The Business Litigators
The Business Litigators
The Business Litigators
The Business Litigators
Patrick Austermuehle and Andrew Murphy were selected by Super Lawyers as Rising Stars
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Calculating and Allocating Awards

Before you go about contesting any preliminary determinations, it might help to understand how the SEC goes about calculating its whistleblower awards in the first place. In general, whistleblowers who meet all the requirements are eligible to receive 10%-30% of the monetary sanctions collected by the SEC and related government authorities. If an award involves multiple whistleblowers who are eligible for an award, then that 10%-30% amount gets divided between them.

There are multiple factors the SEC considers when determining the amount of an award, including the importance of the information provided; the assistance provided throughout the action; liability; whether there was an unreasonable delay in reporting; and any interference with internal compliance and/or reporting systems.

Although all of these factors have gotten attention in various awards granted by the SEC, the delay in reporting has gotten the most attention. As we mentioned in Part 3, the SEC is a stickler for timeliness, so don’t ever be late as long as you can avoid it. That said, the SEC has been lenient in some instances of delayed reporting, such as when a whistleblower witnessed only one or two instances and was not aware of the full extent of the fraud taking place. Continue reading

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Filing a Claim

So, the SEC has taken your information and executed a successful enforcement action worth more than $1 million against the offender. Now what?

Once the action has been successfully executed, the Office of the Whistleblower will publish a “Notice of Covered Action” on the SEC’s website, after which the whistleblower involved will have 90 days to file a claim for an award based on that action. This means whistleblowers need to monitor the SEC’s website because they will not be contacted directly if an action involving information they provided has concluded. Filing for a claim means filling out a Form WB-APP and either mailing or faxing a signed copy to the Office of the Whistleblower. You should know that the SEC is a stickler for the time frame provided and also for whistleblowers filling out Form WB-APP completely and honestly.

Contesting a Preliminary Determination

Once an action involving a whistleblower has been fully appealed or the allotted time frame for filing an appeal has expired without an appeal having been filed, the Claims Review Staff will review all the submitted award claims and issue a preliminary determination. The whistleblower then has 60 days to contest either the denial of an award or the proposed amount of a granted award. When deciding whether to contest a preliminary determination, a whistleblower can request to review certain materials related to the decision-making process. If they want to do that, they have only 30 days to file their request.

Before providing any documents, the SEC will require the whistleblower to sign a non-disclosure agreement, which is fairly standard. If they refuse to sign, the SEC can refuse to provide the requested documents. Even when they do provide the requested documentation, the SEC can choose which documents to provide and which to withhold, and even the ones provided are usually heavily redacted.

If a whistleblower does not contest the preliminary order in the allotted amount of time, then the preliminary determination becomes a final order and cannot be appealed to a federal court.

The Exceptions

The SEC has been known to grant exceptions to one or more of these rules, but only if the whistleblower can cite “extraordinary circumstances.” Since the SEC does not want to grant an overabundance of exceptions, it strictly defines “extraordinary circumstances” as anything outside the whistleblower’s control that prevented them from taking the proper administrative steps or from taking those steps in the time allotted. If it was a timing issue (such as illness or ineffective counsel), the whistleblower is required to make up for the lost time as soon as possible.

Now that you know all the requirements for filing a claim for a whistleblower award as well as how to contest the amount if you think it’s unfair, Part 4 is going to discuss how to the SEC goes about calculating the award amount and allocating awards when a case involves more than one whistleblower. Continue reading

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Successful Enforcement

It’s not enough to provide information that may or may not lead anywhere. The information provided must lead directly to a successful action against the accused person or entity in order for the whistleblower to be able to collect an award. Of course, this is only the case if the information provided was also original information. In order to qualify, the information must either directly contribute to the successful enforcement, or it must cause the SEC to open an investigation, reopen an investigation, or pursue a different avenue as part of an ongoing investigation, which then results in a successful enforcement.

