Justices Rebuke Appeals Court for Overlooking High Court Precedent on Unduly Prejudicial Evidence – SCOTUS Today
The U.S. Supreme Court’s decision today in Andrew v. White merits at least passing attention. Though a capital murder case—not the sort of case that most of this blog’s readers are ever likely to confront—it provides a useful discussion of how holdings of the Supreme Court, or the fact of the Court’s having no precedent at all, should be applied to lower court proceedings.
In the case at bar, an Oklahoma jury convicted Brenda Andrew of murdering her husband and sentenced her to death. At trial, the state adduced substantial evidence concerning Ms. Andrew’s adulterous sex life and her failings as a wife and mother. In response to a subsequent habeas petition, the state conceded that much of this evidence was irrelevant. Ms. Andrew predictably contended that its admission violated the Due Process Clause. The U.S. Court of Appeals for the Tenth Circuit rejected that claim because it assumed that no holding of the Supreme Court established a general rule that the erroneous admission of prejudicial evidence could violate due process. In a per curiam decision, the Supreme Court held that the circuit court “was wrong. By the time of Andrew’s trial, this Court had made clear that when ‘evidence is introduced that is so unduly prejudicial that it renders the trial fundamentally unfair, the Due Process Clause of the Fourteenth Amendment provides a mechanism for relief.’ Payne v. Tennessee, 501 U. S. 808, 825 (1991).”
Having erroneously assumed that no relevant, clearly established law existed, the lower court never considered whether the state court’s application of such law was reasonable. Thus, on remand, the Tenth Circuit must initially consider whether a fair-minded jurist could disagree with Andrew that the trial court’s mistaken admission of irrelevant evidence was so “unduly prejudicial” as to render her trial “fundamentally unfair.” See Payne at 825. “The Court of Appeals must ask that question separately for the guilt and sentencing phases. As to each phase, it might consider the relevance of the disputed evidence to the charges or sentencing factors, the degree of prejudice Andrew suffered from its introduction, and whether the trial court provided any mitigating instructions.”
Justice Alito concurred in the judgment “because our case law establishes that a defendant’s due-process rights can be violated when the properly admitted evidence at trial is overwhelmed by a flood of irrelevant and highly prejudicial evidence that renders the trial fundamentally unfair.” He emphasized that he left open the question, to be determined on remand, of whether the high standard for such a conclusion had been met here.
Justice Thomas, joined in dissent by Justice Gorsuch, opined on the question of whether there was, in fact, “clearly established federal law” for the trial court to have applied in this case. He expressed his view that the Court’s “precedent under the Antiterrorism and Effective Death Penalty Act of 1996 (AEDPA) establishes several rules for identifying clearly established federal law. 28 U. S. C. §2254(d)(1),” adding:
We have instructed lower courts to avoid framing our precedents at too high a level of generality; to carefully distinguish holdings from dicta; and to refrain from treating reserved questions as though they have already been answered. The Tenth Circuit followed these rules. The Court today does not. Instead, it summarily vacates the opinion below for failing to elevate to “clearly established” law the broadest possible interpretation of a one-sentence aside in Payne v. Tennessee, 501 U. S. 808 (1991). In doing so, the Court blows past Estelle v. McGuire, 502 U. S. 62 (1991), which, months after Payne, reserved the very question that the Court says Payne resolved. And, worst of all, it redefines “clearly established” law to include debatable interpretations of our precedent. It is this Court, and not the Tenth Circuit, that has deviated from settled law.
One notes that this is a highly contentious view that seven other Justices—across the spectrum of jurisprudential philosophy—have not accepted. However, the dissenters have posited a division that will likely come up in future cases, and not just criminal ones.
DOJ Announces False Claims Act Settlements, Judgments Top $2.9 Billion in 2024
Highlights
FCA settlements and judgments exceeded $2.9 billion in FY 2024
Healthcare fraud remained a leading source of FCA settlements and judgments, with over $1.67 billion of the $2.9 billion recovered relating to matters involving the healthcare industry
Among the government’s top enforcement priorities for FY 2024 were the opioid epidemic and Medicare Advantage matters
On Jan. 15, 2025, the U.S. Department of Justice (DOJ) announced False Claims Act (FCA) settlements and judgments exceeded $2.9 billion in the fiscal year (FY) ending Sept. 30, 2024. According to the DOJ, the government and whistleblowers were party to 558 settlements and judgments, while whistleblowers filed 979 qui tam lawsuits, the highest number ever filed in a single year.
Recoveries in whistleblower lawsuits totaled more than $2.4 billion, comprising around 83 percent of all FCA recoveries in FY 2024.
In comparison, FY 2023 settlements and judgments totaled just $2.68 billion based on 543 settlements and judgments. Approximately $2.3 billion of that was derived from whistleblower lawsuits – a number just shy of FY 2024’s.
Matters pertaining to the healthcare industry comprised the largest portion of FCA FY 2024 settlements and judgments. Recoveries for healthcare-related matters totaled over $1.67 billion, making up around 58 percent of all recoveries in FY 2024. Notably, this portion marks a slight decrease from FY 2023’s healthcare-related recoveries, which totaled $1.8 billion (approximately 68 percent of total FCA settlements and judgments). These matters involved a variety of healthcare defendants, including managed care providers, hospitals, clinics, pharmacies, pharmaceutical companies, laboratories, and physicians.
Enforcement Priorities
In conjunction with its release of FCA enforcement data, the DOJ highlighted the opioid epidemic, unnecessary services, substandard care, Medicare Advantage, unlawful kickbacks, Stark Law violations, and COVID-19 related fraud as specific enforcement priorities.
Illustrating these priorities, the most notable FCA recoveries from the past year include:
Opioid Epidemic: A now-bankrupt pharmaceutical company agreed the United States retained a claim in the bankruptcy of $475.6 million related to allegations of marketing an opioid drug to high-volume prescribers, including prescribers that the company knew were prescribing the opioid drug for non-medically accepted uses.
