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Editor: Vanessa Lloyd, Corporate Counsel Marketing, LexisNexis
Contributing Editor: Tom Hagy, HB Litigation Conferences LLC, former VP LexisNexis and Publisher of Mealey’s™ Litigation Reports
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Companies Cannot Ignore Power and Impact of Whistle-blowers
With each new statute targeting government fraud comes more power for whistle-blowers and more anxiety for corporate America.During an April LexisNexis® Webinar, “Whistle-blowers: Friend or Foe to Industry, Litigation & Society,” corporate defense counsel, broker dealers, compliance officers and even relator attorneys agreed: Companies absolutely must prepare for whistle-blower claims, investigate them thoroughly when they are made and resolve them swiftly.More than 700 False Claims Act cases were brought in 2010, and the Webinar participants expect the number to climb each year. The Fraud Enforcement and Recovery Act of 2009 broadened corporate liability and government enforcement powers; the Patient Protection & Liability Act lowered the bar for qui tam relators; and companies will have a host of new regulations to abide by as individual agencies begin issuing rules to enforce the Dodd-Frank Act, which also includes a whistle-blower provision.Stephen Sheller of Sheller, P.C., in Philadelphia said relators’ attorneys will pursue perpetrators of wrongdoing thoroughly and vigorously. “That,” said T.C. Spencer Pryor of Alston & Bird in Atlanta, “should frighten defense attorneys.”Preparing for the worst The first step for companies is to have a robust compliance program and to encourage employees to use it first when they suspect a violation, advises Ilene B. Marquardt, Senior Deputy General Counsel & Managing Director of USB Financial Services in Weehawken, NJ.Such a program might include continual evaluation of quality controls, reporting processes and communication, the experts said. The company should endorse a culture of ethics and integrity and ensure all employees understand the internal whistle-blower program.Richard Crist Jr., senior vice president, chief ethics & compliance officer and chief privacy officer at Allstate Insurance Company, said companies need to make blowing the whistle easy and convenient, and they need to be responsive.“People have to not only see the words [in] the policies, they’ve got to believe that’s actually the way you act,” Crist said.Claudine Homolash of Sheller, P.C., agreed, noting that 99.9 percent of the employees who seek her counsel on whistle-blowing matters are frightened to death, and many have already reported the wrongdoing to the company. Filing an outside complaint is really a last resort for many of them.Crist said one way for companies to show employees they are sincere about their compliance programs is to disseminate examples (with names redacted) of whistle-blowers’ claims at the company and demonstrate the company’s response. “We not only say we want you to speak up, but when you do, we act on it, and we act on it appropriately.”Investigating to cover all optionsOnce a company is aware there is potential wrongdoing, management must take several steps, regardless of whether it was an internal complaint or a government subpoena. It must move quickly but thoroughly to investigate the allegation. Pryor said the company must interview witnesses and employees, and review and safeguard documents in order to have a good grasp of the theory, and begin building a defense.Additionally, the conduct in question must be halted, said Marquardt, cautioning employers to avoid conduct that could be considered retaliatory.The company must also determine whether to seek outside counsel to conduct an investigation. Points to consider are whether in-house counsel has the expertise, that an in-house investigation will create uncomfortable situations, and whether you want the credibility an outside firm can offer.“And that is what outside counsel can produce for you—credibility,” Pryor said. “In some instances, it frankly limits the scope of what the government wants to look at in the future as it relates to the report you provided. If you provided a credible report that the government believes in—that you don’t have a fox-guarding-the-henhouse problem—that will limit the likelihood that the government will come into your company and start looking in other areas.”He noted that the government can always find a problem in every company. “The last thing you want is to submit a half-baked report by inexperienced counsel that opens a bigger can of worms than you had before.”In cases in which a claim is filed internally, serious consideration must be given to disclosure, the experts agreed. Sheller said the struggle is understandable, “But in the long run, I still believe that honesty is the best way to handle it.”Pryor agreed, noting, however, that not all self-reporting is rewarded by government leniency. He also said that in many cases, regulations require self-reporting, so there is no choice.Resolving allegationsAfter allegations have been substantiated, or not substantiated, the company’s work is not yet complete. Crist said the company must enact appropriate disciplinary steps, document the investigation and secure documents.If the government is investigating or a relator has filed a claim, a vigorous defense is the final, and possibly longest, step in the process.