
SEC issues $3.8M whistleblower award - chmaynard
https://www.sec.gov/news/press-release/2020-155
======
refurb
I've posted it before, but it's such a great story, I'm posting it again.

If you're a drug company and you provide physicians financial incentives to
use your drug that falls under the False Claims Act if Medicare/Medicaid are
paying (there are some Safe Harbor areas, but not many). Same thing with
charging the gov't the incorrect price (there are a ton of rules around what
you can charge - the Medicaid Best Price rules are a good example).

So anyways, this pharmacy down in the Florida Keys started to loss a lot of
business back in the 80's. So the pharmacist started looking at what was
driving that (he has visibility into both the pharmacy cost and the gov't
reimbursement). Turns out drug companies were telling Medicaid the price was
$X, but they were charging pharmacies $X*10% and the pharmacies pocketed the
difference. That's a bit of a simplification as the price differential existed
for a long time, but basically drug companies pushed it so far that they got
the smack down.

Ven-a-care launched a whistleblower lawsuit, the Federal gov't joined and they
won, so Ven-a-care got a nice payout. Then they found another example and got
another payout, then another and another. By 2011, they had received several
hundred million in pay outs.[1] In 2013, they received a $597M payout.[2]

Keep in mind this was a team of a few pharmacists and some lawyers. They
basically turned whistleblowing into a business.

They were even involved in the Epipen settlement in 2017.[3] I've never seen
the total payouts they've received but it must be over $1B by now.

[1][https://www.cnbc.com/2011/02/10/how-four-men-got-rich-
exposi...](https://www.cnbc.com/2011/02/10/how-four-men-got-rich-exposing-
pharma-fraud.html)
[2][https://www.bloomberg.com/news/articles/2013-08-13/florida-p...](https://www.bloomberg.com/news/articles/2013-08-13/florida-
pharmacists-win-597-million-blowing-whistle-on-scheme)
[3][https://www.cnbc.com/2017/08/17/grassley-says-
mylans-465m-ep...](https://www.cnbc.com/2017/08/17/grassley-says-
mylans-465m-epi-pen-settlement-shortchanges-taxpayers.html)

~~~
fermienrico
We need more of this across the board, not just in SEC. Whistleblowers in
corporations and in federal agencies throughout. And the justice department
should pay handsome fees for taking the risk - one can just retire off of it.

Kind of like Bug bounties but for corruption/illegal behavior.

No one would trust anyone for partnering with corruption schemes and it would
just die out.

~~~
amelius
One problem is that lots of dirty practices like this might be legally still
acceptable.

~~~
Frost1x
Ethical and legal are not inherently the same. Many people fail to realize
this and use legal as if it were synonymous to ethical.

~~~
refurb
Not sure how this matters. You can’t bring criminal charges against some for
being unethical unless it’s also illegal.

------
cjlars
A friend briefly held a job keeping the books for a penis pill company. They
offered a money back guarantee, didn't honor it, and then, when the credit
card companies locked their accounts for chargebacks, used a series of social
security numbers from borderline mentally disabled "employees" to continue
opening financial accounts to perpetuate the fraud.

Her didn't blow the whistle because he "didn't want to be a snitch". Because
of that, several additional innocent people had their credit ruined, and
gullible consumers were taken for millions or perhaps tens of millions of
dollars.

I would really encourage anyone thinking of coming forward to do so. And I'd
also encourage everyone else to celebrate the people who have come forward as
witnesses.

~~~
rapnie
> I would really encourage anyone thinking of coming forward to do so.

The problem with whistleblowing - especially for larger cases - is that with
the choice to do so also comes the high probability to have your own life
turned upside down or even completely ruined, and people know that. So many
examples where whistleblower protection was severely lacking, and the
whistleblower bears the consequences for life.

~~~
cynusx
When it comes to accountants or financial controllers, having a track record
of high integrity is actually a bonus for well-run companies.

Procurement and financial controlling are both areas very sensitive to
corruption and top management will be looking for high integrity people to
hire in these places.

------
ds
Just a FYI- You arent going to find any info on what case/fraud this has to do
with. IIRC, the SEC announces these payments up to 24 (!) months from the
original enforcement action, so that there is no real way to figure out which
company was blown. I suppose if you want to, you could go back 2 years in time
for every SEC enforcement and find all of them above 38m in penalties.

~~~
thinkloop
87% of Americans can be identified with just a birthdate, zip code and gender
[1] - finding the company seems easy.

[1] [https://www.johndcook.com/blog/2018/12/07/simulating-
zipcode...](https://www.johndcook.com/blog/2018/12/07/simulating-zipcode-sex-
birthdate/)

~~~
saagarjha
Good luck finding the company’s birthdate, ZIP code and gender.

------
RandomBacon
The IRS has a Whistleblower Office that pays out rewards to those who blow the
whistle on others who aren't paying taxes.

Back in 2017 during the last crypto bubble, people were posting on reddit
about cashing out and not paying taxes. Some of the accounts practiced zero
opsec while claiming (and posting screenshots) of $500k+ sums.

