Repeat Whistleblowing

Repeat Whistleblowing

The Department of Justice (enforcing the False Claims Act), the IRS, and the SEC all pay rewards to whistleblowers whose tips lead to the collection of fines, penalties, or past taxes.  The prospect of large rewards can lead some to file multiple suits.  William LaCorte – derided as a “serial whistleblower” by the Wall Street Journal – won awards of nearly $100 million as a result of filing at least a dozen lawsuits, mostly against pharmaceutical companies. 

For pros like LaCorte, suing pharmaceuticals is almost like shooting fish in a barrel: from 1991 through 2015, 373 fraud suits were settled by these companies for a total of $35.7 billion.  The profusion of Medicare fraud cases enabled the Department of Justice to recover $19.3 billion in wrongful claims from healthcare companies in 2016, including the $785 million result from a LaCorte suit.  Last year the whistleblowing industry earned $516 million in rewards from the DoJ.

Repeat whistleblowers occasionally emerge in companies without the FCA’s financial incentives.  Linda Colon received $125,000 in settlement of a suit against the Housing Authority of the City of Passaic (New Jersey) in October 2012.  The agency continued to harass Colon following the settlement, so last month she sued again, charging that the agency created a hostile work environment.  In her second lawsuit, she included an allegation that the agency violated HUD rules governing rent increases.

While some workers exit dishonest employers, others remain, finding more and more problems until they are fired.  Charles Matthew Erhart was an internal auditor at BofI Holding in 2013 when he discovered that the company violated state law by not informing some customers when it recorded their calls.  Senior BofI executives ordered him not to refer to legal violations in his audit reports, but that did not sit well. 

Erhart proceeded to identify other problems: potentially altered financial reports, late contributions to employee 401k accounts, board failure to approve the company business plan, excessive deposit concentration risk, untruthful responses to an SEC subpoena, customer accounts without taxpayer identification numbers, loans to criminals and politically exposed persons, miscalculated loan and lease losses, and improprieties in the CEO’s personal accounts.  Finally BofI fired him.

Internal auditors, like Erhart, are well positioned to identify multiple instances of wrongdoing.  Carol Bondy, the audit bureau chief at the Montana Department of Public Health and Human Services, reported multiple misdeeds before the department cutback its audit operations and terminated her.  My role as Chief Financial Officer and Compliance Officer enabled me to discover numerous violations and potential violations at HomeFirst Services before the CEO and Treasurer fired me in June 2014.

Returning a whistleblower to her job following a legal settlement is risky for both sides, as it proved for Colon and the Passaic Housing Authority.  Ricky Hansen, for instance, who disclosed Wells Fargo’s unauthorized customer accounts, was rehired following his settlement, but continuing harassment eventually forced him to quit. 

Robert MacLean complained that a 2003 order by the Department of Homeland Security endangered air transportation.  That led to harassment and his eventual termination.  After a ten-year legal battle, the DHS was ordered to reinstate him.  He spent his first day back testifying to Congress about his fight with DHS, and he has continued to file complaints about other suspected air safety issues.

Companies can avoid the risks associated with returning problem employees by banning them from the premises.  Pennsylvania narcotics agent Charles Horvath called out a supervisor’s attempt to conceal evidence and was harassed, then fired.  In his settlement contract, he agreed not to seek future employment with the state attorney general’s office.  The settlement that HomeFirst proposed to me required that I waive any right to reinstatement with HomeFirst and agree that I would not apply to work there again.

Stephen Cass took a different tack by changing companies.  From 2007 to 2010, he was athletic director at a small private high school in Florida.  After he objected that the school’s admission standards and distribution of financial aid violated Title IX requirements, his contract was not renewed.  He filed a lawsuit, but he also moved north.  In 2013 he became athletic director at a high school in Massachusetts, where he made similar complaints.  Again he was fired, and he sued the school in 2016.

Repeat whistleblowers can muck up the system with their complaints.  The SEC, which pays awards for tips that yield more than $1 million in sanctions, has praised its reward program but admits to the challenge of addressing claims from “serial submitters.”  Perhaps another example: HUD took seven months, not the 20 business days specified by regulation, to reply to my fourth FOIA request concerning HomeFirst’s overbillings.

