Brian R. Michael

Partner Morrison & Foerster LLP

Christina Randall

Associate Morrison & Foerster LLP

Federal law enforcement officials--at the U.S. Department of Justice in Washington D.C., and across U.S. Attorneys' Offices--are prioritizing voluntary self-disclosures and the use of whistleblowing pilot programs as a mechanism to incentivize insider reports of potential wrongdoing across a wide range of enforcement priorities. In addition to Main Justice launching its Pilot Program on Voluntary Self-Disclosures for Individuals in April 2024, and Corporate Whistleblower Awards Pilot Program in August 2024, the U.S. Attorney's Office for the Southern District of New York has led the pack in a trend of U.S. Attorneys' Offices establishing self-disclosure and whistleblowing pilot programs.

On Aug. 23, 2024, U.S. Attorney for the Central District of California Martin Estrada followed suit and announced C.D. Cal.'s new whistleblower pilot program. This endeavor offers individuals a non-prosecution or deferred prosecution agreement for the voluntary self-disclosure of criminal conduct by or through companies, exchanges, financial institutions, investment advisers, or investment funds. The program comes amid similar whistleblower pilot programs launched by other U.S. Attorneys' Offices this year after SDNY's announcement, including in the Northern District of California, District of Puerto Rico, Eastern District of New York, District of New Jersey, Eastern District of Virginia, Southern District of Florida, Southern District of Texas, District of Columbia, and Northern District of Illinois.

These pilot programs are similar in concept by focusing on corporate crimes, but they vary depending on the individual district implementing the policy. Estrada previously told the Daily Journal that C.D. Cal.'s program "stems from our focus on corporate crime, major securities violations and public corruption," and has "an important carve-out for CEOs and equivalent." (Whistleblowers Program)  SDNY's program, in contrast, also includes an explicit requirement that the whistleblower forfeit proceeds involved in that whistleblower's conduct. The Northern District of California U.S. Attorney's Office, whose jurisdiction includes Silicon Valley, adds a focus on intellectual property theft in its program. The Eastern District of New York incentivizes self-disclosure of obstruction of justice, money laundering, and healthcare fraud, as well as corporate crime, intellectual property theft, and other crimes. Main Justice's Corporate Whistleblower Awards Pilot Program is distinct because it offers financial awards for disclosure of corporate misconduct resulting in a successful forfeiture.

Given these variances, white collar criminal defense attorneys need to be familiar with the distinctions between whistleblower programs in the district relevant to their matter. In this article, we summarize the key aspects of C.D. Cal.'s new program.

What type of conduct are individuals incentivized to disclose?

C.D. Cal.'s whistleblower pilot program targets criminal conduct involving fraud, corporate control failures, or conduct affecting market integrity.

The program also targets criminal conduct involving state or local bribery or fraud relating to federal, state, or local funds. The program notably does not apply to violations of the Foreign Corrupt Practices Act, violations of campaign finance laws, federal patronage crimes, corruption of the electoral process, bribery of federal officials, federal tax offenses, or federal environmental crimes.     

What does a whistleblower get by self-disclosing?

An individual who voluntarily discloses the covered criminal conduct and cooperates with C.D. Cal. may receive a deferred prosecution or non-prosecution agreement.

How does a whistleblower obtain a deferred prosecution or non-prosecution agreement?

C.D. Cal. issued a set of six requirements the individual must meet to obtain a deferred prosecution or non-prosecution agreement:

1. The conduct has not previously been made public and is not already known to the government;

2. The individual voluntarily discloses the conduct, not in response to a government inquiry or obligation to report to the government, and prior to imminent threat of disclosure or government investigation;

3. The individual is able to provide substantial assistance in the investigation and prosecution of at least one equally or more culpable persons, did not play a leading role in the conduct, and cooperates fully in the investigation and prosecution, including testifying if requested;

4. The individual truthfully and completely discloses all criminal conduct in which the individual is aware and has participated;

5. The individual is not an elected or appointed official, official or agent of a federal investigative or federal law enforcement agency, the CEO or equivalent, or a person who regardless of title exercises primary control over the company; and

6. The individual does not have a prior felony conviction or a conviction involving fraud or dishonesty; and has not engaged in any criminal conduct involving the use of force or violence; any sex offense involving fraud, force, or coercion, or a minor; and any offense involving terrorism, national security, or foreign affairs.

What if the individual does not meet the requirements?

If an individual does not meet the above requirements, C.D. Cal. has the discretion to extend a deferred prosecution or non-prosecution agreement in exchange for the individual's cooperation, with supervisory approval, and consideration of other factors.

Other recent relevant development

The C.D. Cal. whistleblower pilot program also follows a trend by C.D. Cal. to expand its investigative efforts and uncover criminal conduct that is difficult to detect. C.D. Cal. recently announced the launch of a new Investigative Division as well to bring "the most impactful cases in the country, protect our community, safeguard civil rights and uphold the rule of law." The Investigative Division will be led by Federal Bureau of Investigation Special Agent Michael Brown. (Launch of New Investigative Division)

Takeaways

C.D. Cal.'s recent efforts send a clear message: a whistleblower can receive protection from prosecution by coming forward and self-disclosing undiscovered corporate misconduct and public corruption. C.D. Cal.'s efforts are part of a growing trend of federal law enforcement stepping up efforts to root out difficult-to-discover misconduct by companies, knowing that insiders or those with access to inside information are often best positioned to provide critical assistance and evidence necessary to support criminal prosecution. This trend should provide incentives to in-house counsel to continually evaluate their compliance and reporting policies to avoid having federal law enforcement knock on their door unannounced.