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Whether a party has standing to bring a lawsuit is often considered through the constitutional lens of justiciability – that is, whether there is a “case or controversy” between the plaintiff and the defendant “within the meaning of Art. III.” Warth v. Seldin, 422 U.S. 490, 498 (1975). To have Article III standing, “the plaintiff ‘alleged such a personal stake in the outcome of the controversy’ as to warrant invocation of federal-court jurisdiction and to justify exercise of the court’s remedial powers on behalf.” Id. at 498–99 (quoting Baker v. Carr , 369 U.S. 186, 204 (1962)). To show a personal stake in the litigation, the plaintiff must establish three things: First, he/she has sustained an “injury in fact” that is both “concrete and particularized” and “actual or imminent.” Lujan v. Defenders of Wildlife , 504 U.S. 555, 560 (1992) (internal quotation marks omitted). Second, the injury has to be caused in some way by the defendant’s action or omission. Id . Finally, a favorable resolution of the case is “likely” to redress the injury. Id . at 561. When a person or entity receives an assignment of claims, the question becomes whether he/she can show a personal stake in the outcome of the litigation, i.e. , a case and controversy “of the sort traditionally amenable to, and resolved by, the judicial process.’” Sprint Commc’ns Co., L.P. v. APCC Servs., Inc., 554 U.S. 269, 285 (2008) (quoting Vt. Agency of Natural Res. v. United States ex rel. Stevens, 529 U.S. 765, 777–78 (2000)). To assign a claim effectively, the claim’s owner “must manifest an intention to make the assignee the owner of the claim.” Advanced Magnetics, Inc. v. Bayfront Partners, Inc. , 106 F.3d 11, 17 (2d Cir. 1997) (internal quotation marks and brackets omitted). A would-be assignor need not use any particular language to validly assign its claim “so long as the language manifests intention to transfer at least title or ownership , i.e., to accomplish ‘a completed transfer of the entire interest of the assignor in the particular subject of assignment.’” Id. (emphasis added) (citations omitted). An assignor’s grant of, for example, “‘the power to commence and prosecute to final consummation or compromise any suits, actions or proceedings,’” id. at 18 (quoting agreements that were the subject of that appeal), may validly create a power of attorney, but that language would not validly assign a claim, because it does “not purport to transfer title or ownership” of one. Id. On September 15, 2016, the New York Appellate Division, First Department, issued a decision addressing the foregoing principles holding that one of the plaintiffs lacked standing to assert claims because the assignment of the right to pursue remedies did not constitute the assignment of claims.  Cortlandt St. Recovery Corp. v. Hellas Telecom., S.à.r.l. , 2016 NY Slip Op. 06051. BACKGROUND : Cortlandt involved four related actions in which the plaintiffs – Cortlandt Street Recovery Corp. (“Cortlandt”), an assignee for collection, and Wilmington Trust Co. (“WTC”), an indenture trustee – sought payment of the principal and interest on notes issued in public offerings. Each action alleged that Hellas Telecommunications, S.a.r.l. and its affiliated entities, the issuer and guarantor of the notes, transferred the proceeds of the notes by means of fraudulent conveyances to two private equity firms, Apax Partners, LLP/TPG Capital, L.P. – the other defendants named in the actions. The defendants moved to dismiss the actions on numerous grounds, including that Cortlandt, as the assignee for collection, lacked standing to pursue the actions. To cure the claimed standing defect, Cortlandt and WTC moved to amend the complaints to add SPQR Capital (Cayman) Ltd. (“SPQR”), the assignor of note interests to Cortlandt, as a plaintiff. The plaintiffs alleged that, inter alia , SPQR entered into an addendum to the assignment with Cortlandt pursuant to which Cortlandt received “all right, title, and interest” in the notes. The Motion Court granted the motions to dismiss, holding that, among other things, Cortlandt lacked standing to maintain the actions and that, although the standing defect was not jurisdictional and could be cured, the plaintiffs failed to cure the defect in the proposed amended complaint. Cortlandt St. Recovery Corp. v. Hellas Telecom., S.à.r.l. , 47 Misc. 3d 544 (Sup. Ct., N.Y. Cnty. 2014). The Motion Court’s Ruling As an initial matter, the Motion Court cited to the reasoning of the court in Cortlandt Street Recovery Corp. v. Deutsche Bank AG, London Branch , No. 12 Civ. 9351 (JPO), 2013 WL 3762882, 2013 US Dist. LEXIS 100741 (S.D.N.Y. July 18, 2013) (the “SDNY Action”), a related action that was dismissed on standing grounds.  The complaint in the SDNY Action, like the complaints before the Motion Court, alleged that Cortlandt was the assignee of the notes with a “right to collect” the principal and interest due on the notes. As evidence of these rights, Cortlandt produced an assignment, similar to the ones in the New York Supreme Court actions, which provided that as the assignee with the right to collect, Cortlandt could collect the principal and interest due on the notes and pursue all remedies with respect thereto. In dismissing the SDNY Action, Judge Oetken found that the complaint did not allege, and the assignment did not provide, that “title to or ownership of the claims has been assigned to Cortlandt.” 2013 WL 3762882, at *2, 2013 US Dist. LEXIS 100741, at *7. The court also found that the grant of a power of attorney (that is, the power to sue on and collect on a claim) was “not the equivalent of an assignment of ownership” of a claim. 2013 WL 3762882 at *1, 2013 US Dist. LEXIS 100741 at *5. Consequently, because the assignment did not transfer title or ownership of the claim to Cortlandt, there was no case or controversy for the court to decide ( i.e. , Cortlandt could not prove that it had an interest in the outcome of the litigation). The Motion Court “concur with” Judge Oeken’s decision, holding that “the assignments to Cortlandt … were assignments of a right of collection, not of title to the claims, and are accordingly insufficient as a matter of law to confer standing upon Cortlandt.”  In so holding, the Motion Court observed that although New York does not have an analogue to Article III, it is nevertheless analogous in its requirement that a plaintiff have a stake in the outcome of the litigation: New York does not have an analogue to article III. However, the New York standards for standing are analogous, as New York requires “ he existence of an injury in fact—an actual legal stake in the matter being adjudicated.” Under long-standing New York law, an assignee is the “real party in interest” where the “title to the specific claim” is passed to the assignee, even if the assignee may ultimately be liable to another for the amounts collected. Citations omitted. Based upon the foregoing, the Motion Court found that Cortlandt lacked standing to pursue the actions. The Appeal Cortlandt appealed the dismissal. With regard to the Motion Court’s dismissal of Cortlandt on standing grounds, the First Department affirmed the Motion Court’s ruling, holding: The court correctly found that plaintiff Cortlandt Street Recovery Corp. lacks standing to bring the claims in Index Nos. 651693/10 and 653357/11 because, while the assignments to Cortlandt for the PIK notes granted it “full rights to collect amounts of principal and interest due on the Notes, and to pursue all remedies,” they did not transfer “title or ownership” of the claims. Citations omitted. The Takeaway Cortlandt limits the ability of an assignee to pursue a lawsuit when the assignee has no direct interest in the outcome of the litigation. By requiring an assignee to have legal title to, or an ownership interest in, the claim, the Court made clear that only a valid assignment of a claim will suffice to fulfill the injury-in-fact requirement. Cortlandt also makes clear that a power of attorney permitting another to conduct litigation on behalf of others as their attorney-in-fact is not a valid assignment and does not confer a legal title to the claims it brings. Therefore, as the title of this article warns: when assigning the right to pursue relief, always remember to assign title to, or ownership in, the claim.

