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Archive for March, 2012

SEC Makes Use of Whistleblower Tips

Tuesday, March 20th, 2012

The SEC’s new whistleblower program which was effective in early August 2011, has improved the quality of tips reported to the SEC and has resulted in numerous large suits. Recently, a tip given to the SEC by an accounting executive of a company on the edge of going public, had information concerning misleading financial statements, and had kick-started a SEC investigation. This is just one of many internal investigations and SEC inquiries that have originated from whistleblower tips under the new program.

Some company insiders are also taking advantage of the program. An insider who felt uneasy about a business deal that he had worked on presented his concerns to the SEC and in turn, the SEC uncovered other deals within the company that had likely problems.

Whistleblowers may be former employees ranging from an insider, as in the case above, who has had some connection to the wrongdoing to those who witness the wrongdoing but aren’t connected. Some whistleblowers submit tips completely on their own, while some are anonymous and only share their information through their attorneys.

Information on the program can be found at: http://www.sec.gov/whistleblower

Read more: http://www.ft.com/cms/s/0/15e5a89c-6a27-11e1-b54f-00144feabdc0.html#axzz1pIAwqSng

Dodd-Frank Whistleblower Provisions are Attracting Increased Submissions to Government regulators

Tuesday, March 20th, 2012

The Financial Times reports that the new SEC and CFTC whistleblower provisions of the Dodd-Frank law of 2010 has caused an increase in reliable tips to federal regulators.  Sean McKessy, head of the SEC Whistleblower Office indicated that the SEVC has received a number of tips with signs of reliability either because they are coming from someone working at the company or there is a sufficient amount of specificity. 

For more information, please see:
http://www.ft.com/intl/cms/s/0/15e5a89c-6a27-11e1-b54f-00144feabdc0.html?ftcamp=published_links/rss/companies_us/feed//product#axzz1p71Sp0SW

New Publication on IRS Whistleblower Program

Tuesday, March 20th, 2012

The IRS has recently published “Rewards and Awards for Information relating to Violations of Internal Revenue Laws; Final Regulations.” The 8-page documents contains final regulations regarding the payment of awards under the Whistleblower program.  The new publication clarifies definitions concerning “proceeds of amounts collected” and “collected proceeds” for purposes of determining whether to pay an award to a whistleblower.  Now the program will allow an award to also be based on amounts collected  if the information results in denial of a claim for refund, or a reduction of an overpayment credit balanced used to satisfy a tax liability. 

For more information, please see:
https://s3.amazonaws.com/public-inspection.federalregister.gov/2012-03989.pdf

Second Circuit Court of Appeals May Uphold Citigroup Settlement with the SEC

Tuesday, March 20th, 2012

Several months ago we reported about Judge Jed Rackoff’s rejection of a settlement between the SEC and Citigroup for its marketing of collateralized debt obligations.  The judge found insufficient facts that the settlement was reasonable or in the public interest because Citibank would not admit to liability.   That decision is now on appeal to the United States Court of Appeals for the Second Circuit.  That court recently stayed Judge Rackoff’s order, concluding that the parties had shown a substantial likelihood of prevailing on appeal.  Addressing the issue of the propriety of the stay, the Court of Appeals rejected Judge Rackoff’s reasoning that settlement without an admission of liability failed to serve the public interests because the rationale prejudged whether the SEC could prevail at trial.  The court also found that requiring an admission of liability could undermine the ability to settle.  They also rejected Judge Rackoff’s finding that the settlement was unfair to Citigroup.  The Court of Appeals reasoned that Citigroup was in the best position to gauge its best interests.  Although the Court of Appeals will later rule on the merits of Judge Rackoff’s decision, the ruling on the stay provides a preview of what is likely to come in the opinion. 

For more information, please see:
http://www.dandodiary.com/2012/03/articles/securities-litigation/second-circuit-rebuffs-rakoff-grants-stay-to-hear-appeal-on-settlement-ruling/?utm_source=feedburner

Flagstar Becomes the Latest Bank to Settle False Claims Act Case

Monday, March 5th, 2012

In the flurry of litigation following the mortgage crisis and on the heels a $158 million deal with Citigroup and a $1 billion settlement with Bank of America, Flagstar has agreed to pay $133 million to settle civil allegations that it improperly approved mortgage loans to be insured through a Federal Housing Administration (FHA) program. Flagstar admitted as part of the settlement that loans it underwrote and certified as eligible for FHA insurance did not comply with federal underwriting requirements and that many of the certifications were false.

The Justice Department’s complaint focused, amongst other things, on the financial incentives that Flagstar developed during the mortgage boom. It’s alleged that Flagstar set quotas for underwriters and paid incentive awards for those underwriters who beat their quota. In 2008 alone it awarded ten underwriters with at least $30,000 in incentive awards. A review of those underwriters’ loans showed that they had a higher default rate than average at Flagstar. Given that the Justice Department still has two other mortgage related cases pending, including a $1 billion suit against Deutsche Bank, we can expect to see additional litigation and possible settlements in the future.

For more information see:
http://www.washingtonpost.com/business/industries/flagstar-pays-133-million-to-settle-claims-it-defrauded-government-of-mortgage-insurance/2012/02/25/gIQABAs3ZR_story.html

FCA Champion Takes Over Number Three Spot at DOJ

Monday, March 5th, 2012

In a move that should have whistleblowers rejoicing, Tony West is taking over the position of associate attorney general at the Justice Department. West, who has been the head of the Justice Department’s Civil Division since 2009 is taking over for Thomas Perrilli, who leaves the position after three years. The associate attorney general position is largely considered to be defined by the lawyer who holds it, and if West’s focus while heading the Civil Division is any indication, we can expect to see an uptick in False Claims Act enforcement. Since January 2009, the Civil Division has recovered more than $8.8 billion, the highest three year total in department history, all while under West’s watch. West will be replaced in the Civil Division by Stuart Delery, senior counsel to Attorney General Eric Holder.

For more information see:
 http://blogs.wsj.com/law/2012/02/27/justice-department-names-a-new-no-3/

 

 
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