protection law known as La Rev. Stat. Ann. § 23:967(A). The state law "seems to offer broader protections tha[n] it federal counterpart[.]"

The National Whistleblowers Center submitted an amicus brief in support of Mary Schroeder. Our brief argued that Schroeder's report to the GNOFCU Supervisory Committee should also be protected by the Federal Credit Union Act (FCUA). The Fifth Circuit declined our invitation saying, on page 12, "we enforce plain and unambiguous statutory language so long as it does not yield absurd results[.]" Accordingly, "Schoeder's internal complaints are not relevant to this [12 U.S.C.] § 1790b appeal." Perhaps some future court will find it necessary to determine whether internal disclosures are protected under the banking statutes and will find the legislative and case history in our amicus brief useful. The Dodd-Frank Act and the Seventh Circuit's holding in DeGuelle (see my blog post from earlier today), provide banking whistleblowers other options that may be better in their individual cases. The Fifth Circuit did imply that calls to the FBI should also be protected since the FBI is under the Attorney General (see p. 12, footnote 6). However, it did not have to decide this issue since it found that Schoeder's calls to the NCUA are sufficient for her case to proceed.

The Fifth Circuit noted that Schroeder did not have any negative comments in her record before she complained about fraudulent loans. GNOFCU followed no policy in demoting her. The failure to follow a policy "cuts in Schroeder's favor -- particularly when considering that part of her poor reputation at work came from her persistence in repeatedly seeking help at all management levels with what she perceived to be fraud." Finally, "[t]he timing between Schroeder’s termination and her October e-mail and letter also supports a finding of causation." Which inference to draw about causation and "questions on knowledge, are for the jury to decide."  Page 15.

The outcome is a complete victory for Mary Schoeder who can now challenge all her adverse actions before a jury, and can even seek punitive damages (see page 2, footnote 1).

Congratulations go to Schroeder's attorney, Glenn McGovern of Metairie, Louisiana. McGovern thanked NWC today for our amicus brief saying it, "was invaluable and set the tone for a favorable decision." He adds, "I told the Appeals Judges that financial whistleblower are heroes in the public's eyes and we have to protect them in every way we can. They agreed apparently."

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In a landmark ruling in favor of corporate whistleblowers, the U.S. Court of Appeals for the Seventh Circuit gave the green light to Michael DeGuelle's RICO claim of retaliation. The court's opinion gives life to a provision in the 2002 Sarbanes-Oxley Act (SOX) that makes it a felony to retaliate against whistleblowers who provide information about corporate fraud to law enforcement officers. I reported earlier on the Seventh Circuit's extraordinary decision last year to appoint a prominent Chicago corporate and pro bono lawyer to represent DeGuelle in this appeal. DeGuelle's prior lawyer abandoned his case after the district court dismissed it in 2010.

Mike DeGuelle sent me a message about his victory:

This is a giant step in the right direction for protecting the rights of employees who refuse to participate in unlawful conduct at work and then suffer retaliation. I did the right thing by reporting unlawful conduct to law enforcement. Finally, it is safe to do the right thing for no reason other than because it is the right thing to do. In this case, the court put the rights of the American people ahead of the greed of corporate America. This is an outstanding court decision for all workers to celebrate in the ongoing struggle to take back our country from the greed of corporations that have corrupted American values. 

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I had the pleasure today of interviewing Donna Boehme about the impact Dodd-Frank has had on corporate compliance programs. Our discussion about creating a corporate culture open to employee reports led to an interesting case detailed in her recently published column in Compliance and Ethics Professional. In the article, she talks about a group of employees at two national banks (BNY Mellon and State Street) who blew the whistle on approximately $2 billion worth of systematic foreign exchange trading fraud. These employees were recruited to blow the whistle by Harry Markopolos, the man who figured out what Bernie Madoff was doing and tried to warn the SEC years before the case erupted.

