T.C. Memo. 2018-118
UNITED STATES TAX COURT
WHISTLEBLOWER 7208-17W, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 7208-17W. Filed July 31, 2018.
Sealed, for petitioner.
Elizabeth Mourges, Kevin Gillin, and Nancy Gilmore, for respondent.
MEMORANDUM OPINION
LEYDEN, Special Trial Judge: Petitioner brought this action pursuant to
section 7623(b)(4)1 for the Court to review the Internal Revenue Service (IRS)
1 Unless otherwise indicated, all section references are to the Internal Revenue Code, as amended, in effect at all relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure. The Court uses male-gender (continued...) -2-
[*2] Whistleblower Office’s (Whistleblower Office) denial of his claims for a
whistleblower award. This matter is before the Court on petitioner’s motion to
proceed anonymously (motion), filed March 30, 2017, pursuant to Rule 345(a).
Respondent objects to petitioner’s motion. For the reasons stated herein,
petitioner has not satisfied his burden of showing that the risk of harm to him
outweighs the public’s right to know who is using the Court. The Court will deny
petitioner’s motion.2
Background
I. Petitioner’s Careers
Petitioner received a master’s degree for which he wrote a thesis on a
financial trading strategy (trading strategy) he developed. After graduating in
1991, petitioner worked as a floor trader on Wall Street for about six months. For
the next five years petitioner traded remotely from a home office, but he returned
1 (...continued) personal pronouns to refer to petitioner for convenience and without intention to identify petitioner’s actual gender. 2 Nevertheless, the Court has changed the caption of the case to accord petitioner anonymity in case he wishes to appeal the Court’s denial of the motion. See Whistleblower 14377-16W v. Commissioner, 148 T.C. , (slip op. at 3 n.2) (June 28, 2017). If within 30 days of the Court’s issuing its order denying the motion petitioner does not file with the Clerk of the Court a notice of appeal, the Court will change the caption back to reflect the petition as filed. -3-
[*3] to floor trading in 1997. Sometime in 2000 petitioner became a desk trader at
an investment banking, securities, and investment management firm. According to
petitioner, he was hired because the senior and managing directors of the firm
were very impressed with an executive summary he had written about his trading
strategy.
During 2000 American Stock Exchange (AMEX) began an investigation
and identified petitioner as a witness in that investigation. Shortly after September
11, 2001, petitioner was laid off from his job as a desk trader. After being laid off,
petitioner decided to spend time perfecting his trading strategy to engage private
wealth clients.
In 2004 petitioner became a subject of, rather than a witness in, the AMEX
investigation and was charged with a fine and penalties for violating exchange
rules. Petitioner, as a registered representative, was required to disclose that he
was the subject of this investigation each time he filed a Form U4, Uniform
Application for Securities Industry Registration or Transfer, with the Financial -4-
[*4] Industry Regulatory Authority (FINRA).3 This made it difficult for petitioner
to obtain employment as a trader.
However, AMEX withdrew the charges within 12 months of filing them, but
the charges continued to be reported by FINRA. Starting in 2005 petitioner acted
to get the charges expunged by FINRA.
Sometime in 2008 FINRA removed the charges, after which petitioner
began looking for trader positions on Wall Street. He secured a day-trading
position with a firm but left that position in less than 90 days. He secured another
day-trading position but also left that position within 90 days. He was not able to
hold a job for more than a few months.
After working at these two day-trading positions, petitioner decided to start
his own fund using his trading strategy. In 2008 or 2009 petitioner signed an
investment advisory agreement with a family office that used petitioner’s trading
strategy as the sole business strategy for its fund. According to petitioner, in 2010
3 FINRA is “a quasi-governmental agency responsible for overseeing the securities brokerage industry.” McCune v. SEC, 672 F. App’x 865, 866 (10th Cir. 2016) (quoting ACAP Fin., Inc. v. SEC, 783 F.3d 763, 765 (10th Cir. 2015)). FINRA requires any person who works in the investment banking or securities business of a FINRA member firm to register as a securities representative or principal, among other categories. Mathis v. SEC, 671 F.3d 210, 211 (2d Cir. 2012). To register, applicants must complete a Form U4, in which they provide detailed information about their personal, employment, disciplinary, and financial background. Id. -5-
[*5] the trading strategy did so well it “[a]bsolutely knocked the cover off the
ball”. Petitioner, through the family office, met with a private wealth hedge fund
to seek a $50 million investment in his trading strategy. The private wealth hedge
fund offered to buy petitioner’s trading strategy for $5 million, but petitioner
believed it was worth $20 million and declined the offer. Petitioner subsequently
parted ways with the family office, citing conflict as one of the reasons for his
departure.
