Small-time & Big-time Whistleblowers, Trump, and Nonprofits

Small-time & Big-time Whistleblowers, Trump, and Nonprofits

Whistleblowers that receive significant public attention address issues that affect large swathes of the population.  Think of the hundreds of millions of people whose personal information was captured by the NSA (Snowden), the many thousands who lost their savings in the crash of WorldCom (Cooper) or Enron (Watkins), and the millions affected by the deceptions that fueled the war in Vietnam (Ellsberg).  These big-time whistleblowers often disclose wrongs that have international scope (Manning) or that elicit visceral responses (Wetta).

Small-time whistleblowers, like me, identify wrongs that affect few people and do not involve many millions of dollars.  Small-time wrongs are violations – sometimes called petty by their perpetrators – of specific laws and contract provisions, not lofty issues like violations of personal privacy (Snowden) or deceptive government communications (Ellsberg and Manning).  But small-time whistleblowers far outnumber big-time whistleblowers.  In 2014 The Network, which provides whistleblower hotline services for companies, reported that 1% of its clients’ employees reported wrongs – about half of them anonymously – through its service.  By this measure, more than 1 million individuals blow the whistle on wrongs they believe were done by their employers in the U.S. each year.

Consider the possible implications of this widespread whistleblowing in other parts of our society.  Consider Donald Trump’s presidential campaign.  Trump has been condemned as boorish, and his policy proposals have been criticized as lacking in specifics, impractical, unrealistic, or irresponsible.  Yet he continues to climb in polls relative to his likely opponent, Hilary Clinton.

Imagine a potential whistleblower within Trump’s camp.  Like Ellsberg who saw that Nixon’s administration was going down a destructive path in Vietnam, Trump’s analyst speaks up to warn him that his tactics are divisive, disrespectful, and sometimes deceitful.  She encourages him to be less crude and to think through his strategies in order to succeed in the general election.  Trump replies that his approach is working great and she is an idiot on his payroll.

Having tried to change his course from within the organization, she turns outside.  Surreptitiously she approaches Trump’s financial backers and her contacts in the media.  They, too, are unimpressed by her analysis.  Like Trump, they are well aware that his rude behavior and chuckleheaded policies suit his unconventional, tell-it-straight approach that is clearly succeeding.  Trump responds to her betrayal by firing her.  Her whistleblowing is, of course, not protected; feeling as she did, perhaps she should have quit the Trump campaign anyway.

Next, consider the world of nonprofits.  Charitable giving is sometimes criticized as wasteful, and charities are too often ineffective or little more than fund-raising shams.  Still, donors like to suppose that their chosen charities are valuable and effective, and charitable giving continues to increase. 

Imagine a potential whistleblower in a nonprofit company.  She was attracted to the organization by its promise to end homelessness through work or other services or to cut poverty in half or eliminate it entirely.  In her years with the company, though, homelessness and poverty continued unabated.  Despite its data-driven strategic plan, the company failed to disclose the results of its services in a way that would enable anyone to judge how effective it was in achieving meaningful results.  She believes that its financial statements are distorted to entice potential donors.

Similar to the Trump analyst, she might argue that the company's mission is misleading and its performance measurements are deceptive.  Her CEO then points out that the company’s communication program is very successful.  When she approaches others, they are indifferent because nearly all nonprofits operate similarly; nonprofits are presumed to do good work even if they are not overly precise in their communications.  She betrayed the company by trying to undermine its fund-raising efforts, and she is fired.

The imagined Trump analyst and nonprofit employee are not whistleblowers in the mold of Snowden, Ellsberg, or other big-time whistleblowers.  They might not even be included among the smaller-time million whistleblowers who report on the misdeeds of their employers each year in the U.S.  But like other whistleblowers – and regular people who feel free to speak their minds – they objected to what they perceived to be wrong.

Whistleblower Opponents: Money

Whistleblower Opponents:           Money

Money pushes in different directions as a witness considers whistleblowing.  The potentially large, although rare[1], rewards obtainable in qui tam suits under the False Claims Act and the Dodd-Frank Act and from disclosures of tax fraud to the IRS are thought by some[2] to encourage whistleblowing.  In Europe, rewards to whistleblowers are less common.  A UK whistleblowing charity recommended against rewards because, among other reasons, they could undermine the moral stance of a genuine whistleblower and could result in a negative portrayal of whistleblowers[3]. 

