Articles Posted in Whistleblower law

Bitcoins are gaining popularity across the globe, but they are also attracting the attention of the U.S. Securities and Exchange Commission. The SEC has handed down subpoenas to cryptocurrency projects like TechCrunch. According to Bitcoinist, the $100 million cryptofund is now under investigation. The investigation hints at the overall trepidation of governments around the world toward the cryptocurrency exchange.According to the site, TechCrunch founder Michael Arrington and his cryptocurrency fund have been subpoenaed, but Arrington says they aren’t the only company to come under investigation.He told CNBC on Thursday, “We received a subpoena. Every [crypto]fund I’ve talked to has received one. That’s fine. They just have to figure out what they want. They need to set up rules so we can all follow them, and the market is begging them for that.”

Just what the SEC is looking for seems to be a mystery. In the past, the commission has indicated that regulations in regards to securities laws do not apply to digital coins. The confusion is appearing to have a domino effect as cryptocurrency firms ban U.S. investors from projects, seemingly worried about further scrutiny. What is clear is that there is a nation-wide investigation through the SEC’s New York, Boston, and San Francisco which have issued multiple subpoenas, in “an attempt to learn as much as possible” about the fast-growing billion-dollar industry. The multiple investigations are leading those in the industry to believe it’s a coordinated and wide-reaching investigation

 The US is not the only country trying to leverage a certain amount of control over the cryptocurrency business. According to the article, South Korea still has mass confusion over the entire process, while China has banned Initial Coin Offerings and European financial authorities are calling for an all-out stop to cryptocurrency investments.Why are countries so concerned? Well it’s the very nature of cryptocurrency itself. Cryptocurrency transactions are encrypted. They can be tracked to a certain extent, but they provided a way to keep money and transactions secretive and out of sight for regulators.There is a certain risk the funds could be used to fund criminal activity or terrorism. Plus, they can be used to circumvent capital controls as companies investing in cryptocurrency could avoid taxes, penalties, and even possible seizure if a government suspects wrong doing.


Toyobo Co. Ltd. of Japan and its American subsidiary, Toyobo U.S.A. Inc., f/k/a Toyobo America Inc. (collectively, Toyobo), have agreed to pay $66 million to resolve claims under the False Claims Act that they sold defective Zylon fiber used in bullet proof vests that the United States purchased for federal, state, local, and tribal law enforcement agencies, the Justice Department announced today.  The settlement resolves allegations that  Toyobo, the sole manufacturer of Zylon fiber, knew that Zylon degraded quickly in normal heat and humidity, and that this degradation rendered bullet proof vests containing Zylon unfit for use.  The United States further said that Toyobo nonetheless actively marketed Zylon fiber for bullet proof vests, published misleading degradation data that understated the degradation problem, and when Second Chance Body Armor recalled some of its Zylon-containing vests in late 2003, started a public relations campaign designed to influence other body armor manufacturers to keep selling Zylon-containing vests.  According to the United States, Toyobo’s actions delayed by several years the government’s efforts to determine the true extent of Zylon degradation.  Finally, in August 2005, the National Institute of Justice (NIJ) completed a study of Zylon-containing vests and found that more than 50 percent of used vests could not stop bullets that they had been certified to stop.  Thereafter, the NIJ decertified all Zylon-containing vests.

“This settlement sends a strong message to suppliers of products to the federal government that they must be truthful in their claims, particularly with regard to health and safety,” said Carol Fortine Ochoa, Inspector General of the General Services Administration.This settlement is part of a larger investigation undertaken by the Civil Division of the body armor industry’s use of Zylon in body armor.  The Civil Division previously recovered more than $66 million from 16 entities involved in the manufacture, distribution or sale of Zylon vests, including body armor manufacturers, weavers, international trading companies, and five individuals.  The settlement announced today brings the Division’s overall recoveries to over $132 million.  The United States still has lawsuits pending against Richard Davis, the former chief executive of Second Chance, and Honeywell International Inc.

The settlement announced today resolves allegations filed in two lawsuits, one brought by the United States and the other filed by Aaron Westrick, Ph.D., a law enforcement officer formerly employed by Second Chance who is now a Criminal Justice professor at Lake Superior University.  Dr. Westrick’s lawsuit was filed under the qui tam, or whistleblower, provisions of the False Claims Act, which permit private individuals to sue on behalf of the government for false claims and to share in any recovery.  The Act also allows the government to intervene and take over the action, as it did in 2005 in Dr. Westrick’s case.  Dr. Westrick will receive $5,775,000.