After his departure petitioner obtained a management position at a hedge
fund. The hedge fund accepted his “full record, which was now audited as
exemplary”. A partner that managed the technology for the hedge fund promised
to help petitioner automate his trading strategy but, according to petitioner, “they
actually didn’t know as much as” he did. Petitioner was fired from that position
after about 13 to 14 months because he “had no desire to work for * * * [a]
particular senior partner” and was critical of the hedge fund.
By then petitioner had registered an entity through which he could develop
a fund to use his trading strategy (investment entity). Petitioner began efforts to
raise $50 million for his investment entity. During that time petitioner engaged a
foreign exchange algorithmic trading strategy developer (first service provider),
which automated his trading strategy in 12 months. -6-
[*6] During those 12 months petitioner considered using real estate as another
asset class for his trading strategy. Petitioner, through an intermediary, presented
his trading strategy to a potential investor he described as a “subprime billionaire
who invests heavily in real estate.” According to petitioner, the potential investor
liked his trading strategy but later decided not to invest in it.
In 2014 petitioner engaged another algorithmic trading strategy developer
(second service provider) because he wanted to include real estate assets in the
automation of his trading strategy, a function the first service provider could not
support. Petitioner’s goal was to add real estate to the asset class group in order to
seek an investment from a firm that had over $100 billion in assets. Petitioner met
with a principal of the second service provider. Petitioner disclosed to this
principal his status as a whistleblower. See infra pp. 9-12. According to
petitioner, the principal “felt there was a strong upside to * * * [the] particular
[trading] strategy and initially offered to both help with the technology and then
also potentially provide introductions [to investors].” Petitioner’s relationship
with the second service provider subsequently ended.
In the summer of 2015 petitioner met with another potential investor at a
family event. This potential investor was a longtime friend of petitioner’s cousin
and a principal at a private equity real estate firm. Petitioner also disclosed to this -7-
[*7] principal his status as a whistleblower. See infra pp. 12-13. According to
petitioner, this principal “runs one of the best * * * funds for real estate in the
world” and was willing to talk about a possible investment in petitioner’s trading
strategy but wanted to hear more about it. The principal ultimately decided not to
invest in petitioner’s trading strategy.
Unable to find investors for his trading strategy, petitioner deregistered his
investment entity and decided to switch careers. He is currently a graduate student
pursuing a master’s degree in real estate investment to become a real estate
consultant and adviser. Petitioner does not have any plans to return to his prior
career as a trader or to use his trading strategy in his capacity as a real estate
consultant and adviser. Petitioner will not engage in trading or financing real
estate as a real estate consultant and adviser.
II. Petitioner’s Awareness of Targets and Information Underlying Whistleblower Claims
Petitioner became aware of the information underlying the whistleblower
claims sometime before 2007 when he was solicited as a potential client for an
investment promoted by various entities (targets).4 Initially, petitioner deposited
4 In the motion petitioner asserts that he “obtained much of the information forming [p]etitioner’s section 7623(b) claim during the course of [p]etitioner’s employment”. However, petitioner was never employed by the targets. -8-
[*8] money to purchase an interest in the promoted investment. After conducting
further research and due diligence, petitioner concluded that the investment lacked
economic substance and was likely fraudulent. Shortly thereafter petitioner
withdrew the deposit and did not purchase the promoted investment. Petitioner
did not have any other relationship with the targets.
Sometime thereafter petitioner was contacted by the IRS, which was
investigating the investment promoted by the targets. The IRS contacted
petitioner because it had identified him as someone who had initially made a
deposit to purchase the promoted investment but who did not purchase it.
Petitioner met with several IRS employees who asked questions aimed at
determining how he learned about the promoted investment, why he withdrew the
deposit, and why he did not go through with the promoted investment. Petitioner
volunteered his opinion that on the basis of his professional background he
thought the strategies used in the promoted investment were not appropriate for
options or derivatives and that he thought the promoted investment constituted
fraud. Petitioner did not, at that time, file a whistleblower claim but did consult
with an attorney about doing so. Petitioner was never engaged or called as a
witness by the IRS or the Department of Justice in subsequent criminal
proceedings against individuals associated with the targets. -9-
[*9] According to petitioner, from 2007 until 2014 he followed public press
releases for a criminal proceeding against an individual associated with one of the
targets. In 2014 that individual was convicted and sentenced, after which
petitioner decided to file his whistleblower claims with the Whistleblower Office.
On June 25, 2015, petitioner filed a Form 211, Application for Award for Original
Information, with the Whistleblower Office to seek an award for the information
he had volunteered to the IRS about the targets in 2007.
III. Petitioner’s Disclosures About His Whistleblower Claims
Petitioner disclosed to at least three individuals that he had been contacted
by the IRS concerning the investment promoted by the targets and that he was
either thinking of filing or had filed whistleblower claims against the targets.
