Whistleblower Lawyer Blog

How to pay for health care in the United States, as costs inexorably grow?

The IRS Whistleblower Program may help by narrowing the "tax gap"--the difference between taxes owed and taxes paid each year. Treasury's latest estimate is that $345 billion owed remains uncollected from those who engage in tax fraud, tax evasion, and other tax noncompliance. ("Update on Reducing the Federal Tax Gap and Improving Voluntary Compliance").

Senate Finance Committee Chair Max Baucus, D-Mont., raised this tax gap with the next IRS Chief Counsel, William J. Wilkins, on July 14: "We're right now trying to figure how to pay for healthcare reform," Baucus told Wilkins. "And it's ironic that coincidentally, the amount we are trying to raise is that amount."

The new IRS Whistleblower Program should dramatically improve the IRS's efforts to close that tax gap. In December 2006, Congress authorized rewards of 15-30% paid to IRS whistleblowers who provide information that assists the IRS in collecting amounts owed to the IRS.

For the first time, IRS whistleblowers have an enforceable "right" to receive a reward. Early indications from the clients who have contacted us are that many substantial claims are being presented, including claims of over $1 billion owed to the IRS. (To see how the IRS Whistleblower Program works, see excerpts of this interview with IRS Whistleblower Office Director Steve Whitlock.)

Even the SEC is examining the success to date of the IRS program, in determining how the SEC might encourage and reward whistleblowers who come forward to reveal the next Madoff or Stanford.

Whistleblowers with solid information will help close the tax gap, and avoid imposing new taxes on the rest of the law-abiding Americans who pay their taxes.

Continue reading "Can IRS Whistleblower Program Help Offset Cost of Health Care Overhaul?" »

At the 20th Annual Convention of NELA, the National Employment Lawyers Association, I recently had the pleasure of moderating a panel discussion of some of the country's top "whistleblower" lawyers. The topic was "The Most Pressing Issues in Representing Whistleblowers."

Joining me in this panel discussion were Richard Renner and David J. Marshall. Richard is an attorney with Kohn & Colapinto in Washington, DC. and also serves as Legal Director of the National Whistleblowers Center. David is a partner with Katz, Marshall & Banks, LLP in DC.

The discussion included:

(1) the brand new Amendments to the False Claims Act that became law on May 20, 2009;

(2) "winning" cases and clients;

(3) what documents and other evidence may lawfully be gathered;

(4) protecting clients who may have been forced to participate in unlawful acts, and who therefore may face liability or prosecution themselves; and

(5) presenting cases most effectively to capture the government's interest.

In addition, we discussed the new IRS Whistleblower Program, in this second consecutive year that NELA invited me to participate in its national convention's panel discussion of whistleblower issues. Audience members had many excellent questions during and after the discussion.

After our session, my friend Mark Kleiman led a discussion of whistleblower issues entitled "The California False Claims Act & Other Whistleblower Cases." Joining Mark were J. Bernard Alexander III and Wilmer J. Harris.

Much thanks to NELA's fine Board and Executive Director Teri Chaw in arranging this terrific conference in Rancho Mirage, California.

Could a meaningful SEC "whistleblower" program prevent the next Madoff or Stanford debacle? The SEC and legislators are now seriously considering that question. That Madoff managed to defraud investors for so long proves that the current system is inadequate.

Past experience proves that incentives to whistleblowers to report illegal acts work. The nation's primary "anti-fraud" statute that protects federal funds, the False Claims Act, has been extremely successful in encouraging whistleblowers to come forward by allowing them to share in the government's recovery.

As we have written about extensively on this whistleblower lawyer blog, based on the successes of the False Claims Act in fighting and deterring fraud, Congress has encouraged states to enact their own similar state false claims acts with incentives for whistleblowers to expose fraud (and almost half of the states now have such laws).

Likewise, in December 2006 Congress created the first meaningful IRS Whistleblower Program, which we regularly follow here. At present, the IRS Whistleblower Program created in December 2006 may help ferret out some SEC violations when the violator also has significant tax liability to the IRS.

Hedge fund abuses with tax consequences are already the subject of some IRS Whistleblower claims, and more will follow as the IRS Whistleblower Program gains notoriety. Based on our dealings with the IRS in pursuing these claims, this IRS Whistleblower Program has great promise.

But the IRS provisions simply do not cover all of the wrongdoing that goes on. Thus, the SEC desperately needs its own "whistleblower" program, with meaningful incentives to encourage citizens who report wrongdoing.

The SEC's existing "whistleblower" provisions are too limited to be effective. 15 U.S.C. § 78U-1(e) authorizes a "bounty" to whistleblowers of what is effectively 0-10% of civil penalties paid in insider trading cases. (See full text here.) Thus, the SEC's existing incentives are limited to insider trading cases, and do not address any other securities laws violations.

Like the "old" IRS Whistleblower rewards, very few awards have been made by the SEC, even in insider trading cases. Moreover, there is no "right" to a reward even if the whistleblower's information causes the government to recover money from wrongdoers. A system of small, discretionary, and infrequent payments is simply ineffective to cause whistleblowers to come forward.

We understand that the SEC has been looking to correct this gap in protecting investors. This week, Rep.Paul E. Kanjorski (D-PA), the Chairman of the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises, released a letter from U.S. Securities and Exchange Commission (SEC) Inspector General H. David Kotz. The IG seems to understand the need to modernize the SEC's incentives to whistleblowers, in his recommendations below:

Continue reading "New SEC Whistleblower Program & Hedge Fund Investor Protections On Way, to Supplement IRS Whistleblower Program? Congress & SEC Consider Changes After Madoff, Stanford Schemes " »

The statute authorizing the SEC in insider trading cases to pay whistleblowers "bounties" of up to 10% of civil penalties is below. (See our separate post discussing why the SEC needs a new, meaningful whistleblower program to help stop the next Madoff scheme.)

Continue reading "SEC "Bounties" for Whistleblowers--The Statute" »