Deloitte Touch will pay $150 million to resolve a case taken by the US Department of Justice alleging that it failed to detect a long-running fraud by a former mortgage broker. The case relates to Deloitte’s role in the 2009 collapse of Taylor, Bean & Whitaker (TBW), a mortgage originator. Lee Farkas, TBW’s founder, and chairman skimmed millions of dollars to buy a private jet, vacation homes and vintage cars, was jailed in 2011 for 30 years. Several other senior executives at TBW and Colonial Bank, a $26bn-in-assets lender which supplied TBW with loans, were sentenced to long stretches in prison.  Deloitte was TBW’s independent outside auditor from 2002 until 2008, during which time it signed off on financial statements that were “materially false and misleading”, the DoJ said. TBW’s fraud involved the sale of fictitious or double-pledged home loans. These caused losses on the government-backed mortgage insurer, the Federal Housing Administration.

When auditors fail to exercise their professional judgment . . . there will be consequences Chad Readler, acting assistant attorney general for the justice department’s civil division  Deloitte said: “Members of [TBW] management, including its CEO, were convicted of engaging in a complex, collusive fraud with a counterparty bank specifically aimed at misleading our organization and investors. Deloitte & Touche is deeply committed to the highest standards of professionalism, and we stand behind this work that dates back over a decade. Nonetheless, we are pleased to have resolved this matter to avoid the risk and uncertainty of protracted litigation.”

In a similar case, a US federal judge ruled last month that PwC should have done more to avert the collapse of Colonial. Damages are due to be assessed next month. When Colonial failed a few days after TBW, there was a $2.8bn cost for the Federal Deposit Insurance Corporation, which sued PwC.

The Brattleboro Memorial Hospital will $1,655,000 to the United States and the state of Vermont  to settle claims that it “knowingly”  presented “false claims for payment to Medicare and Medicaid.” The U.S. Attorney’s Office alleged that between January 2012 through September 2014, “BMH knowingly submitted or caused to be submitted a number of outpatient laboratory claims lacking documentation necessary to support reimbursement by Medicare and Medicaid.” According to a press release, a whistleblower Amy Beth Main filed a complaint against the hospital under the federal False Claims Act. Qui tam lawsuits are a type of whistleblower lawsuit that rewards whistleblowers in successful cases where the government recovers funds lost to fraud. According to Norman Watts, of Watts Law Firm, in Woodstock, Main will receive between 15 and 20 percent of the settlement, from which he will recover his attorney fees. Ms. Main worked for the hospital in an administrative role in the financial services department.

The case was investigated by the United States Attorney’s Office for the District of Vermont, with assistance from the Office of the Inspector General of the Department of Health and Human Services, and by the Medicaid Fraud and Residential Abuse Unit of the Vermont Attorney General’s Office.

According to a company filing, the Internal Revenue Service says that Caterpillar Inc. owes the United States Government back taxes and penalties in the amount of about $2.3 billion.  Caterpillar does not agree and says it will continue to vigorously oppose the IRS position. The tax liabilities stem from Caterpillar’s offshore tax strategy and has been steadily increasing while the IRS completes audits of the company’s income tax filings dating back to 2007,  some issues carrying back to 2005. The offshore tax which Caterpillar started in 2000 uses a comprehensive accounting of its structure which was first revealed by a Caterpillar tax specialist who became a whistleblower claiming that the company retaliated against him for insisting the tax strategy had problems. A U.S. Senate subcommittee investigation that labeled the tax maneuver an abusive corporate tax shelter.

The tax strategy involved the company’s  parts business and a Swiss subsidiary. Profits for the parts sales were recorded in Switzerland — and taxed at a lower negotiated rate than in the United States even though nearly all parts operations remained in the United States.  The Swiss subsidiary at the center of the tax strategy also featured prominently in a different investigation that dramatically unveiled itself for the public in the spring of 2017.

The case then went to the U.S. District Court for the Central District of Illinois. In March of last year,  federal agents simultaneously raided Caterpillar’s global headquarters in Peoria and facilities in Morton and East Peoria to seize documents and information regarding parts sales, export controls and money transfers between the parent company and overseas subsidiaries, among other items — all with a particular focus on the Swiss subsidiary.

Bitcoins exchange operator  Jon E. Montroll has been charged by The Securities and Exchange Commission with fraud for running the operation as an “unregistered securities exchange.”   The operator of  the cryptocurrency investment platform was charged with lying to U.S. regulators to hide the fact that hackers stole more than 6,000 of his customers’ Bitcoins.In its lawsuit, the SEC also accused Montroll of  defrauding users and making false and misleading statements. In addition to failing to disclose the cyberattack on BitFunder, he also sold unregistered securities that purported to be investments in the exchange and misappropriated funds from those investors, the SEC said.

