Category Archives: Reuben Guttman Articles

Individuals blowing the whistle can receive millions of dollars for their information but is this the motivation?

2012 can be looked upon as the year of the whistleblower as the US government was on a trajectory to collect more than US$5 billion from cases that were initiated by private citizens. “With the growth of multi-nationals, cross-border enforcement, complex financial products and the recent economic crisis, whistleblowing has become an integral part of compliance enforcement in the US,” said Jerry Martin, the US Attorney for the Middle District of Tennessee. As a federal prosecutor, Martin works closely with counsel for private citizens who can, in some cases, initiate litigation on behalf of the government.

A protected species in the US

In the US, a myriad of laws protect whistleblowers from retaliation and some laws even reward whistleblowers with bounties where their efforts result in monetary recovery. False Claims Acts at the Federal and State levels pay bounties as high as 30 per cent of the recovery, with an average payment of between 15 per cent and 20 per cent.

While the federal False Claims Act dates back to 1863, in 2010, the US Congress, through the Dodd-Frank Wall Street Reform and Consumer Protection Act, expanded the role of whistleblowers. Now, whistleblowers providing information to the Securities and Exchange Commission or the Commodity Futures Trading Commission may be awarded a bounty. The US Internal Revenue Service has its own whistleblower program and that agency recently paid out a bounty of US$104 million to a private citizen whose efforts led to the recovery of taxes from UBS.

What is the motivation for whistleblowing?

The decision to blow the whistle is fraught with emotion and complex legal and factual analysis. Who are these whistleblowers and why do they do it?
Meredith McCoyd was an Atlanta, Georgia sales representative for Abbott Laboratories before she filed her False Claims Act lawsuit against Abbott in 2007. Her recovery led to a 2012 settlement between the government and Abbott totaling US$1.6 billion to resolve allegations that the company illegally marketed its antiepileptic drug Depakote. For her part, Ms. McCoyd will receive a bounty which will pay her well into the millions of dollars. Ms. McCoyd says she was “concerned about the widespread use of the drug to treat patients with Alzheimer’s and other psychological disorders that were not studied or approved by the FDA.” She also realized that “the training we received from the company convinced many sales representatives, including me for a time, that marketing to these patients and paying doctors to prescribe was legal when it was not.”

Whistleblowers don’t have to work for the company

Not all whistleblowers are employees. Lynn Szymoniak, a Florida attorney, whose original research and persistence led to exposure of the US mortgage robo-signing scandal, provided information to the government in 2010 and filed a suit under the False Claims Act. Information generated from her case was a catalyst for portions of the government’s $25 billion bank settlement with five banks, including Bank of America and JPMorgan Chase. Ms. Szymoniak, who herself had been a defendant in a foreclosure case, will reap a multi-million dollar bounty.

Whistleblowers often face the question of whether their concerns can be addressed by a company’s internal compliance programme. Glenn Demott was one of the six whistleblowers whose litigation culminated in the government’s 2009 US$2.3 billion settlement with Pfizer. And, as Mr. Demott will attest, not all whistleblowers have a smooth ride. Mr. Demott initially resorted to internal compliance channels to raise concerns about the company’s marketing practices. Only after he was met with a deaf ear, did he seek redress in court under the False Claims Act. He alleged that the company’s unlawful marketing practices caused the government to spend precious healthcare dollars to pay for unnecessary prescriptions. “I would blow the whistle again for a good cause if needed,” said Demott.

A global model?

“The citizens of the United States are well served by an efficient government, and whistleblowers play an important role in eliminating fraud, abuse, and conduct that causes harm to the government and the public,” said William Nettles, the US Attorney for the District of South Carolina who was the chief lawyer for the government in Lynn Szymoniak’s case. Demott, Szymoniak and McCoyd, in varying degrees, illustrate the role that whistleblowers play in the US legal system as the economy and the products that are produced become more complex. While they are US citizens, US laws, including the False Claims Act, allow for non-citizens, even those living outside US borders, to blow the whistle and benefit from bounties. Now, it will be interesting to see whether the US whistleblower model will be a recipe for compliance enforcement all over the world.