A. Disclosure to Principal at Second Service Provider
During preliminary conversations with the principal at the second service
provider, see supra p. 6, petitioner disclosed his whistleblower status and that his
whistleblower claims involved a promoted investment with a foreign exchange
product. His disclosure, however, came before petitioner filed his whistleblower
claims with the Whistleblower Office. When asked why he made the disclosure,
petitioner testified that the principal “is notable in the press for having uncovered,
mathematically, that the Madoff returns were fraudulent”. Petitioner considered - 10 -
[*10] the principal to be “an upstander in the marketplace” whose “reputation is
gold”. Petitioner testified that “once you have a golden reputation on Wall Street,
everyone can trust you.” Petitioner believed that the principal could provide him
with guidance on what next steps to take and the best practices for filing a
whistleblower claim because petitioner was frustrated that the attorney he had met
with about his whistleblower claims was taking too long.
Specifically, petitioner asked whether the principal had any understanding
of what expertise would be needed in a case involving the promoted investment
“because the principal had written a book and articles on tax structures and tax-
efficient strategies.” Petitioner did not disclose to the principal the name of the
targets at that time. The principal indicated that he did not have the necessary
expertise and recommended that petitioner speak to an individual in the foreign
exchange area. Petitioner never pursued that recommendation.
Following the disclosure, the second service provider worked with
petitioner on how to pitch his trading strategy to potential clients and was willing
to have him publicly refer to it as his selective quantitative provider. Petitioner
testified that he was “excited that one of the world’s best, most renowned
quantitative experts was willing to support” his trading strategy. - 11 -
[*11] The second service provider invited petitioner to some of its academic and
client seminars. It was at one of those seminars in the summer of 2015, after he
had filed his whistleblower claims with the Whistleblower Office, that petitioner
disclosed to the principal the name of one of the targets. Petitioner testified that
he was at an informal gathering after the seminar and was talking to his accountant
and to the principal. Petitioner was openly discussing his then-filed whistleblower
claims with his accountant5 and mentioned the name of one of the targets. In
particular, petitioner was discussing the public news about the various ongoing
criminal investigations in which at least one of the targets or persons affiliated
with at least one of the targets was involved and a public report that had been
issued relating to that target’s abusive options strategies. According to petitioner,
when the principal heard the target’s name he “shushed” petitioner because the
target was represented at the seminar. Petitioner inferred that the target was a
client of the second service provider but did not confirm that. Petitioner testified
that after that conversation, the relationship with the second service provider
5 Petitioner testified that he had disclosed the contents of the whistleblower claims to the accountant sometime in 2014. The record on petitioner’s motion does not show the circumstances under which he made the disclosure to his accountant. - 12 -
[*12] dissipated. The second service provider did not mention petitioner’s
whistleblower claims as a reason for not continuing the relationship.
B. Disclosure to Principal at Private Equity Real Estate Firm
Petitioner also disclosed his whistleblower claims to his cousin’s friend, the
principal at the private equity real estate firm. See supra p. 7. Petitioner testified
that before meeting with the principal “my cousins said that they have known * * *
[the principal] all their life, and he is as much family as I am, and that they wanted
the full disclosure. And I agreed.”6 At the meeting with the principal, petitioner
discussed the whistleblower claims. Petitioner testified that he told the principal
that the information was “highly confidential”. When asked why he felt the need
to disclose the whistleblower claims to the principal, petitioner testified that in
part it was due to the principal’s being “quietly known as somebody who also
prevented a Boston charity in investing in a Madoff fund.” Petitioner further
testified that this principal was an “upstander” with “a fantastic reputation.”
Petitioner also discussed his trading strategy at that meeting and believed it
was one of the best meetings he ever had. Petitioner testified that the principal
said that he was happy to help him with his trading strategy and that the principal
6 The record on the motion does not show the context under which petitioner initially disclosed the details of the whistleblower claims to his cousins. - 13 -
[*13] had a friend at an institution that would be interested in helping petitioner
with it. After that meeting, petitioner sent the principal a full presentation and
information about his trading strategy. Petitioner also sent the principal a copy of
the whistleblower claims that he had filed with the Whistleblower Office.
Petitioner testified that he received one email from the principal but that
there was never any other followup after that. Petitioner supplemented his
declaration in support of his motion with that email, which states:
Great to meet you as well. Read through all of your information. While the parabolic trading concept seems like an interesting way for holder of illiquid assets to take advantage of the market vol [sic], it really doesn’t fit well with anything we do. There must be someone out there with the time and attention span to look at it seriously! The whistleblower suit--not our kind of thing--is, well, fascinating! I don’t have any idea of its likelihood of success, but it is one king sized bit of optionality!!
C. Disclosure to CFO of Real Estate Firm
Most recently, as part of a group project as a graduate student, petitioner
met with a chief financial officer (CFO) of a real estate firm. The CFO took
interest in an investment executive summary that petitioner wrote for the group
project. According to petitioner, they developed “a very quick and full disclosure-
type relationship”. Petitioner discussed with the CFO his interest in developing - 14 -
[*14] his trading strategy for real estate and sent the CFO background on his
trading strategy.
