Several events happened in the last few months to inspire conversation about whistleblowers. First, on July 30, 2014, "National Whistleblower Appreciation Day" was observed for the second year in row by declaration of Congress. Second, on September 17, 2014, AG Holder criticized a whistleblower cap of $1.6 million to be "a paltry sum." Last in interest was the announcement by the Securities and Exchange Commission, on September 22, 2014, that $30 million would be awarded to an anonymous tipster living in a foreign land, a record award for the SEC. So let's talk about whistleblowers.
A whistleblower always is a person of interest to those who are or will be involved in government investigations. Think tattletale, as defined by Unban Dictionary: "one who reports the wrong-doings of others to an authority", "one who that tells when others are 'doing something bad', much to the annoyance of everyone around them. Often earn themselves unflattering titles." Unflattering titles include snitch, informant, Judas. Ouch! A tattletale synonym is whistleblower.
The reality is that the majority of government investigations involve in some aspect a person providing information about a crime, either committed or in progress. That person is either a casual observant bystander or an insider, someone who is participating in or has witnessed conduct that, to their way of thinking, is wrongdoing. Of course, there is always the rest of the story by the other participating insiders, indignant that uncomplimentary descriptions have been given to their conduct. Hence, the unflattering terms and ofttimes harsh retaliation, both reactions contra to what Congress intended when it started this journey.
The topic has been discussed for over 400 years by our Congress, by our government enforcement agents, by prosecutors/plaintiff counsel, defendants, and of course the public and the media. "National Whistleblower Appreciation Day" is our remembrance on July 30 for the first whistleblower protection law, enacted July 30, 1778. The Continental Congress agreed to pay the costs for the defense of two whistleblowers prosecuted by the State of Rhode Island. The two whistleblowers had reported misconduct by a high-ranking naval officer and incurred the wrath of Rhode Island. The Continental Congress resolution sounded the beginning of the legal concept that has developed tomes of statutory enforcements and now awards of millions of dollars in recompense. Congress in 1778 described the role of whistleblower:
"That it is the duty of all persons in the service of the United States, as well as all other inhabitants thereof, to give the earliest information to Congress or any other proper authority of any misconduct, frauds or misdemeanors committed by any persons in the service of these states, which may come to their knowledge."
That was Congress 400 years ago. So where is Congress now? Examination of the $30 million award described above is an indication of how far we have gone. That $30 million was awarded because the whistleblower tipped off the SEC about securities law violators. In modern times, whistleblowers are defined generally as employees (often former employees) who disclose information reasonably believed by the person to be violations of law or regulations, fraud, waste, abuse, gross mismanagement, or dangerous to health and safety. These persons may not be subjected to retaliation in any form for making the disclosures. The extent of protection presently afforded to whistleblowers would drop the jaws of that 1778 Continental Congress in wonderment of what they had set in motion.
Beginning in August 2011, provisions of the Wall Street Reform and Consumer Protection Act, better known as the Dodd-Frank Act, granted the SEC power to entice whistleblowers with even larger monetary awards for securities law violations. Under Dodd-Frank, qualified whistleblowers could collect 10 percent to 30 percent of what the government was able to recover from the violators for their misconduct. Dodd-Frank dangled a bigger carrot; build it and they will come. Sure enough, three years later, several weeks ago, the SEC awards more than $30 million to a whistleblower who provided key information in connection with an ongoing fraud enforcement action.
While the SEC award of $30 million was the highest that agency had paid, please don't think that just deserts for whistleblowers would be limited to that bar, record that it was. The possibilities for compensation can depend on agency involved, the enforcement regulations that are violated, the nature of the conduct, and the significance of the information, to name a few. The description "tomes" used above is not an exaggeration. For example, corporate, financial, and manufacturing whistleblower provisions may be found in at least a dozen statutory and regulatory pronouncements. Quick research in environmental issues will reveal another dozen of different statutes and regulations that whistleblowers can fall under. The list alone of possibles goes page after page.
The Department of Justice announced in March 2014 that a whistleblower would be paid $63.9 million for providing tips that led to an agreement by an international financial institution to pay $614 million to resolve charges that the institution had defrauded the government into insuring flawed home loans. $ 64 million is not bad work if you can get it. Consider that just this past December, DOJ announced that approximately $1.98 billion of whistleblower awards had been paid by that agency between 2009 and 2013. If you build it, they will come.
In light of the humongous amounts just disclosed, the close of the discussion must be the paltry amount that AG Holder described in his speech of September 17, 2014. Just prior to that, on July 30, 2014, coincidentally "National Whistleblower Appreciation Day," in the selfsame city, a federal district judge ordered a bank to pay $1.27 billion for violations of financial institution enforcement provisions. Entry of that order entitled the whistleblower to an award for reporting conduct of the institution that caused the government to be defrauded. However, his award was limited to the amount allowable for violations under the financial institution enforcement statutes, a mere $1.6 million.
As seen in the above discussion, indeed our Attorney General was spot-on with his critical description "a paltry amount." The $64 million reward resulted from information provided by a bank assistant vice president to government prosecutors, tattle-taling on the bank for hoodwinking the government into insuring bad mortgage loan. That information resulted in the bank paying a $614 million settlement to the government. In comparison, the paltry $1.6 million whistleblower compensation was earned by the bank executive revealing a mortgage loan fraud that allowed the government to receive $1.6 billion from that bank. Go figure! These two gentlemen both performed the same; both did what the Continental Congress encouraged folks to do plus 400 years ago, both told the authorities their available information concerning misconduct being committed. Equal pay for equal tattletales?
Depending on the conduct of corporate America, while being a whistleblower is not steady work, the reward could be most satisfying. For the next discussion of whistleblowers, consider whether, in effective governance of a successful business, a whistleblower is friend or foe. How, ask you, could such a person be considered a friend? Well, let's talk about that. In the meantime, take a look at the compliance manual and the code of conduct.
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