The two largest whistleblower firms in the United States are Phillips & Cohen and Constantine Cannon.
Constantine Cannon wasn’t in the running until last year when Eric Havian picked up and left Phillips & Cohen with about seven other lawyers and headed over to Constantine Cannon to help build a whistleblower practice there – now at more than twenty lawyers and counting.
Why did you leave Phillips & Cohen?
“At some point you decide it’s time to make a change and do something a little different,” Havian told Russell Mokhiber of Corporate Crime Reporter in an interview last week. “Constantine is oriented toward litigation and has the resources to engage in fairly large scale litigation. That appealed to me. Also, a number of people I enjoy working with at Phillips & Cohen joined me here after I left. There were seven attorneys and three staff members who joined me from Phillips & Cohen. Our group here is now about 21 lawyers working full time on whistleblower matters. We have whistleblower lawyers in all four of our offices — San Francisco, Washington, New York and London.”
The False Claims Act model has been replicated at both the Securities and Exchange Commission and Internal Revenue Service. In terms of your caseload, what part is False Claims Act?
“It depends on how you count them. You can file quite a few SEC and IRS cases and that doesn’t take up nearly as much time as False Claims Act cases do. You don’t litigate those cases. You just have to deliver the information to the agencies.”
“In terms of number cases, I would guess that a third of our cases are IRS, SEC and CFTC cases. But in terms of resources, each case under the False Claims Act takes a lot more resources.”
It seems as if the False Claims Act is still the big program in the whistleblower field. What are the possibilities that the SEC program might ramp up sufficiently to challenge the False Claims Act?
“It all depends on whether the agency continues to be as aggressive in promoting its program as it has so far. It has been great up until this point. There have been people at the Commission level, including the Chair, Mary Jo White, who have been big proponents of the program. That has tremendously helped grow the number of tips that they have received.”
“The current head of the whistleblower office, Jane Norberg, has been a big proponent. At this point, all the signs look good. But there have still been relatively few awards. The program has been up and running for only a short time compared to the False Claims Act. The volume of cases and awards is certainly much smaller than the False Claims Act on an annual basis at this point.”
“The way to describe it is early signs are very promising and if the SEC continues on the same course, it does have the capability of being just as substantial a program as the False Claims Act. The big caveat with the SEC program is that there is no room for the whistleblower to litigate those cases or even participate in the litigation of those cases. We don’t get to perform the same watchdog function over the SEC program as we do over the False Claims Act.”
What about the IRS program?
“I don’t see it challenging the False Claims Act program any time in the near future. The IRS program is similar to the SEC program — the whistleblower can’t litigate its case.”
“In contrast to the SEC, the IRS has been inhospitable toward whistleblowers. That stems from when the program was first enacted. In 2007 or so, the former chief counsel at the IRS wrote that it was an unwelcome change in the law and that it would lead to neighbors turning in their neighbors and that is not what the IRS wants to encourage.”
“You have the former chief counsel expressing such hostility to the program. And then the IRS itself has continued to operate in a way that is inhospitable to whistleblowers. As a result, people don’t want to come forward and provide information to the IRS. Part of the problem is that it is a black box. The whistleblower has no idea whatsoever about what is going on with his case.”
“The IRS will not provide any information at all until the case is concluded. And it seems like they are more anxious to figure out ways to deny awards than to make awards.”
“Right now we just aren’t seeing the same sort of encouragement from the IRS that we are seeing from the SEC.”
“Senator Charles Grassley has been pushing the IRS for many years now to open the program up and be more transparent. But the IRS has resisted all of those pressures. And to this day the IRS program is, if anything, more closed down than it was in the early years. In the early years there were people within the whistleblower office who resisted bureaucratic efforts to suppress communications with whistleblowers. But those people ultimately left the whistleblower office and now the IRS office toes the party line — which is do not communicate any substantive information to whistleblowers.”
“In many cases, the IRS doesn’t even interview the whistleblowers. They don’t even talk with them. Typically, they will only talk with them once in any given matter.”
Congress could pass a whistleblower law covering any corporate violation of law. Why don’t they do that?
“They would have a lot of corporate lobbyists in their offices arguing against it. Congress is typically a bit timid about taking huge steps that are going to anger their contributors.”
Is it a good idea to have an across the board whistleblower award program for corporate violations of law?
“Yes. It would be an instant success. It would bring in enormous amounts of money to the Treasury. You might want to exempt some industries. But the presumption should be that the model we see working so well in government contracting, in securities violations and even with the IRS, it could work in any industry.”
“It could be used to address corporate wrongdoing in many areas. The difficulty you would have is that much corporate fraud is practiced against consumers. You would have to figure out a way to return the money taken from consumers and still compensate the whistleblower. That is not an insurmountable problem at all. You would want double or triple damages. And that way you would have enough money to make consumers whole and still pay whistleblowers. Consumer fraud and financial fraud — you would cover a big part of the board if you covered those two areas with substantial and attractive whistleblower programs.”
Does a criminal investigation get in the way of you pursuing your case?
“It is usually a benefit, but not always. It all depends on how aggressive the criminal investigation is. If you get an aggressive criminal investigation, that is usually a big help. The company takes it seriously. They are usually anxious to resolve the matter quickly as opposed to sometimes when there is just a civil case, where they will drag it out and see if they can stall their way out of having to pay money. With a criminal prosecution imminent, the company is focused on trying to deal with the situation quickly rather than dragging it out. That can be a real benefit to the civil case. They usually want to resolve the civil claims at the same time as the criminal claims. So, overall, it’s a benefit.”
“One of the downsides is that when there is a criminal investigation, that shuts down communication. The criminal investigators and prosecutors don’t talk with our clients as openly as the civil people do. And that’s entirely appropriate. So it does kind of limit the amount of feedback that we get on how the cases are progressing.”
Why aren’t False Claims Act cases against military contractors a bigger deal? All signs point to massive fraud.
“It’s not entirely clear. I had a pretty big one – $325 million against Northrop – a few years back, but don’t see many of them that large any more.”
“The most promising area is cases arising out of the Iraq and Afghan wars. There have been many cases brought against private companies that serve the military in war zones, like KBR, but nearly all have failed in court and the government has joined very few of them.”
“One reason is that our military is very cozy with these contractors, and the Defense Department agencies resist joining False Claims Act cases against war contractors. If the military opposes the case, the Justice Department will not join it, and if they don’t join, the odds of success drop dramatically.”
[For the complete q/a transcript of the Interview with Eric Havian, see 30 Corporate Crime Reporter 41(12), October 23, 2016, print edition only.]