When it comes to information that directly leads to a successful enforcement, two or more whistleblowers may be eligible for an award if they come to the SEC independently of each other and provide the same information. The idea is to encourage people with information to come forward, so there’s no point in punishing someone for coming to the SEC with the same information as another whistleblower if the two informants didn’t know about each other.

But information that leads to an SEC investigation isn’t enough. The investigation needs to result in a judicial or administrative action, resulting in monetary sanctions worth more than $1 million.

In addition to SEC actions, a whistleblower can also be eligible for an award if related government agencies opened or reopened an investigation as a result of the information provided by the whistleblower, but only if the whistleblower meets all the other requirements for an award. These actions need to have taken place in addition to an SEC action.


The Dodd-Frank Act is the legislation that allows whistleblowers to collect awards and it went into effect on July 21, 2010. As a result, any information provided prior to that date is not eligible for a whistleblower award. At least one whistleblower has asked the SEC to consider leniency on the issue of timing, but so far the Commission has been inflexible on that point.

In Writing

After the Dodd-Frank Act went into effect in 2010, the SEC whistleblower rules became effective on August 12, 2011. Normally, any information provided prior to that 2011 date is ineligible for an award – unless it was provided in writing. Any verbal information provided between July 21, 2010, and August 12, 2011, is not eligible for an award, but those who submitted their information in writing in that time frame maintain the possibility of winning an award.

After the effective date of the SEC whistleblower rules, eligible tips have to be submitted using the SEC’s online portal, or by filing a Form TCR.

Professional Assistance

Whistleblowers are not required to be represented by professional counsel unless they are submitting their information anonymously. Even if they are not doing so anonymously, it’s still a good idea for whistleblowers to get professional assistance when submitting information to the SEC. That said, those professionals are unlikely to be eligible to receive any part of the award, if one is granted.

Foreign Whistleblowers

Agents of foreign governments are not eligible for whistleblower awards, but other types of foreign whistleblowers are eligible, as long as the information they provide relates to a securities fraud with any type of U.S. jurisdiction. Continue reading

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The Securities Exchange Commission (SEC) has been granting a record number of awards to whistleblowers alerting the authorities to securities fraud. To sweeten the deal, the awards (especially lately) tend to be in the tens of millions, and they’re only going to increase along with the amount of recovered monetary sanctions. This provides other whistleblowers with an incentive to do the same, but the problem is that not everyone is familiar with what constitutes securities fraud or how to go about reporting it when they see it.

As it turns out, the answers are in the footnotes. The clearest guidance on the facts and rules of securities fraud are to be found in the SEC’s footnotes of orders it has written for whistleblowers who have filed a claim for an award. Of course, going through all those footnotes is a considerable undertaking, so we’ve compiled the highlights for you into 4 articles, of which this is the first.

Although the SEC often makes its orders granting and denying requests for awards public, most of the text is heavily redacted, leaving the footnotes as the most valuable evidence of their process for determining who gets and award and how much. Continue reading

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When entering into the employment domain, covenants are imposed on employees restricting what they can and cannot do once they leave the job. Violations and restrictions are what employers often look for when they wish to seek enforceability of a contract that was entered into when employees decide to move elsewhere. Typically, such agreements prohibit the competing with an ex-employee for a certain period after the employee has left the business, or prevents the ex-employee from soliciting or dealing with customers of the business by using knowledge of those customers gained.  This issue was again a reminder in the case of Dumrauf, where there was a covenant to be found and the Courts later deemed it to be unenforceable because it was too restrictive.