On September 29, 2016, the Securities and Exchange Commission (the “SEC” or the “Commission”) announced that International Gaming Technology (“IGT”), a casino-gaming company, agreed to pay $500,000 to settle charges of retaliating against one of its executives with several years of positive performance reviews because he reported to senior management and the SEC concerns about the accuracy of IGT’s financial statements. According to the SEC’s order , within weeks of raising concerns that the company’s cost accounting was arbitrarily inflated, senior managers retaliated against the whistleblower by removing him “from two opportunities he considered significant to performing his job successfully.”  IGT terminated the whistleblower approximately three months later, following the conclusion of an internal investigation into the whistleblower’s allegations.  As noted by the SEC, “ he internal investigation found that the cost accounting model IGT used … was appropriate and did not cause its reported financial statements to be distorted.” The case marks the first time that the SEC has brought an enforcement action under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act” or the “Act”) against a company without an underlying securities law violation. Section 21F(h) of the Act protects whistleblowers who provide information to the SEC about violations of the securities laws, or violations of any protected activity under the Sarbanes-Oxley Act of 2002, from retaliation. Under SEC rules, the Commission may, as it had done with IGT, prosecute violations of the anti-retaliation provisions of the Dodd-Frank Act through an enforcement action. “Bringing retaliation cases, including this first stand-alone retaliation case, illustrates the high priority we place on ensuring a safe environment for whistleblowers,” said Jane A. Norberg, Chief of the SEC’s Office of the Whistleblower.  “We will continue to exercise our anti-retaliation authority when companies take reprisals for whistleblowing efforts.” Without admitting or denying the SEC’s findings, IGT agreed to pay the $500,000 penalty and cease and desist from committing or causing any further violations of Section 21F(h) of the Securities Exchange Act of 1934. Takeaway: As this Blog wrote last month , the SEC has been making good on its promise to crack down on employers that retaliate (or attempt to retaliate) against employees who report securities fraud to the SEC.  The IGT penalty and cease and desist order is another example of the success of these efforts. Links: SEC press release SEC Order Section 21F(h) of the Dodd-Frank Act

On September 14, 2016, Andrew Ceresney (“Ceresney”), Director, Division of Enforcement of the Securities and Exchange Commission (the “SEC” or “Commission”), spoke at the Sixteenth Annual Taxpayers Against Fraud Conference in Washington, D.C. Ceresney covered a lot of ground during his presentation, addressing issues such as the impact of the whistleblower program to the role of whistleblowers and their attorneys in the investigation and claims process. Impact of the Whistleblower Program on the Commission Ceresney described the impact of the whistleblower program on the Commission as “transformative”, “both in terms of the detection of illegal conduct and in moving … investigations forward quicker and through the use of fewer resources.” Since the inception of the whistleblower program, the SEC has received more than 14,000 tips from whistleblowers and paid $107 million to 33 whistleblowers, “in cases with more than $500 million ordered in sanctions.” He also spoke of the Commission’s impact on employers who retaliate (or try to retaliate) against employees that come forward to report fraud – efforts that this blog recently highlighted . In that regard, Ceresney noted the settlement of four actions brought by the SEC “against companies for violating Rule 21F-17”, and the filing of amicus briefs in the courts of appeals and district courts, in support of the SEC’s position that “individuals who make internal reports of possible securities law violations are protected under the Commission’s whistleblower rules.” Finally, Ceresney underscored the transformative impact of the whistleblower program on “other domestic and foreign regulators,” noting that those regulators “have sought to replicate the successes of program.” Types of SEC Cases where Whistleblower Assistance Is Valued While valuing all tips of securities fraud or other violations of the securities laws, Ceresney identified “issuer reporting and disclosure cases” as “a category of cases where whistleblower assistance is extremely helpful.” These cases often involve misconduct that (a) is difficult to uncover, (b) is “very document-intensive”, and (c) involves “sophisticated defense counsel.” For these reasons, whistleblowers, especially company insiders, are valued because they can provide (a) the information necessary to understand the misconduct, (b) guidance on the documents to request, and (c) analysis of the information as it relates to the alleged violation. Another class of cases identified by Ceresney where whistleblowers are helpful is in the enforcement of the Foreign Corrupt Practices Act. Noting that “ ost of the activity in these cases is usually overseas, where less access to evidence,” Ceresney emphasized the importance of international whistleblowers. The SEC has made eight awards to whistleblowers living in foreign countries, with the largest award — $30 million — being paid to a foreign whistleblower who provided the Commission with “original information about an ongoing fraud that would have been very difficult to detect.” In making this award, the Commission made it clear that foreign residency “does not prevent an award when the whistleblower’s information to a successful Commission enforcement action brought in the United States concerning violations of the U.S. securities laws.” Who Qualifies as a Whistleblower People wishing to blow the whistle on securities fraud and other violations of the securities laws often have questions about whether they qualify as a whistleblower under the Dodd-Frank Act. Ceresney addressed this question. First, Ceresney identified company insiders, either current or former employees, as the “best positioned to witness wrongdoing” and help “investigators unlock intricate fraudulent schemes and investigate the full extent of violations.”  “Through 2015, almost half of the award recipients were current or former employees of the companies for which they reported wrongdoing ….” Second, Ceresney identified compliance and internal audit personnel as important whistleblowers. To underscore their importance, Ceresney noted that awards have been made to this group of whistleblowers in August 2014 and April 2015 . Third, Ceresney identified company outsiders as valuable whistleblowers, such as data analysts. “We welcome analytical information from those with in-depth market knowledge and experience that may provide the springboard for an investigation or may supplement an ongoing investigation,” he said. Again, to underscore the importance of outside whistleblowers, Ceresney noted the payment of “more than $700,000 to an individual who was a company outsider and who provided this type of data analysis, leading to a successful enforcement action.” Finally, Ceresney addressed the situation where a person is a participant in the wrongdoing and wants to report the misconduct under the program.  Ceresney said that “in many circumstances, they are eligible for awards” because as “culpable insiders with first-hand knowledge of misconduct” they “can provide valuable information and assistance in identifying participants in, transactions relating to, and proceeds of, fraudulent schemes.” In those instances, they can “receive at least 10% … of the monetary sanctions collected in the enforcement action,” said Ceresney Timing of Whistleblower Assistance Ceresney told the audience that whistleblowers should report misconduct “as soon as you learn of ,” because “you never know whether someone else will report, whether the information will become stale, or whether the statute of limitations will run.”  He noted that “ oming forward without delay also helps prevent misconduct from continuing unabated while investors suffer more harm.”  