Whistleblower laws allow employees to become the eyes and ears inside companies who uncover evidence of fraud and other wrongdoing. In some cases, whistleblower laws allow the person who reports the fraud – called the relator – to recover a portion of any money recovered in a resulting judgment or settlement, up to 30 percent.
The term “whistleblower” was developed because the person is drawing attention to fraud, or “blowing the whistle” on foul play. A whistleblower must have first-hand knowledge of the fraud or wrongdoing in order to file a claim. Most whistleblower laws also prohibit retaliation by employers against employees who report possible violations or who assist in investigations.
Following are five whistleblower laws that provide for awards to the whistleblower:
1. Federal False Claims Act – (31 U.S.C. 3729 et seq.) The federal False Claims Act (FCA) was enacted by Congress in 1863 to hold individuals and companies responsible when they defraud governmental programs. The qui tam provision of the FCA allows citizens to sue on behalf of the government and be paid a percentage of the recovery. Violations of the FCA include any instances where individuals or businesses attempt to solicit a fraudulent claim for payment. This may include payments for good or services. The U.S. Justice Department recently reported that 2013 was the fourth consecutive year that whistleblower cases helped the government recover more than $3 billion in funds taken from government agencies and programs through fraudulent practices.
2. Individual State and Municipality False Claims Acts – Many states and municipalities also have False Claims Acts that are used to help identify and prevent fraud against state government programs. The most common type of fraud covered by a state FCA involves health care fraud, in particular Medicaid fraud. Some state FCAs also cover things like pension, construction, tax, utility, energy and escheatment fraud. For a list of states with False Claims Acts, visit the Taxpayers Against Fraud (TAF) Education Fund website. [http://www.taf.org/states-false-claims-acts]
3. Securities and Exchange Commission (SEC) whistleblower program – (15 U.S.C. 78u-6) The SEC Whistleblower Law covers cases of fraud within the financial services industry. It is a federal statute officially known as the Dodd-Frank Wall Street Reform and Consumer Protection Act. It was signed into law by President Obama in July 2010. The SEC Whistleblower Act gives the SEC powers of enforcement including a “whistleblower bounty program.” Whistleblowers may receive 10-30 percent of monetary sanctions in excess of $1 million resulting from their complaint. Sean McKessy, the SEC’s whistleblower chief, told the Wall Street Journal that he plans to aggressively pursue employers that retaliate against whistleblowers.
4. Commodity Futures Trading Commission (CFTC) whistleblower program – (7 U.S.C. 26) This whistleblower law was created by section 748 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). Similar to the SEC Whistleblower Law, this law provides rewards to whistleblowers who uncover fraud and wrongdoing in the financial services industry; specifically, in the commodities trading markets. Again, in order to recover a reward, the whistleblower’s information must lead to a recovery in excess of $1 million. The whistleblower will receive 10-30 percent of the recovery.
5. IRS whistleblower program – (26 U.S.C. 7263) The federal False Claims Act and most state False Claims Acts specifically exclude tax fraud as an area they investigate. However, there is a separate IRS Whistleblower Law that provides payment to people who report tax fraud. The IRS whistleblower law provides an award of 15-30 percent of the amount recovered to the whistleblower who reports the tax fraud. In order to file a claim under the IRS whistleblower law, the amount of the fraud must exceed $2 million. This may include cases involving an individual or business. There are some particular criteria these cases must meet, and some flexibility in filing, although with a lower reward with a maximum of 15 percent of the recovery. Ask your attorney for advice if you feel you have a case involving tax fraud to determine if the case qualifies under the IRS whistleblower program.
Andrew Brashier is a shareholder at Beasley Allen who works with whistleblower claims. “Each of these statutes has its own specific requirements,” he explains. “If a whistleblower does not have adequate counsel who is familiar with these laws, then the whistleblower’s efforts could be all for naught. In order to properly navigate the waters of these statutes, a whistleblower should seek experienced counsel who understands the whistleblower laws and who can ensure their potential case is properly handled.”
For more information about the different types of whistleblower laws, or to talk about a potential claim, contact Andrew Brashier at Andrew.Brashier@beasleyallen.com or call him at 334-269-2343.