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Retaliation Protection for Employees Disclosing COVID-19 Fraud

| Jun 28, 2021 | Whistleblowers

The vast sums of taxpayer dollars that have been disbursed to combat the COVID-19 pandemic has created a unique opportunity for companies and individuals to become fraudsters. Given the speed in which the virus has spread and the relative haste in which the government has responded, a wave of fraudulent and unlawful conduct relating to the $2.7 trillion in government aid has predictably occurred. With the Novel Coronavirus affecting nearly everyone, employers and individuals wanting to divert government aid for their own personal gain have had an all too easy path to the money.

On March 30, 2020, the U.S. Attorney’s Office for the Middle District of Florida announced that federal, state, and local law enforcement created a COVID-19 Fraud Task Force. The Task Force aims to utilize information garnered from various sources to investigate and prosecute fraud relating to the Coronavirus pandemic. As with most instances of fraud, insider employees are poised to be best source of information for the government.

Examples of the fraud that Task Force seeks to pursue include the sale of fake COVID-19 treatments and cures to the public, the solicitation of donations related to COVID-19 for illegitimate charities, and medical providers submitting fraudulent claims for COVID-19 tests and treatments. The government’s announcement asks that “Law enforcement, public safety and health personnel, and first responders” report” report suspected wrongdoing to the National Center for Disaster Fraud hotline or use a web form.

Given the new opportunities for those who would commit fraud, and the critical role that employees can play in preventing fraud, it’s important for employees and employers alike to have at least a cursory understanding of some of the many whistleblower laws that protect whistleblower employees and create liability for employers.

Sources of Whistleblower Protection

There are dozens of whistleblower protections for employees in state and federal statutes. Perhaps the most notable statutes for schemes described by the Task Force and those in recent media relating to COVID-19 are the Florida and federal False Claims Acts, the Florida Private Sector Whistleblower Act, and section 806 of the Sarbanes-Oxley Act.

In determining which whistleblower laws apply to a given fact pattern, it is generally best to start with the nature of the fraud, including those affected by the fraud, and the nature of the employer’s business. If the fraud involves any form of government money, counsel should look to the Florida and federal False Claims Acts.

These laws bar false claims for payment to the government and generally prohibit employers from retaliating against an employee who take one or more lawful efforts to stop what the employee reasonably believes to be a violation of the respective False Claims Act.

For example, if an employee in a medical office were to object to healthcare providers submitting claims to Medicaid for COVID-19 tests that were never performed, or were knowingly performed improperly, that employee would likely be protected by both the Florida and Federal False Claims Acts.

The federal False Claims Act also provides protections for employees who report fraud relating to any of the loan programs administered by the Small Business Administration including the Paycheck Protection Program Economic Injury Disaster Loans created by the Coronavirus Aid, Relief, and Economic Security Act or CARES Act.

The reach of the False Claims Acts is broad, and they apply to both direct and so-called indirect false claims, such as those made to contractors and grantees who hold money on behalf of the government. To invoke the protections of the False Claims Acts, an employee does not need to use any special language, nor does the employee need to even be aware of the existence of the Acts. These laws permit employees to bring a private cause of action in the appropriate state or federal court and to seek make whole relief.

While the anti-retaliation provisions of the False Claims Acts are broad, they are of no use to an employee disclosing fraud against the general public, such as where an employer is selling fake COVID-19 cures or treatments, but not attempting to bill Medicare or Medicaid. In such situations, counsel should look to the Florida Private Sector Whistleblower Act.

This Florida law more generally protects employees from retaliatory efforts by their employer when they have:

(1) Disclosed, or threatened to disclose, to any appropriate governmental agency, under oath, in writing, an activity, policy, or practice of the employer that is in violation of a law, rule, or regulation. However, this subsection does not apply unless the employee has in writing, brought the activity, policy, or practice to the attention of a supervisor or the employer and has afforded the employer a reasonable opportunity to correct the activity, policy, or practice.

(2) Provided information to, or testified before, any appropriate governmental agency, person, or entity conducting an investigation, hearing, or inquiry into an alleged violation of a law, rule, or regulation by the employer.

(3) Objected to, or refused to participate in, any activity, policy, or practice of the employer which is in violation of a law, rule, or regulation.

While broader in terms of subject matter, the Florida Private Sector Whistleblower Act is far more restrictive in when it comes to what constitutes protected conduct. First, employees must provide a written internal disclosure of the fraudulent activity to their employers and allow their employer a “reasonable opportunity” to cure before disclosing the action to the government. Second, the disclosure to the government must be under oath and in writing. These constraints present a potential conflict with goal of the COVID-19 Fraud Task Force, which encourages disclosures via a hotline phone number and webform. If a private employee were to utilize these tools to contact the government and report that their employer was selling snake oil COVID-19 treatments, the employee would likely have no protections under the Florida Private Sector Whistleblower Act. However, if the employer were selling its snake oil to a government entity or contactor spending government money, the same employee would likely be protected under one or more False Claims Acts.