He emphasized the fact that “ nreasonable delay in the reporting of information to is a significant factor the Commission considers in determining the amount of a whistleblower award.” Notwithstanding, Ceresney made it clear “there is no requirement under the Dodd-Frank Act or rules that a whistleblower originate a case in order to qualify for an award.” The key is that the information provided “causes the Commission to commence an examination, open or reopen an investigation, or to inquire into different courses of conduct where the resulting enforcement action is based on the whistleblower’s tip, or that otherwise significantly contributes to the success of an enforcement action.” He noted that even if “an investigation is underway, a whistleblower will be eligible for an award if his or her information ‘significantly contributes’ to success by, for example, allowing to bring a successful action in significantly less time or with significantly fewer resources, bring additional successful claims, or bring successful claims against additional parties.” Closing Thoughts For Whistleblowers and Whistleblower Attorneys Ceresney closed his presentation with a discussion on the importance of attorneys in the investigation of securities fraud and other violations of the securities laws.  As an initial matter, Ceresney noted that the Commission “welcome the involvement of counsel in whistleblower tips.”  He noted the many ways whistleblower attorneys can help advance the investigation, including: identify information having a nexus with the alleged violation of the securities laws; manage client expectations regarding the duration of an investigation and the awards process, especially since the SEC’s investigations are nonpublic; and identify facts or documents that may tend to identify the whistleblower so that the SEC can maintain the confidentiality of the whistleblower and help “to craft document requests and conduct testimony in the most protective manner.” He also identified ways for both whistleblowers and their counsel to assist the Commission, including: identify and provide corroborating information for their tips; avoid providing information that may be protected by the attorney-client privilege or the work product doctrine; and assist the SEC with its outreach efforts – that is, to help publicize the program and increase public awareness of it. Links: Full text of Speech by  Andrew Ceresney, Director, Division of Enforcement SEC Whistleblower Resources

What is being done about fraud in the FHA's mortgage insurance program? In September, the U.S. Department of Justice announced that Regions Bank ("Regions") agreed to pay $52.4 million to resolve allegations that it violated the False Claims Act. The Alabama-based bank knowingly  originated mortgage loans insured by the Federal Housing Administration ("FHA") that did not meet the underwriting guidelines of the U.S Department of Housing and Urban Development ("HUD"). What is an FHA Direct Endorsement Lender? Since January 2006, Regions has been a direct endorsement lender ("DEL") in the FHA’s mortgage insurance program which gives these lenders the authority to originate, underwrite and endorse mortgages for FHA insurance. If the borrower subsequently defaults, the holder of the note can submit an insurance claim to HUD to recoup the losses related to the default. Under the program, the FHA relies on the DEL to certify compliance. As part of the settlement, Regions admitted that from January 1, 2006 to December 31, 2011, it certified loans that did not meet HUD underwriting requirements regarding borrower creditworthiness.  The bank also admitted that it's quality control department did not review a sufficient number of FHA loans. Even worse, when deficiencies were identified, bank employees often cured the deficiencies, understating the defect rate being reported to senior management. In addition, Regions did not comply with HUD guidelines regarding the bank's review of Early Payment Default loans. The guidelines require a review of all  loans that became 60 days past due within the first six months, but Regions reviewed only those loans that became 90 days past due. Lastly, the bank did not fully adhere to HUD's self-reporting requirements, which require DELs to report fraud and other serious violations or other material deficiencies. In fact, the bank identified numerous loans containing deficiencies between 2006 and 2011, but did not begin self-reporting until 2011. By failing to comply with the requirements of the FHA program, HUD insured hundreds of loans that were ineligible and incurred substantial losses. The Takeaway The FHA mortgage insurance program is designed to encourage home ownership for lower income borrowers or those suffering from financial hardship. Lenders are given incentives to make potentially riskier loans in exchange for government guarantees to reimburse holders of the loans for default-related losses. By failing to adhere to HUD's underwriting guidelines, and recover losses from the FHA program, Regions essentially made false claims to the government. The question remains as to how far reaching these issues are at the FHA, and whether there is the potential of a crisis similar to the one that culminated in the collapse of the subprime mortgage market in 2008. For this reason,  the False Claims Act rewards whistleblowers who successfully recover funds on behalf of the government .

How can I protect my business from conduct risk? The U.S. Attorney in Manhattan recently announced a number of charges against two former executives of American Realty Capital Properties, Inc. ("American Realty"), a real estate investment trust ("REIT"), for their role in a 2014 accounting scandal. Brian Block, the former chief financial officer ("CFO"), is facing six criminal counts for securities fraud, conspiracy and the making of false statements.  Lisa McAlister, the REIT's former chief accounting officer, previously pleaded guilty to four counts, including securities fraud and conspiracy, and has been cooperating with authorities, according to U.S Attorney Preet Bharara. "Market investors are entitled to be told the truth from publicly traded companies," Bharara said in a statement. "When investors are lied to about material information, as is alleged to have happened here, the perpetrators need to be investigated and prosecuted." In addition, the Securities and Exchange Commission has filed civil charges against the two former executives, seeking fines as well as officer and director bans. The attorney representing the fallen CFO said that the charges were "unwarranted" and that his client would prevail at trial. The American Realty Scandal The September 2014 accounting scandal wiped out almost $4 billion of the REIT's market value. The U.S. Attorney alleges that the defendants manipulated American Realty's adjusted funds from operations ("AFFO"), a key metric used by analysts to measure the performance of a REIT. Authorities contend that Block concealed an error in the calculation of AFFO -- one that he had been warned about internally -- and, with McAlister in his office, input fictitious numbers into a spreadsheet that was later incorporated into the financial results American Realty reported to the public and the SEC. According to the government, the fictitious data made it appear that American Realty met Wall Street forecasts, when, in fact, it had not. On October 29, 2014, the REIT acknowledged that the executives "intentionally" concealed the accounting errors, which caused American Realty to overstate its AFFO. On that day, the REIT's shares plunged by 37 percent. American Realty eventually restated 3-1/2 years of its reported financial results. American Realty, which went public in 2011 and was part of Nicholas Schorsch's commercial real estate empire, is now the Phoenix-based VEREIT, Inc. Although Schorsch has not been charged in the case, another of his businesses filed for bankruptcy seven months ago, giving lenders control of an affiliated investment advisory unit. At this juncture, it is unclear whether the U.S. Attorney is investigating these matters further. The Takeaway This case illustrates how essential it is for investment firms and other financial service providers to have policies and procedures in place to mitigate conduct risk. The illegal actions of senior executives, officers and directors can have a significant adverse affect on a business, resulting in serious market losses that ultimately harm investors. If your firm is being investigated or is embroiled in an investor lawsuit, you should engage the services of an experienced business litigation attorney .