One study[4] found that few qui tam plaintiffs suing pharmaceutical companies considered the reward until it was mentioned by their attorneys, who often lead with the prospect of awards.  In a Google search of “whistleblower” “attorney”, 13 of the first 15 attorney sites referred on their first page to the possibility of substantial awards for whistleblowers.

My attorney Jaffe, whose site did not mention awards on its first page, brought up the possibility of a qui tam suit during our first meeting, but he did not press the issue.  HomeFirst’s missteps with federal funds were limited to the HUD overbilling from years earlier and the master leasing violation which was probably too small to warrant the legal effort involved and which did not seem to bother the local HUD staff.

The most publicized whistleblower stories – about people like Snowden, Manning, Cooper (Worldcom), Watkins (Enron), and more distantly Ellsberg – do not cite hopes for financial rewards as a reason for initiating their disclosures.  While some writers refer to a cost-benefit calculation made by the whistleblower[5], the primary anticipated benefits are intangible rather than possible financial rewards[6].   

The prospect of a financial payoff can be tempting, however, if only to keep a whistleblower in the game.  After I had initiated most of my whistleblowing at HomeFirst and the board was planning my termination, I was pleased to read that an attorney had recommended that board pay me close to $100,000 to go away.  That possibility eventually evaporated, and the much smaller amount HomeFirst offered failed to compensate, I thought, for the non-disclosure requirements.  The possible monetary payout finally became, for me, an inconsequential after-thought although HomeFirst claimed that my motivation was the prospect of a rich retirement by suing HomeFirst.

For many whistleblowers, though, the prospect of a financial award can encourage hope for eventual relief after a long and expensive fight.  The fact or the prospect of losing one’s job is terrible for most.  Getting a fair job reference from the accused company is unlikely, and other employers are reluctant to hire someone who has misbehaved.  As a result, unemployment or underemployment can last years, resulting, for some, in the loss of home and family[7].  The company’s deep pockets, augmented by their insurance coverage, and his own limited resources can cause the whistleblower to settle for less than he deserves or to give up entirely[8].

Even if, as is increasingly done[9], the whistleblower engages an attorney in exchange for a 30%-40% share of a settlement – for example, my agreement with Jaffe – he must still pay other costs for his case, things like mediation and court costs, expert witnesses, and travel expenses.  Once a contingency agreement is signed, he is effectively bound to that attorney, who will retain a lien on any future settlement, regardless of the perceived quality of the legal work.

Nondisclosure clauses in employment agreements and in wrongful termination settlement agreements, such as the one HomeFirst proposed to me, pose the threat of expensive legal action for the whistleblower if he discusses the case or settlement.  On the surface, such a threat can seem reasonable because the whistleblower was paid in exchange for his silence.  But HomeFirst’s proposed language, which my attorney assured me was commonplace, made clear that it would be inclined to sue me if I said anything that it might consider disparaging.

In the absence of nondisclosure agreements, companies may still threaten legal action simply for filing lawsuits[10].  Although I refused HomeFirst’s offer, it threatened me with legal action when I followed up with authorities concerning the violations that I had alleged.

The whistleblower’s battle that begins on a high moral ground slips in time.  Each stage of his project – the disclosure itself, the defense against illegal retaliation, and the consequences of a settlement – involves risking the whistleblower’s financial livelihood.  Money becomes an opponent that tempts him with the remote possibility of a large award that will make all the pain worthwhile – an award that he thinks he deserves – or insults him with the reality that he could use all of his resources and more in a losing battle.

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[1] Eaglesham, Jean and Rachel Louise Ensign.  “Whistleblowers Find SEC Rewards Slow and Scarce.”  The Wall Street Journal.  May 25, 2015.

[2] Perez, Evan.  “Holder: Pay Wall Street Whistleblowers More.”  CNN Money.  September 17, 2014.

[3] Public Concern at Work.  “Report on the effectiveness of existing arrangements for workplace whistleblowing in the UK.” November 2013.