Protections for Employees of Publicly Traded Companies

 The rush to find a cure or vaccine for COVID-19 has also spurred numerous claims by various persons and companies seeking to cash in on the obvious jackpot that will be the first cure or vaccine brought to market. While not specifically mentioned as an area targeted by the Task Force, this is an area ripe for fraud and fortunately, an area where federal law provides some of its most robust protections for whistleblowers.

In spring 2020, there was much news about biopharmaceutical company Inovio Pharmaceuticals Inc. (NASDQ: INO). Inovio was one of the first companies to report that it was closing in on a working vaccine. In just a few days, the company’s stock price nearly tripled. Not long after, critics pointed out that Inovio’s announcement came out an astonishing three short hours after the release of COVID-19’s genetic sequence. The stock plummeted and the company is now a defendant in a shareholders’ derivative action. Similarly, after Moderna Inc. (NASDQ: MRNA) announced positive results from its phase 1 study in July 2020, its stock took off, only to be grounded when JPMorgan reduced its rating of the company’s stock from “neutral” to “overweight” a few days later. While the merits of the news reports and claims by either company or their critics are far beyond the scope of this article, these fact patterns do point out the ease with which an unscrupulous company seeking to defraud investors could execute classic pump and dump schemes in the current environment. Fortunately, federal law provides powerful protections for insiders at publicly traded companies.

Section 806 of the Sarbanes-Oxley Act (SOX) prohibits publicly traded companies and their subsidiaries and contractors from retaliating against employees who report what they reasonably believe to be a violation of various federal laws prohibiting mail, wire, bank, or securities fraud.

Unlike the Florida Private Sector Whistleblower Act, SOX protects both internal and external disclosures, and does not include any restrictions as to the method or form of disclosure. An employee of a publicly traded company, its subsidiary, or even its contractor that objects to a scheme to manipulate share prices is protected under SOX, provided that the employee’s belief is reasonable and the employee voices their objection to either a supervisor or a government enforcement agency. An aggrieved employee can file a complaint with the Department of Labor’s Occupational Safety and Health Administration with the ultimate option to seek a jury trial in federal court after exhausting administrative remedies.

How Employers Should Respond to Reported Fraud

Employers should take all internal reports of fraud and other wrongdoing seriously, regardless of whether the employer agrees with the merits of the disclosure. As noted previously, many laws apply a reasonable belief standard that protects mistaken but good faith disclosures by employees.

Employers should ask employees for evidence to support their concerns and conduct a thorough investigation into the allegations. Importantly, employers should be sure to keep the employee abreast of the status of the investigation, lest the employee assume that their employer has done nothing with the report. Employees who feel that that their employers do not take their concerns seriously often become alienated and feel compelled to go further, by making external disclosures or going to the media.

Perhaps most critical, employers should never retaliate, even if the employee is wrong about their disclosure. Instead, employers should realize that it takes courage to speak up, and that for many whistleblowers, it is their loyalty to and affinity for their employer that drives the decision to speak up while others remain silent.

How Employees Should Blow the Whistle

Employees contemplating blowing the whistle should consult with an employment attorney that is well versed in state and federal whistleblower law before speaking up.

As described in this article, there are many nuances to whistleblower law, and indeed, there are situations where, though well-intentioned, the government’s own instructions and guidance may lead an employee astray and into a career-ending situation.

 Conclusion

COVID-19 has changed nearly all aspects of society. The ensuing flood of government aid and panic for a cure has created an unprecedented opportunity for a variety of fraudulent schemes. To protect against opportunists seeking to take advantage of the pandemic and the chaos it has caused, it is important that employees be protected whether they are reporting fraud against the federal government, state, or general public.

 Endnotes

[1] U.S. Attorney Announces Multi-Agency Group To Investigate And Prosecute COVID-19 Fraud, United States Department of Justice (March 30, 2020), https://www.justice.gov/usao-mdfl/pr/us-attorney-announces-multi-agency-group-investigate-and-prosecute-covid-19-fraud.

 

[2] Id.

[3] Id.

[4] Id.

[5] 31 U.S.C. § 3730(h); FLA. STAT. ANN. § 68.088.

[6] FLA. STAT. ANN. § 448.102.

[7] 18 U.S.C. § 1514A.

[8] 31 U.S.C. § 3730(h); FLA. STAT. ANN. § 68.088.

[9] Id.

[10] Id.

[11] Coronavirus Aid, Relief, and Economic Security Act, Pub. L. 116-136 (2020).

[12] 31 U.S.C. § 3730(h)(2); Fla. Stat. Ann. § 68.088.

[13] FLA. STAT. ANN. § 448.102.

[14] Id.

[15] FLA. STAT. ANN. § 448.102(1)

[16] Id.

[17] See supra note 1.

[18] Devarakonda et al. v. Kim et al, Case No. 2:20-cv-02829 (E.D. Pa.).

[19] 18 U.S.C. § 1514A; for a discussion on the breadth and reach of SOX, see generally Lawson v. FMR LLC, 571 U.S. 429, 134 S. Ct. 1158 (2014).

[20] 18 U.S.C. § 1514A(b)(1)(a)-(b).

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