Unnecessary Services and Substandard Care: A healthcare system and 12 affiliated skilled nursing facilities agreed to pay $21.3 million to resolve allegations that they knowingly billed federal healthcare programs for therapy services that were unreasonable, unnecessary or unskilled, or did not occur as billed.
Medicare Advantage Matters: A primary care chain paid $60 million to resolve allegations that it paid kickbacks to third-party insurance agents in exchange for recruiting seniors to primary care clinics.
Unlawful Kickbacks and Stark Law Violations: A biopharmaceutical research service provider agreed to pay over $5 million to resolve allegations that it made millions of dollars of commission payments to independent-contractor marketers to induce the marketers to recommend providers refer clinical laboratory orders to the company.
COVID-19-Related Fraud: A Georgia laboratory owner and the clinical laboratory he owned paid $14.3 million to resolve allegations that they paid kickbacks to independent contractor sales representatives to recommend respiratory pathogen panel tests to senior communities interested only in COVID-19 tests.
The DOJ also reported other notable healthcare fraud enforcement actions from the past year, including a national pharmacy chain’s multimillion-dollar settlement to resolve allegations related to failures to report drug rebates to the Medicare program.
Takeaways
Healthcare fraud continues to be a leading focus of the DOJ’s enforcement efforts. This continued focus reflects the government’s commitment to addressing fraudulent activities across various sectors of the healthcare industry. The record-breaking number of qui tams demonstrates the willingness of whistleblowers to pursue FCA claims without the government’s assistance. To minimize potential liability under the FCA, entities in the healthcare industry should consider prioritizing compliance reviews of policies surrounding the government’s enforcement priorities discussed above.
For a robust analysis of the most notable FCA developments of 2024, please reference Barnes & Thornburg’s 2024 Healthcare Enforcement and Compliance Report, set to be released in early 2025. Addressing FCA developments, enforcement trends, civil and criminal actions, industry guidance and government policy updates, the 2023 Healthcare Enforcement and Compliance Report was released earlier this year.
SEC Settlement Highlights Importance of Proper Disclosure Requirements for Private Fund Managers
On January 10th 2025, the Securities and Exchange Commission (SEC) settled charges against two fund managers (collectively the “Fund Managers”)[1] and their sole owner, chief executive office, chief compliance office and founder (the “Founder”)[2].
The SEC alleged the Founder and the Fund Managers had breached their fiduciary duties owed to the private equity funds managed by the Fund Managers (the “Private Funds”) and related compliance program deficiencies. Specifically, the SEC asserted the Founder and the Fund Managers: (i) impermissibly charged certain expenses to the Private Funds from January 2019 through December 2023 instead of paying such expenses themselves and in so doing failed to disclose the resulting conflicts of interest and (ii) improperly submitted vague and unsubstantiated invoices to the Private Funds without taking reasonable steps to confirm the Private Funds were the proper payees.
Improper Expenses
The SEC raised three specific improper expenses that it viewed as Fund Manager costs that were improperly charged to the Private Funds.
Prior to January 2019, the Fund Managers employed and paid the salary of a full-time, in house chief financial officer (the “CFO”), who provided services to the Fund Managers and not to the Private Funds. When to the CFO left, the Fund Managers outsourced those financial services (totaling approximately US$1.3millon from January 2019 to December 2023) to third-party financial firms and charged those services to the Private Funds. Similarly, in May 2019, a public relations provider was paid by and worked for one of the Fund Managers providing strategic communications and public relations services. However, when re-engaged in 2022, that expense (totaling approximately US$214,000) was instead charged to the Private Funds. Lastly, a legal expense (approximately US$91,000) was charged to one of the Private Funds, but the SEC asserted that more than 70% of those expense were for services performed for the Fund Manager.
In each case, the SEC noted the expenses at issue were not listed or disclosed in the applicable Private Fund governing documents or private placement memorandum as permitted fund expenses, and that when the applicable Fund Manager changed its prior practices and instead held the applicable Private Fund responsible for such expenses, it failed to fully and fairly disclose the payment and the resulting conflict of interest to the investors of the corresponding Private Fund.
Unsupported and Unspecified Expenses
The SEC also took issue with the Fund Managers’ supporting documentation and approval processesfor the improper expenses allocated to the Private Funds, noting that vague and unsubstantiated invoices for amounts to be borne by the Private Funds included generic invoices that described the expenses as “various expenses”, “expense reimbursement”, “due to management Co.” and nothing more, and generic credit card reimbursements with insufficient or no back up or further description including for the Founder’s living and business expenses as well as credit cards held by his family members.
The Settlement between the parties censured the Fund Managers and the Founder for violating the anti-fraud provisions of Sections 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rules 206(4)-7 and 206(4)-8(a)(2). Without admitting or denying the SEC’s findings, the Fund Managers, and the Founder consented to the entry of the order and agreed to pay a civil money penalty of US$250,000 in addition to disgorgement of over US$1.5 million, prejudgment interest of approximately US$272,000.
This order highlights the importance of:
Clearly drafted private fund governing document provisions outlining, in detail, the expenses to be borne by the private fund and expenses to be borne by the manager and its affiliates.
Policies and procedures that are reasonably designed to ensure that expenses are allocated in accordance with the applicable private fund governing documents and that require appropriate, clear and supporting records and documented approval processes.
Established processes to timely review expense allocation practices and related recordkeeping, in particular, in cases of changes in a manager’s favor, such as allocating ongoing expenses previously paid by the manager to a fund and considering if such changes require disclosure to the investors of the impacted private fund.
It is notable here, that the issues for the Fund Managers appear to begin with the departure of the Fund Mangers’ CFO. Fund managers must ensure that they consistently have the appropriate internal staffing and third-party professional services firms’ support to appropriately operate their businesses in accordance with the governing documents of their private funds and related law.