What anticompetitive business actions are considered unfair? Amidst the recent commotion surrounding the wildly elevated prices of certain products sold by Mylan Pharmaceuticals ("Mylan"), New York State Attorney General Eric Schneiderman is investigating whether the drug company has unfairly limited competition. Although Mylan has been accused of profiteering before, this time the product involved is EpiPen®, the emergency injector used for extreme emergency allergic reactions (anaphylaxis). Allergies requiring EpiPen administration may include severe allergic reactions to insect stings, nuts, shellfish, or certain medications. Because EpiPens are auto-injectors, they can be easily carried and used anywhere and can be administered by patients themselves or by untrained people who happen to be nearby. A single jab to the thigh dispenses lifesaving epinephrine. Mylan's Business Practices under Investigation Right now, the state attorney general's office is examining data to find out whether Mylan unfairly limited competition as a means of steeply increasing its prices for EpiPen. In a preliminary report, Schneiderman announced that the company "may have inserted potentially anticompetitive terms" into sales contracts with many school systems, thereby engaging in anti-competitive business practices or violating antitrust laws. If this turns out to be the case, Schneiderman says, "We will hold them accountable." Recently, Mylan was served with subpoenas for company information. Of course, investigation does not mean proof of wrongdoing. If your company is accused of, or investigated for, illegitimate practices, it is essential that you have a strong business attorney with skill and experience in commercial and complex litigation . Just how steep are the increases in price? The possible legal charges here are serious since they not only involve potentially illegal business practices, but matters of public health and lifesaving medical treatment. Mylan has increased the cost of the EpiPen product astronomically, apparently just because they can. In 2007, pharmacies paid less than $100 for a two-pen set (patients are advised to carry two in case they require a second dose). By 2009, the price had increased marginally to $103.50 per set. By July 2013, however, the cost was up to $264.50, and by May 2015 it had risen to $461. The alarming increases in price did not stop there. By May of this year, the price of two EpiPens skyrocketed to $608.61! This represents an increase of 500 percent in less than a decade. For individuals whose lives depend on these products (which typically have to be replaced annually), this is a tremendous burden. Possible Alternatives to the Outrageous Pricing In response to the uproar surrounding its pricing, the company has announced that will be launching a $300 generic version of the medication within several weeks. Also, Mylan has stated that it has distributed more than 700,000 free EpiPens to 65,000 schools nationwide. While there are other generics, such as Adrenaclick, presently available, EpiPen is the recognizable brand name and patients are extremely reluctant to trust their lives to an unknown product. While the controversy and investigation rage on, Mylan spokeswoman Nina Devlin stated, "The program continues to adhere to all applicable laws and regulations."

How has Turing managed to get into even more trouble after last year's bombshell? It is difficult to imagine Martin Shkreli ("Shkreli") being shamed even more than he already has been, nor Turing Pharmaceuticals AG ("Turing") having its reputation further blackened by more bad news. Nonetheless, this is exactly what's happening. After last fall's commotion surrounding pricing discrepancies, Nancy Retzlaff ("Retzlaff"), once looked at as the most likely candidate for CEO of the company, has now brought federal charges against Turing for retaliating against her after she testified in a case involving a sexual assault by one of Shkreli's friends and a co-founder of the company -- Edwin Urrutia. When companies are involved in litigation and their reputations are on the line, the stakes can be very high. Executive positions, as well as the firm itself, can be at risk. Under such circumstances, it is imperative that the company brings in a business law firm of unchallenged competence to settle disputes, represent them vigorously in a court of law, and help them keep the business afloat and moving full-steam ahead through stormy waters. It is also important to hire attorneys able to understand and protect the rights of whistleblowers whose attempts to repair company defects are all too often met with retaliation. The Background Last February, Shkreli famously appeared smug and flippant during a Congressional investigation of his company's astonishing pricing practices. Retzlaff, a highly valued member of the Turing team at the time, supported the company, explaining away the fiftyfold overnight increase in the price of the drug Daraprim, used for over 50 years to treat a deadly parasitic infection, by stating that it had previously been underpriced and that it had great value to the patients who required it. While not especially convincing, her defense was considered professional and well-articulated, particularly in contrast to Shkreli's unseemly antics in the face of such serious charges. Shkreli later stepped down as chief executive of Turing after being arrested on securities fraud and wire fraud charges in connection with his activities at hedge funds and another pharmaceutical company he founded. Turing also faces investigations by the  New York attorney general  and  the Federal Trade Commission . The Current Case Retzlaff now claims that, while in Washington for a Congressional hearing on the inflated price case, Edwin Urrutia, Shkreli's friend and the interim chief financial officer of Turing, made unwanted sexual advances to her, eventually assaulting her in a hotel bedroom. Retzlaff did not originally report the sexual assault because she feared, according to her lawyer, "reprisal, victim blaming, and being denied the C.E.O. position for which she was eminently qualified — all of which are now happening." When a co-worker made a strong complaint of unwanted sexual advances by the same man, however, Turing hired a private company to investigate the charges, and at that time Retzlaff spoke up. The investigation company substantiated the charges that Urrutia had made unwanted sexual advances to his accuser and had assaulted Retzlaff and other members of the staff. Urrutia, as a result, resigned from Turing "in lieu of termination." According to Retzlaff, before the assault and its aftermath, she had been a candidate for chief executive of the firm and had been promised restricted stock in the company. She charges that more recently she was told that she is no longer eligible for either. She also alleges that Shkreli had set a sexist and vulgar tone for the office with his own crude behavior, although he had left the company by the time her own sexual assault took place. Shkreli now states “I know she was made some promises, but she fell a little bit short of expectations.”