Critics of whistleblowing cite organizational loyalty as hurdle to clear before the act is ethical[1].  Regardless of ethics, a sense of loyalty to company and colleagues has long been considered an obstacle to potential whistleblowers[2].   But once we have formed our disclosure and, especially, once we have blown the whistle, our concerns over loyalty dissipate.  We are wary of the consequences of future actions but also numb to their supposed ethical obligations.

After HomeFirst fired me, I continued pressing the complaints I had made.  I also reported a potential legal violation by Downtown Streets and a mismanagement issue at a local St. Vincent de Paul operation, two places where I volunteered post-HomeFirst.  Now experienced in the art, I see no reason not to reject what seems wrong or to disclose it to others.

Apply my experience – plus that of LaCourte and the others – to the more than 1 million who blow whistles in the U.S. each year[3], and you discover a growing army of budding repeat whistleblowers.  Unfettered by the bonds of loyalty, these discontents have the potential to act as revolutionaries who stand for good or as tested soldiers willing to destroy what offends them. 

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[1] For example, Bok, Sisella. “Whistleblowing and Professional Responsibility.” New York University Education Quarterly 11.4 (1980): 2-10

[2] Peters, Charles, and Taylor Branch.  Blowing the Whistle: Dissent in the Public Interest.  New York: Praeger Publishers.  1972

[3] Based on Navex Global 2016 rate of 1.3 reports per 100 employees and 153 million employed in the U.S. workforce.

The Enticements of Whistleblowing

The Enticements of Whistleblowing

On June 1, 2017, two Bloomberg articles described contrasting approaches to the discovery of organizational misdeeds.  In the first, U.K. regulators explained their refusal to pay financial industry whistleblowers for what they ought to do anyway.  They cited the costs, complexity, and moral hazard involved in such payment schemes.  The second told of a former Caterpillar Inc. accountant who may be eligible for a $600 million reward for having revealed the company’s evasion of $2 billion in U.S. income taxes. 

Another contrast: while articles on whistleblowing often discuss the penalties suffered by those – Veteran Administration employees, for instance – who disclose organizational wrongdoing, others extol the expansion of protections for whistleblowers, most recently for staff of the VA.  Until the Civil Service Reform Act of 1978, the country’s only whistleblower protection was provided to federal employees who brought information to members of Congress under the Lloyd-La Follette Act of 1912.  Now every state has at least one whistleblower protection law, and 22 federal laws protect informants, but still they regularly experience retaliation.

A final contrast: organizations commonly disparage whistleblowers as disgruntled employees, but our defenders know that we are principled.  Big-time actors like Edward Snowden and Chelsea Manning are described by some sources as traitors and by others as heroes.

These two poles exist: one warns us to run for cover and the other attracts.  Which way we should lean seems less clear than years ago.  When Ralph Nader gathered stories of informants in 1972[1], the stakes were high: the public was deceived about the costly war in Vietnam, the largest car manufacturer in the world knowingly sold unsafe vehicles, leading companies conspired to conceal the dangers of smoking, private contractors grossly overbilled the U.S. military, and our government misled the public about nuclear safety.  With so much at risk, Nader recommended that every employee have the right to object to the activities and policies of his employer and to go public if his complaints were not answered.

If we hear more stories of exposed wrongdoing today than were available 45 years ago, we can thank the multiplying government-private interdependencies that can trip up either side, the proliferation of instruments for presenting complaints, and (as Nader observed 45 years ago) the social dominance of organizations that fuels individual discontent.  There are more but smaller violations, more ways to document and expose misdeeds, and more people upset enough to make disclosures, but there are also more enticements to become a whistleblower, including the U.S. pay-for-tips strategy.

When I identified HomeFirst’s overbilling of the County of Santa Clara in July 2013, I did not immediately think to expose any wrongdoing.  That possibility emerged as HomeFirst’s CEO resisted addressing the problem, after the board Chair directed me not to inform outsiders of future violations, and after the Audit Committee chair assured me that, as a former bank president, he was sensitive to the need to address the concerns of whistleblowers.  These events played out during news accounts of Edward Snowden's release of purloined NSA files and his escape first to Hong Kong and then to Russia.