[1] During the periods in question through March 2024, one Fund Manager was a registered investment adviser with the SEC with the other Fund Manager electing to file as a relying adviser thereof.
[2] In the Matter of ONE THOUSAND & ONE VOICES MANAGEMENT, LLC; FAMILY LEGACY CAPITAL CREDIT MANAGEMENT, LLC and HENDRIK F. JORDAAN.
U.S. Treasury Department’s Final Rule on Outbound Investment Takes Effect
On January 2, 2025, the U.S. Department of the Treasury’s Final Rule on outbound investment screening became effective. The Final Rule implements Executive Order 14105 issued by former President Biden on August 9, 2023, and aims to protect U.S. national security by restricting covered U.S. investments in certain advanced technology sectors in countries of concern. Covered transactions with a completion date on or after January 2, 2025, are subject to the Final Rule, including the prohibition and notification requirements, as applicable.
The Final Rule targets technologies and products in the semiconductor and microelectronics, quantum information technologies, and artificial intelligence (AI) sectors that may impact U.S. national security. It prohibits certain transactions and requires notification of certain other transactions in those technologies and products. The Final Rule has two primary components:
Notifiable Transactions: A requirement that notification of certain covered transactions involving both a U.S. person and a “covered foreign person” (including but not limited to a person of a country of concern engaged in “covered activities” related to certain technologies and products) be provided to the Treasury Department. A U.S. person subject to the notification requirement is required to file on Treasury’s Outbound Investment Security Program website by specified deadlines. The Final Rule includes the detailed information and certification required in the notification and a 10-year record retention period for filing and supporting information.
Prohibited Transaction: A prohibition on certain U.S. person investments in a covered foreign person that is engaged in a more sensitive sub-set of activities involving identified technologies and products. A U.S. person is required to take all reasonable steps to prohibit and prevent its controlled foreign entity from undertaking transaction that would be a prohibited transaction if undertaken by a U.S. person. The Final Rule contains a list of factors that the Treasury Department would consider whether the relevant U.S. person took all reasonable steps.
The Final Rule focuses on investments in “countries of concern,” which currently include only the People’s Republic of China, including Hong Kong and Macau. The Final Rule targets U.S. investments in Chinese companies involved in the following three sensitive technologies sub-sets: semiconductor and microelectronics, quantum information technologies and artificial intelligence. The Final Rule sets forth prohibited and notifiable transactions in each of the three sectors:
Semiconductors and Microelectronics
Prohibited: Covered transactions relating to certain electronic design automation software, fabrication or advanced packaging tools, advanced packaging techniques, and the design and fabrication of certain advanced integrated circuits and supercomputers.
Notifiable: Covered transactions relating to the design, fabrication and packaging of integrated circuits not covered by the prohibited transactions.
Quantum Information Technologies
All Prohibited: Covered transactions involving the development of quantum computers and production of critical components, the development or production of certain quantum sensing platforms, and the development or production of quantum networking and quantum communication systems.
Artificial Intelligence (AI) Systems
Prohibited:
Covered transactions relating to AI systems designed exclusively for or intended to be used for military, government intelligence or mass surveillance end uses.
Covered transactions relating to development of any AI system that is trained using a quantity of computing power meeting certain technical specifications and/or using primarily biological sequence data.
Notifiable: Covered transactions involving AI systems designed or intended to be used for cybersecurity applications, digital forensics tools, penetration testing tools, control of robotic systems or that trained using a quantity of computing power meeting certain technical specifications.
The Final Rule specifically defines the key terms “country of concern,” “U.S. person,” “controlled foreign entity,” “covered activity,” “covered foreign person,” “knowledge” and “covered transaction” and other related terms and sets forth the prohibitions and notification requirements in line with the national security objectives stated in the Executive Order. The Final Rule also provides a list of transactions that are excepted from such requirements.
U.S. investors intending to invest in China, particularly in the sensitive sectors set forth above, should carefully review the Final Rule and conduct robust due diligence to determine whether a proposed transaction would be covered by the Final Rule (either prohibited or notifiable) before undertaking any such transaction.
Any person subject to U.S. jurisdiction may face substantial civil and/or criminal penalties for violation or attempted violation of the Final Rule, including civil fines of up to $368,137 per violation (adjusted annually for inflation) or twice the amount of the transaction, whichever is greater, and/or criminal penalties up to $1 million or 20 years in prison for willful violations. In addition, the Secretary of the Treasury can take any authorized action to nullify, void, or otherwise require divestment of any prohibited transaction.
Time is of the Essence to Implement New ADGM Whistleblower Protection Regulations
In 2024, the Abu Dhabi Global Market (“ADGM”) further enhanced transparency, accountability, and market integrity within the financial freezone by introducing the Whistleblower Protection Regulations 2024 (the “Regulations”). In brief, those Regulations require certain entities registered or licensed to operate or conduct any activity within the ADGM to implement arrangements for handling whistleblowing, including having appropriate written policies and procedures, and to maintain related records for at least six years. The Regulations also afforded the Registrar of the ADGM the power to issue censures, impose financial penalties, or suspend or withdraw licenses for contraventions.
Importantly, ADGM entities have until May 31, 2025—approximately just four more months—to implement those arrangements. The clock is ticking.
The New Whistleblower Framework in Overview
On March 7, 2024, the ADGM issued a Consultation Paper (the “Paper”)[1] proposing the implementation of a comprehensive whistleblower framework and soliciting comment.[2] Then on July 5, 2024, the ADGM issued the Regulations,[3] significantly developing the scope of whistleblower protections within the ADGM.[4] Finally, on July 11, 2024, the ADGM issued Guidance on the Regulations (“Guidance”),[5] designed to assist with implementation.
Importantly, the Regulations require Global Market Establishments (“GMEs”)[6] to implement arrangements for handling Protected Disclosures[7] and to keep related records for at least six years.[8] These arrangements must be “proportionate to the size and complexity of [the] business and [its] operations” to support effective whistleblowing.[9]
Certain GMEs, including “Large Establishments,” meaning those with annual turnover more than USD 13.5 million or that have more than 35 employees, as well as Designated Non-Financial Businesses or Professions (“DNFBPs”), are subject to the more onerous requirement of needing to document their arrangements in written policies and procedures.
