Opinion

Alison Frankel

In new amicus brief, SEC wants to protect whistleblowers – and itself

Alison Frankel
Feb 21, 2014 19:30 UTC

In 2012 and 2013, when the 5th Circuit Court of Appeals was considering the question of whether Dodd-Frank’s anti-retaliation provisions protect whistleblowers who report their concerns internally, rather than to the Securities and Exchange Commission, the SEC stayed out of the fray. The case, Khaled Asadi v. G.E. Energy, centered on the tension between two sections of Dodd-Frank, one of which seemed to define whistleblowers only as those who tip the SEC about potential misconduct by their employers. In its Dodd-Frank implementation process, the SEC attempted to resolve the tension, issuing rules to clarify that whistleblowers are protected from retaliation regardless of whether they report concerns to the agency or up the chain of command through internal compliance programs, as the older Sarbanes-Oxley Act had encouraged. The SEC’s rules have convinced most of the federal trial judges who have considered the scope of Dodd-Frank whistleblower protections; courts have typically cited the deference due to the agency’s interpretation of a law it is responsible for enforcing.

Not the 5th Circuit, however. Last July, the appeals court dismissed Asadi’s retaliation suit against G.E., holding that he is not a Dodd-Frank whistleblower because he first informed his boss, and not the SEC, about possible Foreign Corrupt Practices Act violations in G.E. Energy’s dealings with Iraqi officials. The 5th Circuit said it didn’t need to reach the SEC’s interpretation because the statutory language of Dodd-Frank is unambiguous: Whistleblowers are defined as those who report suspicions to the SEC.

The same issue of the scope of protection for whistleblowers who have reported internally is now before the 2nd Circuit, in a Dodd-Frank retaliation case brought by Meng-Lin Liu, a former Taiwanese compliance officer for a Chinese subsidiary of Siemens. And this time, the SEC isn’t taking any chances that the appeals court will ignore the agency’s prerogatives. On Thursday, the SEC filed an amicus brief explaining its position – and explaining why the courts owe deference to the agency’s statutory interpretation.

It’s certainly no surprise that the SEC argues whistleblowers are permitted to bring Dodd-Frank retaliation claims regardless of whether they reported internally or to the commission. That has been the SEC’s position since Dodd-Frank rulemaking began. In the amicus brief, as it has before, the agency contends that it was anxious to preserve the viability of internal compliance programs companies that adopted after Sarbanes-Oxley was enacted in 2002. Those internal controls are an essential component of securities enforcement, the SEC brief said, so its final Dodd-Frank rules “were carefully calibrated to (provide) ‘strong incentives’ for individuals in appropriate circumstances to report internally in the first instance.”

I’ll skip the nitty-gritty details of the regulatory language by which the SEC attempted to clarify the scope of Dodd-Frank whistleblower protection, since the commission’s intentions are perfectly clear. But the big question for the 2nd Circuit, after the 5th Circuit ruling in the Asadi case, is whether courts must defer to the SEC’s interpretation. That requires a two-step analysis: Was the statute ambiguous and did the SEC adopt a reasonable interpretation of the law? The 5th Circuit stopped at the first question because it found the statute unambiguous. So the SEC’s amicus brief devotes several pages to demonstrating the confusion in the statutory language. Part of its argument, in fact, is the “bizarre consequences” of the 5th Circuit’s holding to the contrary. It simply cannot be, the brief said, that Congress meant to add anti-retaliation protection for whistleblowers who report both internally and to the SEC while leaving those who report only internally without any cause of action if they’re fired.

With FCPA under scrutiny, will DOJ expand use of Travel Act?

Alison Frankel
Mar 12, 2012 21:40 UTC

If the Foreign Corrupt Practices Act is Peyton Manning, the Travel Act could turn out to be his little brother Eli.

Allow me to explain. As we all know, until the last several months, FCPA has been one of the Justice Department’s Hall of Fame success stories. Prosecutors have reaped billions in settlements with corporations accused of bribing foreign officials to obtain state-sponsored contracts. The list of FCPA defendants that signed plea deals — including Siemens and Halliburton — is long and sobering, which means the Justice Department met the dual goals of buffing up its prosecution record and satisfying the larger U.S. policy interest in deterring overseas corruption. But of late the department’s FCPA record has taken a hit (sort of like Peyton’s neck) with the dismissal of the Lindsey Manufacturing and Africa sting case.

Is this the moment for the Travel Act to catch up with its better-known brother, a la Eli Manning?

News Corp and the FCPA paradox

Alison Frankel
Feb 28, 2012 16:33 UTC

For the Justice Department’s Foreign Corrupt Practices prosecutors, last week was the best of times and the worst of times. A federal judge in Houston sentenced the former CEO of the Halliburton spin-off KBR Inc. to 30 months in prison for his role in a 10-year scheme to pay $182 million in bribes to Nigerian officials in order to secure $6 billion in military oil and gas contracts. Albert Stanley’s sentencing marked the end of one of the DOJ’s most successful FCPA prosecutions, in which KBR agreed to pay $579 million in criminal fines and disgorged profits — the second-highest fine in an FCPA case at the time the guilty plea and Securities and Exchange Commission settlement was announced in 2009. The KBR case is an FCPA paradigm, a classic demonstration of the law’s power to expose and punish corruption that would otherwise have stayed in the shadows.

