Sunday Read: Recognizing Recent, Landmark Whistleblower Recoveries
Whistleblower tips have contributed to enforcement actions requiring bad actors to disgorge billions of dollars in ill-gotten gains and interest.
These funds are redistributed back to the people, programs and organizations who have been wronged with certain percentages allocated to the whistleblower. Furthermore, seized assets are often auctioned off by the government to sustain government-funded programs. The awards paid to whistleblowers present no cost to taxpayers or harmed investors.
In this Sunday Read, National Whistleblower Center (NWC) chronicles recent and impactful whistleblower recoveries. Some are eye-catching because of the dollar-amounts attached, but each helped pave the way for change and improvements among governments and corporations, kept people and communities safer and demonstrated the strength of whistleblower laws.
New Year, New Whistleblower Precedent
A major milestone for NWC and the whistleblower landscape was the enactment of the Anti-Money Laundering (AML) Whistleblower Improvement Act in 2022. NWC has long advocated for program improvements to the Anti-Money Laundering whistleblower program and NWC supporters also engaged in advocacy efforts to ensure the inclusion of this bill in the Consolidated Appropriations Act of 2023.
The AML fund is entirely financed by sanctions collected in whistleblower-assisted cases. This means that whistleblower awards are not reliant on the Congressional appropriations process and pose no cost to taxpayers.
This new federal legislation helped the U.S. Department of Justice (DOJ) start 2023 on the right foot, with high-profile claims being filed under the AML. On January 20, the DOJ announced charges against two businessmen — a national from Russia and from the United Kingdom — for allegedly facilitating a sanctions evasion and money laundering scheme concerning a $90 million, 255-foot luxury yacht owned by sanctioned Russian oligarch Viktor Vekselberg.
Just three days later, on January 23, the DOJ announced charges against Charles F. McGonigal, a former Special Agent in Charge of the FBI New York Counterintelligence Division, and Sergey Shestakov, a former Soviet and Russian diplomat for violating U.S. sanctions against Oleg Deripaska, another Russian oligarch. McGonigal is one of the highest-ranking former FBI officials ever charged with a crime.
The DOJ asserted that in 2021 McGonigal and Shestakov, “conspired to provide services to Deripaska, in violation of U.S. sanctions imposed on Deripaska in 2018.” As reported by Whistleblower Network News (WNN), the defendants in both cases face money laundering charges as well as sanctions evasion charges.
Largest SEC Recovery Awarded
On May 5, the U.S. Securities and Exchange Commission (SEC) issued a $279 million whistleblower award to an individual who voluntarily provided the agency with original information that led to a successful enforcement action. The award is reportedly the largest in the history of the SEC Whistleblower Program.
Much of the information surrounding the case — such as the whistleblower’s identity and the depths of the impact impacted agency — has been kept confidential. The SEC said that while the whistleblower’s information did not prompt the opening of the Commission’s investigation, their information expanded the scope of misconduct charged.
“The size of today’s award — the highest in our program’s history — not only incentivizes whistleblowers to come forward with accurate information about potential securities law violations, but also reflects the tremendous success of our whistleblower program,”
said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. The previous largest SEC whistleblower award was $114 million, issued in October 2020.
Through the SEC Whistleblower Program, qualified whistleblowers are entitled to monetary awards of 10–30% of the funds collected by the government in the case aided by the whistleblower’s disclosure. To qualify for an award, a whistleblower must voluntarily provide the SEC with original information that contributes to the success of an enforcement action of at least $1 million.
The fund is financed through monetary sanctions paid by securities law violators to the SEC. Money is not taken or withheld from harmed investors to pay whistleblower awards. NWC Founder and Chairman of the Board Stephen M. Kohn believes the size of the award and the publicity it received will help deter future fraud.
“Large rewards deter frauds,” said Kohn, a founder of the law firm Kohn, Kohn & Colapinto and author of Rules for Whistleblowers: A Handbook for Doing What’s Right.
“Executives in the C-Suite need to understand that well-placed insiders are now incentivized to report fraud. The amount of this award is historic. But that is what is needed in the face of billion-dollar frauds, ripping off taxpayers, investors, and consumers.” Kohn added.