Key Features of the New Regulations
The key features of the Regulations include:
Definition of Whistleblowers: the Regulations clearly define who qualifies as a whistleblower, which is broadly defined as any person, natural or legal, who in good faith reports actual or suspected misconduct.[10]
Protected Disclosures: the Regulations introduce the concept of “protected disclosures,” a concept widely recognized in other jurisdictions. The Regulations establish that protected disclosures are good faith reports of knowledge or reasonable suspicions that a GME, or an officer, employee or agent of a GME, has or may have contravened, or is likely to contravene, an ADGM law, regulation or rule, or has or may have engaged, or is likely to engage, in money laundering, fraud or any other financial crime.[11] Disclosures can be made to management or to any other person designated to receive such disclosures within the relevant GME, or to various regulatory or law enforcement agencies.[12]
Non-Retaliation Protections: the Regulations require protection against retaliation for whistleblowers.[13] They ensure that individuals who report wrongdoing in good faith are shielded from any form of retaliation, which could include dismissal, demotion, harassment, or any other detrimental treatment.[14] This provision aims to encourage more people to come forward without fear of reprisal, promoting a safer and more transparent reporting environment. Retaliation includes, but is not limited to, dismissal, forcing the employee to retire or resign, refusing to offer equal terms of employment (including conditions of work, fringe benefits, or opportunities for training, promotion, and transfer as are made available to other trainees), and any other act which is reasonably likely to cause detriment or disadvantage to the employee.[15] Where an employer or any related party retaliates against an employee, the employee may apply to the court for compensation, which may include an amount in relation to injury to feelings or any loss sustained by the employee.[16]
Confidentiality Safeguards: the Regulations place a strong emphasis on maintaining the confidentiality of whistleblowers.[17] GMEs are required to implement procedures to protect the identity of whistleblowers to the greatest extent possible, unless disclosure is required by law or necessary for the investigation.[18]
Establishment of Internal Reporting Channels: the Regulations require GMEs to establish and maintain internal reporting channels that are secure, confidential, and accessible.[19] This requirement not only streamlines the process for whistleblowers but also ensures that organizations are proactive and prompt in addressing concerns.[20]
Obligation to Investigate and Report: the Regulations require GMEs to log all disclosures, to investigate them thoroughly and impartially, and to retain for at least six years the disclosures and all supporting documents, as well as all internal analyses relevant to their investigation, assessment and determination.[21] This obligation ensures a high standard of accountability and transparency in how whistleblower reports are managed.
Spectre of Sanctions for Non-Compliance
GMEs have until May 31, 2025 to implement the specific arrangements required by the Regulations, including taking advice from external counsel if necessary.[22] The ADGM’s Registrar is expressly empowered to issue private or public censures, impose financial penalties, or suspend or withdraw licenses for any contraventions of the Regulations by a GME.[23]
Additional Considerations
With just four months to go, time is now of the essence for ADGM entities to familiarize themselves with the Regulations and to ensure that either their existing internal processes align with the requirements imposed by the Regulations, or they implement new processes, including written policies and procedures where appropriate, to facilitate protected disclosures, including by authorizing specific individuals or departments to receive disclosures through internal reporting channels; protect whistleblower identities; guarantee the prompt, systematic and independent investigation of disclosures; and safeguard all records relating to disclosures for at least six years. Those who do not run the risk of serious consequences.
[1] Abu Dhabi Global Market, Consultation Paper No.2 of 2024, (March 7, 2024).
[2] Abu Dhabi Global Market, ADGM Publishes Consultation Paper on a Comprehensive Whistleblowing Framework, (March 7, 2024).
[3] Abu Dhabi Global Market, Whistleblower Protection Regulation 2024, (July 5, 2024).
[4] Abu Dhabi Global Market, ADGM Publishes Its Whistleblowing Framework, (July 10, 2024).
[5] Abu Dhabi Global Market, Supplementary Guidance – Regulatory Framework for Whistleblowing (July 11, 2024).
[6] Any company, branch, representative office, institution, entity, or other project registered or licensed to operate or conduct any activity within the ADGM by any of the ADGM Authorities, per Law No.4 of 2013 Concerning Abu Dhabi Global Market (known as the ADGM Founding Law), (February 19, 2013).
[7] Good faith disclosures of knowledge or reasonable suspicions that a GME, or an officer, employee or agent of a GME, has or may have contravened, or is likely to contravene, an ADGM law, regulation or rule, or has or may have engaged, or is likely to engage, in money laundering, fraud or any other financial crime, per Section 4(2), the Regulations, (July 5, 2024).
[8] Section 6(8), the Regulations, (July 5, 2024).
[9] Section 6(1), the Regulations, (July 5, 2024).
[10] Schedule of Definitions, the Regulations, (July 5, 2024).
[11] Section 4(2), the Regulations, (July 5, 2024).
[12] Section 4(3), the Regulations, (July 5, 2024).
[13] Section 5(1), the Regulations, (July 5, 2024).
[14] Section 5(1)(c), the Regulations, (July 5, 2024).
[15] Section 7.3, the Guidance,(July 11, 2024).
[16] Section 5(2), the Regulations, (July 5, 2024).
[17] Section 12, the Guidance,(July 11, 2024).
[18] Ibid.
[19] Section 6(2), the Guidance,(July 11, 2024).
[20] Ibid.
[21] Section 6(2)(7), the Regulations, (July 5, 2024).
[22] Section 3, the Guidance,(July 11, 2024).
[23] Section 7, the Regulations, (July 5, 2024).
