Aided by one of the largest whistleblower payments ever made by the government, the 2011 fiscal year saw the federal government paying whistleblowers a record amount of reward money.
Whistleblowers are rewarded for coming forward with information about fraud perpetrated against the federal government - the Department of Justice (DOJ) may choose to pursue the alleged wrongdoers through a civil fraud lawsuit. Along with providing legal protections to those who come forward with evidence of alleged fraud, many whistleblower statutes provide a percentage of the money the government recovers as a reward to the whistleblower. The percentage that is given as a reward can differ based on how far the case is taken before the government intervenes - the reward percentage is greater when the DOJ declines to intervene in the case and the whistleblower proceeds with private lawyers - in some cases whistleblowers are given up to 30 percent of the recovery or settlement.
The Huffington Post notes that a whistleblower statute has been on the books since the time of the Civil War, and was originally used to pursue contractors. In recent years, the DOJ has used the law to pursue people and companies, including pharmaceuticals and health care providers, that overcharge Medicare and Medicaid programs, and, more recently, to pursue those that commit financial fraud.
Government Recovery and Whistleblower Payout
In the 2011 fiscal year, which ended in September 2011, the federal government awarded whistleblowers over $532 million, $96 million of which was paid to a whistleblower "exposing manufacturing defects" at a GlaxoSmithKline plant, which settled with the government for $750 million, according to the Huffington Post.
The payout to whistleblowers in 2011 was approximately $140 million more than was paid in the prior year. The whistleblowers were paid out of an estimated government recovery of $3.02 billion.
The government's $3 billion-plus recovery represents the third-largest recovery under False Claims Act lawsuits - in 2010, the government recovered some $3.09 billion. According to the Huffington Post, the government paid $490 million to whistleblowers from cases that the DOJ pursued, and approximately $42 million in cases the DOJ did not get involved in.
The record payout to whistleblowers comes as Congress is increasing its efforts to catch those who would defraud the government. Following the financial crisis of a few years ago, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). As part of Dodd-Frank, people are rewarded for blowing the whistle on instances of violations of securities law. As Dodd-Frank begins to take effect, it is anticipated the number of whistleblowers and the total amount of rewards paid will increase.
Dodd-Frank Whistleblower Program
Under Dodd-Frank's whistleblower program, which took effect August 12, 2011, whistleblowers who voluntarily report fraud and wrongdoing that has occurred, is ongoing or is about to occur to the SEC may be eligible to be rewarded for coming forward. Under the provision, whistleblowers may be eligible for between 10 and 30 percent of the recovery made in either a civil or criminal proceeding.
To be eligible, the whistleblower must provide "original information" - information that is independently known, not gained from publically available sources - that leads to the recovery of $1 million or more. The whistleblower reward is only available to individuals - the reward can be paid to more than one whistleblower - but not to companies. Also, the whistleblower does not need to be an employee of the company in order to blow the whistle about wrongdoing.
Historically, the Securities Exchange Commission (SEC) has had the authority to fight fraud in the over-the-counter (OTC) swap market involving securities. However, in 2000, Congress passed the Commodity Futures Modernization Act, while leaving the fraud-fighting authority with the SEC, the act severely limited the SEC's antifraud ability by prohibiting the agency from regulating the OTC market. The passage of Dodd-Frank closed any gaps in the SEC's enforcement ability and incentivized people to blow the whistle on wrongdoing in the OTC market.
Whistleblower Protections Under Dodd-Frank
Dodd-Frank also provides specific protections against employer retaliation for whistleblowers that come forward to SEC Regulators. If a whistleblower is retaliated against at work - through discrimination, discharge, demotion, etc. - Dodd-Frank allows for a private cause of action against the employer.
Blow the Whistle
If you have information of fraud or other wrongdoing by your employer or another company in the OTC securities and derivatives markets, Dodd-Frank provides incentives and protections for stepping forward. Confidentially discuss the wrongdoing you know about with an attorney and contact the SEC, you could be rewarded for your efforts.