Tag Archives: Department of Justice

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NY Agrees to Pay $98M to Settle FDNY Class Action

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On March 18, 2014 the U.S. Department of Justice (“DOJ”) announced that New York City agreed to pay $98 million to settle a workplace class action originally brought by the DOJ in 2007 alleging that certain civil service tests administered by the FDNY were discriminatory against African-American and Hispanic applicants. In addition to this large monetary sum, the settlement also provides for systemic relief meant to transform the way in which the FDNY recruits firefighters going forward.

The settlement is the largest employment discrimination class action settlement for 2014 thus far.

Background Of The Case

As we previously blogged here and here, the United States originally filed this lawsuit against the City in 2007, alleging that the City’s entry-level firefighter exams and applicant ranking had an unlawful disparate impact on African-American and Hispanic applicants. The Vulcan Society and several individuals intervened in the lawsuit alleging similar claims of disparate impact and also alleging disparate treatment on behalf of a putative class of African-American, entry firefighter candidates. The Court agreed with Plaintiffs, finding that the City’s procedures for screening and selecting entry-level firefighters violated Title VII, the Equal Protection Clause, and the Civil Rights Act of 1866, along with New York state and local law. Consequently, the Court issued an order requiring the City to develop a non-discriminatory test for entry-level firefighter applicants. In 2013 the Second Circuit vacated the grant of summary judgment for disparate treatment liability, but upheld the injunctive relief order.

Settlement Terms

As set forth in the DOJ press release, New York City will pay a total of approximately $98 million to resolve allegations that the FDNY engaged in a pattern or practice of employment discrimination against African-American and Hispanic applicants for the entry-level firefighter position by using two discriminatory written tests in 1999 and 2002. The parties have yet to agree on the method in which the settlement fund will be distributed among class members; however, according to the DOJ “the parties have committed to streamline the claims process and to expedite the distribution of monetary relief to eligible claimants.”

In addition to the money that the City has agreed to pay, the Court has already ordered several changes to remedy the city’s discriminatory hiring practices included among them the use of an entry-level firefighter exam jointly developed by the parties as well as the appointment of a court monitor to oversee the FDNY’s hiring reforms.

Implications For Employers

Although it appears that the approval of the consent decree (which is still subject to a fairness hearing) is a formality, anything is possible given the number of twists and turns this case has taken over the years. Either way, cases such as this serve as a reminder that multi-million dollar settlements in class action cases such as this are not unusual and that whether it is the Department of Justice or the EEOC, the government is focused on forcing employers to make systemic changes to the way in which they do business as well as seeking monetary relief for class members.

This blog was previously published by Seyfarth Shaw LLP.

 

Justice Department Investigation of S&P

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The Justice Department is investigating Standard & Poor’s for improperly rating the garbage mortgage-backed securities that tanked the economy once the world caught on that they were toxic assets.

The anonymous folks who leaked this info to the press claim that the inquiry began prior to S&P’s downgrade of U.S. debt, but many have speculated that the fervor and depth of the probe has ratcheted up since the nation lost its AAA-status.

Either way, the law dogs are — finally — poking around in the ratings world.

he Justice Department has been asking about instances in which the company’s analysts wanted to award lower ratings on mortgage bonds but may have been overruled by other S.& P. business managers, according to the people with knowledge of the interviews. If the government finds enough evidence to support such a case, which is likely to be a civil case, it could undercut S.& P.’s longstanding claim that its analysts act independently from business concerns.

It is unclear if the Justice Department investigation involves the other two ratings agencies, Moody’s and Fitch, or only S.& P.

Any inquiry should of course involve looking at all three. Each overrated the used diaper mortgage-backed securities to a baffling degree. Whether or not it was incompetence or something more insidious is really the only question, I have. I presume they are capable of both.

But if this investigation focuses solely on S&P then it falls even more into how one talking head on MSNBC’s The Daily Rundown described it: more of a Washington story than a Wall Street one.

Honestly, the only weird thing about hearing today about an investigation going on right now is that it was something I expected to hear in 2008.

In related news, and not just to toot our own horn, but I would feel remiss not to mention that our Risk Management magazine cover story this month was titled “The Future of Ratings” and examines “how rating agencies gained so much power, helped tank the economy and figure into the future of risk assessment.”

I’m not going to pretend that I knew just how much play rating agencies would be getting in August when I commissioned the piece a few months ago. I’m many things, but clairvoyant is not one of them. But the piece speaks to many of the questionable issues surrounding the ratings world that have been curiously dormant in the mainstream media for years until recently.

A wonderful writer, Lori Widmer, did a fine job so please do give it a read.

Turning Whistleblowers into Millionaires

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The U.S. Foreign Corrupt Practices Act is not new. Founded in 1977, the act’s main mission has always been to curtail improper accounting practices by companies operating internationally and prevent bribes. Thus, the “corrupt” aspect. In many parts of the world, there is a thin line between a “gift” and a “bribe,” and this regulation is designed to better demarcate that line and ensure that those businesses that overstep it have to pay a penalty for doing so. (Here’s a more detailed explanation if you’re into reading legalese.)

Only in recent years, however, has the act started to gain any real teeth.

Dow Jones reports on the expansion of the FCPA of late.

There have been a rising number of FCPA enforcement actions in recent years…with 34 prosecutions netting $435.3 million in penalties in 2009, according to the Department of Justice. In 2008, Justice said 17 prosecutions netted $497.6 million in penalties.

Because of this ramped up enforcement, companies should be sure to revisit compliance efforts. In fact, we ran a piece by Jonathan Marks of Crowe Horwath on that very topic last November, offering 10 tips on how to make sure your foreign operations are on the up-and-up. (“Global Presents”/global presence … Get it? We’re very clever … We know.)

Thus, the real news now is not more fines — it is the coming overhaul of the incentives that will be awarded whistleblowers going forward. The Senate and House bills for financial regulation differ on the matter somewhat, but both will create what is being termed a “bounty program,” in which the person who reports the FCPA violation would receive a percentage of whatever the related fine ends up being.

The final percentage will obviously hinge on what is actually written into legislation, but regardless, it has the potential to turn a whistleblower into a millionaire overnight.

Among key language differences between the bills, the House version, which passed in December, has no set minimum percentage of the collected funds in a case for the SEC to pay to a whistleblower. The SEC has greater discretion in determining the bounty than it does under the Senate’s version, which has a 10% minimum. Both have a 30% maximum payout.

Theoretically, a whistleblower could come into a huge windfall based on this formula. Consider the case of Siemens AG, which paid $800 million in fines to the SEC and the DOJ in 2008 after pleading guilty to violating the FCPA. Had those penalties been the result of information obtained by a whistleblower, the person could have received a $240 million payout, or a minimum bounty of $80 million based on the Senate language.

$80 million for tipping off the G-men about a foreign infraction? That’s a lot of coin. Certainly enough to motivate employees, you would think.

Mike Koehler, an assistant professor of business law at Butler University in Indiana, who is an expert on FCPA-related issues and blogs under the name FCPAProfessor, sees such sums being an effective incentive.

“Any time you incentivize rank-and-file workers with a lot of money, rational actors are going to respond. You’re going to see an increase in enforcement activity regardless of whether the action violates the law,” Koehler said.

I know I’ll be on the look-out

whistleblower

The future whistleblowers of America?