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The Savvy Whistleblower - A False Claims Act Whistleblower Blog

Stengle Law Announces Wrongful Termination Filing Against FRBNY

October 10, 2013 – Today, Stengle Law filed a wrongful termination lawsuit on behalf of Carmen M. Segarra complaining of wrongful termination by the Federal Reserve Bank of New York.  The lawsuit alleges FRBNY and individual defendants Michael Silva, Michael Koh, and Johnathon Kim obstructed Senior Bank Examiner Segarra’s attempts to examine and report on Goldman Sachs’s conflict of interest practices.  Segarra’s examination concluded Goldman failed to adhere to federal rules requiring a firmwide conflict of interest program.

Among other types of misconduct, the Complaint alleges FRBNY employees cornered Bank Examiner Segarra in an office and tried to force her to change her bank examination findings.  Segarra refused and was fired three business days later.

FRBNY launched the examination into Goldman’s conflict of interest practices after news reports and lawsuits surfaced in 2011 about Goldman’s questionable business practices in three transactions – Solyndra, Capmark, and El Paso/Kinder Morgan.  FRBNY assigned Senior Bank Examiner Segarra to examine each of these transactions and Goldman’s adherence to the Federal Reserve’s rules on conflict of interest programs.

Senior Bank Examiner Segarra conducted her examination in accordance with SR 08-08, a Federal Reserve Supervision and Regulation document.  Goldman’s noncompliance with the SR 08-08 was obvious early in the examination.  At a meeting on December 8, 2011, for example, Goldman Sachs told bank examiners that it had no firmwide conflict of interest program in place as of November 1, 2011.  Goldman provided several documents to FRBNY that also showed it had no firmwide conflict of interest program.  Nevertheless, FRNBY employees did not want Segarra to report Goldman’s noncompliance.  When she refused to change the findings of her examination, FRBNY retaliated against Ms. Segarra and fired her.

“The law expects bank examiners will be allowed to examine big banks without fear of reprisal,” said Stengle, attorney for Carmen Segarra.

Plaintiff Carmen M. Segarra, Esq. attended Harvard, Columbia, and Cornell University law school and is an attorney who works in banking.  The wrongful termination complaint was filed in the United States District Court for the Southern District of New York.

Stengle Law is a small law firm devoted to providing strong advocacy for whistleblowers reporting misconduct and financial fraud against the government.

Attorney Linda J. Stengle represents Ms. Segarra and can be reached for comment and information by calling 610-367-1604.

On my reading list – Marc Galanter’s Lowering the Bar: Lawyer jokes and legal culture.

Marc Galanter

Marc Galanter

Galanter’s book is so good, it’s on my list to read a second time.  It helps explain everything that annoys us about attorneys.  I highly recommend Lowering the Bar.

I used to be a writing professor and taught while I went to law school.  One of my colleagues was incredibly supportive of all this activity, and she gave me the best books.   In addition to frequently expressing wishes that I would someday be able to “escape” from university life, she gave me a copy of Galanter’s enormously helpful book.  She presented it as a “scholarly examination of lawyer jokes.”  I inhaled it. The book was exactly what I needed at exactly the right time.

In addition to teaching, I was presiding over disputes between parents and school districts.  I was an administrative hearing officer for the Commonwealth of Pennsylvania, and the attorneys appearing before me and other hearing officers routinely behaved very badly.  Somewhere along the way, the special education due process system degenerated.  Hearing officers were treated shabbily by the state and the system’s administrators.  Attorneys realized that bullying hearing officers would result in favorable rulings because the hearing officers could be intimidated.  Attorneys weren’t held accountable for bad conduct; they were, in fact, rewarded for it.  Some attorneys regarded bullying as an art form, engaging in antics they readily admitted they would never try to pull in federal court.

Lawyers were the bane of my existence, and their common attack was I couldn’t possibly understand what was going on because I had not, at that point, been to law school.  I enrolled in law school as a form of self-defense.

As a hearing officer, I spent considerable energy on self-defense.  We didn’t have bailiffs or security or even clerks. The people who hired us were more sympathetic to the attorneys appearing before us than they were interested in helping the hearing officers.  No one was going to rein in those jerks; I had only me and the force of my personality to protect myself.  It was a hostile environment.

I spent my years as a hearing officer watching attorneys very, very closely.  In addition to being “on guard” constantly, I simply didn’t understand these creatures that seemed devoid of humanitarian motives when I compared them to other folks I knew.  My background was educator and human service worker.  Where I came from, we lived and breathed ideas like promoting the greater good and respecting people’s dignity and so on.  The attorneys appearing before me were downright immature.  Or something.  I couldn’t even articulate what I found so objectionable.

