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The Rewards And Costs Of Being A Whistleblower

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The History of Whistleblowing

The federal government relies heavily on whistleblower-initiated lawsuits for the majority of its recoveries under the False Claims Act. This is due to the fact that fraud is increasingly more difficult to detect without the assistance of an insider. Many state governments also have their own false claims acts, and the Internal Revenue Service as well as the Securities and Exchange Commission have similar whistleblower reward programs.

When the federal False Claims Act was first passed during the Civil War, the government had no right of intervention, and the whistleblowers received 50 percent of all recoveries. At that time, the primary issue Congress was seeking to deal with were the fraudulent schemes of wartime profiteers who were selling the government defective or substandard goods. Even though fraud in those days was hardly as complex as it is today, the government simply did not have the necessary resources to track down the schemes, therefore relied on whistleblowers.

After the attack on Pearl Harbor, the False Claims Act once more came into play as Congress gave the Department of Justice the power to intervene, and reduced the whistleblower’s share of the recovery to 10 percent. Even when there was no government intervention, the whistleblower’s share was only 25 percent of the recovery. Public attention once more became focused on protecting federal monies from military profiteers in the 1980’s, as the government recognized its inability to detect fraud without the aid of whistleblowers, and sweeping amendments to the FCA were passed.

These amendments increased the whistleblower’s share to between 15 and 25 percent in cases in which the government did not intervene, and between 25 and 30 percent in cases in which the government did intervene. The amendments also allowed for treble damages, ad provided a separate cause of action for any whistleblower who was “discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against,” because of their whistleblowing.

Since the year 2000, in all but one fiscal year, the total False Claims Act recoveries from suits initiated by whistleblowers has topped $1 billion. The False Claims Act is most pronounced in the healthcare industry, which dominates the whistleblower field. Since 1986, more than $18 billion of the $27 billion recovered came from healthcare cases. The government’s role in modern healthcare is essentially a third-party payor—it pays the bills but receives no goods or services. Therefore, when a beneficiary receives substandard care or inflated billing, the government is unlikely to find out absent an insider whistleblower.

What Motivates a Whistleblower?

The question of what motivates one person to become a whistleblower when fraud is evident, as opposed to another person who remains silent, or is even complicit in the face of fraud is a complex one. A combination of moral, socioeconomic, ethical and interpersonal factors, which are not entirely understood, and cannot be predicted exist in the realm of whistleblowing behaviors. Obviously, there are financial considerations, such as the significant whistleblower reward, as well as potential books and movie rights for some. On the flip side of the financial considerations, the whistleblower could lose income, benefits, stock options, career, seniority, and may end up with retirement concerns. Further, there are often delays and uncertainties associated with collecting the whistleblower awards.

Whistleblowers may simply feel that fraud is wrong, or they may have religious values which cause them to consider whistleblowing. Others may feel they have a duty to the corporation and shareholders to remain silent, may have a strong loyalty to the corporation, or may simply feel that “everyone does it.” The interpersonal issues which come into play favoring blowing the whistle include no loyalty to co-workers, antipathy toward the industry or superiors, or a feeling that a complaint would be ignored by the corporation. The interpersonal issues disfavoring blowing the whistle include the desire to be and remain a “team player,” friendships with superiors or coworkers, or harsh feelings toward the government as a whole.

Finally, the personal issues which favor blowing the whistle include courage, attention-seeking, concern about becoming the “fall guy,” curiosity, family and social support, diligence, and the feeling there is “nothing to lose” by blowing the whistle. The personal issues which disfavor blowing the whistle include a feeling of “everything to lose,” fear or doubt, indifference, stress, the wish to avoid negative publicity, and concern about being blamed.

The Potentially High Costs—and Elusive Rewards—of Being a Whistleblower

Consider these fairly recent whistleblower cases:

  • A whistleblower in New York City who turned in a tailor with extremely high-end clients had avoided state sales tax for some ten years. After pleading guilty, the tailor paid $5.5 million in penalties and back taxes, and the whistleblower received $1.1 million.
  • A bicyclist-turned-whistleblower joined with the United States DOJ, accusing Lance Armstrong as well as other cyclists, of committing fraud against the U.S. Postal Service to the tune of $30 million. The fraud charges related to the use of performance enhancing drugs by cyclists on the team sponsored by the USPS. It is likely this whistleblower will receive more than $10 million.
  • A Florida dermatologist will pay $26 million to resolve charges of billing Medicare for unnecessary procedures and taking illegal kickbacks from a pathology lab. The pathologist-turned-whistleblower will receive $4 million or more.

However, whistleblowing is not always about the money. In fact, OSHA does not pay for information, although they do protect whistleblowers to the extent possible, yet still had 2,787 whistleblowing cases in 2012. In the end, whistleblowing is not easy. Any person who “tells” about misconduct or fraud must have an enormous commitment to the issue. As a whistleblower, you could potentially lose your job, and the toll it can take on your relationships—not to mention the time taken from your life—can be enormous. In truth, monetary rewards are fairly rare, and very seldom life-altering. Many whistleblowers have experienced loss of income, friends, their marriage and their home, and the stress of being a whistleblower has led to serious health issues, and, occasionally, even death.