Are global corporations under just a moral obligation rather than a legal duty to behave responsibly around the world?  See Reuben Guttman’s October 5, 2012 blog in The European Lawyer.

DUBLIN – As the annual conference of the International Bar Association moved into its final stages, lawyers wrestled with the vexed issue of whether being environmentally conscious and treating workers fairly are not just matters of moral responsibility, but also a legal obligation.
For multi-nationals incorporated in the US, at least some aspects of corporate responsibility may be mandated by the laws of a foreign nation under the sometimes forgotten doctrine of ultra vires. Examine the articles of incorporation for numerous multi-nationals and there will be language restricting the company to endeavours that are legal.

Governing language

For instance, General Electric’s articles state that the purposes of the corporation are, in part, ‘to engage in any activity which may promote the interests of the corporation, or enhance the value of its property, to the fullest extent permitted by law…’ Multi-nationals operate in many jurisdictions, and this type of governing language could mean that they have to abide by the laws of the jurisdictions where they set up shop.
‘Application of the ultra vires doctrine to overseas conduct might most readily be extended to violations of international law — at a minimum where it has been incorporated into US law,’ noted Professor Robert Ahdieh, the vice-dean at Atlanta’s Emory University law school and director for its Center on Federalism and Intersystemic Governance. He continued: ‘The reference to lawful business in most state codes might also be read more broadly to reach even conduct illegal merely under some applicable body of foreign law. The scope of such an application, however, would require careful parsing.’
Although some nations struggle to enforce compliance with their laws, foreign regulations should not be considered irrelevant and compliance by large corporations should not be optional. One can feasibly argue that corporate directors have a duty to ensure that their companies comply with local and foreign laws. Accordingly, enforcement of these duties can improve the impact that corporations have on stakeholders worldwide, including consumers, workers, and the local environment.

Economic power

In his book, The Failure of Corporate Law, Boston College law professor Kent Greenfield observes that ‘corporate law is a big deal’ and argues that it ‘determines the rules governing the organisation, purposes, and limitations of some of the largest and most powerful institutions in the world. The largest corporations in the world have the economic power of nations. By establishing the obligations and priorities of companies and their management, corporate law affects everything from employees’ wage rate (whether in Silicon Valley or Bangladesh), to whether companies will try to skirt environmental law…’
At the IBA conference, where lawyers from across the globe struggle to understand how the myriad of laws governing multiple lands meld together, the ultra vires doctrine may be another piece in the puzzle.

http://www.globallegalpost.com/blogs/commentary/doing-the-right-thing-89556786/

DUBLIN — At the old Jameson Distillery, lawyers from across the globe danced into the night listening to a band from Long Island pumping out the music of the Irish rockers U2.

The International Bar Association — which is meeting in the Irish capital — is a melting pot of nationalities, languages, styles, and legal systems. The record turnout of more than 5,000 international delegates is perhaps, more than anything, a reflection of the global economy and the financial crisis — a reminder that the impact of regulatory dereliction does not confine itself to geographic boundaries.

International crimes

Even on the way to the conference centre, a taxi driver pointed out the headquarters of the agency charged with picking up the pieces of the country’s property crash and dealing with troubled real estate assets.
At a meeting of the IBA’s Anti-corruption Section, money laundering, the US Foreign Corrupt Practices Act, UK anti-bribery legislation and compliance enforcement with anti-corruption laws in Africa were all discussed. Those who came late were turned away at the door to a session that left some delegates standing.
‘The crimes are international, the victims are international, the float money is international, but the laws are not,’ argued UK lawyer Brian Spiro of London-based law firm BCL Burton Copeland.