Enter Marc Galanter’s book.  Galanter’s intention is to trace the history of lawyer jokes, but for me, Lowering the Bar was a catalogue of everything I had ever disliked about attorneys but was unable to satisfactorily articulate.   Chapters included:

Lies and Strategems: The Corruption of Discourse

The Lawyer as Economic Predator

Playmates of the Devil

Conflict: Lawyers as Fomenters of Strife

Betrayers of Trust

The Lawyer as Morally Deficient

Delicious!  I spent a lot of time with Galanter and learned precisely how to articulate why a particular attorney’s conduct on a certain day bothered me.  Once I was able to articulate my irritation, Galanter thoughtfully provided hundreds of lawyer jokes that made me laugh and put attorney shenanigans into their proper perspective.

Once you get deeply enough into the subject matter to be curious about Galanter’s scholarly journey, the book provides an interesting look at marginalized populations and recurring themes in humor.  Galanter documents the evolution of lawyer jokes – how they began, how they morphed into their current form, and what they say about the public’s perceptions of the legal profession in general.  He will tell a lawyer joke and then trace it back to its earlier forms.  Those earlier forms are usually humor-based attempts to cast aspersions on minority populations.  For a former human service worker, this was sobering stuff.  Here was an encyclopedia of anecdotes that furthered prejudice.  Did I want to take tools that were used to further marginalize disenfranchised populations and re-launch them in an attempt to marginalize a profession?

You bet.  Attorneys can be obnoxious.

I read Lowering the Bar in law school and haven’t cracked it open since, but I think re-reading it now would be helpful.  I’ve been through interesting times as an attorney in private civil practice, and it would be thought-provoking to read Galanter’s enormous catalogue of attorney jokes from my new perspective.  I want to find out if I react with the same glee to Lowering the Bar that I did years ago.  We’ll see.

In any event, Lowering the Bar is an excellent read for most anyone and provides food for thought on a lot of different levels.  I highly recommend it.

 

Get Smart about Whistleblowing – Retaliation is Human Nature

 

Avoid this, if you can.

Avoid this, if you can.

Judith Moldover, Senior Staff Attorney of the Lawyer’s Alliance of New York, stated, “[R]etaliation is human nature.”  Moldover made the statement in 2008 to a group of human resources professionals at a conference sponsored by the Society for Human Resource Management. As one who spent most of her career defending employers, Moldover warned the HR crowd that retaliation claims would increase because there is an almost “irresistible urge to strike back” against employees who complain about problems or who file lawsuits against their employers. Perhaps because retaliation is so ingrained, employees who speak out against fraud, waste, or wrongdoing should expect their bosses to retaliate against them.  The only thing employees can do is smarten up.  Figure out if you are a likely target of retaliation as early as you can.  Assess whether you have a viable whistleblower claim.  And, think twice about making any further reports to your boss.

If you believe your boss is genuinely trying to improve the workplace and wants your input, make good faith reports of problems, at least once or twice.  Some employers will do the right thing, and some will even be grateful.  Many will not.  As Moldover points out, no one likes to hear about problems, and most employers would rather hear that their departments or companies are running well than hear a report of non-compliance or a misuse of company funds.  Sometimes a whistleblower can assess the workplace environment and get clues about how a particular supervisor will react to reports of fraud, waste, or abuse.

Suppose you make a report.  Does your boss correct the wrongdoer, or give him more support? Does your boss try to blame the problem on you?  Does your boss try to diminish your value to the company somehow? Does your boss suddenly give greater weight to petty workplace problems of yours when those were previously tolerated?  Does your boss suddenly give you demeaning work assignments? Does your boss allow others to be rude to you? Are your resources taken away, while wrongdoers get more resources?  Does your access to the boss decrease?  Does the wrongdoer get more access?  Is the wrongdoer emboldened somehow?  Does your boss suddenly chastise you in ways that never happened before?  Are you passed over when it comes time to hand out plum assignments?  Signs of retaliation can be subtle or obvious, but when whistleblowers look back, they often realize that they had observed specific small behaviors that indicated they would be punished for their efforts to address fraud.  If your boss shows signs of retaliation against you, even in small ways, step back, and assess the situation.

Unfortunately, most whistleblowers are people of high integrity and perhaps undue optimism.  They see little, subtle signs of retaliation like those described above, but they don’t want to be involved in covering up fraud, or they just can’t bring themselves to gloss over a co-worker’s misconduct. Sometimes, they just have too much faith that their companies will appreciate their efforts. By the time the hapless whistleblower contacts an attorney, it’s too late.  The well meaning, smart, trustworthy supporter of the company has experienced high level retaliation – attacks on reputation, bad performance appraisals, demotion, and perhaps, loss of job. Despite well publicized reporting protections, retaliation can take many forms and even in serious, obvious cases, it takes a long time to be made whole when an employer retaliates against you.  Think twice before making that report to a boss who doesn’t want to hear it.