Generally speaking, a “one size fits all policy” when drafting restrictive covenants, will risk them being unenforceable. This is especially if the demand is unreasonable or not necessary to protect legitimate business interests.  In this specific case, the District Court examined the whether a covenant that an employer-employee entered into was able to prohibit any work for his new employer within 50 miles of an office pursuant to a covenant not to compete Dumrauf signed while working for his previous employer.  On its face, the clause also excluded him from taking any position with another company that engages in the same business, without regard to whether that position is similar to a position Dumrauf held. The termination was at will, as he resigned.  Majority of the work that he was now to be involved in meant dealings with a new client base, mainly in other states.  Accordingly, he argued that the covenant was “too restrictive” and that the “covenant bars him from taking positions with those companies extend beyond roles that were similar to those he previously held to any position whatsoever at other companies in the industry.”  The argument extended so far as to say that he couldn’t even work as a janitor for another company.  For such reasons, the grammar and application of the clauses in the employment agreement were carefully scrutinized. Deliberations then led to considerations of whether this would even affect the business interests.  The question of the justification of broader restrictions vs. legitimate business interests was the main crux of in which way the court was likely to lean.  This is exactly why scope, grammar, and context all matter in the phrasing of such contracts.  Courts have the power over it to modify the terms of the agreement but only where the intent of parties is made known.  Otherwise, such terms have the potential to become unenforceable, especially in unfair circumstances.  That is why the Court did not consider this case as being eligible for modification.  You can view the opinion here.

It remains to be seen whether or not more Illinois state courts will follow the application of this decision.  The lessons we can learn from this is to always consider the grounds on which contract agreements are being drawn.  Records of discussions to make intent clear, to ensure fairness, clarity, and definition of business interests at stake are important.  The risks of losing to unenforceability are increased if the above factors are not shown and where too many restrictions with are overly broad can apply.  Continue reading

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After three dismissals, a class-action consumer lawsuit filed against Barnes & Noble over a 2012 data breach has been sent back to the U.S. District Court for the Northern District of Illinois.

In September of 2012, Barnes & Noble became aware that their credit card scanners had been compromised by “skimmers” which would collect the data from the credit cards that were swiped and transfer them to a third party, which would then sell the information online. Barnes & Noble waited a month before alerting their customers to the data breach, so in addition to allegations that Barnes & Noble failed to properly protect its customers’ data, the class action lawsuit further alleged the bookstore had violated the California Security Breach Notification Act.

Nevertheless, the district court dismissed the case three times. The class of plaintiffs appealed to the Seventh Circuit Court of Appeals, which reversed the decision to dismiss it and sent the case back to the district court.

One plaintiff’s accounts were frozen for three days, meaning she had no access to her own funds in that time period. Another plaintiff had their credit card inactivated for a week, thereby denying them the use of that card. Yet another plaintiff reinstated credit monitoring on their card, which is an additional charge of $17.99 per month. Still another plaintiff was unable to receive the value of their Barnes & Noble’s bargain. Continue reading

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You know how when you post a photo on Facebook of yourself with some friends and Facebook automatically prompts you to tag those people? And it doesn’t just prompt you to tag “your friends” it prompts you with their names because Facebook already knows what you and everyone else on Facebook look like.

While the immediate result is simply a matter of convenience, it’s also kind of scary to know that Facebook is using facial recognition software to identify you. That means that even if your friends don’t tag you in all their photos, Facebook still knows where you were and with whom.

Nimesh Patel was so upset by this idea that he sued Facebook, on behalf of himself and a class of other Facebook users, for allegedly violating their privacy. Although Patel lives in Illinois and the complaint alleges Facebook violated the Illinois Biometric Privacy Act (IBPA), the case has been moved to the federal court for the Northern District of San Francisco. The federal judge hearing the case has recently decided to certify the class, which means it will now be allowed to move forward through the courts.

In agreeing to certify the class, Judge James Donato also defined the parameters of the case, which consists of two main parts: 1) whether Facebook collected this biometric data on consumers under the IBPA; and 2) whether consumers were notified about the biometric data and its uses and had given their consent. Continue reading

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There are some things that doctors can also not be immune to: conflict in the workplace.  There is a growing recognition that professional behaviors and manners should not only extend to the patient.  Rather, they should encompass doctor to doctor relationships, as well as others that work with them.