I imagine there will be more similar opportunities during the next crypto
bubble if anyone is interested.

~~~
Communitivity
Whistleblowers are needed. “Bad men need nothing more to compass their ends,
than that good men should look on and do nothing.” - John Stuart Mill

FYI, this is the actual quote that is more often attributed to Edmund Burke in
the altered form of “The only thing necessary for the triumph of evil is for
good men to do nothing."

------
tgb
Reminds me of the whistleblower over academic fraud at Duke that received $33
million as a reward. I want these to be more widely publicized!

[https://www.npr.org/2019/03/25/706604033/duke-
whistleblower-...](https://www.npr.org/2019/03/25/706604033/duke-
whistleblower-gets-more-than-33-million-in-research-fraud-settlement)

~~~
frandroid
> Thomas, a former Duke lab analyst, sued the university on behalf of the
> federal government

You can do that?!?

~~~
rahimnathwani
Not only that, the article says that he actually took it across the finish
line:

'"In many meritorious cases, the government decides to 'intervene' at that
stage of the proceedings, basically taking over the lead of the case," lawyers
for Thomas said. "But here, that never happened. This left Mr. Thomas and his
lawyers at the point of the spear – going against a venerated academic
institution with enormous resources."

Thomas' attorneys, from the law firms Gentry Locke; Healy Hafemann Magee &
Thomas; and Brooks Pierce, said that in the fallout from the case, Joseph
Thomas was "vilified and suffered substantial personal hardships as he found
himself out of work for over a year."'

------
ahupp
The False Claims Act allows citizens to claim 15-30% of damages as a reward.
It's a great incentive for tracking down misbehavior:

[https://en.wikipedia.org/wiki/False_Claims_Act](https://en.wikipedia.org/wiki/False_Claims_Act)

------
WarOnPrivacy
Whistleblowers who out US Gov wrongdoing, get a different sort of reward from
US Gov.

~~~
jmchuster
The US govt netted $1.75 billion ($2.5 billion - $750 million returned to
investors) from this scheme being exposed. How much money do they make when
someone exposes US Govt wrongdoing?

~~~
WarOnPrivacy
Shareholder-style thinking seems at odds with the purpose of government, as
it's sole (appropriate) reason for existing is to serve the public.

------
pldr1234
I'll admit, I'm super impressed with this system. It doesn't exist in my home
country, whistleblowers are actually treated very poorly here.

Whatever else you can say about the US, their whistleblower system absolutely
is a great example of market incentives working for their public.

~~~
WarOnPrivacy
It depends on whose wrongdoing is getting outed. US Gov is fine when the
whistle is getting blown on someone else. When US Gov's misdeeds get brought
to light, it has no greater purpose than deploying revenge against the
whisteblower.

The last administration filed more espionage charges against whistleblowers
than all previous administrations combined. [https://slate.com/news-and-
politics/2013/06/edward-snowden-i...](https://slate.com/news-and-
politics/2013/06/edward-snowden-is-eighth-person-obama-has-pursued-under-
espionage-act.html)

------
drited
You can get a list of these on the SEC website. Another recent one was in
amount 27 million. Some pay a fraction of the fines awarded. Big numbers here
particularly if the whistle-blower approaches it in the right way. I have a
few ideas on that...

------
ColanR
> Whistleblowers may be eligible for an award when they voluntarily provide
> the SEC with original, timely, and credible information that leads to a
> successful enforcement action.

Interesting. I wonder if the whistleblower can be a third party that decided
to investigate.

~~~
thephyber
bug bounties

s/bug/fraud/

~~~
dlgeek
As Matt Levine likes to say, everything is Securities Fraud. Didn't disclose a
risk factor in your SEC filings that your computer systems are potentially
hackable? Well, a discovered vulnerability is Securities Fraud!

(Though, usually that's for a shareholder lawsuit instead of an SEC
enforcement action)

------
ChuckMcM
I wonder if there is an AI application here if you have access to the full
transaction log from the exchanges. Basically something that looks for series
of trades that align with previously fraudulent trading patterns.

------
kyleee
No meaty details, anyone have more info?

~~~
godzillabrennus
That’s the beauty of this program. No one will know who was responsible.
Whistleblowers can now safely report crimes without repercussions.

You can now get rich sniffing out Madoff type scams before they blow up to
billions raised.

~~~
bluejekyll
Shouldn’t the caught party be identified and what the illegal scheme was?

It feels like the public should at least know that, if not the whistleblower.

~~~
wmf
The SEC talks about their enforcement actions all the time:
[https://www.sec.gov/news/pressreleases](https://www.sec.gov/news/pressreleases)
Pretty much every week there's a "$COMPANY pays $MILLIONS to settle charges"
announcement, so these aren't being swept under the rug.

The important point is that there's no way to link which whistleblower award
comes from which enforcement. The public doesn't need to know this.

~~~
mistermann
How often are criminal charges laid and and disclosed, or is this more of a
cost of doing business type of thing?

~~~
wmf
Note that the SEC cannot press criminal charges, but they can send evidence to
a federal prosecutor (e.g. the United States Attorney for the Southern
District of New York) who can initiate criminal cases. They also like to
advertise their cases: [https://www.justice.gov/usao-
sdny/pr?f%5B0%5D=field_pr_topic...](https://www.justice.gov/usao-
sdny/pr?f%5B0%5D=field_pr_topic%3A3926)

------
seebetter
I knew a libertarian activist who never paid taxes on $1 million+ earned over
5-years. He'd get giant letters from the IRS in the mail. Years later he got
involved in crypto and promoted a $750 million scheme. Knowing he had issues
with the IRS, he contacted them offering information on international money
launderers. He flew to Florida and was arrested by the FBI. He's facing 20+
years.

------
dave_4_bagels
This is encouraging, but I wonder how whistleblowers or BBB backed complaints
haven't resulted in more federal / class-action suits against get-rich-quick
scammers like Grant Cardone and Thai Lopez common on YouTube?

~~~
darkstar999
> BBB

The Better Business Bureau is non-governmental and has no authority to do
anything.

~~~
cjlars
It's basically pre-internet Yelp

~~~
TwoBit
But without the extorsion racket that Yelp runs?

~~~
elgenie
Nope, with that too [1]. It seems to come with the territory.

[1] [https://business.time.com/2013/03/19/why-the-better-
business...](https://business.time.com/2013/03/19/why-the-better-business-
bureau-should-give-itself-a-bad-grade/)

