Whistleblower Lawyer Blog

In "Protecting Whistleblowers from Criminal Prosecution," we expressed our amazement at how UBS "whistleblower" Brad Birkenfeld got himself prosecuted for a federal felony while attempting to set himself up for rewards through the new IRS Whistleblower Program. Birkenfeld's case is highlighted in recent articles by Lynnley Browning in Friday's New York Times and by Martha Brannigan in Saturday's Miami Herald.

To attorneys with prosecution experience who represent whistleblowers, it is shocking that Birkenfeld apparently missed a clear opportunity to avoid prosecution altogether by simply "coming clean" and telling the whole truth about his own actions at the outset.

We have a much different take on Birkenfeld's case than those who suggest it should scare away potential IRS whistleblowers. Whistleblowers who are willing to tell the truth from the start can easily avoid Birkenfeld's fate, so long as they follow the law and counsel's advice to disclose all. At the same time, we take issue with critics who say Birkenfeld should not even be considered for an IRS Whistleblower reward, since the "rule of law" should determine the answer to that question.

First, Birkenfeld's case should make other potential IRS whistleblowers careful about pursuing IRS whistleblower claims, but not fearful. Most IRS whistleblowers face no realistic chance of prosecution, especially since the government often must depend on whistleblower information to make cases.

Even those relatively few whistleblowers with possible exposure such as Birkenfeld (who admitted to engaging in a tax fraud scheme) can often negotiate protection from prosecution, but only if they tell the whole truth from the start, and follow the rules for obtaining protection. This was a topic in the "IRS Whistleblower Boot Camp" panel discussion that I led this past March, with panelists including IRS Whistleblower Office Director Steve Whitlock--how to protect the whistleblower who has potential exposure.

Why Birkenfeld apparently thought he could get away with withholding information from the government about his own wrongdoing--a foolish move to us--remains a mystery, even after we reviewed his sentencing transcript. That horrendous judgment call distinguishes Birkenfeld's case from all other whistleblower cases we have seen.

At Birkenfeld's sentencing, prosecutor Kevin Downing explained that Birkenfeld's information was extremely valuable to the IRS, and that Birkenfeld probably would not have been prosecuted had he simply been forthcoming by disclosing his own misconduct in assisting tax evasion:

"BUT FOR MR. BIRKENFELD FAILING TO DISCLOSE HIS INVOLVEMENT WITH THE FRAUD AND THE U.S. CLIENTS THAT HE AIDED AND ASSISTED IN TAX EVASION, I BELIEVE WE WELL WOULD HAVE NONPROSECUTED MR. BIRKENFELD. BUT GIVEN THE FACT THAT HE REFUSED TO PROVIDE THAT INFORMATION AND LED US DOWN A COURSE WHERE WE HAD TO START [TO] INVESTIGATE MR. BIRKENFELD AND HIS ACTIVITIES, THAT IS WHY WE ARE HERE TODAY, THAT IS WHY HE WAS INDICTED, AND THAT'S WHY HE PLED." (Birkenfeld Sentencing Tr. 12-13)(emphasis supplied).

Continue reading "IRS Whistleblower Rewards to Convicted UBS Whistleblower Birkenfeld? The Rule of Law Will Sort It Out." »

We have followed with great interest the IRS Voluntary Disclosure Program, especially after the UBS settlement created fear of discovery in many U.S. taxpayers with offshore accounts.

IRS Commissioner Doug Shulman announced that the IRS Voluntary Disclosure Program was flooded with submissions by more than 14,000 taxpayers, according to the Wall Street Journal.

IRS Whistleblower cases have been impacted--and in some cases probably pre-empted--by the submissions of recalcitrant taxpayers to the IRS Voluntary Disclosure Program. The IRS Criminal Investigative Division in certain areas has been inundated.

It will be fascinating to see the progress of IRS recoveries as a result of these voluntary disclosures by taxpayers.

Since the Madoff and Stanford schemes proved ruinous to so many investors, many have asked why the SEC has no meaningful "whistleblower" program to expose wrongdoing, a topic we have written about previously.

Perhaps Harry Markopolis' voice is finally being heard, albeit faintly. Last week, the House Financial Services Committee approved legislation that would expand both whistleblower rewards and whistleblower protections, among other things.

Still, past experience with the False Claims Act and the IRS Whistleblower statute shows that the proposed rewards need to be beefed up to be effective.

The “Investor Protection Act of 2009” (excerpted below) also would increase the SEC’s budget and make other changes designed to strengthen enforcement.

The new rewards to whistleblowers would be up to 30% of monetary sanctions of more than $1 million:

"In any judicial or administrative action brought by the Commission under the securities laws that results in monetary sanctions exceeding $1,000,000, the Commission, under regulations prescribed by the Commission and subject to subsection (b), may pay an award or awards not exceeding an amount equal to 30 percent, in total, of the monetary sanctions imposed in the action or related actions to one or more whistleblowers who voluntarily provided original information to the Commission that led to the successful enforcement of the action."

The proposed new whistleblower rewards are reminiscent of those under the new IRS Whistleblower Program, but need at least two corrections to be effective.

First, the current SEC bill creates no enforceable "right" to a reward--a defect that made the old IRS Whistleblower statute ineffective before it was amended in December 2006.

Second, there should be a minimum percentage of perhaps 15% for the SEC rewards; it should not be left at 0-30%, as the bill now reads. Who would risk a 1% (or even lower) reward? The False Claims Act only became effective after 1986 amendments increased rewards to at least 15% in most cases. The new IRS Whistleblower law is attracting whistleblowers left and right because it provides for a minimum of 15% in most instances.

The proposed SEC law has one advantage over the IRS version: The IRS law unfortunately omits protection of whistleblowers from retaliation, but the proposed SEC whistleblower provisions would provide a remedy similar to that furnished whistleblowers under the False Claims Act. Here is what the proposed bill states (in part):

"An employee, contractor, or agent prevailing in any action brought under subparagraph (B) shall be entitled to all relief necessary to make that employee, contractor, or agent whole, including reinstatement with the same seniority status that the employee, contractor, or agent would have had, but for the discrimination, 2 times the amount of back pay, with interest, and compensation for any special damages sustained as a result of the discrimination, including litigation costs, expert witness fees, and reasonable attorneys' fees."

The bill's proposed SEC whistleblower language is below; the entire bill may be found here:

Continue reading "New SEC Whistleblower Rewards and Whistleblower Protections Approved by House Committee--But Improvements Are Needed" »