Petitioner testified that the CFO “loved it”, and they discussed forming a
partnership in which the CFO would be the managing member. The two
exchanged documents and had a lunch meeting, during which petitioner disclosed
to the CFO his whistleblower claims. When asked why he made the disclosure,
petitioner testified that the CFO intended to seek a direct investment from the
CFO’s firm as seed capital. Petitioner further testified that in determining whether
to invest the CFO or the firm might discover petitioner’s whistleblower claims
while conducting its due diligence. The CFO and petitioner did not pursue a
professional relationship.
IV. Petitioner’s Motion
On March 30, 2017, petitioner timely filed a petition with the Court for
review of the final determination pursuant to section 7623(b)(4) and Rule 341(b).
On that same day, petitioner filed his motion. On April 6, 2017, the Court
temporarily sealed this case pending resolution of petitioner’s motion. On May 2,
2017, petitioner filed a declaration in support of his motion.
On September 20, 2017, respondent filed a response objecting to
petitioner’s motion (objection). On October 25, 2017, petitioner filed a reply to - 15 -
[*15] respondent’s objection. On January 22, 2018, respondent filed a sur-reply to
petitioner’s reply.
The Court conducted a hearing on petitioner’s motion on February 21, 2018.
Petitioner testified at the hearing. After the hearing, the Court issued an order
directing petitioner to supplement his previously submitted declaration to include
the email that petitioner had testified to during the hearing. The Court also
ordered petitioner and respondent to file simultaneous memorandums of law to
address whether the societal interest in the public’s right to know who is using the
Court was outweighed by petitioner’s alleged future economic harm and why
redactions of the targets’ names, as provided by Rule 345(b), would not be
sufficient to prevent future economic harm to petitioner.
Discussion
Rule 345(a) allows petitioners in whistleblower actions to move the Court
for permission to proceed anonymously. The movant must set forth a sufficient,
fact-specific basis for anonymity. Id. The Court will permit a whistleblower to
proceed anonymously if the whistleblower presents a sufficient showing of
potential harm that outweighs the competing societal interest of the public’s right
to know who is using the Court. See Whistleblower 12568-16W v. Commissioner,
148 T.C. __, __ (slip op. at 4-5) (Mar. 22, 2017); Whistleblower 14106-10W v. - 16 -
[*16] Commissioner, 137 T.C. 183, 205 (2011); Anonymous v. Commissioner,
127 T.C. 89, 94 (2006). The decision whether to allow a party to proceed
anonymously rests within the sound discretion of the trial court. Whistleblower
14106-10W v. Commissioner, 137 T.C. at 192; Anonymous v. Commissioner, 127
T.C. at 94. The Court must decide whether the risk of harm to petitioner
outweighs the competing societal interest at stake.
I. Parties’ Arguments
In petitioner’s motion he alleges that disclosing his identity will result in the
risk of retaliation, physical harm, social and professional stigma, and economic
duress, harms that go beyond mere embarrassment and annoyance. Petitioner
generally alleges that disclosure of his identity may adversely affect his ability to
obtain or maintain employment or reduce the amount of employment. Petitioner
also generally alleges that revealing his identity has the potential to severely
damage his standing in the professional community that provides his customary
source of employment. The motion does not provide any specific examples to
support the alleged risks of harm.
In the declaration petitioner asserts that he had a successful career in the
finance industry before he provided information to the IRS. Petitioner references
making several disclosures of his whistleblower claims. For instance petitioner - 17 -
[*17] states: “Time after time, when I revealed my whistleblowing activities
irrespective of the initial in-person or follow up request, the business prospects
went radio silent. Repeatedly, once my actions were known, conversations ceased
and doors closed.” Petitioner asserts that failure to protect his identity moving
forward will cause him more harm and make it impossible for him to engage
investment professionals. The declaration does not provide any specific examples
to support the alleged risk of economic harm to petitioner either as a student or in
his future career as a real estate consultant and adviser. Petitioner does not assert
in the declaration that he has changed careers.
In the declaration petitioner also alleges that he “expect[s] severe
retaliation” and that “the danger of potential physical harm to me [petitioner]
remains of paramount concern.” Petitioner alleges a risk of potential physical
harm on the basis of “various verbal confrontations or threats directly from key
criminals over the years in this massive/lengthy criminal case.” The declaration
does not provide any specific examples or identify particular individuals related to
the targets to support petitioner’s alleged risk of retaliation or physical harm.
Respondent in his objection contends that petitioner had already disclosed
his status as a whistleblower to multiple individuals, including other professionals
in his field; was not employed by the targets; had not identified any specific - 18 -
[*18] persons who could cause him harm if his identity were known; and had not
set forth a sufficient, fact-specific basis that demonstrated a risk of harm to
proceed anonymously.