On September 20, 2016, the Securities and Exchange Commission (“SEC”) announced that it awarded more than $4 million to a whistleblower who provided original information about a fraud that resulted in the recovery of monetary sanctions. Since 2011, the SEC has awarded more than $111 million to 34 whistleblowers pursuant to the agency’s whistleblower program. The SEC did not identify the whistleblower. By law, the SEC protects the confidentiality of whistleblowers and does not disclose information that might directly or indirectly reveal a whistleblower’s identity. Commenting on the award, Jane Norberg, Acting Chief of the SEC’s Office of the Whistleblower, stated: “Our program continues to incentivize whistleblowers to come forward with solid information that helps us bring violators to justice before more wrongdoing can occur.” Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, a whistleblower who provides original information to the SEC that leads to a successful enforcement action resulting in over $1 million in monetary sanctions may be awarded an amount not less than 10% and not more than 30% of the monetary sanctions collected. All payments made to whistleblowers are paid out of an investor protection fund established by Congress that is financed through monetary sanctions paid to the SEC by securities law violators. Links: SEC Press Release SEC Order SEC Whistleblower Resources

It is a fact of life that many securities brokers and financial advisors will be the subject of one or more customer complaints during his/her career. To be sure, some of those complaints will be justified. However, many of them will not be. In those latter instances, innocent brokers and financial advisors will have a blemish on his/her record that can be cleared only through an expungement proceeding. Expungement is essentially a three-step procedure. First, the broker or financial advisor must persuade a court or arbitration panel to expunge his/her record of the negative event. Rule 2080(b)(1) promulgated by the Financial Industry Regulatory Authority (“FINRA”) provides the grounds upon which an order of expungement should be granted: (a) the claim, allegation or information is factually impossible or clearly erroneous; (b) the broker or financial advisor was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation or conversion of funds; or (c) the claim, allegation or information is false. The process is started by filing an application naming the customer or the firm as a respondent. FINRA is also named as an additional party, unless FINRA waives the requirement. Second, if an expungement award is issued by an arbitration panel, the award must be judicially confirmed. Third, if confirmed, the award and the judgment (confirming the award) are to be sent to the Central Registration Depository (“CRD”) so that the matter can be removed from the broker or financial advisor’s record. In addition to Rule 2080, the process for seeking expungement is governed Rule 12805 of the FINRA Code of Arbitration Procedure for Customer Disputes. Rule 12805 covers the responsibilities of the arbitration panel hearing an application for expungement. The rule requires the panel to “ old a recorded hearing session (by telephone or in person) regarding the appropriateness of expungement.”  In a case that has gone to hearing on the merits, a panel will often consider a request for expungement as part of its deliberations. Rule 12805 further instructs that if the panel grants expungement, it must “ ndicate in the arbitration award which of the Rule 2080 grounds for expungement serve(s) as the basis for its expungement order and provide a brief written explanation of the reason(s) for its finding that one or more Rule 2080 grounds for expungement applies to the facts of the case.” If, however, a customer complaint is settled before a hearing on the merits, the panel must nevertheless hold a hearing on the record to evaluate the expungement application, including “review settlement documents and consider the amount of payments made to any party and any other terms and conditions of a settlement.” The broker or financial advisor must present testimony and evidence to the panel in support of the application, and the customer or other interested party must be given an opportunity to respond and be heard. Upon request of the broker or financial advisor, FINRA will typically keep the arbitration panel intact following the settlement for purposes of holding a hearing limited to the issue of the broker or financial advisor’s expungement request. Expungement Gets Some Bad Press: Royal Alliance Associates Inc. v. Liebhabe r The foregoing expungement process received some adverse press in September of 2014, when The New York Times Dealbook published an article (“A Murky Process” dated September 25, 2014) about an expungement proceeding in which Sandra A. Liebhaber (“Liebhaber”), a customer of Royal Alliance Associates, Inc. (“Royal Alliance”), attempted to oppose an expungement application by her broker, Kathleen Tarr (“Tarr”) (FINRA ID No. 13-01522 (Los Angeles, 9/10/14)), and was rebuffed by the panel, which issued the expungement award. As discussed below, in Royal Alliance Associates, Inc. v. Liebhaber , B264619 (Cal. Ct. App. Aug. 30, 2016) , the Court of Appeals of the State of California vacated the expungement award because the arbitrators failed to allow Liebhaber and her counsel the opportunity to present testimony and evidence at the hearing. The Arbitral Proceeding From July 2002 through July 2010, Tarr was employed as a financial advisor with Royal Alliance, a securities broker-dealer and FINRA member. Starting in 2007, Tarr sold high-commission variable annuities and non-traded real estate investment trusts, or REITs, to dozens of AT&T employees who were eligible to receive early retirement offers from the company. By 2010, many of Tarr’s customers complained that she improperly steered them into portfolios of illiquid securities that were unsuitable for their retirement accounts. Liebhaber was a customer service representative for AT&T and one of Tarr’s clients.  In May 2013, Liebhaber filed a complaint against Royal Alliance, claiming that Royal Alliance was negligent, breached its fiduciary duty to her, and violated state securities laws by selling her “illiquid, high-risk investments” that were “inappropriate and unsuitable” for her individual retirement account. Slip op. at 3. Liebhaber sought $325,000 in compensatory damages.  Royal Alliance settled the action for $30,000, or less than 10% of requested damages, after an arbitration panel was convened but before a hearing was held. Id . Royal Alliance requested that the arbitrators keep the case open so that it could seek expungement of Liebhaber’s claim and settlement from Tarr’s CRD record. Id . at 3-4. On June 9, 2014, Royal Alliance submitted a request for expungement on behalf of Tarr to the previously convened arbitration panel. Liebhaber remained a party to the action; Tarr was not, however, named as a party. Royal Alliance sought expungement because it faced other FINRA arbitrations in which former customers claimed that Tarr had caused them harm.  