Having a safe and less conflict in a workplace promotes better professional life quality overall.  This is because conflict creates opportunities to have less understanding amongst peers and undermines communication skills.  Toxic workplace environments become stressful, negative, increase anxiety and give rise to professional burnout.  This, in turn, affects the level of professional care delivered to patients and increases factors for the delivery of medical care with greater liability when it comes to malpractice suits.  Better understandings lead to fewer misunderstandings.

Rather than fearing or avoiding conflict (as is often the case), it can be seen in some cases as a positive opportunity to better understand other points of view, to grow as an individual, and to improve communication and interactions within an organization.

Sources of conflict arise from expectations that were not set clearly, lack of resources, competition for goals, values or resources. For those reasons, identification of sources of conflict early on should be a goal of achieving a workplace culture that fosters respect and effective workplace engagement for all workers collectively.

Tips for managing conflict can include the setting the standards of expectation via an effective employee handbook.  It must also be in compliance with state and federal laws and is always best if run past an attorney prior to implementation.  Having an attorney to mediate disputes is always handy as well.

Avoiding conflict means issues fester and can place issues on a lower scale of measure.  Time gets delayed and suits can follow. Continue reading

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There are so many changes that are made in accounting, auditing, tax and consulting standards that the overlooking of how disputes are solved is a very real possibility.  This is why users and providers of these services should be familiar with the benefits and disadvantages of the various different Alternative Dispute Resolution (ADR) Services.  We will, therefore, suggest that ADR clauses be used in the engagement of services contracts.

CPAs have to consider the wording of any ADR clause approved by a professional liability insurer and legal counsel. These days, most professional liability insurers advocate for the use of non-binding forms of dispute resolution and some may even require this in order to reap the benefits of insurance.

The most common ADR methods available are mediation and arbitration. These are also governed by the AAA’s Accounting and Related Services Arbitration Rules and Mediation Procedures. The process is fair and impartial. To ensure that the ADR clause does not affect a CPA’s independence, the wording must be drafted carefully and in line with the   AICPA Code of Professional Conduct  Rule in Section 1.228.  This gives a generic guide on the use of dispute resolution forums and liability limitation clauses. The inclusion of such clauses does not absolve liability of being unable to meet professional standards.  CPA’s may also need to be required to report a judgment in excess of $25,000 whether granted in court or arbitration.  This amount varies from jurisdiction to jurisdiction.  For that reason, knowledge of the rules is important.


The first step in the settlement of a dispute must always include negotiation.  Parties must make an effort to resolve in the best and least expensive way possible.  Sometimes, ego can come into play and undermine the process.  However, if parties are able to manage their emotions, it will be the most economic outcome, utilizing less time and money.  Negotiations can never take place in bad faith.  If so, involve an attorney that can carefully oversee and draft the proper terms.  They can also intervene on your behalf.  Continue reading

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Extra virgin olive oil (EVOO) is the highest grade of olive oil and people are often willing to pay a higher price for bottles claiming to be filled with EVOO. By definition, EVOO has been made by cold-pressing olives, without using any sulfates or other chemicals in the extraction process. It’s also supposed to have a superior taste compared to all the other forms of olive oil, although the average consumer is unlikely to be able to tell the difference. Unfortunately, there are plenty of olive oil manufacturers who rely on that ignorance.

Although we all do it, there are a few problems with buying a bottle just because it’s labeled “extra virgin olive oil.” The first is that bottles bearing that label are all too easy to obtain here in the U.S., despite the fact that real EVOO is the best of the best, and yet a glance at American grocery store shelves would have you believe that virtually every olive oil sold here is EVOO.

The truth is that EVOO is one of the largest (and oldest) scams in the world. Tests conducted by the University of California-Davis to the National Consumers League have found that more than half the olive oil labeled EVOO in the U.S. is actually adulterated with other oils, such as sunflower seed and peanut oils. Not only do these oils lack taste, they also lack the renowned health benefits of EVOO and can even cause allergic reactions in some consumers. Continue reading