Petitioner in his reply argues that “[t]he fact that petitioner has made a
limited disclosure of his status as a whistleblower is not dispositive.” Further,
petitioner argues that it is “beside the point” that he experienced prior economic
harm due to a loss of business opportunities resulting from his own disclosures
because he sought to prevent future harm by requesting anonymity. In
respondent’s sur-reply, respondent again contends that the grant of anonymity
would not “undo any of the alleged damage caused by petitioner’s own self-
disclosure”.
Petitioner in his memorandum of law asserts that academic research and
studies show “that whistleblowers have significantly worse career trajectories as
compared to similar employees who do not engage in whistleblowing.” Petitioner
argues that his past experiences of economic harm after his disclosures
“reasonably ‘preview’ the future economic harm that could result from disclosing
* * * [petitioner’s] identity as the petitioner in this proceeding.”
Respondent in his memorandum of law contends that petitioner has not
proven that petitioner’s failure to obtain funding for his trading strategy was due - 19 -
[*19] to his disclosures about his status as a whistleblower. Instead, respondent
contends that the failure to obtain funding was just as likely to be due to the
investors not being interested in the trading strategy and that none of the potential
investors indicated that they decided not to invest because petitioner was a
whistleblower. Respondent also contends that petitioner made the choice to
change careers and that he has not shown any specific economic harm that would
result in his new career from a disclosure of his identity in this proceeding.
II. Risks of Harm
In the motion petitioner alleges that disclosing his identity will result in the
risk of retaliation, physical harm, social and professional stigma, and economic
duress. However, at the hearing and in the memorandum of law petitioner asserts
that the primary factor to weigh is the risk of future economic harm and that the
factors of social and professional stigma and economic duress are assumed by this
factor.7
The Court has addressed a whistleblower’s motion to proceed anonymously
in six reports, five of which granted the whistleblower anonymity and one which
denied anonymity. In Whistleblower 14106-10W v. Commissioner, 137 T.C. at
7 Although petitioner testified about an aspect of his medical history, he did not assert that his case involves highly sensitive or personal information that should not be disclosed. - 20 -
[*20] 185, the whistleblower became aware of an alleged tax underpayment while
employed by the noncompliant taxpayer. After filing a Form 211 with the
Whistleblower Office, the whistleblower obtained similar new employment
outside of the noncompliant taxpayer. Id. In granting anonymity the Court found,
in part, that the whistleblower had demonstrated in an affidavit a sufficiently
severe risk of professional stigma, retaliation, and economic duress. The Court
reasoned that disclosing the whistleblower’s identity would likely cause severe
damage to the whistleblower’s standing in the professional community and
jeopardize the whistleblower’s current and future employment because the
whistleblower acquired the information in the normal course of employment for
the noncompliant taxpayer and was privy to internal deliberations and
communications regarding the events that gave rise to the noncompliant taxpayer’s
underpayment. Id. at 203-204. The Court found that the whistleblower’s future
employability could be affected because a future employer could ask for a list of
previous employers, which would include the noncompliant taxpayer, and the
whistleblower could someday seek reemployment with the noncompliant taxpayer
only to face retaliation. Id. at 204.
In Whistleblower 13412-12W v. Commissioner, T.C. Memo. 2014-93, at
*4-*6, the Court granted the whistleblower’s motion to proceed anonymously on - 21 -
[*21] the basis of the facts alleged in the petition and a declaration that
demonstrated that disclosure of the whistleblower’s identity could result in the risk
of retaliation, social and professional stigma, and economic duress. In that case
the whistleblower reported tax violations of a former employer, the noncompliant
taxpayer. Id. at *2. The whistleblower was retired but received retirement
benefits from the noncompliant taxpayer. Id. The Court accepted the
whistleblower’s assertions that the noncompliant taxpayer could possibly withhold
or terminate the retirement benefits, which the whistleblower relied upon and
without which the whistleblower would be forced to seek future employment. Id.
at *5-*6. The Court also found that the whistleblower could face professional
ostracism and difficulty securing future employment. Id. at *6.
In Whistleblower 11332-13W v. Commissioner, T.C. Memo. 2014-92,
at *2, and Whistleblower 10949-13W v. Commissioner, T.C. Memo. 2014-94, at
*6, the Court held that the whistleblowers’ asserted facts in the petitions and
affidavits demonstrated that proceeding anonymously was necessary to protect
their professional reputation, economic interests, and personal safety. The
whistleblowers reported a tax fraud scheme they had discovered during the course
of their employment that involved their employer and several related entities and
subsidiary companies related to their employer, the noncompliant taxpayers. - 22 -
[*22] Whistleblower 10949-13W v. Commissioner, T.C. Memo. 2014-94, at *2;
Whistleblower 11332-13W v. Commissioner, T.C. Memo. 2014-92, at*2. The
noncompliant taxpayers were alleged to have ties to terrorist organizations, had
already used armed men to raid the whistleblowers’ offices, and had previously
threatened the whistleblowers’ lives. Whistleblower 10949-13W v.