[4] Kesselheim, Aaron S., David M. Studdert and Michelle M. Mello. “Whistle-Blowers Experiences in Fraud Litigation against Pharmaceutical Companies.” The New England Journal of Medicine.  362 (May 13, 2010): 1832-1839.

[5] Gino, Francesca, Shahr Ayal and Dan Ariely. “Contagion and Differentiation in Unethical Behavior: The Effect of One Bad Apple on the Barrel.” Association for Psychological Science. 20.3 (2009): 393-398

[6] Miceli, Marcia P., Janet P. Near, and Terry Morehead Dworkin. Whistle-blowing in Organizations. New York: Rutledge. 2008 and Alford, C. Fred. Whistleblowers: Broken Lives and Organizational Power. Ithaca, NY: Cornell University. 2001

[7] For example, Carozza, Dick.  “Vindication at a High Price.”  Fraud Magazine.  July/August 2015 and State of Washington Court of Appeals.  “In the Matter of the Marriage of Gillian Ben-Artzi and Eric Ben-Artzi.” August 10, 2015.

[8] For example, Scott, Brandon.  “Former Jefferson County sheriff’s academy instructor drops whistleblower lawsuit.” Beaumont enterprise.  January 5, 2016.

[9] VanPuymbrouck, Darren and Joshua Kurtzmann.  “The Rise of Alternative Fee Arrangements.” 28.1 Corporate Counsel (Fall 2013)

[10] Press, Eyal.  Beautiful Souls: Saying No, Breaking Ranks, and Heeding the Voice of Conscience in Dark Times.  New York: Farrar, Straus and Giroux.  2012 and Salant, Jonathan D.  “N.J. lawmaker fuming after Sandy whistleblower told to leave FEMA contractor alone.” NJ.com.  May 16, 2016.

Whistleblower’s Opponents: Uncertainty

Whistleblower’s Opponents:      Uncertainty

The whistleblower is challenged, and may eventually be destroyed, by the uncertainty of her situation.

The wrong that she discloses is seldom beyond dispute.  Laws and regulations are subject to interpretation.  Wrongful intent is difficult to prove.  Organizations are rarely without some redeeming quality that merits defense.

In nearly every case, the whistleblower necessarily takes time to examine the facts.  Did a billing really exceed the amount permitted by contract, and what was the excess?  Were services subject to licensure, and how material were those services?  Did parties discuss an agreement whether to bid on a contract, and what were their motivations?  Wrongs on the scale of Enron’s fraud or the NSA’s surveillance program can take months to decipher, but even small wrongs like those I suspected at HomeFirst require investigation because these sorts of crimes are often technical and intent is disguised.

For small-time whistleblowers, the alleged wrongs are seldom startling in their magnitude.  The lives of hundreds of people are not at stake; the stakes do not reach many millions of dollars.  The organization and the whistleblower may both hesitate, wondering whether an incident merits special attention.

A second stage of uncertainty comes with the organization’s response to the internal disclosure.  The manager wants, perhaps quite reasonably, to study the matter, but then little seems to happen.  The whistleblower cannot be sure whether the delay is reasonable; no clear standard describes how hard she should push or when the delay becomes unreasonably long.

At this point, the organization may begin its retaliations against the whistleblower.  But early actions can be ambiguous: a sharpness in the manager’s tone, a suggestion that might be a warning to let the matter drop, exclusion from a meeting to which she would have been invited in the past, the shift of responsibility to a colleague.  The early actions are so slight that she might not be entirely sure what they mean.  Without supporters, she feels the discomfort of this uncertainty all the more acutely.

Following organizational inaction to correct the wrong and retaliation toward her, the whistleblower may report the suspected wrong to an external authority, but the glacial pace of governmental complaint handling is likely to exacerbate her trepidation.  Even more than within the organization, the whistleblower is an unknown character for an enforcement agency.  The story has two sides to be considered.

The whistleblower and the organization evaluate the alleged wrong in the context of established rules.  The enforcement agency must consider, in addition, the truthfulness of the facts proposed by the whistleblower, the motivations of the whistleblower in presenting them, and the possible consequences of enforcing or failing to enforce a rule that has been violated.  Its skepticism of the whistleblower has both legal and political motives.