Of course, many employees don’t have much choice about whether or not to report fraud, waste, and abuse.  Compliance officers, auditors, attorneys – these and many other occupations require one to take action of some sort when encountering fraud.  All employees can and should take steps to protect themselves when reporting misconduct and illegal behavior.  In cases where government money is involved, even indirectly, the whistleblower should get legal advice early.  A workplace insider who reports government fraud can be an important asset to government prosecutors in a False Claims action, for example.  A terminated employee is often less valuable.

Knowledgeable qui tam counsel help you assess whether you have a viable whistleblower claim and what steps you can take to protect yourself in the process of addressing government fraud.  If you know of government fraud in your workplace, and you suspect even a hint of possible retaliation, call Stengle Law today for a free consultation today. 

If the Whistleblower Needs an Expert Witness to Advance a Qui Tam, there’s a Problem.

Dr. Pierce of Perception

Dr. Pierce of Perception

People misunderstand expert witnesses.  I run into this problem all day long and am forever explaining to a client or some other well-meaning finance industry professional the very limited circumstances in which the hire of an “expert witness” make sense to a qui tam lawyer.

Television shows like Perception don’t help.  It seems to be written by someone who has no idea what expert witnesses do. It fosters the widely held misconception that expert consulting gigs are part of everyday life and relatively easy to maintain, if only one is smart enough.

Not true.

Non-qui tam lawyers also jump to all sorts of conclusions about the role of expert witnesses in qui tams.  If the attorney is doing certain types of trial work in the normal non-qui tam world, a particular kind of expert witness makes sense.  For example, in special education disputes, experts are an everyday experience.  If you’re not working in one of those types of litigation that regularly relies on experts, expert witnesses can’t and shouldn’t be brought on board prematurely. If you are working a qui tam, you need to realize qui tam cases can go on for a very, very long time. Get knowledgeable qui tam counsel, and don’t assume your standard approach makes sense in qui tam.

Here’s what’s going on with expert witnesses.

  1. An expert witness is merely a person approved by the judge to give limited types of opinions on something in a particular trial.  Most witnesses can’t give opinions.
  2. There is a phenomenon in trial that I refer to as dueling experts where plaintiff and defense will try to outmaneuver each other with experts.  In such situations, the choice of expert is strategic and, usually, surprisingly mechanical.
  3. In qui tam actions, the qui tam plaintiff is usually the most important subject matter expert, and in part because of that status, qualifies for a portion of the government’s recovery. Whistleblower expertise is part of the qui tam deal.

The bottom line – If I have a whistleblower who needs an expert witness to advance a qui tam, there’s a major flaw in the qui tam claim.

I’ve been trying to figure out why so many people think expert witnessing is a “sweet gig,” and mass media seems to be part of the problem.  Perception, for example is a show about “an eccentric neuroscience professor” who has been recruited as an expert by the FBI to solve “complex cases.”  Dr. Pierce appears to have an FBI agent at his beck and call, working cases that haven’t yet been identified as cases.  He controls his consultancy from what I can see.  Dr. Pierce puts resources on cases as he deems appropriate, and the only attorney in sight is an extraordinarily conflicted ex-spouse of the FBI agent.  There are things the show does well, but on the role of experts in federal investigations, Perception is a nuisance.

Most annoying are the repeated demonstrations that the FBI agent has budget authority to call in Dr. Pierce whenever she feels the urge.  This disregard for finances aggravates me the most.  If I was in charge of the Chicago FBI, I would terminate Dr. Pierce’s contract and tell Kate to work existing cases.  The government shouldn’t give blank checks to experts to do anything.  Even fat cat attorneys in private practice are unlikely to spend money on experts unless a sizable return on investment is obvious.  Why?  Is everyone cheap? Perhaps, but in this situation, it’s more likely the person pushing for the expert’s involvement simply doesn’t understand what expert witnesses do.

First, “expert witness” is a term that refers mostly to a court approved person who is allowed to present a certain type of testimony in litigation.  Expert witnesses can give opinions in litigation; lay witnesses can’t.  They are in place to help the court understand some aspect of the case.  Take a look at My Cousin Vinny if you want to see a decent example of how one becomes an expert witness.

Second, qualifying an expert witness to give opinions is not complicated, but there are lots of strategic considerations involved that have more to do with trumping opposing counsel’s arguments than they do with simply articulating a false claim action.  When I hear about an expert witness being retained by opposing counsel, I am one up on opposing counsel tactically.  I just have to run out and find a better expert.  If this is happening in litigation, we then have dueling experts on the stand.  When I was a hearing officer and presiding over the administrative law equivalent of bench trials, I had dueling experts before me all the time.  The time honored (and appeal proof!) formula is credential based, and it tends to be an “old school” academic approach.  M.D. beats Ph.D. etc.  Throw in a few publications, and the two of those beat almost anything else.  On the other hand, the fastest way to attack an expert’s credibility is to show a paid relationship between the expert and one of the parties.  If the plaintiff is paying an MD a lot of money for an opinion, every person in that room is going to question the MD’s testimony.  If you have an MD who is not being paid by one of the parties, the non -paid MD should trump all other experts.