Commissioner, T.C. Memo. 2014-94, at *6; Whistleblower 11332-13W v.
Commissioner, T.C. Memo. 2014-92, at *12.
In Whistleblower 12568-16W v. Commissioner, 148 T.C. at __ (slip op. at
3), the whistleblower was previously employed by an entity related to the
noncompliant taxpayer and learned about the violations in the normal course of
the whistleblower’s employment. In a declaration, the whistleblower alleged a
risk of retaliation, physical harm, social and professional stigma, and economic
duress. Id. at (slip op. at 3). The Court found that the whistleblower had a
well-founded concern and had made a sufficient showing that disclosure of the
whistleblower’s identity would cause the noncompliant taxpayer to retaliate
against the whistleblower and the whistleblower’s family, which would result in
professional and personal ostracism, economic loss, and threats to the safety of the
whistleblower’s family. Id. at , (slip op. at 3, 8). - 23 -
[*23] In only one report has the Court denied a whistleblower’s request to proceed
anonymously. See Whistleblower 14377-16W v. Commissioner, 148 T.C.
(June 28, 2017). The Court found that the whistleblower had not established a
sufficient fact-specific basis for proceeding anonymously. Id. at (slip op. at
13). The whistleblower’s discovery of the information leading to the
whistleblower claims derived from public information. Id. at (slip op. at 7).
The whistleblower did not have an employment or fiduciary relationship to any of
the noncompliant taxpayers. The whistleblower did not identify any current or
prospective clients. Id. The whistleblower did not identify any noncompliant
taxpayer who would have the power to, and might be expected to, retaliate against
the whistleblower. Id. at (slip op. at 12). The whistleblower mentioned no
specific risk but relied on generalized claims to support an alleged risk of being
blacklisted. Id. at (slip op. at 7-8). The Court acknowledged that despite the
whistleblower’s weak fact-specific basis for anonymity it might have otherwise
been inclined “to weigh the people’s interest in knowing who is using the courts as
so weak as to give petitioner the benefit of the doubt”. Id. at (slip op. at 13).
However, the whistleblower was a serial whistleblower filer, and the Court
ultimately held that the public’s interest in knowing who was using the Court to
bring serial whistleblower claims prevailed. Id. at (slip op. at 16). - 24 -
[*24] A. No Credible Risk of Future Economic Harm
Unlike the whistleblowers in the cases where the Court granted anonymity,
petitioner is not now and never was employed by any of the targets. Petitioner did
not express any intent to seek future employment with any of the targets.
Petitioner did not obtain the information underlying the whistleblower claims
through any confidential internal deliberations and communications in the course
of his employment. None of the targets provides petitioner any employment-
related benefits he could be at risk of losing. Petitioner did not hold any fiduciary
position with respect to any of the targets. Other than being solicited as a potential
client for the promoted investment, in which he ultimately chose not to invest,
petitioner had no other relationship to any of the targets.
Petitioner argues that his identity should be protected because
whistleblowers are generally perceived negatively, ostracized, and retaliated
against. Petitioner asserts that “research has shown, individuals, on the whole,
perceive whistleblowing negatively” and refers to a recent academic study that
“found empirical evidence that, individuals who reported lies (i.e., whistleblowers)
were ostracized and excluded from groups even by individuals who act honestly.”
Petitioner further asserts that “[t]his study explains prior research finding that
whistleblowers have significantly worse career trajectories as compared to similar - 25 -
[*25] employees who did not engage in whistleblowing.” According to petitioner,
“there can be no doubt that, measured in the aggregate, whistleblowers’ careers
measurably suffer after their whistleblowing activities become a matter of public
record.” Petitioner also argues that “a recent survey by the Federal Judicial Center
found a high rate of retaliation against cooperating witnesses.”
