Lipman - Whistleblowers: incentives, disincentives, and protection strategies

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Copyright 2012 by Frederick D. Lipman. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data:

Lipman, Frederick D.
Whistleblowers : incentives, disincentives, and protection strategies / Frederick D. Lipman.
p. cm. (Wiley corporate F&A series)
Includes index.
ISBN 978-1-118-09403-7 (hardback); ISBN 978-1-118-16848-6 (ebk);
ISBN 978-1-118-16857-8 (ebk); ISBN 978-1-118-16858-5 (ebk)

1. Whistle blowingUnited States. 2. Business ethicsUnited States. 3. Whistle blowingLaw and legislationUnited States. 4. Whistle blowing Case studies. I. Title.
HD60.5.U5L57 2012
344.73012598dc23

2011029141

To my grandchildren, Tyler Keith Lipman and Jordan Sienna Lipman

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Corporate Governance Best Practices: Strategies for Public, Private, and Not-for-Profit Organizations

Valuing Your Business: Strategies to Maximize the Sale Price

Audit Committees

The Complete Guide to Employee Stock Options

The Complete Guide to Valuing and Selling Your Business

The Complete Going Public Handbook

Financing Your Business with Venture Capital

How Much Is Your Business Worth?

Going Public

Venture Capital and Junk Bond Financing

Foreword

by Dr. Gaytri D. Kachroo, Esq.

A FEW YEARS AGO, the term whistleblower called to mind odd and sporadic anecdotes about one or two courageous individuals who dared confront and expose wrongdoing within political and corporate halls. However, two events over the last few years have overhauled whistleblowing into an industry, capable of diverse creative frameworks and modeling of the kind I am engaged in with my plethora of whistleblowing clients and incentivized by a burgeoning regulation encouraging reform and a new form of internal audit that is discussed in detail in the pages you are about to turn. These two events are the exposure of the Madoff fraud by Harry Markopolos and Julian Assange's WikiLeaks. Markopolos's testimony before the House Finance Committee in large part fueled the new whistleblower legislation, part of the Dodd-Frank Reform Act, analyzed in this book, and WikiLeaks is touted by many to have catalyzed the popular political uprisings throughout the Middle East. Each event marks major changes in the global transition to greater transparency and accountability of financial and political institutions.

When Madoff gave up his immense fraudulent endeavor on December 11, 2008, he sealed not only his own fate but also that of Harry Markopolos, the shadow that had chased him for almost a decade alongside his stellar team of fraud fighting detectives, Frank Casey, Neil Chelo, and Michael Ocrant, and persisted in blowing the whistle about Madoff to the U.S. Securities and Exchange Commission. I was privileged to join that team in 2005 as the attorney for Harry's new business, when he decided that fraud fighting through whistleblowers would become his life's work. It is therefore fitting and a great honor to introduce this text by Fred Lipman to the world, as it becomes clearer than ever before that rules and regulations relating to whistleblowing are changing, becoming ever-pervasive and affecting a multitude of industries. Without doubt, there is an added need to consult texts that simply and clearly explicate these reforms and also the background for these changes.

Fred Lipman in this text claims that had the independent directors of Enron, WorldCom, and Lehman established a robust whistleblower mechanism... they might have been able to obtain the information necessary to prevent these scandals. (See Chapter 7.) Too often, senior management and boards in public and private companies insulate themselves from information to their own detriment. In addition to the risks and exposure to shock, scandal, illegal activity, and the liability inherent in such endeavors underscored by Lipman, these directors may find corporate misdealing exposed on sites such as WikiLeaks now, if greater internal transparency and compliance measures supporting whistleblowers are not adopted.

Step by step, as a wise and learned guide, Mr. Lipman takes us through the legislation and institutional frameworks allowing whistleblowers a voice. He asserts and attempts to change the current notion in corporate boardrooms that the whistleblower is the company's enemy and not a best friend. In his systematic approach, Mr. Lipman demonstrates the possibility of an aligned company policy to reward and successfully protect corporate interests through public and private schemes incentivizing whistleblowers. He highlights the large penalties paid by such pharmaceutical companies as GlaxoSmithKline to the U.S. government on the basis of a whistleblower complaint triggered to protect the public. He also summarizes, in an easy-to-read fashion for attorneys, corporate compliance officers, and whistleblowers alike, whistleblower protections, incentives, and complaint submission procedures of the Dodd-Frank Reform Act of July 2010 as well as other statutes. Combining policy and regulatory analysis in this one text provides a powerful message to U.S. corporations to seriously overhaul their compliance measures and use the best practices necessary to create internal informants protected by management, who can in turn advise management of internal wrongdoing and oust perpetrators.