Whistleblowers are a common character in investigations into governmental abuse. They famously have exposed covert government surveillance programs, political corruption scandals, and even led to the impeachment of the president of the United States. Some statutes also empower whistleblowers to bring claims against private businesses on behalf of the government for financial misconduct involving fraud, waste, and abuse. In the wake of the COVID-19 pandemic, we expect to see a surge of new whistleblower claims alleging misconduct under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). Whistleblower claims could be detrimental or even fatal for businesses already struggling to recover from the economic impact of COVID-19. Now more than ever, businesses must understand the risks and prepare for the inevitable emergence of whistleblowers to protect themselves from future claims.
The Power and Force of Whistleblower Statutes
Generally speaking, whistleblowers are individuals who alert the government about wrongdoing by an organization. Though the term frequently refers to those alleging wrongdoing by the government, whistleblowers are also empowered to report claims of misconduct by private companies—frequently their employers. A number of statutes allow whistleblowers to bring claims for financial misconduct, including the Sarbanes-Oxley Act, the Dodd-Frank Act, the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), and the False Claims Act (FCA). This article will focus on the FCA, 31 U.S.C. § 3729 et seq., as one way a whistleblower can seek redress on behalf of the government against those who commit fraud, waste, and abuse.
The FCA prohibits the knowing, reckless or indifferent submission of false claims for payment to the government. Violations of the FCA can result in severe consequences, including as much as $23,330 in penalties per false claim, and treble damages. The FCA is one of the government’s most powerful anti-fraud statutes in part because its qui tam provisions empower whistleblowers to report suspected fraud and abuse against the government. The Department of Justice may elect to pursue those claims, or, even if it declines to proceed, the FCA allows the whistleblower to pursue those claims in court on the government’s behalf.
In 2019, the government recovered over $3 billion from FCA judgments and settlements—81% of those cases were initiated by whistleblowers, accounting for over $2.2 billion in recoveries. Over the past six years, the government has recovered more than $23 billion under the FCA. Recent trends show well over 700 FCA cases have been filed each year for the past nine years, and 84% of those cases have been qui tam cases.[1] As we discussed in a previous article, we anticipate a spike in FCA claims in the near future under the CARES Act.
There are huge financial incentives for whistleblowers to bring FCA suits: whistleblowers are entitled to 15-30% of the FCA recoveries from cases initiated by their reports, depending on the extent to which they contributed to the case, and whether they pursue the claim in the event the government declines to intervene. 31 U.S.C. § 3730(d). Since 1986, when Congress amended the FCA to allow for more substantial whistleblower recoveries, whistleblowers have received over $7.4 billion as their share of FCA recoveries. In 2019 alone, whistleblowers personally received over $271 million in FCA recoveries.[2]
In addition, 31 states have their own version of a False Claims Act, governing false claims submitted to state and local governments. Most states also allow qui tam whistleblowers to bring claims on their behalf and offer similar financial incentives. Other federal whistleblower statutes provide financial incentives to report fraud, waste, an abuse as well.
Heightened Risk of Whistleblowers Today
The combination of the COVID-19 pandemic, the related downturn in the U.S. economy, and the CARES Act, have created a perfect storm for whistleblower claims. The CARES Act was the largest economic stimulus package in U.S. history, bringing the risk of fraud with each dollar it distributed. An unprecedented number of businesses have rushed to receive government aid to survive the economic impact of COVID-19. Many of these businesses received government funds for the first time under the Paycheck Protection Program (PPP), and may have been unwary of the legal consequences of misrepresentations in their applications. In addition, economic challenges may have caused employees to cut corners or even cheat the CARES Act process in order to help their employers stay afloat, even without their employers’ knowledge.
At the same time, COVID-19 has devastated the economy, despite the government’s relief efforts. In April 2020, unemployment reached 14.7%—the highest level of unemployment since the Great Depression—and millions continue to file unemployment claims every week, adding to the more than 40 million claims already filed in the wake of the pandemic. Historically, whistleblowers commonly are former disgruntled employees. Accordingly, the recent layoffs, furloughs, and wage reductions undertaken in response to the pandemic may create a massive pool of disgruntled employees from which potential whistleblowers are sure to arise. Whistleblowers also may be individuals from outside a business that gain insight to potential fraud and abuse, such as suppliers, vendors, and auditors. These individuals also may see FCA claims as a potential financial opportunity.
Given the lucrative upside to FCA settlements, many law firms specialize in representing whistleblowers and have already begun preparing for the wave of new claims that will arise from COVID-19. In a recent discussion with Bloomberg Law, one whistleblower lawyer commented “[w]hen trillions of dollars are involved, the potential for fraud is almost endless,”[3] which should warn companies that qui tam attorneys are actively looking to bring claims for alleged fraud under the CARES Act. The National Whistleblower Center also has launched a Coronavirus Accountability Campaign, aimed at promoting transparency and accountability in government spending to fight COVID-19. Businesses should take notice that a tsunami of whistleblower claims is about to hit their shores.
Whistleblower Retaliation Protections
The FCA and other similar statutes include protections against whistleblower retaliation to prevent businesses from silencing or chilling whistleblowers. The FCA defines retaliation as discharge, demotion, suspension, threats, harassment, and any other manner of discrimination in the terms and conditions of employment of the whistleblower because of the whistleblower’s lawful acts. 31 U.S.C. § 3730(h)(1). Penalties for whistleblower retaliation include reinstating the whistleblower’s employment, double the amount of back pay, interest on back pay, special damages, and attorneys’ fees. 31 U.S.C. § 3730(h)(2). These whistleblower protections add to the existing protections against adverse employment actions under employment law.