In later briefing, Royal Alliance explained that it wanted to use the expungement award in “ongoing arbitrations and in any later filed arbitration ” as evidence of no wrongdoing. Less than a month later, on June 30, 2014, Liebhaber’s counsel advised the arbitration panel that he did not intend to file a pre-hearing brief but planned to call Liebhaber and Tarr as witnesses at the arbitration hearing. According to the Court, the record was devoid of a response by Royal Alliance or the arbitration panel, as well as written evidence and submissions by the parties. Slip op. at 4. On August 12, 2014, the panel held a telephonic hearing to consider the expungement application. Liebhaber and her counsel, Royal Alliance and its counsel, and Tarr participated in the hearing. Royal Alliance argued that expungement was warranted because Liebhaber’s allegations against Tarr were false, stating that the investments Tarr recommended were suitable for Liebhaber, and Liebhaber’s alleged net losses could be attributed to withdrawals from her retirement account and “the 2008 market crash.” Slip op. at 4. Royal Alliance also noted that a complaint similar to Liebhaber’s had been previously expunged from Tarr’s record. (Note: Tarr had 44 customer complaints and a termination on her record.) Tarr also spoke during the hearing, but did so without being sworn in by the panel. Tarr vigorously disputed Liebhaber’s allegations, noting that the allegations against her were inimical to her background as “the daughter and granddaughter of ministers.” Slip op. at 4-5. Tarr spoke uninterrupted and without questions. Id . at 5. Liebhaber’s counsel contended, among other things, that Royal Alliance failed to show that her claims against Tarr were false or factually impossible, and proposed a procedure in which both Tarr and Liebhaber would be asked to respond to questions about Liebhaber’s claims. Tarr’s counsel objected to the proposed procedure.  The presiding arbitrator concluded that such questioning was unnecessary. Another panel member, however, wanted to hear such questioning, especially since “the guidelines are pretty clear that we’re supposed to be looking at everything because this was a settled case, and that the more information we have, the easier it is for us to make what I would consider to be a fair and well reasoned decision regarding expungement.” That arbitrator undermined the point, however, by adding that such questioning should not exceed “another two hours.” The third arbitrator agreed with the presiding panel member. Thereafter, the presiding arbitrator denied Liebhaber’s request. Slip op. at 6. Liebhaber’s counsel stated for the record his objection to the panel’s ruling, noting that he had “not been given a full and fair opportunity to respond to … the claims that have been made in the hearing.” Id . at 7. After rebuttal and additional discussion about the panel’s ruling, the panel concluded the proceeding. On September 10, 2014, the panel issued an award recommending expungement. Slip op. at 7. The award tracked the language of Rule 2080, and found that Liebhaber’s “claim, allegation, or information” against Tarr was “factually impossible or clearly erroneous; and … The claim, allegation, or information is false.” Slip op. at 7-8. The panel cited several reasons for its findings, including the difference between the damages Liebhaber sought ($325,000) and the settlement amount ($30,000). Id . at 8. The panel concluded the amount of the payment reflected a business decision by Royal Alliance rather than Liebhaber’s actual net out-of-pocket losses. Id . The Petition to Confirm the Expungement Award Pursuant to FINRA Rule 2080, Royal Alliance sought confirmation of the expungement award. Liebhaber opposed the petition, and requested that the award be vacated on the grounds that: “(a) Liebhaber’s rights were substantially prejudiced by misconduct of the arbitrators; (b) the arbitrators exceeded their powers in denying Liebhaber’s request to present evidence at the hearing; and (c) Liebhaber’s rights were substantially prejudiced by the refusal of the arbitrators to hear evidence material to her claims.” Slip op. at 10. On May 18, 2015, the trial court held a hearing to consider the petition to confirm the award. In connection with the hearing, the court issued a tentative ruling to vacate the award. Following oral argument, the trial court adopted its tentative ruling and vacated the expungement award.  The court did so “on the ground that Liebhaber’s rights were substantially prejudiced by misconduct of the arbitrators, the arbitrators exceeded their powers, and Liebhaber’s rights were substantially prejudiced by refusal of the arbitrators to hear evidence material to the controversy.” Slip op. at 12. The court also found that the arbitrators violated FINRA Rule 2080 “by allowing Ms. Tarr to provide an unsworn statement in support of expungement while also preventing Liebhaber’s attorney from cross-examining Ms. Tarr in order to determine if the requirements of Rule 2080 were met.” Id . THE COURT OF APPEALS’ DECISION The Court of Appeals affirmed the trial court’s ruling. It found that “Liebhaber’s rights as a party to the arbitration proceedings were substantially prejudiced within the meaning of section 1286.2, subdivision (a)(5),” which “provides that the trial court ‘shall vacate’ an arbitration award if ‘The rights of the party were substantially prejudiced by . . . the refusal of the arbitrators to hear evidence material to the controversy or by other conduct of the arbitrators contrary to the provisions of this title.’” Slip op. at 16. Addressing the first question – whether the arbitrators refused to hear evidence material to the controversy or engage in other conduct contrary to the provisions of California law – the Court Appeals found that the panel in fact had refused to give Liebhaber the opportunity to be heard, present oral evidence, and cross-examine Tarr during the hearing. Slip op. at 16-18. As to the second question – whether Liebhaber’s rights were substantially prejudiced – the Court of Appeals found that they were. In so holding, the Court concluded that “‘the arbitrator might well have made a different award’ if they had allowed Liebhaber to tell her side of the story or question Tarr’s.” Slip op. at 19 (citation omitted). Consequently, the Court held that “the hearing was not fair,” because Royal Alliance received “an unfettered opportunity to bolster its written” submission, while Liebhaber was “denied even a limited chance to do the same.” Id . at 20. TAKEAWAY Royal Alliance teaches the importance of making a record during an arbitration proceeding. As discussed above, Liebhaber’s counsel created a substantial record showing that Liebhaber did not have a fair hearing. He was able to use that record to show prejudice from the arbitrators’ conduct – one of the bases for vacatur of an arbitral award.  Since vacatur of an award is very difficult to obtain, as discussed in a July post on this blog, having a detailed record is a good way to persuade a court of entitlement to such relief. Royal Alliance also teaches that, although customers typically remain silent during expungement proceedings, they do not have to remain so, even after settling their claims. As discussed above, Liebhaber felt strongly enough to ensure that other investors would know about Tarr’s behavior notwithstanding the settlement. Of course, customers who believe their broker or financial advisor has been falsely charged with wronging should likewise speak up during an expungement hearing. * * * It should be noted that FINRA participated as a party in the confirmation proceeding and opposed the actions of the arbitrators. At the hearing, FINRA told the trial court that FINRA had “an interest and really a duty here, in protecting the integrity of the and the information contained in it.” As such, given the record of proceedings, FINRA argued that the arbitrators broke FINRA’s rules in denying Leibhaber and her counsel the opportunity to testify and be heard. Also, not long after Liebhaber challenged the expungement award, FINRA revised its expungement guidance with respect to customer participation at expungement hearings. The Arbitrators’ Guide now provides, as mentioned above, that arbitrators should “allow customers and their counsel to participate in the expungement hearing in settled cases if they wish to.”