Record-Breaking Recovery
One of the largest whistleblower awards in U.S. history was announced in Fall 2022, as international pharmaceutical company, Biogen, Inc. agreed to pay $900 million to resolve claims brought for paying kickbacks to physicians and other healthcare professionals.
The initial claim was brought by Michael Bawduniak, a former employee, who alleged that Biogen discouraged prescribers to prescribe competitors’ products, chief among which was a drug to treat multiple sclerosis. Greene LLP in Massachusetts filed the suit under the False Claims Act (FCA) on behalf of Bawduniak in 2012.
The settlement will be paid to the U.S. and the Medicaid programs of various states in resolution of the FCA action. In addition to the size of the award, the case is noteworthy in that it resolved without DOJ intervention.
The FCA provides that relators are awarded 25%-30% in cases without government intervention, and the $266 million award to Bawduniak (a 29.63% relator share) represents the highest whistleblower award to an individual under any government program.
CFPB Whistleblower Program Framework Begins
The effectiveness of the aforementioned whistleblower programs, as well as those overseen by the IRS and various states, has inspired other agencies to create ones of their own.
For example, Sen. Catherine Cortez Masto (D-NV) introduced a bill in the Senate on March 30, 2023, that would provide incentives for whistleblowers to come forward to the Consumer Financial Protection Bureau (CFPB) to report fraud against consumers and assist in sanctioning.
The proposed Financial Compensation for CFPB Whistleblowers Act follows much of the framework and structure of the highly regarded whistleblower provisions of the Dodd-Frank Act which established the SEC whistleblower program. Companion legislation is being introduced in the U.S. House of Representatives by Congressman Al Green (D-Texas-09).
The CFPB made headlines in December 2022 when it announced a landmark $3.7 billion settlement with Wells Fargo, referencing a redress to consumers who had been “abused” in agreements tied to mortgages, auto loans and overdraft fees. According to the CPFB, the financial institution engaged in unethical and unlawful activities over a multi-year period, which violated the Consumer Financial Protection Act (CFPA).
NWC Executive Director Siri Nelson previously weighed in on the proposed CFPB legislation.
“With the CFPB whistleblower bill, Congress could mobilize essential whistleblowers who stop fraud against consumers — saving the everyday person from being ripped off,”
Nelson told Whistleblower Network News in June 2023.
“The Dodd-Frank Act has provided fantastic tools to protect investors. Whistleblowers have returned billions to help make sure people feel comfortable buying and selling stock. Consumers deserve the same benefit.”
The CFPB previously expressed public support for National Whistleblower Day, which NWC will celebrate via a day-long event in Washington, D.C. on July 27, 2023.
A Tip of The Hat From the FBI
The Federal Bureau of Investigations (FBI) has also publicly acknowledged the contributions of whistleblowers and those who represent them. The bravery of whistleblowers, the agency said, helped facilitate the resolution of Medicare fraud. In June 2023, the U.S. Attorney’s Office for the Northern District of Georgia announced that a chain of urgent healthcare providers in Georgia agreed to pay $1.6 million to resolve allegations of violating the FCA and improperly charging Medicare for the testing and treatment of patients with exposure to COVID-19.
“The FBI is thankful for the honesty of the whistleblowers who stepped forward to identify this alleged fraud,” said Keri Farley, Special Agent in Charge of FBI Atlanta.
“The FBI and our law enforcement partners will continue to pursue reports of medical facilities filing false or misleading claims, choices that ultimately rob our citizens.”
Even if the whistleblower’s information does not prompt the opening of an investigation, it can expand the scope of misconduct charges. This can help close legal loopholes and end or expose waste, fraud and various other crimes and injustices.
Visit the NWC to learn more about whistleblower rewards.
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NWC fights to bolster whistleblower programs, inform the public and employees in all sectors about available laws and protections and advocate for July 30th to be declared a federally recognized National Whistleblower Day.
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This story was written by Justin Smulison, a professional writer, podcaster and event host based in New York.