Finally, for my third and last point, in qui tams, a subject matter expert is presumed to be part of the qui tam package. Who is the subject matter expert?  THE WHISTLEBLOWER! If I have a prospective qui tam client who is saying we need some kind of subject matter expert to make a case work, then I doubt the qui tam, if filed, will result in a reward.  Part of the inherent agreement in the private public partnership that constitutes qui tam is the whistleblower’s expertise in helping the government to resolve the false claim.  If the whistleblower does not have useful expertise, I have questions about the whistleblower’s right to a reward.

And so do prosecutors.

It’s very difficult to convince a prosecutor that your client’s qui tam is worth any government time or effort if the client has to defer to someone else to explain the false claim.  In addition, the prosecutor has to look at the feasibility of persuading a jury that a false claim occurred. If the case cannot be reasonably explained by the qui tam plaintiff, it’s going to be very tough to explain it to a jury.

There’s more.  It’s not enough for the whistleblower to simply point out a fraud against the government.  There are plenty of reporters who are happy to write about government fraud without getting a percentage of the government’s recovery to the Treasury, so the government is unlikely to pay a whistleblower for mere finger-pointing.  To qualify for a qui tam award, whistleblowers need to do more than complain about something. In False Claims actions, they provide subject matter expertise that the government doesn’t possess but needs.

It’s conceivable that asking an expert aboard at some point could help maximize the dollars associated with a particular qui tam and involving other experts could help bolster a case in court, but those are problems to worry about if and when the government decides what to do with the qui tam and how the defendant responds if and when it is served with the complaint.

Most of the time, however, the qui tam relator is the subject matter expert.  If that’s not true in a qui tam you are assessing, there’s something wrong with that qui tam.

Stuff I Use – Windows 7 Sticky Notes

Virtual "Sticky Notes" courtesy of Windows.

Virtual “Sticky Notes” courtesy of Windows.

No, I am not talking about Post It notes. I am talking about a desktop gadget called “Sticky Notes.” I have been working on improving my Windows skills, and I happened across a tutorial for Sticky Notes.  I like this little program.

I confess I have a little paper addiction going on.  I love index cards, tablets of all sorts, hard copies of docs to write on, and colorful post it notes.  On my desk right now are three stacks of pulp products, each more than six inches high.  Blech.

The dual monitor set up I talked about in earlier posts is making me change my ways.  I don’t like paper as much as I did before; it’s not always easy to find what I want.  On the computer, I can just search a keyword, and the doc will show up almost instantly.  In hard copy, I have to touch the papers and look through them and interpret my writing and on and on.  On the computer, I can easily read almost anything, and I can adjust magnify text if necessary.  With paper, I must endure the small size of print or am forced to find a magnifying glass.  Plus, the stacks of paper are not visually appealing.  I don’t really need or want much paper anymore.

A barrier to this whole evolution of reducing paper has been Post It notes.  I love them.  They are colorful and little, and they stick on things, and you can put them wherever you want, and they grab my attention, and I like seeing them in my briefcase and in my drawer, and … Well, you get the idea.  I like Post It notes.  I have a million of them, and I didn’t want to give them up.

Then, I found a five minute tutorial on Sticky Notes.  Sticky Notes is a Windows “gadget.”  I don’t know why Windows doesn’t call these little programs “apps,” because it seems like an app, but fine… whatever….  Anyway, turns out that Sticky Notes are virtual post it notes.  Sticky Notes come in different colors; you don’t have to name them; you can put them all over your virtual desktop.

I looked at my piles of paper, and I noticed the stacks included beaten up little post it notes.  I’ve got a little stack of post it notes all stuck together.  One note is ripped in half; another is dog eared; some are upside down.  Not pretty and not useful.  Kind of sad, actually. I decided to try Sticky Notes instead.

Turns out I love Sticky Notes!  I can make them disappear!  They always stay flat!  They don’t stick to the wrong papers!  I can get my kinesthetic learning style fix by moving the cute little notes around on my virtual desktop. I can put them in piles!  I can search them!  They’re FREE!

There are a few things I wish Windows would do to improve Sticky Notes.  I’d like to be able to write on the top line of the note because I want to give my notes names sometimes.  I would like to see a better color selection because the current choices are relatively bland pastels. I would like to have access to one note at times without having to pop up all the notes to the active window.  Sometimes, I want to put little notes on places other than my desk, like the front door and on my husband’s forehead, and Sticky Notes won’t let me put they anywhere except on the computer screen.  But none of these little issues outweigh the major benefit of Sticky Notes.  Did I mention THEY ARE FREE?

