All Things Whistleblower: A GAP Blog

An “Important Middle Ground"?

In what is really a shocking abuse of government power, it is now known that at least 30 former government prosecutors in the Bush administration have secured controversial lucrative positions as “corporate monitors,” which are programs that allow companies that have committed wrongdoing to escape criminal prosecution.

This practice came to light in January when it was discovered that former Attorney General John Ashcroft secured a $52 million dollar contract for his firm to perform “corporate monitoring” work – a contract that was granted noncompetitively. 

The Justice Department, naturally, is defending the practice. This latest development was released as part of a Congressional report on the project. From the New York Times:

In a letter to members of Congress that accompanied the new data, the Justice Department acknowledged that it had been using deferred prosecutions and similar arrangements known as nonprosecution agreements more frequently, but it defended the practice. It said the agreements represented “an important middle ground” between not bringing a criminal prosecution at all and charging a company and hurting all its employees and shareholders, who might have had nothing to do with the misconduct.

So, the official rationale here is that it is best not to hold corporate criminals accountable because it would hurt shareholders? Alrighty. But there’s more –

And last week, the department informed Congress that it was putting in place a restriction to prevent deferred prosecution or other types of plea agreements from requiring the defendant to pay restitution to a charity, school or other institution that was not harmed by the company’s misconduct. Democrats on the House Judiciary Committee quickly dubbed the new guidance “the Christie amendment” because it was seen as a response to the disclosure that Bristol-Myers Squibb, as part of an agreement with Mr. Christie’s office in 2006 to avoid prosecution, was required to endow a chair in business ethics at the law school at Seton Hall University, his alma mater.

Christie is the Attorney General for New Jersey who selected Ashcroft for his contract back in the day. So, prior to last week, corporate officials who committed wrongdoing could, under this program, avoid prosecution of their companies by giving money to the school of the monitor?

-- Dylan Blaylock

Lawsuit Details Security Company’s Shortcomings at U.S. Embassy in Kabul

Yesterday, GAP and Katz, Marshall & Banks filed a lawsuit on behalf of two program managers who worked for the private security company ArmorGroup.

The managers were fired in June 2007 for raising concerns about the integrity of the company’s security program and for disclosing those concerns to the State Department. They have not been informed by the State Department whether corrections to the problems they reported have been made. The case highlights the problem of foreign owned or controlled companies providing security for U.S. Government facilities.

-- Dylan Blaylock

Ruling Undercuts Sarbanes-Oxley Protection

GAP client Mark Livingston has lost a federal appeals court decision, which has effectively rejected his assertions that he should be protected under Sarbanes-Oxley whistleblower protections for Wyeth Pharmaceuticals’ termination of him for exposing a lack of adequate safety training among company workers.

Livingston was hired by Wyeth to ensure the safety of Prevnar, an infant vaccine. Prevnar is one of several early childhood vaccines recommended for every newborn infant by physician organizations, the Centers for Disease Control, and the United States government.

In the course of his tenure at Wyeth, Livingston made repeated complaints relating to lack of compliance with regulatory GMP. He complained that the company did not compliantly train new employees in critical manufacturing and quality assurance positions fast enough in the years 1999-2002 to keep pace with production and sales goals of Prevnar.

According to Livingston, Wyeth repeatedly announced both internally and publicly, that failure to meet Consent Decree and Good Manufacturing Practices (GMP) mandates would negatively impact the company's future. Instead, Wyeth Sanford management kept the production pipeline flowing despite the lack of compliance, therefore materially misrepresenting the true state of operating and financial performance in this fastest growing division of the Wyeth enterprise. The plaintiff spent two years sounding the alarm that those mandates were not being met.   

Mr. Livingston was fired in December 2002 for blowing the whistle on noncompliant training system practices.

Livingston is expected to appeal this recent court decision.

-- Dylan Blaylock

Discussing the UN-Google Relationship

A panel yesterday, which included GAP, discussed the growing friction in relationships between the United Nations and the journalists who follow the organization. One central topic was Google News’ recent delisting of Inner City Press, a Web site that reports on UN whistleblower exposures and claims. GAP helped publicize Google’s wrong decision last month, leading to the outlet’s re-listing. From CNS News:

Often these investigations are not trustworthy because the U.N. is investigating itself and making its own rules, said Beatrice Edwards, international program director for the Government Accountability Project, a watchdog group.

The U.N. has new whistleblower rules, but those often are handled internally, Edwards said.

