More Financial Whistleblowing Is On the Way

A whistleblower just helped the government force Citigroup to pay $158.3 million to settle claims that it falsely portrayed mortgages as meeting the standards for government insurance. Using info from Sherry Hunt, a quality-assurance worker at CitiMortgage, the U.S. Department of Justice built a case that said Citi cost the government millions when the mortgages soured.

Brace yourself, there’s more whistleblowing to come. That’s because the Dodd-Frank financial reform act created the first large-scale whistleblower program at the Securities and Exchange Commission. It applies to U.S. companies that have cheated investors or broken securities laws, whether through insider trading, accounting shenanigans, misleading statements, or bribing foreign officials. That expands well beyond the False Claims Act, the Civil War-era law Hunt used in the Citigroup case, which only covers fraud against the U.S. government.

“The False Claims Act is a wildly successful program, and the SEC whistleblower program has the potential to surpass its success,” says Jordan Thomas, who heads up the whistleblower practice at plaintiffs’ firm Labaton Sucharow. “The False Claims Act is relatively narrow, whereas the breadth of securities violations is even greater.” Thomas, who helped set up the new program at the SEC before moving to the private sector, says the SEC issued $2.8 billion in sanctions last year—that’s before any of the new whistleblower cases have closed.

Click link to view full article at Businessweek

Karen Weise, Businessweek, February 16, 2012

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