Kansas City Whistleblower Lawyer Blog

A federal whistleblower, Bunnatine "Bunny" Greenhouse, has just won a major victory with the U.S. District Court in Washington. On Monday, July 25th, the court approved an award to Greenhouse in the amount of $970,000, which represents full restitution of wages, compensatory damages and attorney fees.

The case involves Kellogg Brown and Root (KBR), a subsidiary of Halliburton, and the settlement is with the Army Corps of Engineers. Greenhouse was an employee of the agency and took issue with KBR using its own cost projections for a "multi-year no-bid, no competition contract." After her initial objection with KBR, she took the contract issue to Congress. The result of her communication with Congress was that she was removed from the Senior Executive Service and her top secret clearance was revoked.

It all started in February of 2003, a short time prior to the U.S. invasion of Iraq. A Pentagon meeting agenda included the subject of an approximately $7 billion government contract award to Kellogg Brown and Root for the purpose of restoring Iraq's oil facilities. Greenhouse was in attendance in addition to officials from Defense Secretary Donald Rumsfeld's office and aides to retired Lieut. General Jay Garner. To her dismay, also present were several representatives from Halliburton. Her issue with the presence of the Halliburton representatives was with regard to the sensitive nature of the discussions and the obvious potential for conflict of interest with KBR, with Halliburton representatives in the meeting being privy to internal discussions about the terms of the contract. She requested, with a whisper to the presiding general, that the Halliburton employees be asked to leave the meeting.

Greenhouse then raised other concerns including the fact that the contract had never been put out for competitive bid and the five-year term was not justified, that the contract term should be opened to competition after only a one year term. When the contract came back for approval, the term was still five years. The war was looming and she had no choice but to approve the terms, but added a handwritten reservation voicing her objections and stating that a no-bid contract with greater than a one year term could imply, "there is not strong intent for a limited competition."

These objections did not become public until October of 2004. In January of 2004, the government had replaced the noncompetitive contract with two competitively bid awards. Interestingly, Halliburton was awarded the larger of the two, worth up to $1.2 billion. As early as 2004, she had received a lot of trouble for issuing concerns about the deal and was warned to stop interfering and then was threatened with a demotion. At the time, her lawyer sent a letter to the acting Secretary of the Army, charging that her superiors had tried to silence her. The letter states that over the seven years previous to the Halliburton contract, Greenhouse had voiced reservations about many procurement documents, but only after the Halliburton issue was she warned to stop. The letter also states that Robert Griffin, the major general who warned her, later gave a sworn statement in which he admitted her reservations on contracts had "caused trouble" for the army and that it was "intolerable" and "had to stop." The letter also states that he threatened to downgrade her.

Greenhouse said in a statement, "I hope that the plight I suffered prompts the administration and Congress to move dedicated civil servants from second-class citizenry and to finally give federal employees the legal rights that they need to protect the legal trust."

After suffering terrible working conditions, including a fall on a rigged trip cord in her office that resulted in a painful injury to her knee, Greenhouse retired with 29 years of service with the federal government. This retirement was earlier than she had planned and she retired without her SES credentials and top secret clearance.

Stephen Kohn, president of the National Whistleblowers Center, claimed that she was "an American hero." In a statement released by his office, he said, "She had the courage to stand alone and challenge powerful special interests. She exposed a corrupt contracting environment where casual and clubby contracting practices were the norm. Her courage led to sweeping legal reforms that will forever halt the gross abuse she had the courage to expose."

Her case illustrates the need to protect federal whistleblowers. Although legislation that would improve these protections has been in front of Congress for years, it has never gained any final approval.

Sources:
Beyond the Call of Duty, Time Magazine, October 24, 2004

A Bittersweet Win for a Federal Whistleblower, The Washington Post, July 26, 2011

During the summer of 2008, a move by Federal prosecutors that was not publicized much outside of the legal community, led to newly relaxed guidelines for charging corporations with crimes. Not surprisingly, these new rules were good news for banks and their defense counsel.

Unlike previous, more aggressive Justice Department practices, the new rules move toward more deferred prosecutions and new guidelines that promise leniency when companies under investigation self report their deviations from the rules. The new guidelines allow the government to agree to delay or cancel a prosecution if the company under investigation promises to change operations and move toward compliance. Although used prior to the financial crisis, deferred prosecution agreements were officially offered as an alternative by the Justice Department in 2008. Critics believe this self-reporting approach risks letting companies off too easily.

"If you do not punish crimes, there's really no reason they won't happen again," said Mary Ramirez, a professor at Washburn University School of Law and a former assistant United States attorney. "I worry and so do a lot of economists that we have created no disincentives for committing fraud or white-collar crime, in particular in the financial space."

