Category Archives: Reuben Guttman Articles

By Dietrich Knauth

This article was published in Law360 on April 12, 2013.

With the rise in whistleblower cases under the False Claims Act, the U.S. Department of Justice is under pressure to unseal cases in which it hasn’t made a definitive decision whether or not to intervene, forcing whistleblowers to litigate more fraud cases on their own.

Congress and the courts have relaxed the standards for whistleblower eligibility under the FCA, and the lowered standards, along with the increased publicity of high-dollar settlements, has caused the ranks of potential relators to swell. The DOJ reported in December that a record 647 qui tam suits had been filed in 2012, after hovering in the 300s and low 400s for much of the previous decade.

But more whistleblower suits means more work for the DOJ. While whistleblower complaints remain under seal for at least 60 days before the government decides whether or not to intervene, the DOJ has told Congress that cases typically remain under seal for far longer — about 18 months on average, and sometimes cases remain secret for years. That has created pushback from Congress and the courts, who have pressured DOJ to decide more quickly and let the cases be litigated even if it hasn’t quite made up its mind, attorneys say.

“There’s going to be a sea change in terms of how these cases are litigated,” said Reuben Guttman, of Guttman, Buschner & Brooks PLLC. “The message is that more cases are going to be unsealed without a decision on intervention. We have to all assume that we’re going to litigate the case.”

Congress has noticed the backlog, and Sens. Patrick Leahy, D-Vt., and Chuck Grassley, R-Iowa, have introduced legislation, the Fighting Fraud to Protect Taxpayers Act, that would speed up the DOJ’s investigation of sealed FCA complaints by reinvesting some fraud recovery funds into increased investigations.

But the more immediate impact will come from federal courts, which are growing less receptive to the DOJ’s requests for more time to decide whether it will intervene. In response, the DOJ has begun allowing cases to be unsealed with a notice that it will not intervene “at this time,” attorneys say.

“Judges are becoming more demanding as to having the government explain why it needs more time to investigate and make a decision for intervention,” said Ginny Gibson, a Hogan Lovells partner and former federal prosecutor.

In the past, whistleblowers pinned more of their hopes on attracting the DOJ’s intervention, and if the DOJ stayed out, they often dropped cases rather than going ahead at their own expense. But that calculus may have changed, and more experienced whistleblower attorneys are likely to pursue a good case even if the DOJ doesn’t intervene, Gibson said.

“The whistleblowers are stepping up and taking more cases further down the litigation path,” she said. “This is in part because the whistleblower bar has become more sophisticated and better funded.”

In addition to more tenacious whistleblowers, companies will have to fend off suits from unexpected areas, according to Andy Liu, co-chair of the False Claims Act practice at Crowell & Moring LLP. He pointed out that external sources had filed whistleblower complaints against companies that held General Services Administration schedule contracts, premising the suits on alleged violations of the most-favored-pricing clauses in the GSA contracts and the Trade Agreements Act.

“Increasingly, you’re seeing whistleblowers who are not your traditional corporate insiders,” Liu said. “You’re seeing more competitors filing whistleblower suits.”

Adding to the pressure on companies, some courts have also allowed federal government employees to serve as whistleblowers, according to David Nadler, a partner in Dickstein Shapiro LLP’s government contracts group. In Little v. Shell Exploration & Production Co., the Fifth Circuit held that auditors for the U.S. Department of the Interior could sue Shell for undercalculating its royalty payments by $19 million through unauthorized deductions, a ruling that could encourage more government investigators to bring private suits.

For defense attorneys, it’s all part of a trend of widening liability and more aggressive litigation by the DOJ and private relators who are more willing than ever to pick up the slack when DOJ can’t take the lead.

“You don’t want to detract from the DOJ’s own prosecutorial agenda, and they want to save resources for those home-grown cases,” Guttman said.

Whistleblower attorneys are well aware that the DOJ has limited resources and is more than happy to let private relators do the heavy lifting in litigation while it focuses its attention on its own civil and criminal cases, Guttman said. After all, the U.S. government gets paid either way if a FCA suit settles or ends in a monetary judgment.

–Editing by Elizabeth Bowen and Chris Yates.

By Lianna Brinded

This article was published on April 15, 2013 in the UK’s International Busines Times.

Guttman says the UK has a lot to learn from the US on whistleblower incentives. The only way to prevent large scale scandals, such as Libor fixing and major financial fraud demonstrated by the collapse of Enron, is by installing bounty programmes that reward those who risk their careers to flag up wrongdoing, says one of the world’s most prominent whistleblower attorneys.

