September 27, 2012

So You Think You Want to Be a Whistleblower — A Few Words for the Wise

By Gordon Schnell, Marlene Koury and Jason Enzler

This is a gilded age for whistleblowers.  Relatively speaking that is.  It was not all that long ago that whistleblowers were treated as mere opportunists ratting out their friends or colleagues.  Squealing not for the greater good, but for a quick buck, or to cover up their own failings or misdeeds.  Many still see it that way.  Afterall, we are trained at an early age that nobody likes a snitch. 

But a new mindset has emerged — where getting involved is actually the right thing to do; where if you see something you are supposed to say something.  And with this new outlook has come some additional prodding from a host of newly energized laws that sweeten the pot considerably for these new found heroes.  And we seem to read about them all the time.  This one who reported on the pharmaceutical giant selling defective or mislabeled drugs.  That one who reported on the medical clinic billing for services it never performed.  Or most recently, the one who reported on the multi-billion dollar tax evasion scheme.

The list goes on and on, touching upon virtually every industry in the country.  And the results have been staggering — for both the government and the whistleblowers.  In 2011 alone, the government reclaimed more than $3 billion through the False Claims Act, the principal tool through which whistleblowers and the government can uncover and take action against corporate fraud.  Whistleblowers led the charge in roughly 85 percent of the cases, recovering about $530 million in rewards for their efforts.  This year’s numbers have already far surpassed these sums.  

These figures will no doubt continue to climb with the recently passed Dodd Frank Wall Street Reform Act.  This legislation was Congress’ response to the Great Recession and the wild west behavior of the Wall Street institutions that led us there.  It provides awards of up to 30 percent of any government recovery relating to fraud or other misconduct in the sale of securities or commodities.  Given that this kind of fraud will affect millions, if not billions of dollars of trading activity, these new provisions further fuel the flame for whistleblowers to get involved. 

But before you are off and running to cash in your whistleblower chit, a reality check is in order.  There is much more (and less) to going down the whistleblower path than you might otherwise appreciate.  So a few words of caution to make sure you undertake this noble quest with your eyes wide open and without regret. 

First, becoming a whistleblower does not guarantee a gargantuan payday.  In fact, chances are you won’t recover a dime.  Sure, we have all read about the whistleblowers who scored bounties of well into the seven (and even eight) figures.  There have been many and the number will surely grow.  By and large, however, these whistleblower recoveries remain the exception, not the rule. 

The government intervenes or takes action in only about a quarter of the matters whistleblowers bring under the False Claims Act and when the government takes a pass the chance of success drops precipitously.  Under Dodd-Frank, it falls away altogether as whistleblowers have no private right to pursue an action in court like they do under the False Claims Act.  Even for those actions that are ultimately successful, the whistleblower awards will unlikely be of the eye-popping nature we read about.

Second, becoming a whistleblower can be a tiresome and unpleasant ordeal.  The laws protecting whistleblowers have vastly improved.  So the horror stories of firings, transfers, demotions or other forms of bad treatment leveled at whistleblowers have dropped off considerably.  But it can still be a very rough ride.  The risk of retaliation or some form of estrangement, alienation or even blacklisting remains very real.  At the very least, the target company will do everything in its power to discredit the whistleblower as a mere snitch, opportunist or disgruntled employee.  Work, or how you practice your profession, may never be the same again. 

Third, you likely will not receive the hero’s welcome you might otherwise expect.  The government rarely extols whistleblowers for their courage and strength in reporting fraud.  Instead, whistleblowers are usually met with some measure of apathy, distrust or even hostility in their dealings with the government.  In some cases, they may be made to feel like they are the guilty party, not the ones reporting the crime. 

So be prepared for a grilling.  The government does not want to spend precious resources, or worse off, bring a formal action, based on a whistleblower complaint that does not hold up.  The media may be equally rough in its treatment of whistleblowers, sometimes questioning the motive and credibility of the whistleblowers as much as the fraud about which they have complained.

Fourth, the whistleblower process takes a very long time.  It takes time to gather the evidence.  It takes time to formalize the complaint.  It takes time to convince the government the action is worthy of its involvement.  And, assuming the government is interested, it takes time — a lot of time — for the government to fully investigate the matter.  In most cases, the time between the whistleblower’s original complaint and any resolution of the matter is measured in years, not months. 

And throughout the long ordeal, you will likely be in the dark about what is going on.  The government keeps a tight lid on the progress of its investigations and can disappear for long stretches of time without any indication of its interest or activity in a particular matter.  If it makes it to the courts, the process can be even more glacial as the parties slog through the procedural niceties of a complex litigation.

Finally, you are going to need a lawyer.  Bringing a whistleblower claim is no simple matter.  The various whistleblower laws are long and complicated with innumerable requirements and restrictions on the type of fraud or misconduct that is covered and the way the complaint must be presented to the government.  Under the False Claim Act, for example, whistleblowers not only must prepare a disclosure statement detailing all of the evidence of the fraud on which they are reporting.  They must also file a formal legal complaint in federal court that specifically identifies the legal basis underlying the alleged False Claims Act violation. 

If you do not submit all of the required information, or submit it in the wrong format, to the wrong government agency or too late in the process, you might be disqualified as a whistleblower altogether.  Remember, the government will not be looking out for your interests as a whistleblower.  What the government cares about is getting as much information and evidence as it can.  If the government can do that without forking over a portion of its recovery, all the better.  So be vigilant, follow the strict procedures of whatever whistleblower provisions apply and make sure you are well represented by experienced whistleblower counsel.

For these and other reasons, becoming a whistleblower may not be exactly what you had in mind.  It may require more time, more work and more daring than you would have thought.  And it may not offer you the pecuniary promise you would have expected.  But it is a critical component of our regulatory enforcement scheme, more important now than it has ever been before.  Afterall, corporate fraud remains as vibrant as ever, drawing into its wake an ever expanding array of victims. 

And even with the surge of private enforcement, a huge portion of the fraud that is witnessed today remains unreported.  We clearly still have a long way to go to shake that old schoolyard stigma against snitches — to get to that place where we will never see another Enron or Madoff; where the alarm will be sounded well in advance of the next mortgage crisis, Space Shuttle disaster, or pharmaceutical screw-up.  But the protections and incentives are there and growing still.  And the mindset is changing.  Just make sure you really know what you’re getting yourself into.

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If you would like more information or would like to speak to a member of Constantine Cannon’s whistleblower lawyer team, please click here.