Financial Fraud Law Report

Transcription

1 Financial Fraud Law Report AN A.S. PRATT & SONS PUBLICATION February 2015 Editor s Note Steven A. Meyerowitz Recent Developments in U.S. Domestic Bribery Case Law Reaffirm Various Risks and Tensions In FCPA Prosecutions Sean Hecker, Andrew M. Levine, and Steven S. Michaels FOREX Claims: What, Who, How... And What Might Be? Neil Micklethwaite, Christian Toms, Roger Kennell, Neill Shrimpton, and Steven Friel Mo Info, Mo Problems: The Alternative Investments and Fund Management Directive Article 42 Disclosure Requirements Gloria Liu U.S. Second Circuit Eases Banks Garnishment Burdens in Recent TRIA and FSIA Decisions Mark G. Hanchet and Christopher J. Houpt DOJ Criminal Division Renews Efforts to Investigate Whistleblower Allegations John S. Irving IV and Timothy D. Belevetz The SEC Crackdown on High-Frequency Trading: How Far Will It Go? H. David Kotz and Jennifer Hull Disclosing the Identity of a Complainant Can Constitute Retaliation under the Sarbanes- Oxley Act Michael L. Stevens and Karen S. Vladeck Highlights of the OIG s 2015 Work Plan Wade Pearson Miller, Dawnmarie R. Matlock, Kimyatta E. McClary, Leanne Marek Kantner, Julia Dempewolf, and Trey Stephen DOJ and SEC Officials Focus on Enforcement, Self-Reporting, and Compliance AT International FCPA Conference Paul W. Butler, Nicole H. Sprinzen, and Kimberly A. Ball

2 QUESTIONS ABOUT THIS PUBLICATION? For questions about the Editorial Content appearing in these volumes or reprint permission, please call: Catherine Dillon at For assistance with replacement pages, shipments, billing or other customer service matters, please call: Customer Services Department at (800) Outside the United States and Canada, please call (518) Fax Number (518) Customer Service Web site For information on other Matthew Bender publications, please call Your account manager or (800) Outside the United States and Canada, please call (518) Library of Congress Card Number: ISBN: (print) ISBN: (ebook) Cite this publication as: Financial Fraud Law Report [sec. no.] (LexisNexis A.S. Pratt); Financial Fraud Law Report 1.01 (LexisNexis A.S. Pratt) Because the section you are citing may be revised in a later release, you may wish to photocopy or print out the section for convenient future reference. This publication is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional services. If legal advice or other expert assistance is required, the services of a competent professional should be sought. LexisNexis and the Knowledge Burst logo are registered trademarks of Reed Elsevier Properties Inc., used under license. A.S. Pratt is a trademark of Reed Elsevier Properties SA, used under license. Copyright 2015 Reed Elsevier Properties SA, used under license by Matthew Bender & Company, Inc. All Rights Reserved. No copyright is claimed by LexisNexis, Matthew Bender & Company, Inc., or Reed Elsevier Properties SA, in the text of statutes, regulations, and excerpts from court opinions quoted within this work. Permission to copy material may be licensed for a fee from the Copyright Clearance Center, 222 Rosewood Drive, Danvers, Mass , telephone (978) An A.S. Pratt Publication Editorial Offices 630 Central Ave., New Providence, NJ (908) Mission St., San Francisco, CA (415) (2015 Pub.4759)