The results of investigations by enforcement agencies suggest a bias in favor of the corporate accused.  When the accused is a nonprofit, the agencies may also yield to the accused’s presumed operation for the public benefit.  The City of San Jose, Santa Clara County, and HUD tolerated HomeFirst’s retention of ill-gotten funds.  HUD staff were happy to accommodate HomeFirst’s violation of its master leasing requirement.  The respect that the State of California and Santa Clara County had for HomeFirst’s good work encouraged them to accept the company’s promises of future corrective actions.

If the whistleblower is troubled by doubts and the enforcement agency seeks alternative interpretations of her story, there is no hesitation in the accused.  HomeFirst’s reaction to my whistleblowing was prompt and calculated.  Its account of the situation, HomeFirst was unrelenting in its criticism of my actions, character, and motivations.  As the whistleblower’s project continues over months and years, she may become exhausted; she may lose hope and either abandon the fight or settle for what little the organization will offer.

Whistleblower’s Opponent: Silent Observers

Whistleblower’s Opponent:  Silent Observers

Even medium sized organizations involve complex interactions of people with different responsibilities.   Few, if any, employees see the production or service process from beginning to end.  Even when their actions contribute to a wrong, employees may contend that they were just small cogs in the machine[1].  

Organizational complexity argues for the importance of the whistleblower in identifying problems whose solutions might improve organizational effectiveness or defend the public good[2].  This complexity also means that when a wrong is committed, there are likely to be several witnesses who could, but do not, disclose the wrong.

In the recent whistleblower cases mentioned earlier, different organizational witnesses remained silent and avoided retaliation.  Corporate thieves’ exploits are widely suspected; unsafe working conditions are experienced by all in the environment; and retaliations against employees are witnessed by co-workers.

When a senior financial manager is aware of accounting misdeeds – whether on the scale of Enron[3] or the much smaller San Francisco Fine Arts Museums[4] – others among the financial staff are aware or have their suspicions.  When a company as large and complex as Volkswagen commits a multi-national fraud[5], dozens, or even hundreds, are almost certainly aware of misdeeds and management lies.  Yet these observers fail to act.

When observers remain silent they give credence to the wrongdoers’ arguments and rationalizations.  They allow wrongdoers to define the team that the whistleblower betrays.  They implicitly encourage others, who were not witnesses, to believe that if the whistleblower were right in his contentions then others would support him.

The issues that I raised at HomeFirst were known to the Chief Program Officer, but she remained largely silent.  Program managers were aware of several of the wrongs but declined to resist.  The Chief Development Officer received the supporting information that I provided to the CEO and CPO, but she acquiesced.  Members of the Finance Committee of the Board were informed but chose not to investigate.  By the time the Board members decided to fire me, about 10% of HomeFirst’s employees and directors were aware of issues that I had raised, but I alone objected.  HomeFirst’s contention that I failed to cooperate with the team was based on the existence and silence of these observers.

Edward Snowden, celebrated whistleblower and discloser of overreaches by the National Security Agency and other governmental agencies, laments the tragedy of those who sit silent and compliant[6].  Holding to a view of whistleblower as hero, he encourages people to disclose wrong only when they honestly believe that they will influence policy.  Given the rarity of whistleblowing, Snowden says, it is critical that whistleblowers maximize the public good produced by their acts.  He addresses himself not to potential small-time whistleblowers, but to those few who discover and reveal constitutional violations with international implications.

For my money, Snowden absolves too readily the multitude for their silence; he expects too little from the many who witness wrongdoing; and he slights the public benefit obtained from the countless successful and unsuccessful efforts by small-time whistleblowers.  A heroic whistleblower of Snowden’s stature has little need for the support of observers who opt for silence; his opponent is the system, the federal government, or major moneyed interests.

Small-time whistleblowers, on the other hand, are not heroes[7].  They are done in by wrongdoers, their collaborators, and those who could have spoken out but did not.

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[1] Arendt, Hannah. Eichmann in Jerusalem: A Report on the Banality of Evil. Revised and enlarged edition. New York: Penguin Books. 1994

[2] Miethe, Terance D.  Whistleblowing at Work.  Boulder, CO: Westview Press.  1999

[3] McLean, Bethany and Peter Elkind. The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron. New York: Portfolio. 2003

[4] Matier & Ross.  “S.F. museum whistle-blower bounced from her job.” San Francisco Chronicle.  November 14, 2015.