Global queries into whistleblowing surged during this period, and my own interest in the subject took shape.  A desire to do good had attracted me to work with nonprofits and at HomeFirst, specifically, and correcting wrongs seemed consistent with that.  Moreover, fixing the misdeeds seemed a reasonable part of my job as CFO and Compliance Officer.  Although I was unaware that financial rewards might be paid to informants, others’ admiration of my noble actions seemed likely.  I had always felt a kinship with rebels despite a career spent in corporate environments.  HomeFirst’s policy and State law promised whistleblower protection, as did, I thought, my position as a valued executive.  Although I had no real plan, these incentives eased my way along the small-time whistleblowing path.

Twenty-five year-old Reality Leigh Winner entered the news because she sent a top secret NSA document to The Intercept.  Following a four-year tour in the Air Force, Winner had been working at Pluribus International, which performs contract work at NSA, for less than three months when she saw a report that detailed Russian interference in U.S. elections.  It revealed facts that went well beyond the public story.  In the days before the appointment of Robert Mueller as special counsel to investigate the matter, she might have thought the information would be concealed by the administration.  Like me and unlike Edward Snowden, Winner had no real plan.  She was caught by the FBI hours after The Intercept published the material.

While her disclosure provided new grist for the journalism mill, it exposed no government wrong and opened her to the possibility of years in prison.  Winner’s youth, apparent rashness, and prompt arrest led some to find her motivations disappointing, and she has been judged not a whistleblower at all but merely a leaker.  In that assessment her critics echo Malcolm Gladwell’s dismissal of Snowden as a mere hacker, and they insist on the overblown concept of the whistleblower as moral hero.

The radical version of organizational free speech offered up by Ralph Nader in 1972 and by Julian Assange today suggests that recommending changes, complaining, leaking, whistleblowing, and other expressions of voice[2] are variants on a single theme: opposition to the intrusion of organizations into human lives.  All are techniques inspired by obscure, conflicted impulses, and none is morally exalted above the others.

A corollary of the expectation that we accept only virtuous inducements to blow the whistle is permission for our employers to justify retaliation against us by their own lofty values of loyalty, respect, and teamwork.  But if Winner, Manning, Snowden and others deserve to be jailed for violating the law with their disclosures, then so should organizations and managers be punished for their unlawful retaliations.  Making the individual whole – a standard too seldom reached – is inadequate to provide either real vindication[3] or justice regardless of what enticed the whistleblower to act.

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[1] Nader, Ralph, Peter Petkas, and Kate Blackwell (eds.).  Whistleblowing: The Report of the Conference on Professional Responsibility. New York: Grossman Publishers.  1972.  Measuring how times have changed, Nader cited two causes of complaints that seem common today: corporate contributions to political campaigns and government spying on citizens.

[2] Cf. Hirschman, Albert O. Exit, Voice and Loyalty: Responses to Decline in Firms, Organizations and States. Cambridge, Mass.: Harvard University Press. 1970

[3] For example, Bradley Birkenf1eld, Brandon Coleman, Chris DiIorio,  Theresa Ely, Maeve Kennedy Grimes, Ian Minto, Eric Payne, and Patricia Williams

How to Justify Whistleblowing

How to Justify Whistleblowing

Whistleblowing emerged from a tradition of dissent and the muckraking of books like The Jungle (1905), Unsafe at Any Speed (1965), and Silent Spring (1972).  While the authors of those books were outsiders, whistleblowers stand within the organization and disclose its private information.  Some whistleblowers, like Frank Serpico (1970), exposed illegality and corruption, but others, like Vietnam War opponents John Paul Vann (1963) and Daniel Ellsberg (1971), condemned behavior that violated reasonable and moral expectations.

Each whistleblower is asked to justify behavior that violated her presumed loyalty to her employer.  In Pickering v. Board of Education (1968), Marvin Pickering, a teacher in the Township High School District (Will County, Illinois), argued that he had exercised his First Amendment rights in objecting to a proposed school bond.  The U.S. Supreme Court agreed that his concern was a matter of public interest and the Township had wrongly fired him for his letter to a local newspaper.

Governmental employees found whistleblower protection earlier and, in general, more effectively than their private employer counterparts due in part to their assumed service for the public good.  Current and former federal employees are protected when disclosing not just violations of law, rule, or regulation, but also gross mismanagement, gross waste of funds, abuse of authority, and substantial and specific dangers to public health or safety.  While states vary in their whistleblower protection laws, Oregon provides similar protections to its public employees (and, beginning on January 1, 2017, to nonprofit employees). 