The Court has addressed broad and generalized claims for anonymity such
as petitioner’s and rejected them in Whistleblower 14106-10W v. Commissioner,
137 T.C. 183. In a footnote the Court explained: “We do not mean to suggest that
this balancing test would or should necessarily result in anonymity for all tax
whistleblowers in this Court. Ultimately, absent any legislative directive to the
contrary, each request to proceed anonymously must stand upon its own.” Id. at
206 n.29; see also id. at 208 (Halpern, J., concurring) (“I have concurred in the
result in this case because I think that we should give whistleblowers
contemplating a section 7623(b)(4) action fair notice that we will not
automatically grant anonymity upon a claim of possible employment
discrimination.”). Although petitioner’s observations regarding general
perceptions about whistleblowers may be valid, his request to proceed
anonymously stands upon its own. Petitioner, as the movant, must set forth a
sufficient, fact-specific basis for anonymity. See Rule 345(a). - 26 -
[*26] Petitioner argues that providing proof of future harm is inherently
speculative and that requiring whistleblowers seeking to proceed anonymously
under Rule 345(a) to identify in every case concrete facts of future harm that will
occur places an unreasonably high burden on whistleblowers. Petitioner’s asserted
standard under Rule 345(a) for determining whether a whistleblower should
proceed anonymously is far more burdensome than the Court has applied in the
cases where it has permitted a whistleblower to proceed anonymously on the basis
of, among other things, risk of future economic harm. See Whistleblower 14106-
10W v. Commissioner, 137 T.C. at 203-204 (considering not only the
whistleblower’s current employment but also future employability). The Court
has acknowledged that “fears of such harm befalling a confidential informant are
reasonable although necessarily difficult to prove.” Id. at 203. Nevertheless, each
request to proceed anonymously stands upon its own, see id. at 206 n.29, and
petitioner must provide some factual basis sufficient and specific enough to allow
the Court to determine whether the severity of the asserted risk of harm amounts to
more than mere embarrassment or annoyance and outweighs the societal interest
of the public’s right to know who is using the Court. Otherwise the grant of
anonymity would be automatic in every whistleblower case. - 27 -
[*27] Petitioner argues that the specific economic harm he has already suffered
following his disclosures about his whistleblower claims demonstrates that he
could reasonably suffer future economic harm. Petitioner blames his disclosures
about his whistleblower claims for the lack of interest by the principals and CFO
in his trading strategy. However, the Court is not convinced that a connection
exists, especially considering the context in which petitioner made the voluntary
disclosures about his whistleblower claims.
Petitioner testified that, in contrast to the field of trading where disclosure
was mandatory, the hedge fund lawyers he had spoken to “felt that full disclosure
was best practice”. According to petitioner, he was advised that disclosure of his
whistleblower claims was a material disclosure if, as a legal matter, it interfered
with his ability to perform his day-to-day employment duties or if it led to a
conflict of interest with a current client. However, petitioner’s testimony suggests
that in making the disclosures he was motivated by a desire to be seen as an
“upstander” rather than by a need to make a material disclosure and that by
disclosing he stood to enhance, not discredit, his reputation.
For instance, petitioner testified:
So when I made these conversations, part and parcel to the outlook on the professional that I’m across the table is are they an upstander, have they done something in the marketplace that - 28 -
[*28] denotes highly ethical behavior. And * * * [the principal of the second service provider] is famous for that. He won awards for it. And * * * [the principal of the private equity real estate firm] is similarly situated as someone who has a fantastic reputation.
Petitioner testified that in making the whistleblower claims he believed he was
also being an “upstander”.
Contrary to petitioner’s testimony, the email from the principal of the
private equity real estate firm indicates that the principal declined to invest in his
trading strategy for a business purpose and that he was intrigued, not alienated, by
the whistleblower claims. Although he attributes the lack of interest by these
investors in his trading strategy to his status as a whistleblower, petitioner was
generally unable to secure other investors to fund his trading strategy even without
disclosing his status as a whistleblower.
Moreover, petitioner has abandoned his previous career and is pursuing a
new one. Petitioner testified that his investment entity has been deregistered and
is no longer a going concern and that he does not intend to return to his prior
career as a trader. Instead, petitioner plans to be a consultant and adviser on
private wealth real estate after graduating from his current master’s degree
program. Petitioner testified that as a consultant and adviser he would have no
need to disclose his whistleblower claims because he would have no fiduciary - 29 -
[*29] responsibility to do so. Petitioner also testified that if he is being paid for
services as an adviser, a due diligence inquiry, which would require disclosure of
his whistleblower claims, would not be needed because he would not be advising
on financial matters. Petitioner has not identified any specific way in which
disclosure of his identity in this case would affect either his standing as a graduate
student or his future career as an adviser and consultant in private wealth real
estate.
B. No Credible Risk of Physical Harm
Although petitioner relies primarily on the economic risk factor, he also
asserted that he faces a risk of physical harm. However, petitioner has not
demonstrated any credible risk of physical harm to support the vague and general
allegations in his motion and declaration. When asked to explain the allegation of
potential physical harm on the basis of “various verbal confrontations or threats
directly from key criminals over the years in this massive/lengthy criminal case”,
petitioner testified that he “had a two minute back-and-forth” with an individual
related to one of the targets during the time when he was considering whether to
invest in the promoted investment. He also testified that when he decided not to
invest another individual related to one of the targets asked him to reconsider; he
said no, and his refusal was followed by “some pretty colorful language”. - 30 -
[*30] Petitioner acknowledged that he was not confronted verbally or physically
by anyone related to the targets after he decided not engage in the proposed
investment with the targets. Although he testified that his vehicle was totaled at
some point, petitioner had no idea how it happened or whether this was linked to
any of the targets.