Deferred prosecution is not a tool used only at the Justice Department. After the Supreme Court overturned the conviction won by the SEC against Arthur Anderson, the SEC began pulling back from prosecutions. So now the SEC not only employs deferred prosecution, but also has added another alternative to prosecution, reports that chronicle wrongdoing at institutions "like Moody's Investors Service," often without punishing anybody.

Now government lawyers are outsourcing investigations. During the early stages of an inquiry, the government lawyers instruct companies to determine whether improper activities occurred. The companies then hire law firms to investigate and report to the government. This arrangement only heightens compromise and conflicts of interest whereby government lawyers allow companies and their lawyers to self police their activities.

This collaboration is even more widespread in the banking industry and dates back to the mid 1990's. In an effort to reduce regulators' workload, the Treasury Department requested that banks regularly report suspicious activities. This assumes that banks would willingly identify and report all wrongdoing, the likelihood of which is rather low according some academics.

Solomon L Wisenberg, former chief of the financial institutions fraud unit for the United States attorney in the Western District of Texas in the early 1990s said, "Traditionally, a bank would tell the Department of Justice when an employee engaged in crimes, but what do you do when the bank itself is run by a criminal enterprise? You have to be able to investigate without just waiting for the bank to give you the referral. The people running the institutions are not going to come to the D.O.J. and tell them about themselves."

Industry wide strategies to respond to investigations are being developed as a result of companies' cooperation with the government. "The corporate crime defense bar has this down to a science," said Russell Mokhiber, the editor of Corporate Crime Reporter, a publication that tracks prosecutions. "I interview them all the time, and they boast about how they've gamed the system."

In the end the process occurs behind closed doors. The Justice Department does not make public any details about its decision making in specific cases. We can never know why individuals at a company were never charged.

Source:
As Wall St. Polices Itself, Prosecutors Use Softer Approach, The New York Times; Business Day, by Gretchen Morgenson and Louise Story, July 7, 2011.

Final rules regarding the whistleblower provisions of the Dodd-Frank Act have been released by the U.S. Securities and Exchange Commission. The rules are effective as of August 12, 2011 and will apply retroactively to whistleblower tips made since July 21, 2010. If you provide original information about potential securities law violations you can receive a monetary award for that information if it results in a successful enforcement action by the SEC or a related agency.

The rules do not require that employees first report their suspicions to an internal compliance system prior to going to the SEC. This creates an incentive for whistleblowers to skip a company's internal compliance procedures. If this is done, compliance programs would be undermined and companies would not have an opportunity to quickly respond to a problem or self report prior to an investigation. In order to reduce the possibility of whistleblowers skipping internal compliance procedures, the SEC made rules that are intended to encourage the whistleblower to in fact use the company's internal compliance procedure.

Companies now have a strong incentive to encourage whistleblowers to report suspicions internally and promptly respond to reports. Potential whistleblowers should expect to see companies implementing strong internal reporting procedures as well as the latest investigation techniques. Corporate attorneys will be at the ready to protect the company's attorney-client privilege and attorney work product protections by being involved with the reporting and investigation of whistleblower claims. Companies will adapt a proactive approach with regulators to avoid surprises from whistleblowers or the SEC.

One provision of the rules is the 120 day look-back provision. When a whistleblower reports internally, he or she will have 120 days from the date of the internal report to provide the same information directly to the SEC without losing his or her place in line to claim a bounty award. Therefore, companies will have 120 days from receiving a report to do an investigation and determine if they wish to self report to the SEC.

Whistleblowers should expect to see various, easily accessible reporting methods including 24/7 access to anonymous reporting systems like free hot lines, web and email reporting methods and access to company compliance officers.

Training about reporting tools and availability will be emphasized.

Instead of whistleblowers being shunned, they will probably be recognized and praised.

Companies will most likely make it a requirement that all employees must report possible misconduct and violations and certify periodically that they are not aware of securities law violations not already reported.

On the investigation side of things, if the whistleblower identifies him or herself, he or she will most likely be one of the first witnesses interviewed. The whistleblower can expect to be in the loop on communication about the report because management will not want to make the whistleblower feel that no action is being taken.

Company attorneys will most likely conduct investigations or at least supervise the investigators doing the investigation. This is because the company will want to preserve and protect the company's attorney-client privilege and this can only be done if a company attorney is directly involved.

Expect to see more companies making more voluntary disclosures because the SEC will treat the company more favorably if the company has disclosed the wrongdoing before a whistleblower broadcasts the wrongdoing.

Source:
Dealing with tipsters under Dodd-Frank; New SEC whistleblower rules will require companies to examine and restructure their internal compliance programs; Corporate & Business Law, The Wall Street Journal, June 27, 2011