The IRS, SEC and CFTC Whistleblower Programs

I have written several blog entries about a great conference I attended
in Washington, D.C. The conference was sponsored by
Taxpayers Against Fraud, and was attended by about 300 Government and private lawyers from all
over the country.

Most of the sessions involved the False Claims Act, which is found at
31 U.S.C. § 3729, et seq. The FCA really is the granddaddy when it comes to whistleblower
cases, being by far the oldest and most frequently used qui tam statute.
(A qui tam statute is one that allows an individual who has information
about fraud against the government to sue on behalf of the government
to force the company that got the money by fraud to pay it back.)

At the same time, however, the United States actually has a cluster of
statutes that allow whistleblowers to come forward about fraud. Some of
these statutes are not true qui tam statutes, because they do not allow
the whistleblower to bring the case or prosecute it, but they do allow
the whistleblower to recover a percentage of all that gets returned to
the government’s coffers as a result of what the whistleblower did.

For example, Congress has enacted whistleblower provisions that cover the
IRS (Internal Revenue Service, but then you knew that!) and the SEC (Securities
and Exchange Commission) and CFTC (Commodity Futures Trading Commission).
One of the absolute highlights of our recent conference was that the men
who head the whistleblower offices in all three of these agencies came
to talk to us about what they are doing in their offices when it comes
to implementing the whistleblower provisions set out by Congress.

Vincent Martinez is the Director of the
CFTC Whistleblower Office. The CFTC whistleblower provisions are different in that they do not require
scienter or fraud, but simply any violation of the CFTC Act. Like the
other whistleblower statutes, the CFTC does a rule that prefers the “first-to-file”
over anyone who reports the same fraud later on. However, Mr. Martinez
encouraged people with information to file their information, even “in
the eleventh hour”, because the rules that govern his office are
set up to allow the agency to consider a significant contribution to the
effort as one of the elements in deciding whether to make an award. Mr.
Martinez said that whistleblower filings in his office are not increasing
at the rate the SEC is seeing, but that he believes the primary barrier
is the complexity of the CFTC. The whistleblowers have been traders out
in the markets, competitors and, of course, victims of violations of the
CFTC rules. The violations that have been reported have included spread
trading and debt security and related derivative offerings.

Mr. Martinez said that his office sends a letter to the whistleblower stating
that the whistleblower will hear nothing from the CFTC until the matter
becomes public. I hope Mr. Martinez and his office will reconsider that
position as time goes on. Of course, the CFTC whistleblower provisions
are quite new, and it will take time for the office to become comfortable
with how the whistleblowers will act during and on behalf of their investigation.
In the context of the FCA, however, the Government has found that whistleblower
statutes can create a highly successful private-public partnership. The
lawyer for the whistleblower can expand the legal pool available to the
Government, freeing the Government up to handle more cases, and also can
assist with both the manpower and the financing needed for the extensive
trials required in these cases.