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  • Foreclosure firm and affiliates agree to DOJ settlement resolving FCA allegations

    Federal Issues

    On December 4, the U.S. Attorney for the Southern District of New York announced that a New York foreclosure law firm and its wholly-owned affiliates—a process server and a title search company (defendants)—have agreed to pay $4.6 million to resolve False Claims Act allegations claiming that between 2009 and 2018 the defendants systematically generated false and inflated bills for foreclosure-related and eviction-related expenses and caused those expenses to be paid by Fannie Mae. The settlement also resolves claims arising from the same misconduct pertaining to eviction-related expenses that were submitted to and ultimately paid by the Department of Veterans Affairs (VA). The DOJ alleges that the process server and title search company both added “additional charges to the costs charged by independent contractors and otherwise took actions that increased costs and expenses,” which were then submitted by the law firm for reimbursement. According to the DOJ, “[l]awyers are not above the law. For years, the [law firm] submitted bills to Fannie Mae and the VA that contained inflated and unnecessary charges. This Office will continue to hold accountable those who seek to achieve profits by fraudulent conduct.” The DOJ states that Fannie Mae’s Servicing Guide requires “all foreclosure costs and expenses be ‘actual, reasonable, and necessary,’ and that foreclosure law firms ‘must make every effort to reduce foreclosure-related costs and expenses in a manner that is consistent with all applicable laws.’”

    The DOJ further notes that the defendants agreed to pay an additional $1,518,000 to resolve separate False Claims Act claims pursued by the whistleblower.

    Federal Issues DOJ Fannie Mae Department of Veterans Affairs Foreclosure Mortgages FHFA False Claims Act / FIRREA Whistleblower

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  • SEC releases 2018 report on whistleblower program

    Financial Crimes

    On November 15, the SEC released its 2018 Annual Report to Congress on its Whistleblower Program, as required under § 924(d) of the Dodd-Frank Act and § 21(F)(g)(5) of the Securities Exchange Act of 1934. The Report, which covers October 1, 2017 through September 30, 2018, indicates that the SEC received 202 FCPA-related whistleblower tips during the reporting year. Those 202 FCPA tips account for only 3.82 percent of the tips received in that period. While the overall number of whistleblower tips has steadily risen over the past 4 years, the number of FCPA tips has remained fairly steady. In 2015, there were 186 (4.74 percent of the tips received); in 2016 there were 238 (5.64 percent of the tips received); and in 2017 there were 210 (4.68 percent of the tips received). This relative consistency contrasts with the number of offering fraud tips, which jumped from 758 in 2017 to 1,054 in 2018.

    In addition to providing statistics and background on the whistleblower program, the Report discusses rule amendments proposed earlier this year. In particular, the Report reviews proposed amendments to SEC Rule 21F-2 (Whistleblower Status and Retaliation Protection) that are intended to bring the rules in line with the Digital Realty Trust v. Somers decision. The proposed amendments would include instituting a uniform definition of whistleblower that requires the individual to have submitted the information “in writing” to the SEC.

    Financial Crimes FCPA SEC Whistleblower

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  • 9th Circuit hears oral arguments on overturning FCPA whistleblower retaliation award

    Financial Crimes

    On November 14, 2018, a three judge panel for the United States Court of Appeals for the 9th Circuit heard oral arguments for a life science research and diagnostics company hoping to overturn a February 2017 jury verdict ordering the company to pay its former General Counsel and Secretary $11 million in punitive and compensatory damages. The former employee’s complaint alleged that the company had fired him for being an FCPA whistleblower. As detailed in a previous FCPA Scorecard post, the company paid $55 million in November 2014 to settle DOJ and SEC allegations that the company violated the FCPA in Russia, Thailand, and Vietnam. The former employee’s report to the Audit Committee had involved separate allegations that the company violated the FCPA in China, allegations that did not result in additional penalties against the company.