Uniformity calls

The melding of different legal systems or calls for uniformity of laws are constant topics. At a meeting of the Antitrust Section, lawyers on a panel clashed over the application of US laws and the jurisdiction’s contingency fee system, whereby lawyers can be paid based on the level of damages recovered. Stephen Susman from US national law firm Susman Godfrey, probed European colleagues over whether they can take a contingency interest in cases they refer to US lawyers who file suit in America. There was no clear response from a panel of lawyers from UK, Ireland and Poland.
At a meeting sponsored by the Banking and Securities Law Sections, lawyers from Asia, North America and Europe chatted over lunch. ‘I don’t know any other organisation where you can have the opportunity to meet lawyers from all over the world,’ said Michael Bulach from Luxembourg firm Wilgden Partners. ‘It’s an opportunity to network and learn about systems of law that could come to our country.’

http://www.globallegalpost.com/blogs/commentary/professional-melting-pot-87309557/

“Whether to blow or not to blow – that intriguing issue triggered heated debate at a session on criminal fraud and the global economic recession at this week’s International Bar Association annual meeting” in Dublin, Ireland Reuben Guttman reports.  See his October 2, 2012 blog in The European Lawyer.

Should the US practice of paying bounties to whistleblowers be adopted by other countries?
Currently three US laws provide for bounties to be paid to individuals or entities providing information leading to the recovery of government money. The Internal Revenue’s code allows the Treasury Department to pay individuals that provide information enabling the government to collect unpaid taxes. The False Claims Act provides for bounties to be paid to those who have brought suit in the name of the government against entities or individuals that have filed or caused to be filed false statements causing the payout of monies which — in whole or in part — came from the government.

And, the Dodd-Frank Amendments provide for the payment of bounties to those whose original information or analysis enables the Securities and Exchange Commission to collect sanctions against those that have violated securities laws including the Foreign Corrupt Practices Act, which proscribes the bribery of foreign government officials by companies trading their stock on US exchanges.

http://www.globallegalpost.com/blogs/commentary/puckering-up-46704300/

The US President wins some heavyweight economic support as Reuben Guttman sees the curtain rise on the International Bar Association’s annual gathering in Dublin, Ireland.  See Reuben Guttman’s October 1, 2012 blog in The European Lawyer.

The International Bar Association opened its annual convention with keynote speaker and Nobel Prize winning economics professor Joseph Stiglitz announcing his support for the re-election of US President Barack Obama.

Speaking before several thousand attorneys from across the globe, Prof Stieglitz called for additional regulation of the banking and financial services sectors. ‘The first fiscal stimulus worked but it was too small,’ he told delegates. ‘We need another; we cannot afford not to do another stimulus.’

No choice

Prof Stiglitz’s support for Obama came as a surprise response to a question from a British lawyer. ‘Clearly Obama is better,’ he said. ‘When compared to the alternative there is no choice.’ But Prof Stiglitz also said that Mr Obama could have done ‘more with the restructuring of home mortgages’.
The Nobel Prize winner went on to compare the conduct of the banks to gambling, which is why ‘regulation is so important’.
A recent New York Times comment article — co-authored by Prof Stiglitz and economist Mark Zandi — noted that the president’s housing policies have ‘fallen short’ but that ‘Mitt Romney hasn’t offered any meaningful new proposals to aid distressed or underwater homeowners’.
Here in Dublin, when pressed, he made his ultimate political choice clear.

Political gridlock

While Prof Stiglitz urged more regulation, he expressed concern that political gridlock may preclude timely government intervention. ‘People say they believe in free markets but one person’s freedom is the right not to be injured by others,’ said Prof Stiglitz.

He continued by commenting that the ‘disparity in income brought about by the economic crisis means that there will be a disparity in political clout’. And he urged IBA members to respond by making sure that there will always be access to justice for those without the economic means.

It was a particularly intriguing observation given the controversy caused by the US Supreme Court’s 2010 ruling in Citizens United v Federal Elections Commission, which expanded the rights of corporations to make independent expenditures to influence the outcome of federal elections. The 2012 election marks the first test of that judgment on a US presidential race.

http://www.globallegalpost.com/blogs/commentary/backing-barack-91190962/