The Department of Justice and Securities Exchange Commission, along with other federal regulatory agencies, are following the lead of traditional law enforcement agencies like FBI and DEA in the use of paid informants, also known as “whistle blowers.”
Whistleblowers Paid Billions
Whistle blowers have their place in encouraging corporate responsibility. However, the increased reliance on information provided by whistle blowers is concerning, given that not all individuals in the corporate world who report wrong doing do so with clean hands or pure motive. In fact, many whistleblowers are paid handsome fortunes, not to mention immunity from prosecution, for revealing their inside information, causing questions about their truthfulness and reliability.
Lawmakers Pay Tribute to Whistleblowers
Bipartisan lawmakers in Congress don’t see it that way. This past July in the Senate’s Kennedy Caucus Room, lawmakers staged a “Congressional celebration” for whistleblowers and their families, paying tribute to “their importance to our country.” The celebration was staged to coincide with the anniversary of the first ever whistleblower law passed in this country on July 30, 1778 by the Continental Congress. The Senate highlighted the event by passing its third consecutive non-binding resolution making July 30 the National Whistleblower Appreciation Day.
We don’t doubt that there are some good, decent whistleblowers who want to stop fraud and corruption. But it is our experience that people who peddle crime information for profit are generally motivated by greed and other self-interests (like staying out of prison), not a desire to protect the social contract. At the end of the day, we believe the only difference between many whistle blowers and snitches is the amount of money they receive for their inside information.
Whistleblowers In Bank of America Case Receive 170 Million
Whistleblowers are paid a lot of money for snitching; so much so that it is fast becoming a niche industry for lawyers representing the informants. For example, last year Bank of America reached a $16.65 billion settlement with the government for its mortgage practices leading up to the financial crisis that nearly brought this country to its knees. Four whistleblowers—three individuals and a small firm—who participated in the criminal investigation that led to the settlement shared a whopping $170 million for their information and cooperation.
Both the U.S. Department of Justice, which primarily investigates health care and drug company frauds, and the SEC, which primarily investigates frauds associated with financial institutions, have awarded hundreds of millions of dollars to whistleblowers and want to see the payouts increased even more. The IRS and the Commodity Futures Trade Commission also have laws that allow them to make payouts to whistleblowers.
Whistleblowers are generally entitled to 10 to 30 percent of the amount of money recovered in cases involving fraud against the federal government. For example, the Federal False Claims Act allows for penalties in the amount of three times the losses attributable to fraud to be assessed against those found to have made false claims for payment to the government, of which the whistleblower can get 15 to 30 percent.
Largest Payout to Single Whistleblower 140 Million
The largest ever whistleblower payout was to Paul Birkenfeld, an ex-banker paid $104 million by the IRS for his cooperation in the agency’s investigation of rich Americans who stashed their wealth away in Swiss accounts.
While whistleblower awards are not always that staggering, they can be substantial. For example, the Justice Department reported last year that it recovered nearly $6 billion from False Claims Act cases in Fiscal Year 2014. Since 2009, the DOJ has recovered a mind-boggling $23.75 billion under the Act.
Payouts to Whistleblowers at All Time Highs
Of the $6 billion recovered in fiscal year 2014, nearly $3 billion was related to whistleblower lawsuits—known as qui tam lawsuits—filed under the provisions of the False Claims Act. The whistleblower suits resulted in the government paying out $435 million to individuals who exposed fraud and false claims by filing qui tam complaints. The DOJ reports that the number of such lawsuits have increased from 30 in 1987 to more than 700 for each fiscal year 2013-14. The increase in these lawsuits has led to greater recoveries, exceeding $2 billion for the first time in 2010 and remaining at $3 billion for fiscal years 2011-14. During that four-year period, the government paid whistleblower awards in excess of $2.47 billion.
“We acknowledge the men and women who have come forward to blow the whistle on those who would commit fraud on our government,” said a DOJ spokesperson. “In strengthening and protecting the False Claims Act, Congress has given us the law enforcement tools that are so essential to guarding the treasury and deterring others from exploiting and misusing taxpayer dollars. We are grateful for their continued support.”
SEC Whistleblower Program Off to Fast Start
The SEC whistleblower program has not yet been as financially rewarding, but it is making up for lost time. Its program has been in place for just three years, and during that time the commission has shelled out $50 million under its “investor protection fund” to 15 whistleblowers—an average payout of $3.33 million.
“Receiving information and cooperation from company insiders is particularly useful in the early detection of securities fraud, and we will continue to leverage whistleblower information to help combat securities law violations and better protect investors and the marketplace,” said Sean McKessy, Chief of the SEC’s Office of the Whistleblower.
Bad Acts of Whistleblowers Excused?
What these governmental agencies do not disclose in their press releases is the level of involvement the whistleblowers had in the alleged frauds. Fraudsters generally do not put information about their criminal business enterprises in the public sphere, so most of the “information and cooperation” given to these law enforcement agencies comes from whistleblower insiders who either participated in or directly benefitted from the fraud.
Individuals incriminated in fraud schemes by whistleblowers need an experienced fraud attorney who can pursue an aggressive investigation and force the government to disclose information about the whistleblower’s role in the alleged schemes, criminal activities and possible financial award that could influence their testimony about the intentions of others or give them motivation to falsely point the finger at others, when they themselves should be under scrutiny. As lawyers with experience in dealing with witnesses attempting to gain favor with the government for a financial payout or, even more desperately trying to gain immunity from prosecution, we don’t accept the premise that whistleblowers are automatically entitled to “Congressional celebration.” Our job is to find out exactly what the whistleblower did or did not do, just as we would in a high-stakes criminal conspiracy case involving confidential informants or snitches.