Consider the case of Jim Holzrichter. After blowing the whistle on Northrop Grumman, his former employer, Holzrichter spent 17 years struggling to make ends meet. Although Northrop eventually settled the suit in 2005, Holzrichter did not receive his share—about $2 million after taxes and lawyer fees—until 2010. Holzrichter ended up with serious health concerns due to the stress he was under, and, at one time, his symptoms were similar to those of a heart attack. Holzrichter also relates that during his last month at work, he was locked out of his company computer, unable to perform the work he generally performed.

Co-workers he had known and been friends with for years, would sometimes walk the other way when they saw him, and he was forced to have lunch by himself due to the harsh feelings of his co-workers. Once Holzrichter began looking for work in his field, prior to the receipt of his whistleblower award, he received literally hundreds of rejection letters. Holzrichter says his children went from a comfortable life to near-poverty, and that by the time he received his award, his children were grown and had moved on with their own lives. And yet, whistleblowing works, with about 43 percent of fraud within organizations detected with the help of whistleblowers. Only about 15 percent of fraud is found by management or by internal auditors, while outside auditors uncover only about 3 percent of all fraud cases.

Is a Whistleblower a Teller of Truth or Simply a Tattletale?

The answer to the question of whether a whistleblower is a tattletale or a truth-teller varies greatly depending on who you ask Is the whistleblower a hero for coming forward to tell the truth, or simply a person looking for a quick buck? The answer could depend on the industry, the situation, and the motives of the whistleblower. The False Claims Act, as discussed above, is largely aimed at those who are defrauding the United States government, encompassing those organizations receiving government funding. So, if a person sees fraud in these areas, doesn’t he or she—as a citizen of the United States—have an obligation to report the fraud?

Medicare fraud, Medicaid fraud, military fraud—all of these types of fraud not only hurt the government, they also hurt the people of the United States. The qui tam provision of the False Claims Act, in effect, deputizes private citizens to file a fraud claim on behalf of the government. In the event the fraud claim is successful, the government “thanks” the whistleblower with 15-30 percent of the recovered monies. Unfortunately, there is no guarantee that a fraud case will be successful—the chances of success for a fraud case increase dramatically when the DOJ joins the case, however that agency declines to join fraud cases about 80 percent of the time, and 80 percent of that 80 percent of DOJ declined cases are then dropped.

Whistleblowing Is Not a Quick or Easy Road

Whistleblowing cases can take as long as three years to resolve, sometimes years longer, and about half of all the successful cases end up settling for less than $2 million, making the average award about $320,000, minus the 40 percent lawyer’s fees. In other words, there are plenty of “ifs” in a whistleblowing case which must be carefully considered. Those who believe they will get rich by blowing the whistle on their boss may find out differently. Only one program, the CFTC program, allows whistleblowers to remain anonymous, all other programs require you tell the federal government right up front who you are—and if the government knows who you are, there’s a pretty good chance your company will also know.

Further, the government must decide whether your claim is worth pursuing, and you have no legal authority to pursue the claim on your own. Under the False Claims Act, however, even if the Justice Department turns you down, you can pursue the claim as a private individual—the False Claims Act is currently the most powerful whistleblowing program. Whistleblowing cases involve significant resources—both time and money. On average, any firm with a whistleblower involvement is fined about $56.50 million, and executives in the company could be sentenced to prison for two years or longer. Some policymakers are pushing for increased rewards for whistleblowers in order to improve the Department of Justice’s ability to conduct investigations.

The Rewards—and Costs—of Being a Whistleblower

Most whistleblowers are proud to stand up for their principles, however the label of whistleblower can hurt a career, and a life. While some prospective employers might value your integrity, others could fear it. After weighing all the factors very carefully, you and you alone are the only one who can determine whether to blow the whistle on fraud. Perhaps you are offended by the illegal actions of others, and your personal honor demands that you come forward so you can sleep well at night. Perhaps you, like many whistleblowers, tried to do the “right” thing by first reporting the fraud internally, and were disappointed at the lack of response.

Retaliation is always a possibility after reporting fraud or other misconduct. You may have been fired for speaking out, or could have see a change in your job duties, reassignment to the night shift or to a distant office, or even exclusion from company meetings. Even though retaliation is illegal, it happens. Sometimes retaliation is a problem even after you are no longer with the company—your superiors may tell other companies untrue things about you which keeps you from obtaining future employment. Your financial stability could be threatened after you come forward to expose fraud, and the stress you will undergo could potentially be huge. You will likely take an emotional beating, face intrusive questioning, and will have to deal with having your private life totally exposed.

In the end, perhaps by having the courage to come forward and tell the truth, you may actually empower other honest people, making it easier for honest employees to speak up. And, while the wheels of justice may turn agonizingly slowly after you expose wrongdoing or fraud, hopefully, in the end, justice will be had, and you will be rewarded for what you have undergone as a whistleblower. If you are contemplating blowing the whistle on wrongdoing, it could be a very good idea to speak to a knowledgeable employment attorney before you come forward, so you will have a good understanding of all the potential pitfalls you could face.

At Coxwell & Associates, PLLC, our attorneys believe in fighting aggressively for our clients and we can help you.

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Disclaimer: This blog is intended as general information purposes only, and is not a substitute for legal advice. Anyone with a legal problem should consult a lawyer immediately.