    The company appealed the former employee's award on the grounds that the jury was erroneously instructed that the SEC’s rules or regulations forbid bribery of a foreign official; that the company’s alleged FCPA violations were the result of the former employee’s lack of due diligence; that the trial court wrongly excluded certain impeachment testimony and evidence related to the timing of his pursuit and hiring of a whistleblower attorney; and that he did not qualify as a “whistleblower” under Dodd-Frank in light of his reporting only internally and not to the SEC (pursuant to the U.S. Supreme Court’s decision in another case). During the argument, one member of the circuit panel reportedly expressed doubt concerning the company’s jury instruction argument, and another told counsel for the company, “I don’t see how this can be reversed on the theory you’re offering.”

    For prior coverage of the company's matter, please see here and here.

    Financial Crimes DOJ SEC FCPA Whistleblower

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  • DOJ settles FCA allegations with mortgage lender for $13.2 million

    Federal Issues

    On October 19, the DOJ announced a $13.2 million settlement with a mortgage lender resolving allegations that the company violated the False Claims Act (FCA) by falsely certifying  compliance with the Federal Housing Administration (FHA) mortgage insurance requirements in violation of the False Claims Act (FCA). Specifically, the government alleged that, between 2006 and 2011, the lender failed to follow proper mortgage underwriting and certification rules as a participant in the direct endorsement lender program and knowingly submitted loans for FHA insurance that did not qualify. Additionally, DOJ alleged that the lender “improperly incentivized underwriters and knowingly failed to perform quality control reviews.” Under the direct endorsement lender program, FHA does not review a loan for compliance with FHA requirements before it is endorsed for FHA insurance; accordingly lenders are required to follow rules designed to ensure that they are properly underwriting and certifying mortgages for FHA insurance. This settlement also resolves a related whistleblower lawsuit filed under the FCA, in which the former employee of a related entity will receive approximately $2 million.

    Federal Issues Whistleblower Mortgages Mortgage Insurance DOJ False Claims Act / FIRREA Settlement

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  • DOJ reportedly investigating professional baseball organization for potential FCPA violations

    Financial Crimes

    Based on media reports, DOJ’s Fraud Section is reportedly investigating some part of a professional baseball organization for possible FCPA violations related to recruitment of international players, particularly related to immigration issues for players from Latin America. Reports indicate that the investigation was initiated when a whistleblower provided the FBI with information and documents last year during spring training. Since then, several witnesses have reportedly already been subpoenaed and testified before a federal grand jury in connection with the investigation.

    A spokesperson for the organization stated that they had not been contacted by federal authorities regarding an investigation, and the two franchises that appear to be most at issue declined to comment to the media on the matter.

    Financial Crimes FCPA Whistleblower DOJ

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  • SEC awards nearly $4 million to whistleblower living overseas

    Securities

    On September 24, the SEC announced a whistleblower award of almost $4 million to an individual residing in a foreign country. The SEC determined the individual voluntarily provided critical information and continued assistance, which helped the agency bring a successful enforcement action. The SEC now has awarded over $326 million to 59 individuals since 2012.

    Securities SEC Whistleblower

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  • SEC announces second-largest whistleblower award; waives “voluntary” requirement for one claimant

    Securities

    On September 6, the SEC announced a whistleblower award totaling more than $54 million— $39 million to one (the second-largest award given under the SEC’s whistleblower program) and $15 million to another—for critical information and continued assistance, which helped the agency bring an enforcement action. The redacted order highlights the denial of related-action claims by both claimants and notes an exception made to the “voluntary submission” requirement for claimant two.

    According to the order, the SEC denied claimant one’s request for an additional award based on another agency’s related action, because the claimant failed to demonstrate the causal relationship required to establish that the “submission significantly contributed to the success of the [related action].” Specifically, the SEC noted that the claimant’s information was never directly transmitted to the other agency, which relied on the SEC’s order to pursue its action. The SEC rejected the claimant’s argument that providing information directly to another agency would be “at war with Congress’ clear instruction that the identity of a whistleblower must be protected” due to the fact that the other agency may not offer the same anonymity as possible under the SEC’s whistleblower program. The SEC notes that while a whistleblower may choose not to provide the information to another agency themselves, the rules allow for the SEC to transmit the information directly, while requiring the other agency to maintain confidentiality, which was not done in this case.