How Whistleblowers Can Report Ponzi Schemes and Receive SEC Whistleblower Awards [Podacst] [Video]
Fraudsters beware: The days of running decades-long Ponzi schemes are over. Whistleblowers can now report your frauds and scams to the SEC and potentially earn multimillion-dollar awards for their efforts.
Since 2011, the SEC has issued more than $2.2 billion in awards to whistleblowers who provided original information to the SEC about violations of federal securities laws, including reports of Ponzi schemes, scams, and other frauds. Under the SEC Whistleblower Program, the SEC awards eligible whistleblowers when their tips lead to successful enforcement actions with monetary sanctions in excess of $1 million. A whistleblower may receive an award of between 10% and 30% of the total monetary sanctions collected. If represented by counsel, a whistleblower may submit a tip anonymously to the SEC.
Luckily for whistleblowers (and unfortunately for Bernie Madoff wannabes), there has never been a better time for whistleblowers to report Ponzi schemes to the SEC and receive whistleblower awards. As explained below, Ponzi schemes are near all-time highs and the SEC is focused on rooting out these frauds. Whistleblowers can identify these Ponzi schemes based on their common characteristics and “red flags” for fraud. Once identified, whistleblowers should take the appropriate steps to report the Ponzi schemes in accordance with the rules of the SEC Whistleblower Program to ensure their eligibility for an award and to maximize their award percentage.
Whistleblowers Needed: Ponzi Schemes Are Near All-Time Highs
In 2020, CNBC reported that Ponzi schemes hit their highest level in a decade, with authorities uncovering 60 alleged Ponzi schemes with a total of $3.25 billion in investor funds. This level of fraudulent offerings, however, was not an outlier. It was the beginning of a trend. In 2022, authorities uncovered 57 Ponzi schemes that involved over $5.3 billion of potential losses. In 2023, authorities uncovered 66 Ponzi schemes that involved nearly $2 billion in potential investor losses.
In lockstep with the increasing number of Ponzi schemes, the SEC Office of the Whistleblower has received an increasing number of whistleblower tips related to Ponzi schemes in recent years. According to the SEC Office of the Whistleblower’s Annual Reports to Congress, the percentage of whistleblower tips related to offering frauds, such as Ponzi schemes, has increased in every fiscal year (FY) since 2021:
FY 2021: 16% of whistleblower tips
FY 2022: 17% of whistleblower tips
FY 2023: 19% of whistleblower tips
FY 2024: 21% of whistleblower tips
In 2016, the former Director of the SEC’s Division of Enforcement recognized in a speech the importance of whistleblowers to the SEC in rooting out Ponzi schemes, stating:
Offering frauds and Ponzi schemes are another class of cases where whistleblowers have greatly aided us. Retail investors are frequently the largest class of victimized investors in these schemes and they also can be difficult to detect until it is too late. Whistleblowers have provided us with timely and valuable tips enabling the Commission to quickly halt these fraudulent schemes and protect investors from further harm. Whistleblowers also have helped focus us on false and misleading statements in offering memoranda or marketing materials, enabling us to act quickly and stop these investment frauds from attracting more investors.
Nearly a decade later, the same remains true. Whistleblowers are critically important to the SEC in identifying and halting Ponzi schemes.
SEC Increases Focus on Ponzi Schemes
According to a recent Bloomberg article, the SEC under the Trump administration “will turn away from more expansive or novel enforcement tools used in the Biden administration, and double down on bread-and-butter fraud cases.” This sentiment has been echoed by experts throughout the industry. The SEC’s increased focus on fraud cases bodes well for whistleblowers reporting Ponzi schemes and other fraudulent investment offerings, as the SEC will likely dedicate more of its limited resources to combatting these scams.
How Whistleblowers Can Spot a Ponzi Scheme
A new paper titled “Ponzi Schemes: A Review” by Zhe Peng and Phelim P. Boyle outlines the key features of Ponzi schemes. Whistleblowers should consider these features when attempting to identify a Ponzi scheme. The paper examines 8 key features: “(i) the promoter or founder; (ii) the plausible story; (iii) trust-building mechanisms; (iv) the investment promise; (v) withdrawal features; (vi) marketing strategies; (vii) regulations; (viii) agency issues; and (ix) how the scheme ends.”
The SEC has also published investor warnings describing red flags for Ponzi schemes. According to the SEC, investors (and whistleblowers) should consider the following underlying traits of an investment offering when seeking to identify a potential Ponzi scheme:
Promises of high investment returns with little or no risk;
Regular, positive returns regardless of market conditions;
Investments that are not registered with the SEC or an appropriate state regulator;
Unlicensed individuals or unregistered firms;
Secretive or complex strategies for which investors cannot get complete information;
Lack of paperwork or inaccessibility to information about an investment in writing;
Difficulty receiving payment; and
Promises of “rolling over” investments and higher returns in the future on the amounts rolled over.
Recently, fraudsters have begun to rely on scam promissory notes and virtual currencies to raise money for Ponzi schemes.
How to Report a Ponzi Scheme to the SEC and Receive an Award
To report a Ponzi scheme and qualify for an award under the SEC Whistleblower Program, the SEC requires that whistleblowers or their attorneys report the tip online through the SEC’s Tip, Complaint or Referral Portal or mail/fax a Form TCR to the SEC Office of the Whistleblower. If represented by counsel, a whistleblower may submit a tip anonymously to the SEC.
In FY 2024, the SEC Office of the Whistleblower received 24,980 whistleblower tips and, as noted above, the office has received an increasing number of whistleblower tips related to Ponzi schemes since FY 2021. Before submitting a tip, whistleblowers should consult with an experienced whistleblower attorney and review the SEC whistleblower rules to, among other things, understand eligibility requirements and consider the factors that can significantly increase or decrease the size of a future whistleblower award.