"If they are subject to retaliation for disclosing fraud or corruption at the U.N., then they would go to a hearing to protest what has happened to them, (but the hearing) is presided over by the institution which they are disclosing perhaps embarrassing information about," Edwards said.

"So they face a forum where the institution itself is both the defendant and the judge. The record of whistleblowers being vindicated or prevailing in these kinds of forums or hearings is very, very poor."

Edwards noted that the U.N., World Bank and other international bodies have diplomatic immunity and are not subject to freedom of information laws.

"If they are able to shut down free press or free speech inside, to the extent that they often try to, then we are really talking about very powerful, very wealthy, lawless organizations," she said.

-- Dylan Blaylock

Judge Rules Foreign Workers Protected by Sarbanes-Oxley

In major whistleblower law news, a judge has ruled that foreign employees of American corporations that blow the whistle on corruption that took place in America are protected by Sarbanes-Oxley whistleblower protection laws.

Sarbanes-Oxley protections were enacted in 2002 after the fall of Enron. They provide whistleblower protections for public-traded company employees who blow the whistle on fraud, wrongdoing or corrupt practices.

While this specific case involves a French worker who blew the whistle on tax fraud by Accenture, the ramifications are enormous for future cases of similar circumstance. From the Financial Times:

Until now, US federal courts addressing cases involving whistleblowing employees outside the US have decided there should be no protection for them, because this would represent application of US law abroad in a way that the US Congress did not intend.

Fortunately, this judge rejected that bogus notion, applying greater accountability to corrupt corporations. The judge found:

“[the employee] could be protected because measures allegedly taken against her by the company were orchestrated in the US.

Judge Victor Marrero, of the US District Court, southern district, said that because the "alleged wrongful conduct and other material acts occurred in the United States . . . the exercise of jurisdiction by this court to resolve the dispute before it would not implicate the extraterritorial application of American law".

Good decision. Very good decision.

-- Dylan Blaylock

Study: Sarbox Not Effective

A recent study from the University of Nebraska College of Law has concluded that under Sarbanes-Oxley federal protection (since its inception in 2002), whistleblowers aren’t very successful in winning lawsuits against former employers after suffering retaliation. The study found that only 3.6% of all cases brought to administrative hearings by whistleblowers have resulted in successes. (Add. Article)

From a Financial Times article:

The Government Accountability Group, a non-profit organisation that lobbies for whistle-blowers, described Sarbox in 2002 as "a revolution in corporate governance freedom of speech". Its president, Louis Clark, now says it is "a disaster".

Whistle-blowers struggle to win cases because Osha and judges who hear claims and appeals have tended to reject them either on a narrow reading of procedure or after deciding that claims "fail to fit within the exact legal parameters of a Sarbanes-Oxley claim", the study says.

Jason Zuckerman, a lawyer at The Employment Law Group, a law firm that represents Sarbox whistle-blowers, says: "Part of the problem is that investigators misunderstand the relevant legal standards and believe that a complainant must have a smoking gun – that is, unequivocal evidence proving retaliation."

Aguirre Victory

A report released last Friday by the Senate Finance and Judiciary committees represents a significant victory for Gary Aguirre, the S.E.C. staff attorney who was fired two years ago following his attempt to subpoena John Mack, now the CEO of Morgan Stanley, in an insider trading investigation of Pequot Capital Management, a leading hedge fund.

In 2005, Aguirre was investigating possible insider trading involving Pequot. In June of that year, he attempted to issue a subpoena to Mack, a prominent Wall Street executive who had briefly served as chairman of Pequot and who maintained a close friendship with Pequot founder Arthur Samberg.  His recommendation that Mack be required to testify was met with strong resistance from Aguirre's S.E.C. superiors, and after protesting that the investigation was being hindered, Aguirre was fired. Aguirre testified at a Senate Judiciary hearing which led to the promise of Senators Chuck Grassley and Arlen Specter to fully investigate the actions of S.E.C. officials in the case.

The result of that yearlong investigation is a 108-page report which details a virtual laundry list of wrongdoing on the part of S.E.C. officials. Not only was Aguirre wrongfully retaliated against, but the report charges that the S.E.C. botched a crucial investigation which would have made a powerful statement about its commitment to preventing insider trading. The report found that lawyers for Mack and Samberg received access to high-level S.E.C. officials, going over Aguirre's head as the chief investigator on the case. Soon afterward, Aguirre was ordered to investigate only a fraction of the suspicious transactions, severely limiting the scope of his case, and he was denied access to Mack.