Whistleblower Laws & Internal Investigations: Tactics & - - PowerPoint PPT Presentation

37 Offices in 18 Countries

October 2, 2012

Whistleblower Laws & Internal Investigations: Tactics & Best Practices

Sue Hastings, Partner Cleveland – Labor & Employment Cipriano Beredo, Partner Cleveland – Corporate Finance Victor Genecin, Of Counsel New York – Litigation Meghan Hill, Associate Columbus & New York – Labor & Employment

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Speakers

Sue Hastings

Partner, Cleveland T +1 216 479 8723 susan.hastings@squiresanders.com

Cipriano S. Beredo III

Partner, Cleveland T +1 216 479 8280 cipriano.beredo@squiresanders.com

Victor Genecin

Of Counsel, New York T +1 212 872 9899 Victor.genecin@squiresanders.com

Meghan Hill

Associate, Columbus and New York T +1 615 365 2720 +1 212 407 0105 meghan.hill@squiresanders.com

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Agenda

• Statutory Law Review
• Case Law Update
• Compliance Guidance
• Investigation Steps
• Q&A

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Federal Whistleblower Laws

• Dodd Frank Act
• Sarbanes-Oxley Act
• Foreign Corrupt Practices Act
• False Claims Act
• Consumer Product Safety Act of 2008
• Environmental Whistleblower protections
• Pipeline Safety Improvement
• Surface Mining Act
• IRS Tax Whistleblower Reward
• National Security Whistleblower protections
• Occupational Safety and Health Act (OSHA)
• Transportation Whistleblower protections
• Workplace / Discrimination Rights
• FLSA, ERISA, Title VII, ADEA, ADA, etc.

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Why Encourage Internal Whistleblowing?

• $104 million whistleblower award by IRS
• $50,000 whistleblower award by SEC
• $1.37 million whistleblower award under FCA
• $1.06 million jury verdict for whistleblower retaliation

under NJ state law

• $14 million whistleblower award under FCA

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Sarbanes Oxley Act (SOX)

• Potential Whistleblowers
• Current employees
• Former employees
• Applicants
• Covered Employers
• Any nationally recognized statistical rating organization, or
• Publicly traded company including any subsidiary or affiliate

whose financial information is included in the consolidated financial statements of the company, or

• Any officer, employee, contractor, subcontractor, or agent of

such company

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Interpretation of Covered Employees

• Employees of subsidiaries
• Clearly covered if financials are included with the publicly

traded parent

• Contractors of Public Companies
• Lawson v. FMR, LLC, 670 F.3d 61 (1st Cir. 2012)

– Did not extend coverage

• Spinner v. David Landau & Assoc., ARB Case No. 10-111

(May 31, 2012)

– Extended coverage

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Extraterritorial Application of SOX

• Foreign citizen working outside the US for a

non-US subsidiary not covered

• US citizen working outside the US for a non-US

subsidiary covered

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SOX: Protected Activity

• Provide information or assist in an investigation conduced by a

Federal regulatory or law enforcement agency, Congress, or a person with supervisory authority where the employee reasonably believes that the reported conduct is:

• Mail fraud
• Wire fraud
• Bank fraud
• Securities fraud
• Violation of any SEC rule or regulation or
• Fraud against the shareholders
• File, testify, participate in or otherwise assist in a proceeding.

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• Protected Reporting
• Supervisors
• Federal regulatory or law enforcement agency
• Congress
• Reporting Not Protected
• Media

Who can employees report to?

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• Reinstatement
• Back pay plus interest
• Litigation costs, expert witness fees and reasonable

attorney’s fees

SOX: Remedies for Retaliation

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Dodd-Frank Act

• Securities and Exchange Act
• Commodity Exchange Act
• Bureau of Consumer Financial Protection Act

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Securities & Exchanges Act / Commodity Exchange Act

• Potential Whistleblowers
• Any individual

– Exclusions:

» Member, officer, or employee of the SEC, DOJ, regulatory agency or law enforcement organization » Foreign government officials » Any whistleblower convicted of a criminal violation related to the action » Any whistleblower who obtained information through an audit of the company’s financial statements » Spouse, parent, child or sibling of a member of the SEC » Any whistleblower who knowingly and willfully makes any false, fictions

• r

fraudulent statement

• r

representation

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Securities & Exchanges Act / Commodity Exchange Act

• Covered Employers
• Employers who engage in business subject to

the Securities and Exchange Act / Commodity Exchange Act

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Protected Activity

• Providing information to the SEC with information of a possible

violation of Federal securities law

• Initiating, testifying in, or assisting in any investigation or judicial
• r administrative action of the Commission based upon or

related to such information

• Making disclosures that are required or protected under SOX,

the Securities and Exchange Act, or any other law, rule or regulation subject to the jurisdiction of the SEC (including FCPA accounting requirements)

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Extraterritorial Application of Dodd Frank

Asadi v. G.E. Energy (USA), LLC (S.D. Tex. June 28, 2012)

• Refused to extend coverage extraterritorially

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• Reinstatement
• Two times the amount of back pay plus interest
• Litigation costs, expert witness fees and

reasonable attorneys’ fees

Remedies for Retaliation

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Incentive Payments

• Qualifying whistleblower may receive 10-30% of the monetary

sanctions the SEC is able to collect if the whistleblower:

• Voluntarily provides information to the SEC
• Provides original information
• That leads to successful enforcement
• SEC collects monetary sanctions of more than US$1,000,000
• Only applies to individuals who provide information relating to a

violation of the securities laws to the SEC

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Joint Action Under Dodd-Frank

• Whistleblower includes two or more individuals

acting jointly who provide information

• Individual who provided information to attorneys

to give to SEC covered by Dodd Frank

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Dodd Frank: Compliance Employees

• Employees with a fiduciary duty to report violations to the

company – including a compliance officer, director, trustee or partner – are initially excluded from qualifying as a whistleblower

• Once 120 days have elapsed since an officer informed the

company’s audit committee, chief legal

• fficer
• r

chief compliance officer, a person with a fiduciary duty may become a whistleblower eligible for a bounty, even if he received the information for another person

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Compliance

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Impact of Whistleblower Award Program on Internal Reporting

• No requirement that whistleblower first report issue to company
• However, SEC included provisions intended to incentivize

internal reporting

• Whistleblower will not lose priority if the whistleblower first reports to

the company and subsequently reports to SEC within 120 days

• Whistleblower gets credit for information or additional violations

uncovered during internal investigation

• Compliance with company compliance policies will be a factor the

SEC uses in determining awards

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Compliance Actions to Consider to Encourage Internal Reporting First

• Update and Enhance Training Programs
• Highlight financial benefits from reporting to the company first and

working through the internal compliance process

• Focus on collaborative joint-reporting to the SEC
• Be careful not to discourage individuals from reporting directly to the

SEC if they so desire

• Speed is critical – Have an action plan to respond and

investigate quickly when potential violations are reported

• Foster a culture of compliance

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Additional Compliance Best Practices to Respond to Dodd-Frank Whistleblower Program

• Review and update compliance policies for anonymous reporting

and hotlines

• Ensure internal reporting procedures are simple, straightforward

and parallel the SEC’s reporting requirements

• Consider adopting a policy obligating employees to make an

internal report of all suspected violations

• Review and strengthen anti-retaliation policies

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Additional Compliance Best Practices to Respond to Dodd-Frank Whistleblower Program (con’t)

• Review employee confidentiality agreements and corporate

policies regarding disclosure to confirm that they do not prohibit whistleblowing

• Communicate with internal whistleblowers to give them

confidence the company is getting to the bottom of the issues that are raised

• Take corrective action where wrongdoing is discovered

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Investigation

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Complaint

• Get complaint in writing – date is important
• Assess the nature of the complaint
• Immediate Action Needed – 120 day look back

rule

• Immediate threat to business?
• Financial/embezzlement?
• Potential for destruction of records?

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Who Should Conduct the Investigation?

• Depends upon nature of complaint/allegations
• Who accused?
• Internal violation vs. violation of law?
• Audit Committee / Human Resources /
• Investigation will not be privileged
• In-House Counsel
• Parts of investigation can remain privileged
• Clarify role – representing company, not employees
• Outside Counsel
• The entire investigation can remain privileged
• Information is not “original information” for bounty provisions of

Dodd-Frank

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• Document Preservation – litigation hold
• Define Scope of Investigation
• Identify relevant witnesses – impacts preservation
• f evidence and frames investigation process
• Work with IT to identify relevant

documents/sources

• Review documents
• Interview witnesses

First Steps

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Witness Interviews

• Logistics
• Interview witnesses separately
• Should be interviewer and second person to observe the

interview

• Notifications & Explanations
• General
• Confidentiality
• Upjohn warning to protect privilege
• Retaliation not tolerated
• Questioning
• Who, what, where, when, why, how
• Record witness’s statements/facts -- not your conclusions

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• Cooperation
• Generally, it constitutes a legitimate, non-discriminatory

reason to discharge an employee who refuses to cooperate during an internal investigation.

• Right to Consult with Counsel

Witness Interviews

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Wrapping Up Investigation

• Keep whistleblower updated on status/outcome
• Protect whistleblower against retaliation
• Written notification of results to target of investigation – privilege

issues

• Other employees – not appropriate to inform them of results
• Investigation summary
• Assess need to self-report to governmental agency
• How company handles investigation will influence shareholder and

regulator confidence

• Credible internal investigation may narrow regulator’s focus to

testing reliability of company investigation

• Info subject to attorney/client privilege not “original” information

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Things to Consider

• Compliance with internal policies
• Retaliation against whistleblower
• Electronic monitoring/acceptable use policies
• NLRA or collective bargaining agreement issues
• Defamation of the accused – avoid revealing specific allegations

with witnesses

• Attorney-Client Privilege
• Waiver of privilege in exchange for cooperation credit
• Preservation of documents

37 Offices in 18 Countries

Questions?

Sue Hastings Partner, Cleveland T +1 216 479 8723 susan.hastings@squiresanders.com Cipriano Beredo Partner, Cleveland T +1 216 479 8280 cipriano.beredo@squiresanders.com Victor Genecin Of Counsel, New York T +1 212 872 9899 victor.genecin@squiresanders.com Meghan Hill Associate, Columbus and New York T +1 615 365 2720 +1 212 407 0105 meghan.hill@squiresanders.com

37 Offices in 18 Countries

Credit Information

Robin Hallagan 216 479 8115 robin.hallagan@squiresanders.com