3 Editor-in-Chief & Board of Editors EDITOR-IN-CHIEF Steven A. Meyerowitz President, Meyerowitz Communications Inc. BOARD OF EDITORS Frank W. Abagnale Author, Lecturer, and Consultant Abagnale and Associates Stephen L. Ascher Jenner & Block LLP Thomas C. Bogle Dechert LLP David J. Cook Cook Collection Attorneys David A. Elliott Burr & Forman LLP William J. Kelleher III Robinson & Cole LLP James M. Keneally Kelley Drye & Warren LLP Richard H. Kravitz Founding Director Center for Socially Responsible Accounting Frank C. Razzano Pepper Hamilton LLP Sareena Malik Sawhney Director Marks Paneth & Shron LLP Mara V.J. Senn Arnold & Porter LLP John R. Snyder Bingham McCutchen LLP Jennifer Taylor McDermott Will & Emery LLP Bruce E. Yannett Debevoise & Plimpton LLP The FINANCIAL FRAUD LAW REPORT is published 10 times per year by Matthew Bender & Company, Inc. Copyright 2014 Reed Elsevier Properties SA., used under license by Matthew Bender & Company, Inc. All rights reserved. No part of this journal may be reproduced in any form by microfilm, xerography, or otherwise or incorporated into any information retrieval system without the written permission of the copyright owner. For permission to photocopy or use material electronically from the Financial Fraud Law Report, please access com or contact the Copyright Clearance Center, Inc. (CCC), 222 Rosewood Drive, Danvers, MA 01923, CCC is a not-for-profit organization that provides licenses and registration for a variety of users. For subscription information and customer service, call Direct any editorial inquires and send any material for publication to Steven A. Meyerowitz, Editor-in-Chief, Meyerowitz Communications Inc., PO Box 7080, Miller Place, NY 11764, [email protected], (phone) / (fax). Material for publication is welcomed articles, decisions, or other items of interest. This publication is designed to be accurate and authoritative, but neither the publisher nor the authors are rendering legal, accounting, or other professional services in this publication. If legal or other expert advice is desired, retain iii

4 the services of an appropriate professional. The articles and columns reflect only the present considerations and views of the authors and do not necessarily reflect those of the firms or organizations with which they are affiliated, any of the former or present clients of the authors or their firms or organizations, or the editors or publisher. POSTMASTER: Send address changes to the Financial Fraud Law Report, LexisNexis Matthew Bender, 121 Chanlon Road, North Building, New Providence, NJ Direct inquiries for editorial department to catherine. ISBN: iv

5 DOJ Criminal Division Renews Efforts to Investigate Whistleblower Allegations John S. Irving IV and Timothy D. Belevetz * Department of Justice Criminal Division Assistant Attorney General Leslie Caldwell announced a new process signaling a heightened effort to bring criminal prosecutors into the loop regarding False Claims Act referrals and other whistleblower complaints. This article discusses the newly articulated policy, which highlights significant legal issues surrounding complex parallel civil and criminal investigations. The Department of Justice ( DOJ ) has signaled a heightened effort to bring criminal prosecutors into the loop regarding False Claims Act referrals and other whistleblower complaints. In recent remarks at a conference comprised primarily of plaintiffs lawyers for whistleblowers, DOJ Criminal Division Assistant Attorney General ( AAG ) Leslie Caldwell announced the following: We in the Criminal Division have recently implemented a procedure so that all new qui tam complaints are shared by the Civil Division with the Criminal Division as soon as the cases are filed. Experienced prosecutors in the Fraud Section are immediately reviewing the qui tam cases when we receive them to determine whether to open a parallel criminal investigation. 1 This newly articulated policy should get the attention of every government contractor, physician, hospital, nursing home and other healthcare provider billing Medicare or Medicaid, as well as companies doing business overseas and those regulated by the Securities and Exchange Commission ( SEC ). It also highlights significant legal issues surrounding complex parallel civil and criminal investigations. TAXPAYERS AGAINST FRAUD EDUCATION FUND The venue for AAG Caldwell s remarks was a conference for the Taxpayers Against Fraud Education Fund ( TAFEF ), which is largely funded by whistleblowers and their lawyers. 2 The organization s mission, according to its * John S. Irving is a partner at Holland & Knight LLP, focusing his practice on white collar defense, civil and criminal environmental matters, compliance, internal investigations, and congressional investigations. Timothy D. Belevetz is a partner at the firm and a member of the National White Collar Defense and Investigations and Securities Litigation teams. The authors may be contacted at [email protected] and [email protected], respectively