To date, the largest SEC whistleblower awards by amount are:
$279 million SEC whistleblower award (May 5, 2023)
$114 million SEC whistleblower award (October 22, 2020)
$110 million SEC whistleblower award (September 15, 2021)
$82 million SEC whistleblower award (August 23, 2024)
$50 million SEC whistleblower award (April 15, 2021)
$50 million SEC whistleblower award (March 19, 2018)
$50 million SEC whistleblower award (June 4, 2020)
$39 million SEC whistleblower award (September 6, 2018)
$37 million SEC whistleblower award (December 19, 2022)
$37 million SEC whistleblower award (July 26, 2024)
New Year’s Resolutions for Employment, Industrial Relations, and Work Health and Safety
A few New Year’s Resolutions from an employment, industrial relations and work health and safety perspective as we kick off 2025.
See how many of these can be completed or substantively advanced by the end of March 2025:
Payroll Compliance
Conduct or review your modern award mapping and classifications across the business. Ensure that all employees are receiving correct pay and entitlements under applicable industrial instruments and workplace laws. Criminal wage theft laws are now in place for intentional underpayments. Severe civil penalties also remain in place for underpayments which are not intentional in nature.
Preventing Sexual Harassment (Queensland)
Prepare, consult and implement a prevention plan to manage an identified risk to the health or safety of workers, or other persons, from sexual harassment and sex or gender-based harassment at work. This needs to underway from March 2025.
Positive Duty to Prevent Sexual Harassment (All Australian States and Territories)
Review current measures in place to prevent sexual harassment and sex or gender based harassment at work, generally. Are the measures effective? Does more need to be done to prevent such conduct? There is an expectation of ongoing positive and active attention to this important area.
Psychosocial Hazards and Risks
Review current risk assessments and ensure that psychosocial hazards and risks have been appropriately identified and recorded. Review control measures. Are the measures effective? Does more need to be done in this area?
Work Health and Safety
Review risk assessments holistically across the business. Are they up to date? Do they reflect current business operations and any changes to operations? Are control measures effective? Do they reflect applicable laws, standards, codes of practice and/or best practice? Do they need revision? Have workers been consulted with and trained on hazards, risks and control measures?
Board Briefings
If not already on the agenda, include the above key areas of importance into quarterly updates to the Board. Consider conducting board briefings / training on these matters periodically.
Contractor Classifications
Review each contractor engagement within the business against the new definition of employee. Is there a risk of misclassification or sham contracting (adopting a multi factor test)? Are practical arrangements for contractors in place to reduce this risk? Are opt out notices being used where appropriate? Misclassification or sham contracting can lead to severe consequences – including criminal and civil penalties for underpayments of minimum employment entitlements under applicable industrial instruments.
Industrial Relations Strategy
Review your present Industrial Relations strategy. Does it reflect best practice? Does it incorporate 2023/2024 changes to industrial relations laws?
With the range of criminal sanctions now expanded in the employment law, industrial relations and safety space, and the significant reform over the last year or two, there has never been a more important time to ensure a deliberate and focused plan to manage employment, industrial relations and work health and safety across every business in every industry. Not doing so could expose a company, its directors and other officers and other workplace participants.
SEC Charges Two Sigma with Impeding Whistleblowing in Separation Agreements
On January 16, the U.S. Securities and Exchange Commission (SEC) announced settled charges against New York-based investment advisers Two Sigma Investments LP and Two Sigma Advisers LP. The settlement, which includes $90 million in civil penalties, resolves allegations that Two Sigma failed to address known vulnerabilities in its investment models and violated the SEC’s whistleblower protection rule, Rule 21F-17(a).
Rule 21F-17(a) prohibits companies from impeding the ability of individuals to blow the whistle to the SEC, including through restrictive language in non-disclosure agreements, separation agreements, and other employment agreements.
According to the SEC, “Two Sigma violated the Commission’s whistleblower protection rule by requiring departing individuals, in separation agreements, to state as fact that they had not filed a complaint with any governmental agency.”
“This requirement, in effect, could identify whistleblowers and prohibit whistleblowers from receiving post-separation payments and benefits, both of which are actions to impede departing individuals from communicating directly with Commission staff about possible securities law violations, in violation of the whistleblower protection rule,” the SEC claims.
Notably, according to the SEC order, Two Sigma did include carve-out language in the agreements which stated “Nothing in this Agreement (including without limitations Sections 5(g), 6, 7 and 8), the Company’s policies or any other agreement between you and the Company prohibits you from making a good faith reporting of possible violations of law or regulation to any governmental agency or entity or making other disclosures that are protected under whistleblower laws or regulations.”
However, the SEC determined that this carve-out language “did not remedy the impeding effect of the Employee Representation, which addressed past employee conduct (i.e., it required disclosure of already-made complaints), because the Carve Out was prospective in application (i.e., it did not prohibit departing employees from making future complaints).”
As demonstrated in this case, the SEC is taking seriously both the retaliatory potential and chilling effect of restrictive agreements, which undermine the purpose of the SEC Whistleblower Program, and is taking a hard-line stance on Rule 21F-17(a) violations.
Increased Enforcement of Rule 21F-17(a)
While the SEC instituted Rule 21F-17(a) in 2011 and first took an enforcement action over alleged violations of it in 2016, the Commission’s enforcement efforts around the rule have increased dramatically over the past year.
Notably, in January 2024, the SEC sanctioned J.P. Morgan $18 million for utilizing confidentiality agreements which impeded clients from blowing the whistle to the SEC Whistleblower Program. This was the largest penalty ever levied for Rule 21F-17(a) violations.
“Whistleblowers play a valuable role in helping to protect the U.S. financial markets by bringing the Commission information about potential securities law violations,” Creola Kelly, Chief of the Office of the Whistleblower, stated in the SEC Whistleblower Program’s annual report to Congress for the 2024 Fiscal Year. “The Commission sent a strong message that agreements and conduct that impede communication with the SEC will not be tolerated.”