On May 31, 2016, the Appellate Division, First Department, issued MP Cool Investments Ltd. v. Forkosh , 2016 NY Slip Op. 05944, a case involving allegations of fraud in connection with the production and sale of a commercial heating and ventilation system by an Israeli-based company.  In the decision, the First Department unanimously affirmed the motion court’s dismissal of the plaintiff’s fraud claims because they were not pleaded with particularity, did not establish justifiable reliance on the defendants’ misrepresentations, and failed to demonstrate scienter or an intent to deceive. The Factual Background of MP Cool : The plaintiff, a Manhattan-based private equity fund with $4.3 billion in assets under management, is an admitted sophisticated investor that specializes in capturing value in distressed companies in less efficient markets around the world. In December 2009, MatlinPatterson entered into an agreement with DuCool, Ltd., an Israeli company that claimed to have had breakthrough dehumidification technology, to obtain a majority interest in the company.  Pursuant to the agreement, MatlinPatterson invested $30 million in DuCool, giving it an initial 49% interest in the company. By 2012, MatlinPatterson had invested $70 million in DuCool and acquired a 72% majority interest in the company. Subsequent investments brought MatlinPatterson’s equity interest in DuCool to 90%. As permitted under the purchase agreement, MatlinPatterson had a 90-day due diligence period during which it was given full access to DuCool’s business operations, properties, technology data and plans. MatlinPatterson was also given direct access to all of DuCool’s customers, though it only approached one customer. To conduct the agreed upon due diligence, MatlinPatterson, among other things, hired two consultants: QuinetiQ, to perform technical evaluations of DuCool’s technology, manufacturing facility, and installation sites; and McKinsey, to evaluate DuCool’s business model, financial information, and market potential. McKinsey drafted a proposed business plan for the company that was included in the parties’ initial purchase agreements. After the initial investment, but before the second investment, MatlinPatterson appointed three of the seven members of the board of directors and two of McKinsey’s representatives were installed as officers of DuCool. The Allegations and the Motion Court’s Ruling MatlinPatterson claimed that in the period before it purchased any interest in DuCool (pre-investment) and during the two-year period after its first investment ( i.e. , 2010 through 2012), when it acquired a majority interest in DuCool, the defendants made numerous false representations and provided inaccurate data about DuCool’s air conditioning technology, financial condition and overall successes in the United States and other markets. MatlinPatterson alleged that it relied on the representations and data, inducing it to repeatedly invest in DuCool, believing it was a better performing company than represented. MatlinPatterson also alleged that after it invested in DuCool, the defendants deceived it by intentionally concealing known problems with DuCool’s installations in at least three major sites in the United States and Costa Rica and made numerous false statements about energy cost savings in an April 2011 “study” that touted DuCool products’ performance and cutting edge technology. The defendants moved to dismiss the complaint.  The motion court granted the motion and the plaintiff appealed. The Appellate Ruling As an initial matter, the First Department noted that the plaintiff failed to allege fraud with particularity as to each individual defendant and the various time periods involved. The Court observed that the complaint simply “bundled, bare-boned and conclusory allegations” – the type of allegations that do not suffice to plead a fraud claim. Turning to the justifiable reliance element – one of the two elements highlighted by this post – the Court noted that MatlinPatterson is a sophisticated investor that conducted extensive due diligence both before and after its initial investments.  Such sophistication and knowledge undermined any claim of justifiable reliance: Plaintiff is an experienced and sophisticated investor. It did not plead facts to support the justifiable reliance element of fraud. Plaintiff had total, unfettered access to every aspect of DuCool’s company information both before and after its initial investment, even before it held a controlling interest in DuCool. Although learning through the due diligence conducted by its own technology and business consultants that there were frequent technological problems with DuCool products, some of them “severe,” plaintiff proceeded to invest in the company. Thereafter, as the 49% shareholder, plaintiff had the largest percentage ownership of any individual shareholder and it had access to information concerning the operations of the business. There is no factual basis on which to conclude that the alleged fraud involved matters peculiarly within defendants’ knowledge, because plaintiff had the means to discover the truth behind any false claims about the condition of the company and whether this was a feasible investment. Slip op. at 3 (citations omitted). Regarding the scienter element – the second element highlighted by this post – the Court found that the due diligence conducted by the plaintiff negated any inference that the defendants knew DuCool would fall short of projections: With respect to the scienter element of its claim, although “most likely to be within the sole knowledge of the defendant and least amenable to direct proof,” plaintiff is still required to allege facts "from which it is possible to infer defendant knowledge of the falsity of statements” when they were made. It has not done so. Plaintiff, based upon its own due diligence, concluded that DuCool presented a profitable, albeit speculative, investment opportunity given its development of new technology and registered patents. Although the company may not have performed as plaintiff expected, this does not support a reasonable inference that defendants knew that DuCool would fall short of its business projections. The parties’ agreement not only contained plaintiff’s express acknowledgment that success was speculative, but also a further acknowledgment that “any business plans prepared by the Company, have been, and continue to be, subject to change and that any projections included in such business plans or otherwise are necessarily speculative in nature. . .” Slip op. at 3-4 (citations omitted). Takeaway: Unfortunately, there are times when an acquired business or investment does not live up to expectations.  When this happens, the acquiring or investing party sues. MP Cool stands as a reminder that in New York (and some other jurisdictions) an aggrieved party cannot come to court claiming fraud when it has conducted due diligence and obtained information that undermines the strength of its claim. Though sophisticated parties can be the victim of fraud, they cannot complain if they have knowledge of the very fraud of which they complain. MP Cool also reminds us that scienter is a very difficult element to plead. In fact, the scienter element is the hardest to plead because the evidence of intent most often rests solely with the defendant. Because of this difficulty, intent is often inferred from circumstantial evidence. Pludeman v. N. Leasing Sys., Inc. , 10 N.Y.3d 486, 488 (N.Y. 2008). Notwithstanding, as the First Department made clear, scienter must be plead with particularity. Slip op. at 3. Conclusory allegations, such as those in MP Cool , will not suffice. The plaintiff must allege facts from which there is some “rational basis for inferring that the alleged misrepresentations were knowingly made.” Houbigant, Inc. v. Deloitte & Touche LLP , 303 A.D.2d 92, 93 (1st Dep’t 2003). As MatlinPatterson learned in MP Cool , the failure to meet this hurdle will result in dismissal.

