The new law, which was signed by President Barack Obama in July, creates cash incentives for corporate employees who expose securities fraud and measures to protect them from retaliation. In his piece, “Giving Whistleblowers Bite,” Andrei describes the legislation as “a great step for investors, corporate whistleblowers and global economies” He adds, “Imagine the damage that might have been avoided or reduced had insiders at Lehman Brothers, Bear Stearns, or AIG warned regulators early that the companies were hiding snowballing risks from mortgage-backed securities and swaps derivatives.” He urges the SEC to adopt regulations that “will truly protect and encourage individuals to expose corporate misbehaviour in furtherance of the ultimate goal – protection of the capital markets.”

The Wall Street Journal featured a story on the former Glaxo manager’s long journey from employee to government whistleblower. 

The federal False Claims Act, commonly referred to as the “FCA,” prohibits companies from defrauding the government.  The FCA also provides for a whistleblower to bring an action (initially under seal) on behalf of the government, called a qui tam action.  The government can then decide if it wants to intervene in the case or whether the whistleblower should proceed with it.  Qui tam whistleblowers may receive up to 30% of any FCA recovery.  The FCA was initially enacted to stop Civil War hucksters from selling rancid meat to the Union Army by paying bounties to tipsters.  Many states have now adopted their own versions of the FCA.  The DOJ recovered over $3.1 billion from FCA actions during the past year.  

A New York Times story reporting the Glaxo settlement noted a “rising wave” of similar lawsuits brought by whistleblowers accusing drug makers and health care-related companies of misleading patients and defrauding federal and state governments that, through Medicare and Medicaid, pay for much of the health care cost. FCA cases against pharmaceutical and health care companies are indeed growing in number, size, and scope. According to a report by the Taxpayers Against Fraud Education Fund, more than 80 percent of all successful FCA recoveries are brought to the government by whistleblowers and their lawyers, making the law the most important tool the U.S. government has in the war against fraud. Eighty-percent of these cases are also against health care companies. The defense, education, transportation and energy industries account for most of the remaining recoveries.  

Any pharmaceutical company that exaggerates the benefits or underplays the risk of its drugs is a target of such enforcement actions because it often leads to unnecessary drug uses among Medicare and Medicaid patients, and in some cases patient injuries and fatalities.  The funds recovered by the government through settlements and fines are usually returned to the programs involved in the actions. 

The Food and Drug Administration and the Inspector General of the Department of Health and Human Services both announced that they would pursue charges under a strict liability rule against executives personally that would permit their prosecution and disbarment from government sales even if they are not aware of specific violations.  The House of Representatives also passed a bill permitting executives to be banned even if they no longer worked at the company where the fraud occurred and permitting the inspector general to prosecute parent companies for actions of subsidiaries.  

In addition to the enormous Glaxo settlement, Allergan Inc. paid $600 million this year to settle both civil and criminal allegations concerning its off-label marketing allegations of its Botox treatment.  AstraZeneca LP also paid $520 million regarding illegal marketing allegations of its antipsychotic drug Seroquel.  Novartis Pharmaceuticals Corp. also paid $422.5 million to settle allegations it marketed its epilepsy drug Trileptal for unapproved uses.  

Last year, Pfizer Inc. subsidiary Pharmacia and Upjohn Co. Inc. paid the largest criminal fine ever of $1.3 billion for its fraudulent misbranding of its anti-inflammatory drug Bextra and an additional $1 billion regarding civil allegations involving Bextra and three other drugs.  Similarly, Eli Lilly & Co. settled allegations brought by both the U.S. Attorney’s Office and 30 states regarding its illegal promotion and marketing of its anti-psychotic drug Zyprexa for $1.4 billion. 

The recent trend indicates that more whistleblowers are coming forward with complaints about their employers and the government has taken note by imposing enormous fines on these companies and perhaps, in the future, stricter penalties such as disbarment from government sale.  Hopefully, the threat of prosecutions and billion dollar fines will convince many companies to clean up their act.

Jessica Sleater’s practice focuses on class action litigation involving defrauded investors and consumers in federal and state courts.  Ms. Sleater also has experience in shareholder litigation and has represented the rights of public shareholders of companies, whose management had agreed to a corporate buyout, merger, or other corporate transaction.

“In representing confidential witnesses and whistleblowers, Milberg has seen first hand how powerful corporations silence individuals who have dared to do the right thing. This legislation will play an important step in protecting people who refuse to remain silent in the face of wrongdoing,” said Sanford Dumain, Chair of Milberg’s Executive Committee.

Under the Act, the SEC must pay a whistleblower 10% to 30% of SEC sanctions in excess of $1 million.  To receive payment, the whistleblower must voluntarily provide the SEC with information, unknown to the SEC, and derived from the whistleblower’s independent knowledge or analysis.  The SEC must also pay if the information leads to enforcement actions by other governmental organizations, including the U.S. Department of Justice, another federal agency, a self-regulatory organization, or a state attorney general.  The SEC will pay whistleblowers who may have been securities law violators themselves, unless they are criminally convicted.  Whistleblowers may be eligible for cooperation agreements that may limit their civil liability.  The Act’s whistleblower provisions are immediately effective, but the Act gives the SEC 270 days to create rules to aid in their implementation.

The Act protects whistleblowers by creating a federal private right against employer retaliation.  The Act further protects whistleblowers by allowing them to present the information and claim incentive payments anonymously, by acting through counsel, until right before the incentive payment in sought.

Milberg’s decades of experience prosecuting thousands of class actions and its record recoveries of over $55 billion make it well suited to represent whistleblowers who want to be represented before the SEC.  Milberg has successfully represented whistleblowers in other contexts, including in “qui tam” actions, involving the prosecution of fraud against the federal government pursuant to the False Claims Act.  Milberg  possesses significant resources to assist in presenting whistleblower cases to the SEC, including a team of attorneys which includes former government and agency lawyers.  Milberg’s team of in-house investigators, including former FBI and other law enforcement agents, and in-house forensic accountants, have significant experience working with confidential witnesses and whistleblowers.  “Speaking with confidential witnesses and whistleblowers is something we do every day.  Knowing how to treat these people with the proper respect and discretion has always been key to Milberg’s success,” said Steven Bursey, head of Milberg’s investigative team and retired FBI veteran.

For more information on the Firm and its investigators please visit http://www.milberg.com and http://www.milberginvestigators.com/.  You may also contact the following Milberg partners:

Sanford Dumain
Andrei V. Rado

Milberg LLP
One Pennsylvania Plaza, 49th Fl.
New York, NY 10119-0165
Phone number: (800) 320-5081

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