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August 21, 2012

21 August 2012

SEC Makes First Award Under Dodd-Frank Whistleblower Program

The SEC announced today its first payout under the whistleblower provisions of the Dodd-Frank Act. According to the SEC’s press release, the whistleblower provided documents and other significant information that allowed the SEC’s investigation to move at an accelerated pace and prevent the fraud from ensnaring additional victims, and led to a court ordering more than $1 million in sanctions, of which approximately $150,000 has been collected thus far. The award payment of $50,000 represents 30 percent of the amount collected thus far, which is the maximum percentage payout allowed by the whistleblower law. The press release notes that any increase in the sanctions ordered and collected will increase payments to the whistleblower. Neither the SEC’s press release nor the underlying orders identify the subject of the investigation or the whistleblowers.

At the same time that it approved an award to one whistleblower, the SEC rejected a claim from a second individual who sought an award in connection with the same matter because the SEC determined that the information provided did not lead to or significantly contribute to the SEC’s enforcement action.

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21 August 2012

Seventh Circuit Rejects Constructive Knowledge As Basis For FCA Retaliation Claim

In Halasa v. ITT Educational Services, Inc., No. 11-3305 (8/14/12), the Seventh Circuit affirmed the dismissal of the plaintiff’s FCA retaliation claim, finding that he had failed to present an issue of material fact that he was fired “because of” actions protected under the FCA. The undisputed evidence showed that the individuals who made the decision to terminate Halasa’s employment were unaware of his protected conduct. Halasa argued the Seventh Circuit should nevertheless “find causation as a matter of law,” imputing to ITT and its agents any knowledge of the ITT employee to whom Halasa did report potential violations.

The Seventh Circuit rejected this argument, which it said “seriously misunderstands the way liability rules work in the corporate setting.” “Apart from narrow exceptions like the one that has come to be called the ‘cat’s paw’ theory,” the court concluded, “companies are not liable under the False Claims Act for every scrap of information that someone in or outside the chain or responsibility might have.”

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