SEC Whistleblower in Qui Tam Suit is In House Attorney

In 2010, the Securities and Exchange Commission (SEC) enacted a law which encourages people in the know to “blow the whistle” on people or companies who are stealing from or cheating the government. The SEC rewards successful “whistleblowers” with up to 30% of sanctions collected by the agency.

Recently, an attorney has asked the agency to intervene in a legal battle between the attorney and his former employer. David Danon worked for Vanguard from 2008 to 2013, and according to Vanguard, sent company records to his home email address while he was employed by the company and “at the end of his employment”.

In May 2013, one month before leaving Vanguard, Danon filed an SEC whistleblower lawsuit against his employer and another lawsuit in New York state court. Danon alleges that Vanguard has been operating an illegal tax shelter for almost 40 years. According to the complaint, the company has avoided paying $1 billion in U.S. federal income taxes and at least $20 million in New York state taxes. The company allegedly accomplished this by providing services to the mutual funds it runs at prices that allow it to avoid federal and state income taxes.

Vanguard insists that the case is without merit and has said that it intends to defend itself in the courts. The company sent a letter to Danon after the filing of the lawsuit, saying that, “Vanguard intends to take all necessary and appropriate steps to protect its interests “. It also stated that Vanguard “reserves all of its rights to seek legal redress” if Danon fails to return the company’s documents immediately.

Danon has since written to the SEC, saying that it is “increasingly urgent” for the agency to act on his whistleblower lawsuit, as his former employer is threatening to retaliate against him.

Under the terms of the 2010 law which protects whistleblowers, defendants in such lawsuits are not allowed to retaliate against the whistleblower who files the lawsuit. Whether that still applies to attorneys, though, it still up for debate, and this lawsuit could test the rights of whistleblowing attorneys for all such lawsuits to come.

Because attorneys have access to information that is often subject to attorney-client privileges, whistleblowing tips from attorneys can be tricky. In order to avoid relying on misappropriated documents in whistleblowing lawsuits, the SEC has set up “taint teams” to vet tips from in-house attorneys and make sure that no privileged material is used in a whistleblowing probe. If the agency did use privileged information when conducting an investigation, the entire case could be compromised.

Some legal experts believe that, because of their particular professional and ethical obligations, in-house lawyers should have fewer whistleblower rights against retaliation from defendants than most civilians.

Despite these doubts, Danon remains convinced that the information he is using is not privileged, and as such, the SEC should protect him from retaliation by Vanguard. In filing his whistleblower lawsuit, Danon is requesting all costs of filing the lawsuit and 15%-30% of any money recovered by the state and local governments, under the statute.The consumer and tax payer rights law firm of Lubin Austermuehle represents whistleblowers who are pursing qui tam lawsuits at any level of government or for violations of the securities laws and IRS code, including claims under the Illinois Whistleblower Act, the Chicago whistleblower ordinance, the Dodd-Frank Act and the federal False Claims Act. Based in Chicago and Oak Brook, Ill., our Naperville and Lake Forest area qui tam and False Claims Act lawyers stand ready to represent whistleblowers throughout the United States — regardless of whether prosecutors have decided to join the lawsuit. If you know about fraud against a government agency and you’re ready to speak up, you can learn more about whistleblower lawsuits at a free, confidential consultation. To set one up, please contact Lubin Austermuehle online or call 630-333-0333 today.

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