Speaking with the IBTimes UK, Reuben Guttman of Guttman, Buschner & Brooks PLLC says that the only way for any country to prevent financial fraud or wrongdoing from spiralling to large scale scandals is by replicating the US programmes and rewards systems for whistleblowers.

“When it comes to complex fraud, such as with UBS client tax evasion or Libor fixing, the only way prosecutors are able to have a solid lead and case, is when insiders come forward with the information,” says Guttman.

“The reality is, the regulators do not have or will not have the resources to investigate and find these forms of information by themselves and many complex fraud cases can be prevented from becoming huge scandals at the detriment to the consumer, shareholder or government, if the right incentives are in place for people who risk their career and employer retaliation,” he adds.

In the US, there are a number programmes, such as ones with the US Internal Revenue Service (IRS) and the Securities Exchange Commission (SEC) coupled with the protection through the Dodd-Frank Act, since 2010.

The programmes allow whistleblowers to not only be rewarded for information, depending on the significance of information and how much it results in recovery for the government or shareholders, but also protects them employer retaliation, such as dismissal or being investigated themselves.

UK To Learn From the US?

According to the SEC’s 2012 Annual Report on the Dodd-Frank Whistleblower Program, the agency received more than 3,000 tips from all 50 states and from 49 countries in a year.

The UK’s Financial Conduct Authority (FCA), previously the Financial Services Authority, has a “whistleblower programme”, but has no reward system for information and various clauses in the law allow companies to skate around the “unfair dismissal” of an employee, as a result of whistleblowing.

“You can bulk enforcement staff at the regulators but you can never beef it up enough to efficiently investigate and enforce compliance,” says Guttman. “For example, the SEC has maybe around one examiner for every $12bn in assets, and it could triple or even quadruple the amount of staff to look into this amount of assets but you would still be massively understaffed. The idea is that you want to basically get to the fraudulent activity before it has a devastating impact on the economy, such as with Tyco, WorldCom and Enron. When Enron collapsed there was a mass loss of jobs and impact on many companies that had dealings with them, but this situation could have been averted if people came forward with information,” he adds.

Guttman has had his fair share of complex litigation and class action cases that have involved the help of whistleblowers.

Serving as lead counsel on several cases, Guttman helped recover $1.6bn for the US government last year in Meredith McCoyd v. Abbott Labs and also represented one of the four main whistleblowers in a case against GlaxoSmithKline that returned over $3bn to the government.

In addition, he represented whistleblower Lynn Szymoniak whose qui tam case, a writ whereby a private individual who assists a prosecution can receive all or part of any penalty imposed, involving fraudulent mortgage assignments, was resolved as part of the government’s $25bn settlement with some of the world’s largest banks.

“Rewarding whistleblowers work and the UK could learn from the US system. This is the biggest difference between us. The reality is that we will be in dire straits if we didn’t have these people coming forward and one of the main issues why people do not blow the whistle elsewhere is because of the huge financial and reputational risk to themselves without the necessary protection or reward,” says Guttman.

“We depend on private institutions for everything, from energy, finance and healthcare but we expect the public institutions to protect us on very little resource. We have a host of corporations that have leaders that are more like temporary caretakers that operate on boosting margins and gains in the short term. But companies cut corners and it is at the detriment to the consumer, the shareholders and the government,” he adds.

Preventing Widescale Disaster

Guttman said the BP’s oil spill in the Gulf of Mexico could have been averted if people working at BP had told the relevant authorities about the levels of safety or “corner cutting” the energy firm was conducting, which eventually led to one of the biggest environmental disasters in history.

Similarly, he says the scope and scale of banks attempting to manipulate the world’s most important interbank lending rates could have also been quashed, if the right environment for whistleblowing was installed.

“Whistleblowing is critically important to avert disaster but to also allow transparency, enforcement and learning curves for the regulators to prevail,” says Guttman.

After Barclays, UBS and RBS became the first three banks to settle with a number of US and UK authorities over Libor fixing, the UK has held a raft of hearings to determine the culture and controls that led to the environment where traders were able to manipulate the lending rate for years.

At the beginning of this year, one of the most senior US financial services regulators Thomas Curry encouraged UK politicians to introduce rewards whistleblowers.

The Office of the Comptroller of the Currency said US regulators greatly benefited this incentive in place as it led to the regulator uncovering wrongdoing and misbehaviour at the banks and other financial institutions.