Category Archives: Whistleblower News

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.