6 DOJ CRIMINAL DIVISION RENEWS EFFORTS TO INVESTIGATE WHISTLEBLOWER ALLEGATIONS Web site, includes working to maintain the integrity and advance the effectiveness of whistleblower reward and private enforcement provisions in federal and state laws and working to advance public and government support for whistleblower cases. WHISTLEBLOWER LAWS AND PROGRAMS While AAG Caldwell s announcement focused on False Claims Act qui tam lawsuits wherein a private whistleblower files a civil enforcement action on behalf of the federal government, which then has the option to intervene she also highlighted the Fraud Section s experience in a variety of whistleblower cases that are also a focus for TAFEF, such as the following: The False Claims Act The False Claims Act 3 prohibits knowingly making (or causing someone else to file) a false claim to get the government to pay that claim. The act offers qui tam whistleblowers with up to 30 percent of the government s recovery funds and provides a private right of action to the whistleblower to pursue a case even when the government declines to do so. The act initially was intended to address fraudulent suppliers to the Union Army during the Civil War but is now used to address fraud across the spectrum of government contracting and other industries that bill the government. The false claims can be based on any number of certifications and other statements made by contractors or claimants. The government has also aggressively employed the statute in the healthcare sector against doctors and hospitals billing Medicare and Medicaid, as well as medical device manufacturers and pharmaceutical companies that the government claims offer improper kickbacks to induce healthcare providers to use their products which are then billed to Medicare or Medicaid. The SEC s Program The Securities and Exchange Commission s whistleblower program is relatively new. It was part of the Dodd-Frank Wall Street Reform and Consumer Protection Act that was signed by President Obama in The SEC provides 10 to 30 percent of the money collected when an SEC enforcement action leads to over $1 million in sanctions. Those efforts are coordinated by the SEC s Office of the Whistleblower. 4 SEC whistleblower cases often involve mortgage and other kinds of loan fraud and Ponzi schemes. They can also relate to unlawful bribes paid to foreign government officials that are prohibited by the Foreign Corrupt Practices Act, which is jointly investigated by the DOJ and the 3 31 U.S.C et seq

7 FINANCIAL FRAUD LAW REPORT SEC when a company is publicly traded or otherwise SEC-regulated. SEC whistleblowers can come in the form of a company s own audit and compliance personnel, as evidenced by a recent $300,000 reward. 5 Dodd-Frank Act Provisions The Dodd-Frank also contained whistleblower provisions for matters regulated by the Commodity Futures Trading Commission. Like the SEC, the CFTC has a Whistleblower Office, 6 which announced its first award in May The guidelines mirror those of the SEC, with awards of 10 to 30 percent for actions resulting in over $1 million in sanctions. Internal Revenue Service Internal Revenue Service whistleblowers can also obtain 10 to 30 percent of the government s recovery in cases involving more than $2 million in unpaid tax liability. Like the SEC and the CFTC, the IRS has its own Whistleblower Office. 8 There can be a fine line between civil violations knowingly submitting false claims to the government under the False Claims Act, for example and violations of the criminal statutes that the government uses to prosecute fraud. These include: making false statements in connection with federal healthcare programs; 9 healthcare fraud; 10 giving or receiving kickbacks to physicians providing services under federal healthcare programs; 11 securities and commodities fraud; 12 defrauding the government in connection with grants, contracts, loans, etc.; U.S.C. 1320b(a) U.S.C U.S.C. 1320b(b) U.S.C U.S.C

8 DOJ CRIMINAL DIVISION RENEWS EFFORTS TO INVESTIGATE WHISTLEBLOWER ALLEGATIONS basic false statements; 14 and mail and wire fraud 15 violations. The difference is that criminal statutes require knowing and willful misconduct or a knowing intent to defraud the government. COORDINATING PARALLEL CIVIL AND CRIMINAL INVESTIGATIONS In her recent remarks, AAG Caldwell explained that criminal prosecutors will coordinate swiftly with the Civil Division and the U.S. Attorney s Offices about the best ways to proceed in the parallel investigations. She touted the Criminal Division s wealth of experience in successfully bringing parallel investigations and said... We know how to make it work. AAG Caldwell then encouraged the whistleblower lawyers to discuss their cases with criminal prosecutors as they do with their civil counterparts. The government s efforts to coordinate parallel civil and criminal investigations are nothing new. In 1970, the Supreme Court upheld the government s authority to conduct parallel proceedings without violating due process provided it acts in good faith. 16 The current U.S. Attorney s Manual was revised in Both Section , which governs Coordination of Criminal and Civil Fraud Against the Government Cases, 18 and Section , which contains Provisions for the Handling of Qui Tam Suits Filed Under the False Claims Act, 19 advise coordination of efforts between the DOJ s Civil Division Commercial Litigation Branch and its Criminal Division and U.S. Attorney s Offices. What is new is the expanded scope of the internal referral policy. AAG Caldwell s announcement about sharing qui tam complaints is more than the latest implementation of the DOJ s effort to pursue parallel civil and criminal investigations of alleged financial fraud affecting the federal government. On Jan. 30, 2012, Attorney General Eric Holder issued a memorandum instructing civil and criminal investigators to share information to the fullest extent U.S.C U.S.C. 1341, United States v. Kordel, 397 U.S. 1 (1970). 17 Similar language is contained in the 1988 version at , archive/usao/usam/1988/title9criminaldivisionchapters41-60.pdf Id. See also DOJ s Criminal Resources Manual 932, foia_reading_room/usam/title9/crm00932.htm. 99