On August 30, 2016, the Securities and Exchange Commission (“SEC”) announced that it awarded a company insider $22.5 million for providing “detailed” information about a “well-hidden fraud at the company where the whistleblower worked.” Though not disclosed by the SEC, news outlets reported that the company involved was Monsanto Co. The $22.5 million award is the second-largest the SEC has awarded a whistleblower since the program’s inception in 2011. Among other things, the SEC recognized the “extensive assistance” provided by the whistleblower in “help the agency halt” the fraud. According to the news media, the fraud concerned accounting improprieties involving a rebate program Monsanto used to sell Roundup, a popular weed killer. The SEC accused Monsanto of falsifying its earnings through a corporate rebate program that was designed to increase the product’s sales. The SEC said that Monsanto “lacked sufficient internal controls to account for millions of dollars in rebates that it offered to retailers and distributors. It ultimately booked a sizeable amount of revenue, but then failed to recognize the costs of the rebate programs on its books.” Monsanto neither admitted nor denied the charges. The whistleblower’s attorney told news outlets that the whistleblower, a finance executive at Monsanto, went to the SEC only after first trying to correct the accounting issues internally. Commenting on the award, Jane Norberg, Acting Chief of the SEC’s Office of the Whistleblower, said: Company employees are in unique positions behind-the-scenes to unravel complex or deeply buried wrongdoing. Without this whistleblower’s courage, information, and assistance, it would have been extremely difficult for law enforcement to discover this securities fraud on its own. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, a whistleblower who provides original information to the SEC that leads to a successful enforcement action resulting in over $1 million in monetary sanctions may be awarded an amount not less than 10% and not more than 30% of the monetary sanctions collected. Since 2011, the SEC has awarded more than $107 million to 33 whistleblowers who “provid the SEC with original and useful information that led to a successful enforcement action.” The largest amount awarded to a whistleblower by the SEC was $30 million in 2014.

On September 1, 2016, the Commodity Futures Trading Commission (“CFTC” or the “Commission”) announced that it was seeking comment on proposed amendments to the rules governing the Commission’s whistleblower program, its authority to administer the program and issue whistleblower awards, and its authority to implement anti-retaliation enforcement measures. The amendments, if adopted, will make the CFTC’s whistleblower program congruous with that of the Securities Exchange Commission (“SEC”), and would enable the CFTC to initiate enforcement proceedings against employers that retaliate against whistleblowers who engage in lawful whistleblowing activities. The CFTC is seeking comments on the proposed amendments on or before September 29, 2016. Background In 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) to combat illegal and fraudulent conduct on Wall Street and promote compliance with the federal securities and commodities laws.  The Dodd-Frank Act contains whistleblower provisions that authorize the SEC and CFTC to pay cash rewards to whistleblowers who voluntarily provide the agencies with information about securities and commodities fraud and other violations of the securities and commodities laws. Under the CFTC whistleblower program, the CFTC will pay an award to any individual, or group of individuals, who voluntarily provides “original information” to the Commission about a violation of the commodities laws. If the information leads to a successful enforcement action of more than $1 million, the whistleblower may receive an award of between 10% and 30% of the sanctions collected. The amount of the award is dependent upon a number of factors, including the significance of the information provided and the degree of the whistleblower’s assistance. The CFTC whistleblower program has been around for five years. In that time, there have been only four awards – this blog recently wrote about the latest award – and no enforcement proceedings to protect whistleblowers from retaliation by their current or former employers.  The absence of proceedings to enforce the anti-retaliation provisions of the Dodd-Frank Act stand in stark contrast to the more recent actions of the SEC – actions that this blog recently discussed . Since the adoption of the CFTC regulations governing the whistleblower program, the Commission did not view its enforcement authority to cover retaliation against whistleblowers. The proposed amendments indicate that the Commission now intends to promote its whistleblower program and actively protect whistleblowers against activity that chills lawful whistleblowing activity. The Commission made this clear in the notice of the proposed amendments: “Upon reconsideration of its statutory authority on this important issue, and noting that harmonization between the SEC’s and the Commission’s Whistleblower programs would be beneficial to the public by making the consequences of illegal retaliation more uniform, the Commission has decided to join the SEC on that path.” The Proposed Amendments The proposed amendments will make it easier for whistleblowers to seek awards and provide them more opportunity to participate in the awards process. Among other things, if approved, the changes would do the following: enhance the process for reviewing whistleblower claims; assign overall responsibility for administering the whistleblower program to the Director of the Division of Enforcement, and clarify the staff’s authority to administer the whistleblower program; replace the Whistleblower Award Determination Panel with a Claims Review Staff; provide the CFTC with the opportunity to review Proposed Final Determinations; revise the rules governing whistleblower eligibility requirements to make clear that (1) the Commission may consider claims for awards “in a covered action, in a related action, or both,” (2) a claimant may be eligible for an award by providing original information without being the original source of the information, and (3) a claimant will have additional time to submit a TCR by extending the timeframe from 120 to 180 days; revise the award claims review process by (1) replacing the Whistleblower Awards Determination Panel with a review process handled by the Claims Review Staff; (2) assigning responsibility for handling deficient claims with the Whistleblower Office; (3) allowing claimants an opportunity to correct deficiencies or withdraw the claim before finalization of the denial of the claim, (4) allowing the Whistleblower Office to require additional information of the claimant in connection with award applications, (5) allowing claimants an opportunity to demonstrate that they voluntarily provided the same original information to a governmental agency in a related action that led to the CFTC’s successful enforcement action and the successful enforcement action of the related action, and (6) allowing claimants the opportunity to contest the Preliminary Determination, including making available the record supporting the award determination; permit claimants who submitted original information in a related action to receive an award based on the monetary sanctions collected; provided, however, the claimant does not receive more than one award for the same action; and assign responsibility to the Claims Review Staff for the issuance of Preliminary Determinations and Proposed Final Determinations, and issuance of Proposed Final Dispositions to the Whistleblower Office. Whistleblower Protection and Anti-Retaliation Enforcement Authority The proposed changes also include a new emphasis on the protection against retaliation by current or former employers. In the notice of the proposed amendments, the CFTC said that it wants to “set aside” its prior interpretation of whether it has the authority to initiate enforcement proceedings against employers that retaliate against whistleblowers engaged in lawful activity under the Commodity Exchange Act (the “Act”). The Commission previously held that it lacked the statutory authority to bring enforcement proceedings against those who retaliate against a whistleblower in violation of the Act. That interpretation was contrary to that of the SEC. As the CFTC explained, the proposed amendments would end “the incongruous situation where whistleblowers enjoy protection from retaliation through SEC enforcement action under the securities laws, but no such protection through Commission enforcement action under the .” Takeaway The proposed amendments signal the CFTC’s intention to devote more resources and attention to its whistleblower program and the protection of whistleblowers engaged in lawful whistleblowing activities. This new focus should increase the number of tips and awards, as well as guard against the incidence of employer retaliation. It will also encourage employers to adopt compliance programs and related policies that comply with the CFTC’s new regulations, including detecting and preventing retaliation.