“Corporations should be looking at the SEC’s recent 21F-17 rulings as a sign that the age of blocking whistleblowers from disclosing in contractual agreements is over — it is now more expensive for a corporation to try to cover up fraud and corruption by silencing whistleblowers than it is for them to do the right thing,” wrote whistleblower attorney Benjamin Calitri of Kohn, Kohn & Colapinto in an article for NYU Law’s Compliance and Enforcement blog.
Geoff Schweller also contributed to this article.
Grassley Defends Constitutionality of False Claims Act’s Qui Tam Provisions in Amicus Brief
In an amicus brief filed on January 15, Senator Chuck Grassley (R-IA) urges the Eleventh Circuit to reverse a district court ruling which held that the False Claims Act’s qui tam provisions are unconstitutional.
Grassley, who authored the 1986 amendments which modernized the FCA, states that “the False Claims Act is our nation’s single greatest tool to fight waste, fraud and abuse” and calls the Middle District of Florida’s decision in Zafirov v. Florida Medical Associations a “flawed decision.”
In September, the Middle District of Florida dismissed whistleblower Claire Zafirov’s qui tam lawsuit on the grounds that the FCA’s qui tam provisions are unconstitutional as they violate the Appointments Clause of Article II of the Constitution.
In his brief, Grassley lays out the long-history of qui tam laws and details a number of qui tam provisions enacted by the First Congress. He criticizes the district court for discarding this history despite the Supreme Court’s heavy reliance on it in its decision in Vermont Agency of Nat. Res. v. United States ex rel. Stevens, which held that the FCA’s qui tam provisions do not violate Article III of the Constitution.
“The First Congress that enacted numerous statutes that featured qui tam provisions made clear that, at the time of the founding, the legislature believed that the limited rights granted relators fell within the Constitutional separation of powers many of them had personally fashioned,” Grassley’s brief states.
In the brief, Grassley also notes that “every court to have addressed the issue has concluded that the qui tam provision is in accordance with the Constitutional separation of powers.”
He further emphasizes the immense success of the FCA’s qui tam provisions in incentivizing whistleblowers to come forward and expose otherwise hard-to-detect frauds, deter would-be fraudsters, and protect the public from harm.
As Grassley notes in his brief, “the FCA is a resounding success, as Congress and the Executive Branch have both acknowledged.” According to newly released statistics from the Department of Justice (DOJ), since the FCA was modernized in 1986, qui tam lawsuits have resulted in over $55 billion in recoveries of taxpayer dollars.
Grassley’s brief joins a brief filed by the U.S. government in urging the Eleventh Circuit to reverse the district court ruling. In its brief, the government claims that the Stevens decision “makes clear that relators do not exercise Executive power when they sue under the Act… Rather, they are pursuing a private interest in the money they will obtain if their suit prevails.”
It further states that “the historical record.. suggests that all three branches of the early American government accepted qui tam statutes as an established feature of the legal system.”
During her Senate confirmation hearing on January 15, Senator Grassley asked Pam Bondi, nominee to be the Attorney General, if she would commit to defending the constitutionality of the FCA.
“I would defend the constitutionality of course of the False Claims Act,” Bondi stated. “The False Claims Act is so important, especially by what you said with whistleblowers.”
DOJ’s False Claims Act Recoveries Top $2.9 Billion in FY 2024, but Health Care Numbers Dip—What Could FY 2025 Hold for Health Care Enforcement?
On January 15, 2025, the U.S. Department of Justice (DOJ) issued a press release announcing its fiscal year (FY) 2024 False Claims Act (FCA) recoveries and reported that settlements and judgments exceeded $2.9 billion in 2024—up from $2.68 billion in FY 2023.
Recoveries from entities in the health care and life sciences industries continue to represent the lion’s share of the dollars. However, health care recoveries have dropped year over year, and 2024 saw a decrease in the number of cases pursued by the DOJ on its own. What does the future hold as we look forward to a new administration? History might provide some interesting guidance.
Overview of the Statistics
While the 423 FCA cases filed by the DOJ in FY 2024 represented a marked decrease from the 505 FCA cases filed the previous year, FY 2024 saw the highest number of qui tam actions filed in history. FY 2024, coincidentally, ended on the same day (September 30, 2024) that a Florida judge ruled in U.S. ex rel. Zafirov v. Florida Medical Associates that the qui tam provisions of the FCA were unconstitutional.
Qui tam relators, or whistleblowers, filed 979 suits in FY 2024, up from 713 in FY 2023 and eclipsing the prior record of 757 filings set in FY 2013.
Whistleblower and DOJ cases combined resulted in 558 settlements and judgments, on par with 566 last year.
Counting the $2.9 billion recovered in FY 2024, total recoveries under the FCA since the 1986 amendments now exceed $78 billion and have exceeded $2 billion annually for 16 consecutive years.
Health Care Statistics
While several of the health care statistics dipped slightly, recoveries from the health care sector remained steady at $1.68 billion (compared to $1.86 billion in FY 2023) and drove the overall FCA recovery figures.
While the FCA statistics show overall increases in total fraud recoveries and the number of cases filed by whistleblowers in FY 2024, the health care statistics portray a slightly different picture. While more health care cases were filed by relators in FY 2024 than in FY 2023, the number of cases brought by the DOJ, on its own, dropped by more than 10 percent compared to FY 2023. Other health care statistics that dropped in FY 2024 compared to FY 2023 included:
total health care fraud recoveries,
recoveries in cases pursued by the government,
recoveries in cases in which the government intervened, and
recoveries in cases where relators pursued matters on their own.
In DOJ’s press release announcing the FCA recoveries, the agency reaffirmed its commitment to enforcement in the health care sector, highlighting key recoveries in the following areas:
health care entities contributing to the opioid crisis;
providers billing federal health care programs for medically unnecessary services and substandard care;
cases alleging false claims in the Medicare Advantage program;
matters involving unlawful kickbacks and Stark Law violations;
pandemic-related fraud (including cases involving improper payments under the Paycheck Protection Program and alleged fraud affecting Medicare and other federal health care programs for services related to COVID-19 testing and treatment); and
cybersecurity enforcement and holding contractors accountable for compliance with applicable cybersecurity requirements (one example was a case against the Georgia Institute of Technology and Georgia Tech Research Corp., which we covered in an earlier blog post).
