Cleveland Lawrence on False Claims SEC CFTC IRS and NHTSA Whistleblowers

In 2019, the False Claims Act recovered over $3 billion for the federal government.

Cleveland Lawrence
Mehri & Skalet
Washington DC

But recoveries under other government whistleblower programs that give bounties to whistleblowers – programs at the Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC) and the Internal Revenue Service (IRS) – are growing and could eventually overtake False Claims Act recoveries.

Cleveland Lawrence is a whistleblower lawyer with Mehri & Skalet in Washington, D.C. Lawrence has a bird’s eye view of the False Claims Act, having spent eight years at Taxpayers Against Fraud, the group set up to represent the more than 400 lawyers who represent False Claims Act whistleblowers. 

Do you get a sense that perhaps these other government whistleblower programs could challenge the False Claims Act in terms of amount of recoveries?

“Absolutely. There is no dearth of fraud out there,” Lawrence told Corporate Crime Reporter in an interview last week. “The SEC in particular has had a very strong track record of sanctioning companies. It publicizes the sanctions and rewards to encourage future whistleblowers to come forward.” 

“The Supreme Court has been tinkering with an issue with respect to the SEC’s authority to order disgorgement. And that oftentimes will make up a large portion of SEC sanctions. None of these programs – SEC, CFTC and NHTSA programs – reward whistleblowers unless there is a sanction exceeding $1 million.”

“There is some tension with respect to the SEC’s ability to impose those major sanctions if they do not have disgorgement authority. Assuming that the disgorgement authority stays in place and the SEC is able to recover the stolen money directly from the fees, there is no reason to think we can’t start to see recoveries that will start to challenge what we are seeing in the False Claims Act world.” 

“The False Claims Act with its treble damages and civil penalties provisions certainly gives the government a strong mechanism for recovering large dollars. And we see under the False Claims Act recoveries of $2 billion annually. A few years ago there was a banner year of over $3 billion. We are a ways away from seeing that with the SEC, CFTC or IRS programs. We are just starting to hit $1 billion total under those programs.” 

“But the potential is certainly there for rapid increases, especially as those programs start to gain more attention and publicity and more whistleblowers start to come forward. We are only ten years in and we have made quite a bit of headway with those programs.”

You headed the organization that represented False Claims Act attorneys. Give us an overview. How many lawyers spend a significant amount of time on the False Claims Act?

“When I left Taxpayers Against Fraud, the organization had just over 400 individual attorney members. I would say that there is another maybe an additional 100 or so who dabble in false claims work but who are not members of TAF.” 

“The TAF conference is generally attended by over 300 attorneys, and that does include some government attorneys. But I would say that active within the relators bar are a few hundred lawyers across the country who make this the focus of their work. It is a very small group of lawyers who are doing this work primarily. TAF has the 30,000 foot view of that entire community.”

How many lawyers on the defense side specialize in defending these cases?

“Usually, at the big firms, there is a government contracts practice or some kind of criminal defense practice that touches on many of the issues that whistleblower lawyers deal with. To some extent lawyers on the defense side might be securities, or health care, or federal contract lawyers. They will defend a False Claims Act case that deals with their respective fields of practice. I don’t know that there are lots of defense lawyers who market themselves as representing defendants in False Claims Act cases.”

Obviously, the big boy on the block is the False Claims Act. What percentage of the action are these other programs – SEC, CFTC and IRS?

“It’s an apples to oranges comparison. It’s difficult to make the comparison. The SEC, CFTC and IRS do file annual reports to Congress about their whistleblower programs. In just ten years with the Dodd-Frank programs and slightly longer with the IRS program, we have seen an enormous number of submissions to these programs – in the thousands per year. Those agencies are now reporting backlogs of tens of thousands of submissions. And those submissions certainly can be multiple whistleblowers reporting the same types of violations. We don’t necessarily know how many of those complaints are similar cases. But there are a lot of whistleblowers out there reporting under those programs.”

“The reason it is a bit apples to oranges is that the False Claims Act requires a whistleblower to find a lawyer to file a lawsuit on behalf of the United States. It’s a much greater undertaking.” 

“The SEC, CFTC and IRS programs allow whistleblowers to make submissions without an attorney. And they provide handy forms for whistleblowers to fill out to make their submissions. The process is somewhat easier. And whistleblowers don’t have to find one of these 400 or so lawyers out there who specialize in bringing these types of claims to the government. It does make sense that more whistleblowers will make submissions to the SEC, CFTC and IRS than have filed False Claims Act cases.”

A relatively new player on the block is the National Highway Traffic Safety Administration (NHTSA) whistleblower program.

Is there a whistleblower office at NHTSA?

“This is where things start to take a turn. The FAST Act was passed in late 2015. Under that law, the Department of Transportation had 18 months from the date of that law to implement regulations with respect to the law and to develop the process as to how the law would work. That has still not happened. We are going on three years past the date when we were supposed to have those implementing regulations in place.”

“If you look on NHTSA’s website there is no mention of the law that I could find. There is very little if any mention of whistleblowers at all. The Department of Transportation does make reference to the provisions of the MAP 21 Act and some of the employee retaliation protections. But it doesn’t make much mention of any of the whistleblower provisions under the FAST Act.”

“There really hasn’t been the buy in from NHTSA or the Department of Transportation that we have seen from other agencies. The SEC, CFTC and IRS all have whistleblower offices and descriptions of their programs on their websites. They provide the forms that whistleblowers can use to make their submissions and that answer frequently asked questions.” 

“DOT and NHTSA have done none of that. There has been a lack of support for the statute. And that has led to some uncertainty and confusion.” 

“One of the major deficiencies is that the Secretary has absolute discretion as to whether to award a whistleblower even if the sanction does exceed $1 million. And if an award determination is made, the Secretary has sole discretion to determine the amount of that reward. And while the statute says that whistleblowers have rights to appeal, since the reward is entirely discretionary, that appeal right is toothless.”

“All of these other programs have a guaranteed minimum reward – whether that’s ten percent or some other number, fifteen percent for False Claims Act cases. There is some certainty that if my information results in a sanction of at least $1 million and I submitted information to the SEC, I am entitled to a ten percent reward for that information.”

“Under the NHTSA, it speaks about a ten percent floor, but that floor is completely discretionary. So there is no real guaranteed reward for a successful whistleblower. The Secretary can just say – no, I don’t want to give a reward in this case of even ten percent, even though the sanction was $100 million. That’s the type of uncertainty that chills whistleblowers from making submissions under this program.”

[For the complete q/a format Interview with Cleveland Lawrence, see 34 Corporate Crime Reporter 13(11), Monday March 30, 2020, print edition only.]

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