Ms. Boehme says the fact that these employees were actively recruited might lead some to believe that a “new breed” of whistleblowers, recruited to expose fraud by investigators outside the company, might be born out of the Dodd-Frank Act, but it is too soon to tell. She explains that the new SEC program for whistleblower disclosures has received over 334 tips in its first seven weeks. Boehme argues that instead of trying to “find the whistleblower” when fraud investigations get started, corporations should have a high-level Chief Ethics and Compliance Officer who is independent from the legal department and with direct access to the Board of Directors. This first test case highlights that companies should seriously evaluate whether their corporate culture supports internal whistleblowing, or be prepared to pay the price when they decide to go directly to external authorities. She does not believe that monetary rewards are the sole motivator, and cites recent surveys that employees prefer to report internally (culture trumps money).

Listen to the podcast of today’s show to hear the rest of our discussion.

Ms. Boehme is the principal at Compliance Strategists LLC in New Providence, New Jersey, a former chief compliance and ethics officer, a member of the Society of Corporate Compliance and Ethics’s Advisory Board, and the editor of the weekly CS Newsflash.

* Legal Intern David Kutch contributed to this posting.

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The New York City law firm of Labaton Sucharow released a survey yesterday that finds that 78% of Americans would report wrongdoing in the workplace if it could be done anonymously, without retaliation and result in a monetary award.  These are precisely the conditions established by the new Dodd-Frank Act whistleblower protections. However, the survey also finds that 68% of Americans are unaware of the new SEC Whistleblower Program created by the Dodd-Frank Act. The logical conclusion is that if we educate people about the anonymous reward program, and the protections against retaliation, then most of them will report misconduct when they see it. Under these conditions, it will be much harder for corporate fraudsters to intimidate employees into remaining silent.  It will only take one educated employee to submit a whistleblower report to internal auditors or the SEC to initiate an investigation.

In an article released today, Reuters Canada explains that those who provide original information about securities law violations can earn up to 30 percent of the SEC's penalty. The Dodd-Frank Act also allows whistleblowers to remain anonymous and includes protections against employer retaliation. The time limit to file a complaint of retaliation with OSHA is now 180 days.

Decades of whistleblower legislation have finally arrived at the formula that will actually encourage employees to speak up about misconduct. In the corporate fraud arena, we just need to get the word out about the rewards and protections currently in the law.  In other arenas, we need to spur Congressional action to use the same formula to encourage whistleblowers to come forward.

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The NWC is proud to announce the release of the second edition of The Whistleblower’s Handbook: A Step-by-Step Guide to Doing What’s Right and Protecting Yourself. This second edition includes a new 20–page checklist on the procedures for obtaining Dodd-Frank Act rewards from the Securities and Exchange Commission (SEC). The checklist covers the SEC's regulations that went into effect on August 11, 2011, and provides insights on how whistleblowers can use the new regulations to maximize their potential rewards. See pages 276-296.

The new edition also explains how whistleblowers can use the Dodd-Frank Act to blow the whistle on violations of the Foreign Corrupt Practices Act (FCPA). The FCPA prohibits companies traded in the United States from bribing officials in other countries. The SEC can require that companies caught violating the FCPA “disgorge” the monies received through the violation. As the SEC penalty can be much greater than the amount of the bribe itself, the whistleblower's reward of 10 to 30 percent of the SEC recovery can also be very large. Whistleblowers anywhere in the world can now submit anonymous reward claims for reporting corruption of local officials. See pages 30-32 and 294-295.

Other new features of the second edition include:

• How to navigate opportunities to report violations to internal channels and the SEC. Pages 280-281.

• Tips for employees of corporate compliance and internal audit departments. Page 282.

• Examples of the types of corporate misconduct that violate SEC rules and can become the basis for Dodd-Frank rewards. Pages 292-293.

• Managing retaliation claims under both the Dodd-Frank Act and the Sarbanes-Oxley Act (SOX). Page 290.

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