More states should consider creating reward programs for securities whistleblowers

state securities whistleblower reward

Just two states have implemented their own securities whistleblower reward programs.

Despite the rousing success of the Securities and Exchange Commission’s whistleblower reward program, just two states — Indiana and Utah — have created their own laws to pay whistleblowers who uncover securities fraud in their state. But now that Indiana has finally paid out its first whistleblower award earlier this month — $95,000 to a whistleblower who reported a violation of the state’s securities laws — states may start to think harder about the value of creating their own securities whistleblower reward programs.

The Indiana reward relates to a $950,000 settlement against JP Morgan for violation of Indiana securities laws. According to the state’s press release, the whistleblower brought forward “executive level information” that showed that JP Morgan was putting its own interests ahead of its clients.

SEC protects whistleblowers’ rights in severance agreements, stops ‘pretaliation’

SEC whistleblower office pretaliation

The SEC fined a company for “pretaliating” against whistleblowers by forcing them into restrictive severance agreements.

The Securities and Exchange Commission (SEC) took forceful action last week to ensure that companies do not discourage employees from reporting potential violations of securities laws.

BlueLinx, a building products distributor headquartered in Atlanta, paid $265,000 to settle SEC charges that the company’s severance agreements contained restrictive language that in effect penalized departing employees if they reported concerns of wrongdoing to the SEC. Employees had to sign the agreements to receive severance payments and other post-employment benefits.

“We’re continuing to stand up for whistleblowers and clear away impediments that may chill them from coming forward with information about potential securities law violations,” said Stephanie Avakian, Deputy Director of the SEC’s Enforcement Division, in a statement.

Compliance Officers: Management views compliance programs merely as a “regulatory requirement”

Ethics and compliance officers aren't on the same page as management.

More than 40 percent of ethics and compliance professionals say management thinks ethics and compliance programs exist merely to meet a regulatory requirement.

Compliance professionals mostly agree that promoting an ethical culture is the primary goal of a corporate compliance program, according to a recent report.

There’s just one problem: Their companies’ top brass view compliance programs as a box to check to appease regulators, they say, rather than an essential program to promote a positive corporate culture and root out fraud.

The report, a joint effort from the Society of Corporate Compliance and Ethics and the Health Care Compliance Association, surveyed members of the group to find out what they thought was the main goal of the ethics and compliance programs they run. They were then asked what they think management and the board of directors at their company though their main purpose was.

Florida bolsters its (unfortunate) reputation as a center for Medicare fraud with record healthcare fraud case

Florida health care Esformes

DOJ’s crackdown on the Florida-based Esformes Network was the largest single criminal health care fraud case against individuals in department history. DOJ’s diagram (above) illustrates the government’s allegations.

Florida has long stood out as a hot spot for Medicare fraud, and last month’s indictment of three individuals in Miami for allegedly carrying out a $1 billion scheme to defraud Medicare and Medicaid adds to that unfortunate reputation.

It is the largest single criminal health care fraud case against individuals the Department of Justice has ever brought.

The indictment charged Philip Esformes — the owner of more than 30 skilled nursing and assisted living facilities (the Esformes Network) — along with a hospital administrator and a physician’s assistant, with conspiracy, obstruction of justice, money laundering, and health care fraud involving numerous health care providers, including community mental health centers and home healthcare providers.

New York False Claims Act used to fight “inadequate” health care in Nassau County Jail

New York False Claims Act, Eric Schneiderman, Armor Correctional Health Medical Services

The New York False Claims Act is a powerful tool the state can use to go after contractors providing substandard service. In this case, Armor Correctional Health Medical Services “egregiously underperformed” on its duties to treat prisoners in a Nassau County jail. (Photo credit NY Attorney General)

The New York state lawsuit against Armor Correctional Health Medical Services is a good example of how the New York False Claims Act and other similar laws can be used to protect patients and improve patient care while at the same time hold government contractors accountable.

The lawsuit, filed by New York Attorney General Eric Schneiderman last month, alleges that Armor Correctional Health Medical Services, a for-profit health care services company, “failed to perform or egregiously underperformed” obligations laid out in an $11 million yearly contract with New York’s Nassau County to provide medical services in the Nassau County Correctional Center.