9 FINANCIAL FRAUD LAW REPORT appropriate to the case and permissible by law. 20 The memorandum instructs all litigating components, including the Criminal Division, to create policies and procedures to ensure coordination at the intake, investigation and resolution phases of investigations. The Criminal Division has now apparently finalized its policies and procedures to include a review of all qui tam complaints. WHAT DOES THIS MEAN FOR CLIENTS AND THEIR COUNSEL? What does this mean for those who may find themselves in the investigative crosshairs of the government? Clients and their counsel need to navigate the potential troubled waters of a parallel investigation carefully. Parallel civil and criminal investigations present unique issues that can complicate matters for both the government and the subject of the investigation. Clients should be aware, for example, that the government both the civil and criminal sides has no obligation to disclose the existence of a parallel investigation or whether a referral has been made. In addition, while criminal prosecutors and agents cannot disclose grand jury information to their civil counterparts without a court s permission, they can share evidence obtained through other means, including search warrants and undercover operations. Counsel needs to watch for the possibility that criminal prosecutors are directing a civil investigation for the purpose of obtaining information through civil means that they might not be able to obtain through criminal processes. Civil DOJ attorneys need to avoid affirmatively misleading parties in civil investigations into believing that a parallel criminal investigation does not exist. Counsel in civil investigations needs to weigh an individual s Fifth Amendment right not to incriminate themselves against the potential for a court-ordered negative inference jury instruction in a civil case for refusing to answer questions. Both the government and private litigants need to evaluate how a resolution in one arena and the timing of that resolution might affect a resolution in the other. Two cases illustrate some of those complications. The 2012 Attorney General Memorandum contains the following footnote: When conducting parallel investigations, Department attorneys should 20 The Memorandum is contained in DOJ s Organization and Functions Manual at 27 ( It is incorporated into the U.S. Attorney s Manual at ( reading_room/usam/title1/12mdoj.htm). 100

10 DOJ CRIMINAL DIVISION RENEWS EFFORTS TO INVESTIGATE WHISTLEBLOWER ALLEGATIONS be mindful of arguments like those raised in Stringer 21 and United States v. Scrushy, 22 that civil, administrative, or regulatory proceedings are being used improperly to further a criminal investigation.... In the Stringer case, the Ninth Circuit reversed a district court s ruling that the government violated a criminal defendant s due process rights when it shielded the existence of a criminal investigation during an SEC investigation. The court held that the SEC did not affirmatively mislead the defendant about the existence of a criminal investigation, as evidenced by warnings in the form that the SEC provides to persons supplying information to the SEC that say it may share information with other agencies, including criminal authorities. The Scrushy case, however, went the other way. The district court dismissed the defendant s civil SEC deposition testimony and related perjury counts of the indictment because the civil and criminal investigations became inescapably intertwined after the criminal prosecutor manipulated which questions were and were not asked at the civil deposition and influenced where the deposition occurred so as to create venue for the criminal perjury case. CONCLUSION In short, while the coordination by the Justice Department s Civil and Criminal Divisions to investigate whistleblower allegations under the False Claims Act s qui tam provision and other statutes is not new, the DOJ clearly has refocused its efforts. Organizations, individuals, and attorneys involved in civil investigations should therefore be aware of the real possibility of a parallel criminal investigation and the issues that will arise. 21 United States v. Stringer, 535 F.3d 929 (9th Cir. 2008) F.Supp. 2d 1134 (N.D. Ala. 2005). 101