I found the Sticky Notes gadget by clicking on my start button in Windows 7 and searching for “sticky notes.” The program popped up on my list, and I clicked on it.  As soon as you click, a blank sticky note pops up with a “+” in the upper left corner and an “X” in the upper right corner.  Click the “+” when you want to create a new sticky note. Click the “X” when you want to get rid of the sticky.  Right click within the sticky note to get a menu of options, including colors.  I evolved to color coding my stickies for different types of notes – cases, computer crap, personal stuff, blog ideas, etc.  I like to pile them up so my desktop doesn’t look junky, and if I am not working with any of the stickies, I like to close the program, so they all temporarily disappear.  I pinned Sticky Notes to the taskbar; it’s in the number two position, so to recall it, I can just hit the Windows key and the “2” key simultaneously, and my stickies all reappear.  Awesome!

If you are annoyed with your beloved Post It notes, give Sticky Notes a try.  You can’t stick them to your spouse’s forehead, but they are useful, nonetheless.

But is it a “Material” Violation?

If the violation isn't material, you don't have good False Claims action.

If the violation isn’t material, you don’t have good False Claims action.

Some whistleblowers don’t understand they must allege material violations to qualify for a qui tam award.  They reason that any violation is enough.  It’s not that simple.  Some violations are relatively benign.  Those types of violations won’t adequately fuel a False Claims action. Qui tams, in general, are much more complicated than proving some defendant violated some government regulation.  What kind of violation is being alleged?

FCA complaints must be about “material violations.”  Whistleblowers understand the “violation” part; they frequently misunderstand the “material” part.  Like most people, they also assume that violations are prosecuted with equal vigor.  They aren’t.  Sometimes, a prosecutor will look at a violation and shrug.  If the violation is benign, and you are a prosecutor with limited time, you will put your energy into other violations that matter more.

Prospective qui tam clients struggle with this annoying fact of life, and sometimes, they get suspicious.  As we chat more, I recognize one of my old problems.  I used to misunderstand what was going on in the judicial system.

Would-be relators often have idealized perceptions of the judicial system.  They imagine it to be more “black and white” than it really is. I thought this way too.  I used to think that I understood justice, and it was simple.  Someone broke a rule; the government caught and punished the rule breaker.  If the rule breaker wanted to be obnoxious about the whole thing, someone would ask the courts to get involved, and then the judge would say the rule breaker should be punished and detail the punishment.  However the dispute got resolved, I figured it ended with some type of personal validation for the whistleblower (me).   In my head, this validation ranged from the judge ruling in a way that simply endorsed my point of view to me getting a cash award from the action.  Whatever happened, in my idealistic way of looking at things, the defendant was proven to be guilty of breaking the rules, and I was congratulated for bringing this violation to everyone’s attention.

Not even close.

The courts, and the qui tam system, are not in place to provide personal validation to whistleblowers. The qui tam system is in place to help the government address misuse of the public fisc. Courts exist to resolve disputes between parties.  Neither the courts nor the qui tam system exists to tell whistleblowers that they are good people.  And they don’t get excited about run of the mill regulation violations.

Bummer, right?

Most folks will say that they understand the courts don’t care about making a whistleblower feel better.  They talk about how pragmatic and cynical they are.  But I know they want some sort of endorsement from the process; I can hear little hints as they speak.  They want a judge to write something saying that they are right, and the defendant is wrong, and, of course, bad.  This is more than a desire; it’s an expectation.  Whistleblowers believe that the misconduct of the defendant is self-evident.  As soon as the violation is explained, the whistleblower will be validated and rewarded handsomely.  That’s how it works, right?

Not usually.  Qui tam relators, those that I know, learn quickly that punishing defendants for breaking rules is a complicated business.  We’re mostly concerned with “material violations.”  Prosecutors aren’t sitting around waiting for a whistleblower to show up and give them something to do.  Prosecutors and government investigators have a lot to do; they have to be convinced to devote time and energy to the qui tam.  It’s not enough for a whistleblower to simply reveal what the whistleblower perceives to be a rule violation.  Prosecutors see rule violations all day long.  A qui tam relator has to credibly reveal a rule violation that is “material.” In False Claims work, “material” means the government would have rejected some sort of funding to the defendant, if it had known the defendant was breaking the rule.

For an example, let’s took a look at my favorite, fictitious fraudster, MegaCorp.  MegaCorp hires an accountant who never got an accounting degree.  The whistleblower, not a great employee herself, points out that the lack of an accounting degree violates a government regulation.  MegaCorp says, “Meh.”  The whistleblower finds out MegaCorp is not keeping hard copy records of transactions, which violates another government regulation.  The whistleblower complains about both violations.  MegaCorp shrugs its shoulders.  The whistleblower wants to file a False Claims action.  Can she file a qui tam?  Not with my help, but sure, she can probably get some attorney to file one.  Should she?  No.

Even assuming that MegaCorp is absolutely in violation of the two rules mentioned, it’s hard to imagine such a complaint passing the test for materiality.  More than simply breaking a rule, the violation must be material to the government’s decision to give money to the defendant.  Here, the whistleblower must be able to show that if the Treasury had known about the accountant and had known that MegaCorp was now storing all its records in electronic format, then Treasury would never have given MegaCorp any money.