[5] Smith, Geoffrey and Roger Parloff.  “Hoaxwagen.”  Fortune Magazine. March 15, 2016

[6] Snowden, Edward.  “Inside the Assassination Complex: Whistleblowing Is Not Just Leaking – It’s an Act of Political Resistance.”  The Intercept.  May 3, 2016.

[7] Alford, C. Fred. Whistleblowers: Broken Lives and OrganizationalPower. Ithaca, NY: Cornell University. 2001

Whistleblower’s Opponent: Time

Whistleblower’s Opponent:  Time

Time plays against the whistleblower throughout her project.  She raises an issue to her manager.  The manager replies, we will look into that.  We must study it.  The study takes time, but what length is to be reasonably expected?

HomeFirst’s CEO Jenny wanted to discuss the County overbilling with officials; nearly three years later the money was not repaid.  Jenny wanted to study the residential licensing violation; three months later she and the Board decided to talk to an attorney, but three months after deciding no action had been taken.  In December 2013, HomeFirst met with HUD to discuss the 2006 $1.2 million overbilling; then in February 2016, HomeFirst’s new management met with HUD to discuss the 2006 $1.2 million overbilling – no repayments had been made in nearly ten years.

When we discussed the EHAP loan violations in June 2013, Jenny felt the timing was not right to deal with them.  By May 2014 the upcoming audit forced a waiver request to EHAP, but then I was fired.  The payroll tax and minimum wage problems needed to be studied, Jenny and the Audit Committee Chair said; days later Jenny fired me.

Complaints filed with external authorities take months to resolve.  Sixteen months passed from the time I raised the issue of HomeFirst’s misuse of the City of San Jose advance until the City decided to forgive the amount in order to help the company survive.  Eleven months after my complaint to the City about HomeFirst’s minimum wage issue – and two years after HomeFirst’s Audit Chair assured me the issue would be addressed – San Jose’s Office of Equality Assurance is still trying to get information from the company.

The resolutions of whistleblower suits seldom become publicly known due to non-disclosure agreements, but some recent cases indicate how time can pass:

-         Justin Schwartz was fired by California State University in 2009 after complaining that a fellow employee was misusing university funds.  Three years later he received $100,000 in compensation.

-         In 2009 Dennis Smith filed suit against Iowa State University following his termination, which was later judged retaliation in response to grievances and complaints he had filed.  In 2012 he was awarded $1.3 million in damages.  Following appeals, in 2016 the award was reduced to $650,000, but ISU’s liability for Smith’s $368,000 of legal fees is still being disputed.

-         Anthony Tenny was fired in 2010 after he reported unsafe work conditions to OSHA.  In 2016 he was awarded $235,000 to be paid by his former employer, Clearwater Paper Corp.

-         Barbara Pace complained that a co-worker intended to misuse company funds.  She was fired in January 2012 and Ms. Pace filed a whistleblower complaint in Michigan.  Four years later the Michigan Supreme Court ruled that she was not protected by the state’s whistleblower protection law because the wrong she suspected, even when based on reasonable information, had not yet occurred.

-         New Jersey police sergeant Richard Duym filed suit in May 2012 claiming that Essex township officials retaliated against him for reporting a superior officer’s failed firing test.  Three years later an appeals court upheld a jury award of $455,000 in his favor.

-         Ocie Chaisson filed her whistleblower complaint in May 2013 alleging that the Jefferson County, Texas Sheriff’s office had inappropriately promoted an employee and it discriminated against black female candidates.  After three years of back-and-forth motions, she dropped her $350,000 suit; her attorney said that she had decided to move on.

Nearly a year and a half after my whistleblower complaint to the State – and three years after I identified the first, still unresolved, HomeFirst violation – the State investigator says she is interviewing witnesses.

When I began my whistleblowing project, I expected company delays.  I grew irritated when days of delays stretched into weeks, but, naively, I expected that government agencies charged with enforcing regulations and agreements would act promptly if the company did not.  Friends advised me that the process would take time, but I expected that my situation would be easily resolved because the facts were clear.  As Jaffe, the attorney I fired after six disappointing months, advised me: I had a case.