HSBC forex case highlights ‘front-running’ on Wall Street

HSBC forex traders' front-running scheme

“Front-running” is a practice where Wall Street traders use non-public information concerning pending orders to profit for themselves, often to the detriment of their client.

Wall Street banks may expect to see more prosecutions for “front-running” after two HSBC foreign exchange managers were charged in a large currency trade scheme this week.

Front-running occurs when Wall Street traders with non-public information concerning pending orders on securities or commodities futures and options use that information to trade ahead of those orders, often to the detriment of their clients.

The HSBC complaint charged Mark Johnson, the head of global foreign exchange cash trading at HSBC, and Stuart Scott, a former HSBC foreign exchange supervisor, with trading ahead of a client’s conversion of $3.5 billion into British Pound Sterling in October 2011.

Citigroup SEC fine is a warning to other banks that delay reporting coding errors

Citigroup SEC fine

The SEC fined Citigroup Global Markets $7 million for a coding error that caused it to report incomplete information. (Photo by Matt Buck)

Seemingly minor violations of securities laws can have significant consequences and generate big fines.

Just ask Citigroup Global Markets, which agreed last week to pay the Securities and Exchange Commission $7 million for a coding error that caused it to report inaccurate data for 15 years, and then compounded its error by waiting almost nine months to tell regulators about the violation.

Citigroup’s coding error caused it to report inaccurate trade data in response to SEC electronic “blue sheet” requests. Blue sheets are trading records that broker-dealers must produce upon request by the SEC that show detailed trade data. They are one of the many tools the SEC enforcement staff uses to discover misconduct in the securities markets; thus the SEC relies on broker-dealers to provide accurate records.

International whistleblower programs are picking up steam, offering protection and rewards

International whistleblower protection and international whistleblower rewards programs are gaining popularity.

The Ontario Securities Commission recently launched a whistleblower rewards program, which offers up to $5 million for tips that lead to an enforcement action. (Photo credit Dennis Jarvis)

Regulators around the world are starting to recognize the value whistleblowers can bring to enforcement measures, offering incentives from protection to financial rewards to those who come forward with vital information.

In Canada, the Ontario Securities Commission (OSC) recently launched its whistleblower reward program, a first for Canadian securities regulators. Under the program, whistleblowers whose tips lead to successful enforcement actions may be eligible for a financial reward of up to $5 million (approximately $3.88 million in USD).

‘Sheriff of Wall Street’ Preet Bharara: Insiders are needed to stop corruption

Preet Bharara on Insiders, whistleblowers

“It’s hard to bring criminal cases unless you have the evidence, unless you can have insiders telling you about what was going on,” Bharara said. (Photo Credit Financial Times)

One of the country’s toughest prosecutors highlighted the value insiders can provide in successfully prosecuting corruption and other illegal activity.

US Attorney for the Southern District of New York Preet Bharara, sometimes referred to as the “Sheriff of Wall Street,” was asked during an interview with George Stephanopoulos on ABC’s “This Week” about how corruption in the New York legislature was able to go on for so long before his office brought down the two most powerful politicians in the state.

Bharara’s response cut to the core of what can make rooting out corruption at the highest levels so difficult.

Supreme Court Issues Tremendous Victory to Whistleblowers in Affirming that “Half-Truths” Can Make a Claim for Payment False or Fraudulent

Supreme Court escobar False Claims Act ruling was a victory for whistleblowers and taxpayers.

This decision is an important victory for taxpayers and whistleblowers because it rejects the defense bar’s effort to limit the False Claims Act – the US government’s most powerful tool in the fight against fraud.

The Supreme Court today issued a ruling that’s a major win for taxpayers and whistleblowers who allege fraud under the False Claims Act.

By a unanimous 8-0 decision, the court held in Universal Health Services, Inc. v. United States ex rel. Escobar that seeking payment from the federal government while omitting information that is important to the government’s payment decision can violate the False Claims Act.

This decision is an important victory for taxpayers because it rejects the defense bar’s effort to limit the False Claims Act – the US government’s most powerful tool in the fight against fraud.