Unlikely.

I guess I know this because I used to undergo regulator reviews when I ran non-profit agencies. Anyone who has experience with government regulators knows better than to think all regulatory violations are pursued with equal vigor.  Violations have different levels of importance.  MegaCorp is subject to a zillion rules.  Some violations matter when the time comes to make a decision about giving MegaCorp some government funds, and some don’t.  I don’t think the two violations described in our example matter much.  I don’t believe the violations would be material to the government’s funding decisions.

One can find regulatory violations anywhere, and there is probably some financial penalty listed for almost every violation.  Finding a violation and reporting it is not enough to sustain a qui tam complaint.  The violation must be material to the decision to give the defendant money from the Treasury.  If you don’t have a material violation, you don’t have a meritorious False Claims action.  If you don’t know whether the violation is material or not, check into it.  One thing you can do is call us.  We’ll give you a free candid opinion.  Just don’t be surprised if I shrug and say “meh.” I make sure I abide by the materiality requirement.

Hoo Boy! Can’t Wait for the CFE Conference at John Jay!

Hoping this guy shows up at Meet the Speakers.

Hoping this guy shows up at Meet the Speakers.

Tom Borgers is putting together a conference for Certified Fraud Examiners.  It’s scheduled for June 14, 2013, and will be held at John Jay College of Criminal Justice, which is part of the City University of New York.  I’m a presenter; David Kotz is keynoting; it should be a decent day.

What I’m looking forward to is the Meet the Speakers cocktail party, the evening before.  Speakers have to be there; attendees should take advantage of this unique opportunity to hang out with a savvy group of anti-fraud experts.   Even though I am a presenter, I don’t usually get to just hang with other presenters.  At the Meet the Speakers event, these anti-fraud experts are, essentially, trapped. I want to know what the heck it is they are thinking about qui tam actions.  I suspect I will get some insight.

Tom Borgers hatched the Meet the Speakers event, and to me, it is one of the more compelling reasons to attend the conference.  All in all, the event is a good deal – 8 CPEs for just under $ 200.  The cadre of presenters suggests the workshops may be relatively painless for the audience.  CFEs are not typically highly skilled presenters, and with the exception of Harry Markopolos, I can’t think of the last time I listened to a CFE presenter who made me laugh, but overall, it seems like the John Jay conference is sensible use of time.

The Meet the Speakers party, however, tips the scales for me from “sensible” to “I am so there.”  How many opportunities do I get to just chat with folks who are passionate about anti-fraud work?  Most of my anti-fraud conversations are case driven; I usually have something specific to accomplish for or with a client. I enjoy that aspect of my life very much, but I love talking systems change theory, and I don’t get many chances. It seems that my professional life right now is all about educating folks about False Claims work.  On June 14th, I will again be educating people about qui tam work, but June 13th at Meet the Speakers? I intend to learn how my colleagues think they are “fighting fraud,” without greater involvement with qui tam whistleblowers. Most of these folks have never heard of qui tam.  I want to know what they ARE doing. They can’t possibly very effective.

History has proven that centralized prosecution mechanisms have serious limitations when it comes to effectively addressing fraud.  Deferring to corporations to police themselves only seems to encourage misconduct.  I hope we’re all in agreement the whole Greenspan Doctrine view that modern, technologically advanced financial markets are best left to police themselves was a costly miscalculation, to put it mildly. Even Greenspan said, “Meh” when asked what he thought of the Greenspan Doctrine.

So what my colleagues doing?  Effectively addressing fraud through some largely ineffective system? Believing they are making a difference?  Aware of but ignoring misconduct? Actively covering up? Pulling down a check and not much else?  Can’t wait to find out at Meet the Speakers.  Should be fun!

 

The FCA Complaint – There’s an art to it

best quizzical dogEvery once in a while, I get called to consult/advise – whatever you want to call it – on a wrongful termination case for defense.  DEFENSE!?! I know, right?  Me and defense counsel getting together is almost always a recipe for mayhem.

Almost always.

The one exception is when I am asked to take a look at another attorney’s False Claims action.  The FCA complaint requires a diverse, and not easily replicated, set of skills.  The relator’s complaint in a False Claims case has a lot of goals to accomplish.  It has to cover the relator’s claims for the life span of the investigation and government litigation.  They tend to evolve. The complaint has to demonstrate to government prosecutors why they should invest time and money in the investigation.  It has to look like a “fully baked cake” of fraud allegations and damage estimates, even when the relator does not and cannot find out all the information she needs to fully understand how the scheme impacts government funds.  And, in my world, it has to be bold in terms of advancing the Fraud Enforcement Recovery Act.  I focus on finance industry claims; health care cases enjoy almost thirty years of FCA law.  The finance industry is a new target for FCA actions.  I spin arguments that have never been spun before.  It’s new territory for FCAs.