What to Expect in FY 2025
As a general matter, the FY 2024 statistics demonstrate that FCA enforcement continued to be a top DOJ priority, particularly within the health care sector.
As we look ahead to the incoming Trump administration, it is noteworthy that the first Trump administration saw almost 370 more health care FCA cases brought by relators than those filed during the Biden administration. The first Trump administration also saw the highest number of health care-related FCA cases brought in a single year by the DOJ. History would suggest a continued focus on health-care related FCA enforcement during President Trump’s second term.
Epstein Becker Green Attorney Ann W. Parks contributed to the preparation of this post.
2024 False Claims Act Statistics Show More Cases Filed Than Ever Before
The Justice Department released its annual False Claims Act statistics on Wednesday, January 15, detailing the number of cases filed, recoveries made, and relators’ shares awarded in fiscal year 2024. The government recovered $2.9 billion dollars in 2024, with 57% of that total coming from healthcare cases, 3% from defense spending cases, and the remainder from other actions. Seventy-five percent of recoveries came from qui tam actions in which the government intervened and 17% came from cases initiated by the Justice Department, while qui tam actions where the government declined to intervene resulted in only 7% of the year’s recoveries.
2024 also saw more new FCA cases initiated than ever before. There were 1,402 new matters: 423 initiated by the government and a record-shattering 979 initiated by relators.
While the overall total recoveries increased by $133 million from the year prior, the types of cases driving the number have shifted slightly. Healthcare recoveries are down $184 million from last year and are the lowest they have been since 2009. Defense spending recoveries are down $464 million and are the lowest they have been in the last several years, though DOJ noted in its press release that a $428 million defense settlement—the second largest in history—came in just after the close of the fiscal year. While those traditional stalwarts of FCA recoveries lagged in 2024, DOJ more than made up for them in recoveries in non-healthcare or defense cases. Recoveries in other cases increased $781 million over the prior year and were the highest they have been in almost a decade.
It is not immediately clear what drove the uptick in non-healthcare and defense cases, though pandemic-related fraud claims accounted for at least $250 million of the recoveries. A menagerie of claims related to other government agencies, programs, and grants also appear to have contributed, including claims related to General Services Administration contracts, Housing and Urban Development grant funds, underpayment of royalties owed for oil and natural gas on federal lands, and Federal Emergency Management Agency (FEMA) projects.
Though the government increased its recoveries, it shared less of that money with whistleblowers. Relators received $50 million less than they did in fiscal year 2023. For qui tam actions in which DOJ intervened, it provided an average of 15.7% of the recoveries to the relator, which is the second-lowest relator share percentage since 2012.
In its press release touting the year-end statistics, the Justice Department highlighted healthcare recoveries in areas it has focused on in recent years, including opioid-related cases, matters alleging unnecessary services and substandard care, Medicare Advantage cases, kickbacks, and Stark Law violations. Though it did not appear to drive significant numbers in 2024, the government also highlighted its emerging cybersecurity initiative to promote cybersecurity requirements for government contractors.
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DOJ Reports Nearly $3 Billion in FCA Settlements, Judgments for FY 2024
Headlines that Matter for Companies and Executives in Regulated Industries
DOJ Reports Nearly $3 Billion in FCA Settlements, Judgments for FY 2024
On January 15, the US Department of Justice (DOJ) reported that settlements and judgments under the False Claims Act (FCA) totaled more than $2.9 billion in fiscal year 2024. The government and whistleblowers were involved in 558 FCA settlements and judgments, marking the second-highest total after fiscal year 2023’s record of 566 recoveries. Whistleblowers also filed the highest number ever of qui tam lawsuits, totaling 979 this past fiscal year.
Health care fraud accounted for the majority of FCA settlements and judgments. Over $1.67 billion of the FCA settlements and judgments reported in fiscal year 2024 related to health care matters, including managed care providers, hospitals, pharmacies and pharmaceutical companies, and physicians. The cases related to the health care industry involved, among other things, the opioid epidemic, unnecessary services and substandard care, Medicare Advantage matters, and unlawful kickbacks.
The DOJ statistics sheet can be found here and the press release can be found here.
Pharmacy to Pay $625,000 to Resolve FCA Allegations
On January 13, a settlement was finalized between a pharmacy located in New Jersey, Medsinbox Pharmacy LTC LLC, and the federal and New Jersey state governments. Pursuant to the settlement agreement, Medsinbox agreed to pay $625,000 to settle allegations that it violated the FCA by billing Medicare and Medicaid for prescriptions that it never actually distributed.
The government alleged that between 2019 and 2022, Medsinbox knowingly submitted claims for reimbursement to the federal Medicare and Medicaid programs for medications that it never actually gave to beneficiaries. According to the government, Medsinbox inventory records indicate that the pharmacy never purchased the amount of prescriptions that it claims to have filled and billed to Medicare and Medicaid programs.
The settlement is available here and the DOJ press release can be found here.
Firm Founder Pleads Guilty for Role in $9 Million Cryptocurrency Investment Fraud
On January 9, Travis Ford, the founder of a cryptocurrency investment firm, pleaded guilty for his role in a $9 million fraud conspiracy. Ford pleaded guilty to one count of conspiracy to commit wire fraud, for which he faces up to five years in prison.
According to the government, Ford was the co-founder of cryptocurrency investment firm Wolf Capital Crypto Trading LLC. As alleged, Ford made false promises to solicit investments through social media and other internet platforms, including by purporting to be a sophisticated trader able to deliver returns of 1-2% daily despite admitting that those returns were not realistic. The government alleged that Wolf Capital raised $9.4 million through Ford’s conduct and Ford then misappropriated the investor funds for his own use.
The DOJ press release can be found here.