Sunday Read: The Most Important Whistleblower Cases of 2021

2021 proved to be a groundbreaking year for whistleblowers in the United States. Critical whistleblower legislation was signed into law, record sums were awarded to whistleblowers under various federal whistleblower programs, and precedent-setting court decisions helped advance whistleblower laws throughout the U.S.

In this week’s Sunday Reading we celebrate the important role of whistleblowers by highlighting some of the biggest cases from the past year.

Theranos Whistleblowers Expose Massive Fraud and Hold Big Tech Accountable

There has been substantial media coverage surrounding the recent conviction of Theranos founder Elizabeth Holmes, who was found guilty on four counts of fraud in federal district court. But less publicized are the vital contributions of various whistleblowers who were the first to speak out about substantial misconduct within the blood testing start-up.

Tyler Shultz and Erika Cheung were Theranos employees who became concerned the company’s proprietary blood testing technology was consistently failing to live up to public statements the company made to investors, doctors, and patients. Both Shultz and Cheung initially reported their concerns internally, including to Ms. Holmes and Chief Operating Officer Sunny Balwani, after which they were harassed and ridiculed — and they eventually decided to report their findings to the media and to federal regulators.

Their courageous whistleblowing eventually culminated in the indictment of Ms. Holmes on various fraud charges, and their cooperation with the investigation played a key role in the eventual conviction. Ms. Cheung, who was a key witness for the prosecution, recounted the substantial failures of Theranos devices to the jury.

When testifying in her own defense, Ms. Holmes made the stunning admission that “every issue Cheung had raised was correct,” adding, “I sure as hell wish we treated her differently and listened to her.”

The trial is an important example of the critical role whistleblowers can play in exposing misconduct and in holding big tech accountable. Moreover, it demonstrates that, rather than retaliating against and silencing whistleblowers, companies must instead support and protect these brave individuals, or they will face significant consequences.

SEC Issues Record $114 Million Whistleblower Award

The Securities and Exchange Commission kicked off the 2021 fiscal year by announcing the largest whistleblower award in the program’s history. A whistleblower was awarded over $114 million after providing information and assistance that led to a successful enforcement action. Referring to the award, former SEC Chair Jay Clayton called it “a testament to the Commission’s commitment to award whistleblowers who provide the agency with high-quality information.”

Through the SEC Whistleblower Program, qualified whistleblowers, individuals who voluntarily provide the SEC original information that leads to a successful enforcement action, are entitled to a monetary award of 10–30% of funds recovered in the action.

This wasn’t the only eyebrow raising sum paid out this past year: on September 15, 2021, the SEC awarded $110 million to a whistleblower whose information resulted in another successful enforcement action. Also in 2021, the SEC surpassed $1 billion in awards paid to whistleblowers since the program was created.

These figures demonstrate the outsize role whistleblowers play in SEC enforcement actions — a trend which is likely to continue in the new year.

CFTC Issues Record $200 Million Whistleblower Award

Not to be outdone, on October 21, 2021 the Commodity Futures Trading Commission announced the issuance of a nearly $200 million award to a whistleblower “whose specific, credible, and timely original information significantly contributed . . .to a successful enforcement action, as well as to the success of two related actions, by a U.S. federal regulator and a foreign regulator.” This is the largest award the CFTC has given to a single whistleblower.

Interestingly, the Claims Review Staff initially advised that the CFTC deny the whistleblower’s award application, and it was only after the whistleblower filed a request for reconsideration that the Commission granted the award.

Since the inception of the CFTC whistleblower program, enforcement actions have resulted in monetary sanctions totaling more than $3 billion, and in 2021, the Commission surpassed $300 million paid to whistleblowers.

In fact, the success of the program almost resulted in its demise as all whistleblower awards were previously paid out of the CFTC Customer Protection Fund, which was financed entirely through monetary sanctions paid to the CFTC by violators of the Commodity Exchange Act. Fortunately, earlier in the year, President Biden signed into law emergency legislation to save the Fund from financial collapse.

Arriva Medical LLC and Alere Inc. Agree to $160 Million Settlement

On August 2, 2021, the Department of Justice announced that Arriva Medical LLC and its parent company Alere Inc. agreed to pay $160 million to resolve allegations that they violated the False Claims Act (FCA). Until it became defunct, Arriva was previously the largest Medicare mail-order diabetic testing supplier in the country. The qui tam provisions of the FCA allow private individuals to file lawsuits on behalf of the U.S. government if they have knowledge about a company or individual defrauding the U.S. government or federal programs. The government then has the opportunity to take on the qui tam case and use their resources to pursue the case. If the case ends with a settlement, the whistleblower who brought the qui tam case receives a monetary award ranging from 15 to 30% of the government’s total recovery.

The DOJ alleged that “Arriva and Alere caused the submission of false claims to Medicare because of kickbacks paid to Medicare subscribers.” The whistleblower, Gregory Goodman, claimed that the defendants engaged in a practice of waiving copays for new glucometers that they were required to collect with the intention of increasing their client base.

For his role in the case, Goodman received an award of over $28.5 million.

U.S. Tax Court Allows Posthumous Awards to IRS Whistleblowers

In Insinga v. Commissioner, the Tax Court ruled that an IRS whistleblower’s award claim does not expire if the whistleblower dies while the claim is pending. Joseph A. Insinga filed an IRS whistleblower award claim in 2013. He died in March 2021 while his claim was still pending. The Tax Court ruled that his claim shall continue and that his estate may receive any award that is issued in connection with the claim. This issue was one of first impression in the Tax Court, and thus the opinion in the case is precedential.

The case is particularly notable because of the long delay times in the processing of IRS award claims. Multiple whistleblowers have died before they received their award. The Court’s opinion could therefore alleviate some of these concerns and serve as an incentive for additional whistleblowers to come forward.

NWC is committed to fighting for whistleblowers — just like the brave individuals discussed above — but to continue doing so, we need your support. Thank you for reading, and from all of us at NWC, we wish you a happy New Year.