The Court understands that petitioner may suffer some embarrassment or
annoyance if the motion is denied, but he has not provided the Court with a
sufficient, fact-specific justification for proceeding anonymously.
III. Societal Interest in Open Courtrooms
Petitioner’s weak fact-specific basis for anonymity must be balanced against
the competing societal interest. See Whistleblower 12568-16W v. Commissioner,
148 T.C. at __ (slip op. at 4-5); Whistleblower 14106-10W v. Commissioner, 137
T.C. at 205. The Court must balance the competing social interest of protecting
the identity of a whistleblower as a confidential informant with the societal
interest of the public’s right to know who is using the Court. See Whistleblower
12568-16W v. Commissioner, 148 T.C. at (slip op. at 4-5); Whistleblower
14106-10W v. Commissioner, 137 T.C. at 205.
There is generally a presumption of open judicial proceedings and public
access to court records. See Whistleblower 14106-10W v. Commissioner, 137 - 31 -
[*31] T.C. at 189-190 (and cases cited thereat); see also sec. 7458 (providing that
hearings before the Court shall be open to the public); sec. 7461(a) (providing that
all reports of and evidence before the Court shall be public records open to the
inspection of the public). However, the Court is authorized under section
7461(b)(1) to make any provision necessary to prevent the disclosure of trade
secrets or other confidential information, including a provision that any document
or information placed under seal be opened only as directed by the Court. Rule
345 concerns itself with privacy protections for filing whistleblower actions in this
Court.
Petitioner argues that the public’s interest in knowing his identity is
negligible. Petitioner further argues that the right to open judicial proceedings is
not absolute and does not apply to documents that have traditionally been kept
secret for important policy reasons, such as whistleblower claims at the
administrative level. Petitioner generally argues that “[t]he public does not have
as strong a right to know who confidential informants and whistleblowers are, as
they do ordinary litigants” and that “potential whistleblower petitioners must be
assured that they will be reasonably protected from the harms that could result
from their participation in the whistleblower program being made public.” - 32 -
[*32] However, petitioner’s arguments ignore the presumption that proceedings
before this Court are open to the public. See sec. 7458. To overcome that
presumption petitioner must set forth a sufficient, fact-specific basis for
anonymity, which he has not done. The Court recognizes that the Whistleblower
Office has thus far kept petitioner’s identity confidential, but petitioner has made
voluntary disclosures in the past motivated, at least in part, by his desire to be seen
as an “upstander”.
Petitioner argues that the public’s interest in knowing his identity is weak
because this case is still in the early stages of the proceedings and no factual or
legal disputes have been raised. In Whistleblower 14106-10W v. Commissioner,
137 T.C. at 205, the Court, in weighing the societal interests at stake, found that
the public’s interest in knowing the whistleblower’s identity was relatively weak
because it had just held that the Commissioner was entitled to summary judgment
on a threshold legal issue that did not depend on the whistleblower’s identity.
Petitioner’s case is distinguishable from the whistleblower in
Whistleblower 14106-10W. This case is not before the Court on a motion for
summary judgment or other dispositive motion. As the Court noted in
Whistleblower 12568-16W v. Commissioner, 148 T.C. at (slip. op. at 5-6),
“[t]he implication, of course is that, if we had not disposed of the action at the - 33 -
[*33] beginning of the case on Commissioner’s motion for summary judgment, the
strength of the public’s interest might, as the case progressed, have appeared
stronger.” More importantly, however, in Whistleblower 14106-10W v.
Commissioner, 137 T.C. at 204, the Court found that the whistleblower had
sufficiently demonstrated a risk of harm severe enough to justify granting the
whistleblower anonymity. Petitioner has not sufficiently demonstrated a risk of
harm here to overcome the presumption of open proceedings and to weigh in favor
of granting anonymity.
Petitioner seeks to distinguish Whistleblower 14377-16W from his case by
arguing that he is not a serial whistleblower filer. However, like the whistleblower
in that case, petitioner’s whistleblower claims are based on publicly obtained
information--information he obtained while being sought out as a potential
investor by the targets and on public information about the criminal proceeding
against an individual associated with one or more of the targets. Petitioner’s
whistleblower claims are not based on information he obtained as an employee or
in a fiduciary capacity. The public has an interest in knowing who is using public
information in litigating a case before the Court, especially in a case like this
where petitioner’s weak fact-specific basis for anonymity does not outweigh the
presumption of open proceedings. - 34 -
[*34] Conclusion
On the basis of the facts before the Court, mindful of our legal system’s
general solicitude for confidential informants, the Court finds that petitioner’s
weak fact-specific basis for anonymity does not outweigh the public’s right to
know who is using the Court.
Accordingly, the Court will deny petitioner’s motion.
An appropriate order will be issued.