The Stanley sentencing came a day after the end of the Justice Department’s biggest FCPA blunder, the so-called Africa sting charges against more than 20 defendants accused of agreeing to pay bribes to Gabon officials who supposedly controlled military contract awards. U.S. District Judge Richard Leon in Washington granted the DOJ’s motion to dismiss charges against all of the defendants who hadn’t pleaded guilty, after prosecutors failed to obtain any convictions in the first two Africa sting trials. Leon took the opportunity to castigate prosecutors for a “very, very aggressive conspiracy theory” that turned out to be unsupported by “the necessary evidence to sustain it.” I’ve written about the troubling backstory of the Africa sting prosecution, in which the government set up an operation center and deployed a highly compromised informant specifically to manufacture FCPA charges, with federal agents all the while texting one another about the attention they’d get when news of the case broke.

Leon is the second federal judge with harsh words for the government in an FCPA case. In December, U.S. District Judge Howard Matz in Los Angeles threw out the conviction of Lindsey Manufacturing and two Lindsey executives after concluding that the prosecution had “gone badly awry.” In the Lindsey case, according to Matz, agents wrongfully obtained a warrant and misled the grand jury, and prosecutors compounded the errors by failing to turn over evidence to defense lawyers.

Lawyers for latest acquitted FCPA defendants: DOJ ‘overreaching’

Alison Frankel
Jan 31, 2012 22:42 UTC

When Michael Madigan of Orrick, Herrington & Sutcliffe delivered a closing statement two weeks ago in the criminal trial of his client Greg Godsey, he told the federal jury in Washington, D.C., that the government had “danced with the devil.” In 2007, Madigan said, the Justice Department set up a “little nest out in Manassas, Virginia,” with the express intention of putting together Foreign Corrupt Practices Act cases. But when the FBI first tried to use an informant who appeared right after the Manassas base was established, it couldn’t make out any traditional cases based on his evidence. So according to Madigan, the Justice Department instead engineered a 2009 sting involving alleged bribes to the defense minister of Gabon in exchange for military supply contracts. That operation netted Justice 22 FCPA defendants and countless headlines touting its get-tough policy on foreign corruption.

On Monday, two of the Gabon sting defendants — including Madigan’s client — were acquitted by the jury. (Jurors said they were deadlocked on charges against three other defendants, but U.S. District Judge Richard Leon ordered them to keep deliberating.) Monday’s repudiation of the Justice Department’s case came a month after Leon entered an acquittal for a sixth defendant in the Gabon sting case, and two weeks after a federal judge in Texas dismissed an FCPA case against a former employee of an ABB Group subsidiary, who was accused of bribing a Mexican official. The Texas judge wouldn’t even let the government’s case go to a jury. The four recent acquittals extend a string of setbacks for the Justice Department in FCPA prosecutions, including a July mistrial in a previous Gabon sting trial against four different defendants, as well as the December dismissal of the Department’s case against Lindsey Manufacturing on prosecutorial misconduct grounds.

Lawyers for two of the acquitted Gabon sting defendants told me Tuesday that those results are no coincidence. “I think [prosecutors] got caught up in the klieg lights,” said Madigan of Orrick. “They were blinded with the idea of getting to the goal, and they ignored the means.” Stephen Bronis of Carlton Fields, who represented attorney Stephen Giordanella on the FCPA conspiracy charges Leon tossed earlier this month, said, “I do think this is somewhat systemic …. Juries and judges are troubled by this kind of use of federal resources.” Both Madigan and Bronis told me prosecutors may be overreaching to charge FCPA violations when they don’t have sufficient evidence. (Eric Dubelier of Reed Smith, who represents acquitted Gabon sting defendant R. Patrick Caldwell, declined comment.)

What FCPA defendants can learn from blockbuster Lindsey win

Alison Frankel
Dec 5, 2011 15:55 UTC

In the run-up to the first trial of a corporation charged with violating the Foreign Corrupt Practices Act, Lindsey Manufacturing and its lead counsel, Jan Handzlik, put up as vigorous a defense as you can imagine. Handzlik (then at GreenbergTraurig and now at Venable) worked with Janet Levine of Crowell & Moring (counsel for Steve Lee, Lindsey’s former CFO) to challenge the government’s conduct, its evidence, even its interpretation of the FCPA’s language. It was to no avail. In May, after a five-week trial and seven hours of deliberation, a Los Angeles federal jury convicted Lindsey Manufacturing, chairman and CEO Keith Lindsey, and CFO Lee on all counts. For Handzlik and Levine, who were convinced the prosecution’s allegations that their clients funneled bribes to officials of a Mexican state-owned electric company were meritless, the conviction was devastating.

So you can image their joy Thursday, when U.S. District Judge A. Howard Matz in Los Angeles vacated the convictions and threw out the indictment against their clients. Matz dismissed the government’s case with prejudice, which means that unless the U.S. Court of Appeals for the Ninth Circuit overturns his ruling, the Lindsey defendants cannot be recharged.

Matz based his decision on numerous examples of government misconduct, beginning with falsehoods in search-and-seizure warrant applications, extending to false and misleading grand jury testimony by an FBI agent, and compounded by prosecutors’ failure to turn over some of that testimony to the defense. Handzlik, Levine, and their teams had alerted the judge to much of the misconduct before the jury reached a verdict, but Matz said the magnitude of the government’s behavior became clear only in retrospect.

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