So, when I look at someone else’s FCA claim, I am intrigued to see what counsel is trying to accomplish.  Is it simply a wrongful termination action dressed up with a False Claims Act reference?  Does it advance anti-fraud efforts by articulating a new fraud mechanism?  Is it one of those “bread and butter” pharma off label marketing cases? Was it written by a TAF (Taxpayers Against Fraud) member?  Which one?  Did counsel satisfy FRCP 9(b)?  How?  Which counts were pled?  Did counsel run it as a tandem federal/state filing?  Does it target an individual or a closely held corporation or a public corp?  What are the underlying violations?  Which court is it in? And most important, is there anything here that  might be something I want to consider snatching for my complaints?

Usually, I get invited by defense to look at a wrongful termination action that is dressed up with a False Claims Act reference, usually a 31 USC 3730(h) count.  The “h” claim, as I like to call it, is one small, itty bitty part of the federal False Claims Act.  I was looking at one such animal recently and had a million questions because it was not drafted by an experienced qui tam attorney.  Drafting counsel used unorthodox terminology, so I was not entirely sure what he was trying to say.  For example, he said the relator “applied” to be a qui tam relator.  “Applied”? In the world of FCA claims, one does not “apply” to be a qui tam relator.  What could counsel have meant??? Did the relator share information with some branch of the federal government?  How? Was there a formal disclosure? To DOJ? To Eric Holder??  Little misusages of terminology, like this one, signal the presence of inexperienced counsel, at least for an FCA action.  It’s not something that will be apparent to a relator, or even to most attorneys.  Sure enough, when I checked into drafting counsel, I found he was an experienced employment attorney with no significant FCA experience.  He may have prevailed on an h count somewhere along the way, but I can tell just by laying eyes on the complaint, this is not an FCA heavy hitter.

So what came next was no surprise.  The complaint went down in flames on a motion to dismiss in federal court.  A tenacious fellow, drafting counsel next morphed the same set of facts into a state complaint, with wrongful termination as the leading count. The state case also failed, and I am sure it hemorrhaged money all along the way.

I’m a plaintiff’s attorney, through and through, and when I see claims like this, I get concerned about how such cases benefit future defendants and current fraudsters.  In this situation, I was unconcerned about the death of the FCA action because the allegations did not seem to have any merit, but sometimes, I am horrified when a poorly drafted FCA complaint dies a premature death.  I’ve seen instances where the relator has worked very, very hard to expose an important, sometimes deadly, fraud scheme, only to have the fraud investigation short circuited because an employment attorney decided to handle the case like a wrongful termination action dressed in False Claims Act clothing.  Not good for anyone – not the government, not the public, and not the whistleblower.

Anyhow, this is one of the few times when you will find me having a good time with defense counsel.  It’s fun and helpful for me to see how John Q. Attorney is working an FCA action.  I tend to forget how newcomers react to the False Claims Act; I work qui tam almost exclusively, and its quirks and nuances are things I accept without much thought.  My occasional defense buddies are usually relieved because I typically report that the qui tam is easily defeated.  Ah, well.  I always try to protect relators from the problems of filing a lousy FCA complaint, but they are headstrong.  What can I say?  Relators, use inexperienced FCA counsel at your own peril.  There’s a lot involved in FCA actions that they don’t teach you in law school.

Zaring Draws Fire for Criticizing the SEC Whistleblower Program

 

David Zaring

David Zaring

David Zaring, an assistant professor of legal studies at the Wharton School of Business, wrote an article for the New York Times saying he had “second thoughts” about the SEC’s whistleblower program.  Leading qui tam advocates say Zaring misunderstands the program, and is “concerned in the same way that the fox is concerned that the chicken farmer is spending too much time on shotgun shells and electric fencing.”

Zaring’s concerns are similar to those expressed by big corporations.

In the April 29, 2013, article, Zaring questions why securities fraud whistleblowers would need more incentive to report violations to the SEC.  Early in the piece, Zaring describes the SEC whistleblower program as an effort to privatize enforcement.  The program’s provision to pay a percentage of the recovery as a reward to the whistleblower, says Zaring, creates perverse incentives for employees.

Having worked with the SEC whistleblower program since the day Dodd Frank was enacted, I view Zaring’s comments as off base.  There are a few different models of whistleblower bounty programs, and the SEC’s model steers away from true private enforcement.  Closer to the idea of privatizing enforcement is the False Claims Act model, which grants a private right of action for the whistleblower who wants to and is able to litigate the claim without the government’s help.  Even when the whistleblower assumes the burden of litigating the claim on his own, the government is still heavily involved in False Claims actions and has a lot of control over the process.  The SEC program, by contrast, provides no right of action for whistleblowers.  The whistleblower must work entirely through the SEC.  If the SEC doesn’t want to pursue the case, the whistleblower has no recourse.

