Using the Internet to Your Company's Advantage in Defending Against A Whistleblower Action

Sheppard Mullin Richter & Hampton LLP

The wide dissemination of news on the Internet through “new media” online sites such as the Huffington Post, well recognized blogs like the Drudge Report, or social media sites such as Twitter is changing how we get our news today. The Internet is also making it harder for someone to be the first and original source for allegations of corporate malfeasance that can be the basis for a whistleblower or false claims action. In other words, businesses who are defending themselves against a whistleblower or qui tam (false claims) plaintiff (collectively, “whistleblower”) should exhaustively search the Internet for evidence showing that the whistleblower is not the “original source” of the information.

Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act provides that the Securities and Exchange Commission (“SEC”) shall pay awards to eligible whistleblowers who voluntarily provide the SEC with original information that leads to a successful enforcement action yielding monetary sanctions of over $1 million. Whistleblowers can recover from 10 to 30 percent of the total monetary sanctions collected in the SEC’s action or any related action, so there is a real financial incentive for someone to report suspected wrongdoing. Section 922 of Dodd-Frank also added Section 21F to the Securities Exchange Act of 1934, and Section 21F reflects these incentives to whistleblowers.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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