Commonly, law firms who represent whistleblowers bringing qui tam claims also represent them in bringing whistleblower retaliation claims. Given the increased attention whistleblowers have paid to potential government fraud under the CARES Act, businesses should also expect a higher focus on potential whistleblower retaliation claims.
Prepare For Whistleblower Claims Today
Businesses should prepare now to deal with potential whistleblowers to avoid being caught off-guard. Hasty or knee-jerk reactions to highly-charged whistleblower claims and allegations often can worsen the situation and compound the harm. Businesses should consider the following steps to prepare for whistleblower claims:
- Take Preventative Measures Now
Before whistleblower claims arise, businesses should understand the risks of noncompliance and ensure they are compliant with all statutory and regulatory requirements. Shortly after the pandemic hit the U.S., many businesses were placed under duress and forced to make numerous critical decisions in a compressed time frame. Some of these decisions included applications for and receipt of pandemic aid and relief funding under the CARES Act. Nearly all of the aid and relief under the CARES Act required certain business representations to obtain funds, and also came with strings attached regarding the proper use of the funds and potential repayment. Businesses must take the time now to review their representations to the government and ensure their compliance protocols are current, accurate, and complete. Ensuring that businesses are compliant will help prevent future whistleblower claims.
Industries such as healthcare, government contracting, and financial institutions especially should be wary because they are heavily regulated and frequently targeted by qui tam whistleblowers. Businesses outside these industries also should take extra precautions when receiving government funds for the first time, such as through the PPP. This may be the first time those businesses have worked with, and received funding from, the government. Their internal systems and controls for auditing and monitoring for potential fraud and abuse may be less developed or non-existent.
- Ensure That Whistleblower Rights Are Protected
As discussed above, the FCA and other whistleblower statutes contain strong protections against whistleblower retaliation. Businesses that encounter whistleblowers must resist the initial impulse to punish whistleblowers by firing or taking other adverse actions against them. Hasty reactions may lead to violations of the whistleblower retaliation protections, or other employment laws, which only will worsen legal problems for businesses. Businesses also should prevent harassment or discrimination against whistleblowers by protecting their anonymity, to the extent possible, as retaliatory actions by other employees also could lead to violations of whistleblower rights. While anonymity is not guaranteed under whistleblower statutes, management should act with great discretion regarding unwarranted or undue publicity to mitigate potential unlawful retaliation.
- Involve Legal Counsel, Compliance, and Human Resources
Once whistleblower claims or allegations arise, businesses immediately should consult legal counsel to evaluate the claims. Outside counsel may work with both management and in-house counsel to ensure investigation into the claims is adequately protected under the attorney-client privilege. Experienced counsel will ensure an adequate and thorough investigation, including implementation of necessary corrective action and remediation. Concurrently, the attorney-led investigation team may work with compliance personnel to ensure adequate coordination, especially regarding prompt remediation of any gaps or holes in the business’ compliance program. Further, the investigation may reveal that certain employment decisions should be made, including warnings, discipline, training and education, leaves of absence, termination, and more. Finally, the legal team should coordinate with management and enlist human resources to ensure the whistleblower’s rights are protected.
- Conduct a Thorough Investigation
Whether whistleblowers raise issues internally or go straight to the government, once businesses learn of the alleged wrongdoing, they should promptly consult legal counsel and conduct their own thorough investigation. This will ensure that a business fully understands the facts and law to enable it to evaluate the alleged problems, which will shape its legal strategy for responding to claims. A thorough investigation also will put the business in a unique and superior position to provide the government a more complete accounting of the facts and law, in the event the whistleblower omits key facts about the alleged fraud.
- Consider Options for Resolving Whistleblower Claims
After reviewing the investigation findings of facts and applicable law with counsel, businesses should evaluate potential corrective action and remediation. To the extent there is merit to the complaint, the business will need to promptly implement corrective action to “stop the bleeding.” Corrective action can come in the form of a wide range of actions, such as immediately discontinuing improper practices, revising policies and procedures, training and education, and making employment decisions, among others. In the event the investigation confirms credible evidence of fraud or the violation of the FCA, and the government is not already aware of the misconduct, then there may be certain mandatory or voluntary disclosure procedures to consider. Getting out in front of a potential problem and voluntarily working out remediation with the government can go a long way in mitigating protracted government investigation, litigation, and harsh penalties.
Conclusion
Businesses already impacted by COVID-19 and the related economic downturn must remain vigilant in preparing for and responding to whistleblower claims. The current business environment is rife with opportunity for whistleblower claims, and a poor response to whistleblowers may exacerbate problems for businesses. The better course is for businesses to prepare now for potential whistleblower claims and implement a risk mitigation plan and response protocol should such claims arise.
As you are aware, things are changing quickly, there is no clear-cut authority or bright line rules in this area, and the aid measures and interpretations described here may change. This Blog does not reflect an unequivocal statement of the law, but instead represents our best understanding and interpretation based on where things currently stand. This Blog does not address the potential impacts of the numerous other local, state, and federal orders that have been issued in response to the COVID-19 pandemic, including, without limitation, potential liability should an employee become ill, requirements regarding family leave, sick pay, and other issues.
FOOTNOTES
[1] Department of Justice, “Fraud Statistics Overview,” Jan. 9, 2020.
[2] Id.
[3] Daniel Seiden, Bloomberg Law, “Sweeping Stimulus Law is Golden Opportunity for Scam Artists,” Mar. 31, 2020.