As to Zaring’s concern that the monetary award provides a perverse incentive, I have to disagree. What’s perverse is the way companies treat people who care enough to raise concerns about violations.  Retaliation against whistleblowers is rampant, costly, and painful.  It’s also human nature.  Whistleblowers need strong incentives to overcome the negative aspects of reporting violations.  Fortunately, the SEC has realized that the way it operated before Dodd Frank didn’t work, and it hit upon something that does work – the qui tam model.

I have my own concerns about the Dodd Frank SEC whistleblower program. It’s designed more like the IRS’s lackluster whistleblower reward program than the very successful False Claims Act.  There is no private right of action for whistleblowers participating in the Dodd Frank version. The same thing is true of the IRS program.  The lack of a private right of action means that the SEC program is not subject to scrutiny from the judicial system in the same way as the False Claims Act.  The IRS whistleblower program faces enormous obstacles and interference from the upper levels of the IRS.  We were fortunate during the initial years of the SEC whistleblower program because Mary Schapiro wanted it to work, and she made it a priority.  The IRS whistleblower program has no such champion at its highest levels; it actually has enemies, and the IRS’s program is only minimally effective.  I don’t like the IRS and SEC models because they live or die in response to agency and staff agendas.  I think we need more robust and better insulated qui tam programs.

As to the concerns about how the SEC whistleblower program could negatively affect corporate loyalty, I have little patience.  SEC whistleblowers are often very worried about the company’s shareholders.  I think it’s wrong to conceptualize a corporation as management and nothing more.  The corporate model dictates that management answers to the shareholders who are the true owners of the company.  If management is violating securities rules, the shareholders should be informed.   The shareholders are the company, and it’s the shareholders we should be concerned about, not upper management.  Whistleblowers protect shareholders from management, and that’s a good thing.

Besides, corporate loyalty, even in the way Zaring uses the phrase, is outdated.  Loyalty is a two way street.  Corporations have burned their bridges by failing to reward employee loyalty. They discard loyal employees as if they were worthless, and they will freely assert that the cheaper inexperienced employee is better for the bottom line.  If a company really wants to inspire employee loyalty, it has to demonstrate loyalty to its employees.  Problems with corporate loyalty are far bigger than the SEC whistleblower program, and they’ve been building for at least twenty years.  Management’s actions will inspire loyalty or discourage it.  The SEC program is a non-factor.

Let’s hope the SEC’s program, already hindered by its insular design, does a better job with whistleblowers than the IRS’s sad attempt.  I doubt the SEC will ever experience the success of the False Claims Act, but the current program is much better than the SEC’s old insider trading program.  Better is always better.  We’ll see what happens.

Stuff I Use – A Logitech Trackball

The wireless trackball my colleague recommended.

The wireless trackball my colleague recommended.

In addition to adopting dual monitors recently, I switched from a mouse to a Logitech Trackball when I revised my set up for writing.  The trackball was a little tricky at first.  I wasn’t used to controlling my cursor with my thumb, but after only a day, I decided I won’t be going back to a mouse.

A tech savvy colleague heartily endorsed the trackball. He had been right about so many things that I adopted the trackball even though I had serious doubts about how much of a difference it could make.  I felt clumsy for about ten days, but I think I have the hang of it now.  At one point in a recent writing project, I had to switch out the trackball for my good old mouse, and the difference was amazing.  The mouse felt clunky and rough; it seemed to take a lot of effort to drag it around on its mouse pad.  The trackball felt smooth and almost too easy, plus it stayed stationary. Even though the trackball is larger than the mouse, it doesn’t require as much desk space.  It stays still, and the ball does all the moving.  One annoying mouse-related problem was my mouse tray extension, which is a shelf extended out from my keyboard tray.  The homemade custom mouse tray would bend slightly, and the mouse would occasionally slide off the tray onto the floor.  I had considered rigging up some sort of “mouse corral” to stop it from falling.  Because the trackball is stationary, I don’t have to think about a mouse corral anymore.  The trackball stays put.

The Logitech model I have has more features than I understand right now.  In addition to the ball, there are two large buttons that work the same way the buttons on a mouse work.  There’s a scrolling wheel.  And then there are two small mystery buttons.  One of these days, I will take the time to look up what they do, but right now, I have enough technology headaches.

Unlike the mouse, the trackball doesn’t need regular cleaning, and it seems sturdier than a mouse. Mine is wireless; the mouse was wireless too. Having cords in sight annoys me in a vague way, so I get rid of them whenever I can.  The trackball, after getting my thumb up to speed, seems more precise than did the mouse. I can easily move the cursor all over two screens now.

Evaluating my writing technology was something I never considered, though writing is the largest part of my work day. I’ve always been involved with heavy duty writing projects, and I spend time learning new features for any piece of software I use because I know that software improvements will almost always be helpful.  But the hardware?  Since adopting a favorite pen, I never gave my hardware a second thought.  Thank goodness for my tech savvy colleague.  My new writing set up is a pleasure.