    The SEC also denied claimant two’s related action request, concluding that the claimant should seek an award through the alternative program available from the other agency. The SEC noted that if the claimant were to receive a related-action award there would be the potential that the cumulative award would exceed the 30-percent ceiling established by Congress and would produce an “irrational result” encouraging “multiple ‘bites at the apple’” as it would allow whistleblowers to have multiple opportunities to adjudicate and obtain separate rewards on the same enforcement actions.

    Notably, for claimant two, the redacted order demonstrates that the SEC made an exception to the “voluntary” submission requirements under the rules. Specifically, Rule 21F-4(a)—in order to create an incentive for whistleblowers to proactively provide information about possible violations—requires that a whistleblower “must come forward before the government or regulatory authorities designated in the rule seek information from the whistleblower.” In this instance, it was undisputed that claimant two provided the SEC information after an investigative review by another agency; however, the SEC exercised discretionary authority to grant a limited waiver of Rule 21F-4(a) and permit an award to claimant two. The SEC determined that a limited waiver was appropriate because, although claimant 2 previously “appeared before [the other agency] for an investigative interview” regarding the same violations, at the time of that appearance the claimant  was unaware of the information that would ultimately be deemed by the SEC to be the “critical basis” for the whistleblower claim. The SEC concluded that once claimant two became aware of the critical information, they promptly reported it to both agencies, despite no legal obligation to do so and having no other “self-interested motive to come forward,” achieving a primary policy goal of the program to encourage prompt reporting of information about possible securities law violations.

    Securities Whistleblower Dodd-Frank

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  • SEC awards whistleblower $1.5 million after reducing amount for reporting delay

    Securities

    On September 14, the Securities and Exchange Commission (Commission) announced a whistleblower award likely to yield the whistleblower more than $1.5 million for volunteering information that led to a successful enforcement action. In its order, the Commission notes that it “severely reduced the award here after considering the award criteria identified in Rule 21F-6 of the Exchange Act.” Specifically, the Commission alleges the whistleblower was culpable and “unreasonably delayed” reporting the information for over a year after the occurrence of the underlying facts, only doing so after learning a Commission investigation was ongoing and receiving a “significant and direct financial benefit.”

    The SEC’s whistleblower program has awarded approximately $322 million to 58 individuals since issuing its first award in 2012.

    Securities SEC Whistleblower Enforcement

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  • CFTC announces multiple whistleblower awards totaling $45 million

    Securities

    On August 2, the Commodity Futures Trading Commission (CFTC) announced multiple whistleblower awards, totaling $45 million, to individuals who volunteered information that led to successful enforcement actions. Earlier in July, the CFTC also announced its largest award, of approximately $30 million, to one whistleblower (previously covered by InfoBytes here), and the first award made to a whistleblower living in a foreign country. Under the CFTC’s whistleblower program, eligible whistleblowers can receive between 10 and 30 percent of the monetary sanctions collected from the resulting enforcement action. The CFTC’s Enforcement Director anticipates that this trend of substantial awards will “continue as the Commission continues to receive increasing numbers of high-quality whistleblower tips.”

    The announcement also included three related orders (see here, here, and here).

    Securities CFTC Whistleblower Dodd-Frank

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  • CFTC announces $30 million whistleblower award

    Securities

    On July 12, the Commodity Futures Trading Commission (CFTC) announced an approximately $30 million award to a whistleblower who volunteered information that led to an enforcement action. This is the fifth and largest award—previously the highest was around $10 million— given by the CFTC’s whistleblower program, created by the Dodd-Frank Act. Director of the CFTC’s Whistleblower Office, Christopher Ehrman, stated, “The award today is a demonstration of the program’s commitment to reward those who provide quality information to the CFTC.” Under the CFTC’s program, whistleblowers are eligible to receive between 10 and 30 percent of the monetary sanctions collected from the resulting enforcement action.

    The announcement does not provide details of the information provided or the related enforcement action.

    Securities Whistleblower Dodd-Frank CFTC

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