Before the cryptocurrency began to develop, Montroll operated two online Bitcoin services,. facilitated the buying and trading of virtual shares of businesses listed on its platform, while WeExchange Australia Pty. Ltd. functioned as a Bitcoin depository and currency exchange. All WeExchange and BitFunder users’ Bitcoins were held in a common account, according to federal investigators. “Platforms that engage in the activity of a national securities exchange, regardless of whether that activity involves digital assets, tokens, or coins, must register with the SEC or operate pursuant to an exemption,” Marc Berger, director of the SEC’s New York Regional Office, said in a statement.

The U.S. Attorney’s Office for the Southern District of New York also filed a complaint against Montroll Wednesday for “perjury and obstruction of justice during the SEC’s investigation,” according to the statement. Obstruction of justice can carry a penalty as high as 20 years in prison.

The Securities and Exchange Commission suspended trading in three companies because of statements they made about the acquisition of cryptocurrency and blockchain technology-related assets. The SEC’s trading suspension orders state that recent press releases issued by Cherubim Interests Inc. (CHIT), PDX Partners Inc. (PDXP), and Victura Construction Group Inc. (VICT) claimed that CHIT, PDXP, and VICT acquired AAA-rated assets from a subsidiary of a private equity investor in cryptocurrency and blockchain technology among other things.  According to the SEC order regarding CHIT, it also announced the execution of a financing commitment to launch an initial coin offering.

According to the SEC’s orders, there are questions regarding the nature of the companies’ business operations and the value of their assets, including in press releases issued beginning in early January 2018.  Additionally, the Commission suspended trading in the securities of CHIT because of its delinquency in filing annual and quarterly reports.

Blockchain technology has been defined as securities where  rather than relying on a centralized record it has a shared ledger which is visible to every node or participant.;the use of cryptography makes the system public yet secure; blockchain technology is designed to prevent tampering or amendment.

A whistleblower who revealed that JP Morgan Chase didn’t inform wealthy investors about investment conflicts of interest will receive a record reward of $30 million. JP Morgan agreed to pay $367 million for improperly failing to disclose that it was steering asset management customers to investments that would be profitable for the bank. Of the Commodity Futures Trading Commission (CFTC) portion, $30 million will go to one of several whistleblower applicants.

Under the Dodd-Frank Act of 2010, the SEC and CFTC operate separate whistleblower programs. Each can provide claimans between 10 percent and 30 percent of recoveries based on the value of the information provided.

The Securities and Exchange Commission said that starting in 2007, JPMorgan developed basic investment portfolios, in a program known as the Chase Strategic Portfolio, that automatically invested a significant portion of any money in proprietary JPMorgan mutual funds. The company developed a similar program for wealthier clients in JPMorgan’s private bank, known as the JPMorgan Investment Portfolio, which funneled money into the bank’s own hedge funds. JPMorgan also gave a preference to outside hedge fund managers who were willing to pay placement fees — or retrocessions — to JPMorgan. In some cases, regulators said, the clients were put into products with higher fees, which earned JPMorgan more money, even when the same JPMorgan product was available for a lower fee.

A report just issued by the U.S. Department of Health and Human Services Office of Inspector General reveals that the Government overpaid chiropractors for their services an average of $257 million to $304 million per year over a 6 year period.  During this period Medicare paid a total of $2.9 BILLION for chiropractic services.  The improper payments were made for services that were medically unnecessary or not sufficiently documented.   Hundreds of millions of dollars in taxpayer moneys were paid to chiropractors for services that did not meet Medicare requirements.

The OIG concluded that chiropractic fraud is a major concern. One of the problems is the way payments are made, according to the report. Most Medicare claims are processed and paid without a review of the underlying medical records to support the claim.

Scrutiny of chiropractors invoicing of Medicare will increase now. In addition, fraud investigations have resulted in criminal cases where the chiropractic claims were submitted where services that were never performed and where the services were performed without a valid chiropractic license. In addition, criminal cases were brought where patient records were falsified or where chiropractic services were billed where they are not covered by Medicare, as with massage or acupuncture. These investigations resulted in 11 chiropractors being incarcerated and $7.6 million in restitution.


Three major banks, Deutsche Bank, UBS and HSBC have agreed to pay $46.6 million to settle allegations of schemes to manipulate precious metals futures market trading, the Commodity Futures Trading Commission said. Also eight people  charged  have been charged with federal crimes, the Department of Justice announced. Charges included conspiracy, wire fraud, commodities fraud, commodities fraud and spoofing offenses. German banking giant Deutsche Bank AG and its Deutsche Bank Securities will pay a $30 million civil penalty and undertake remedial action, the CFTC said. Some Deutsche Bank traders allegedly “engaged in a scheme to manipulate the price of precious metals futures contracts by utilizing a variety of manual spoofing techniques” and by trading in a manner to trigger customer stop-loss orders.

Jeffrey Newman represents whistleblowers