James Cleavenger became a part-time University of Oregon safety officer in 2010.  A year later, when assigned full-time to the graveyard shift, he observed fellow officers’ regular discussions of the “Bowl of Dicks” list – individuals whom the officers disliked.  He later objected to this wasteful departmental practice and was subjected to a wide range of retaliations, ending with his termination in 2012.  His lawsuit claimed the university had violated right to his free speech as well as Oregon’s whistleblower law.  The university finally agreed in 2016 to pay Cleavenger $1 million in settlement of his claims.

Complaints about mismanagement and wasteful operations abound in government whistleblower cases: 

-          Steven Fallon described how the Hayward, California school district squandered money transporting special education students and was harassed as payback. 

-          Ron Klym is one of many Veteran Administration employees who have been punished for describing VA inefficiencies and poor service.

-          Major Joseph Lovelace exposed poor maintenance of National Guard facilities and received performance reviews that effectively forced him out of the service. 

-          The Texas Attorney General issued a cease-and-desist letter to John Owens, who had publicly complained that political considerations deterred the State from acting aggressively enough on fraud charges against Trump University.

-          After he retired, psychologist John Schwade called out the millions of mental health dollars wasted by the State of North Carolina in its prison systems. 

-          Wardens David Trujillo and Ted Peperas denounced jail safety conditions and were fired.

-          Simon Wade complained of mismanagement in his Arizona bomb squad and was fired for insubordination.

Defense of whistleblowing sometimes points to the individual’s right of free speech[1] and, particularly where explicit whistleblower protection laws are lacking, to common law protection of the public interest.  Charges of mismanagement in private companies are not, however, protected activities as they are, at least on paper, in governmental organizations. 

Perceived mismanagement creates the internal discontent that fuels whistleblowing.  When I criticized the goofy budget assumptions of HomeFirst’s CEO, my only protection was the Board’s concern that I might be right.  After the CEO persisted in business practices that I considered irresponsible, I turned in a different direction and began to find legal violations to disclose.  Of course, one person might perceive mismanagement where her boss sees the consequence of a difficult decision.

Most whistleblower complaints involve judgment calls, not undeniable abuses.  The California State Auditor’s March 2017 report on Investigations of Improper Activities by State Agencies and Employees listed 10 cases during the preceding six months that cost the State of less than $20,000 in total.  The State Auditor had, for example, received accusations of the misuse of time by Department of Transportation employees.  Investigation identified one employee whose lunch and smoke breaks were found to be too long by about an hour and a half a day during an 8-month period.  The report was silent on whether the employee offered an excuse or blamed an underlying problem.

The Santa Clara County Counsel’s November 2017 semi-annual report on its whistleblower program referred to 44 hotline contacts.  They included allegations of employees not working a full day, poor department operations, as well as charges of possibly illegal harassment and fraudulent billings (including my own complaint).  Nearly two-thirds of the accusations were unrelated to significant legal matters.

It may be tempting to consider these many small complaints as griping that falls short of real whistleblowing.  Many academics and some courts[2] have restricted whistleblowing to non-trivial matters that have broad public significance.  That inflated conception of whistleblowing aligns with the mistaken concept of whistleblower as courageous and supremely ethical.

Stripped of ethical baggage, the need for whistleblowing to pass a materiality test may serve a practical purpose in determining where to allocate scarce legal resources.  The IRS provides rewards to whistleblowers only when recovery exceeds $2 million, for instance.  My own attorney, operating on a contingency fee basis, calculated differently: when he concluded that case was unlikely to net him more than the $18,000 that he negotiated in settlement with HomeFirst, he discouraged further action.

For group members, whistleblowing emerges out of a base of discontent that reflects ethical and non-ethical concerns, matters of public and private significance, and contraventions of law, policy, good sense, or courtesy.    As a result, the whistleblower, however strong her motivations, may not obtain the protection and sympathy that she deserves.  Her efforts may well come to nothing beyond allowing her to act on a felt need, to which she may retroactively ascribe moral or existential significance.

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[1] Lindblom, Lars.  “Dissolving the Moral Dilemma of Whistleblowing.” Journal of Business Ethics 76 (2007).  Also Vandekerkhove, Wim and M.S. Ronald Commers.  Whistleblowing and Organizational Social Responsibility. Aldershot, Hampshire, England: Ashgate Publishing Company. 2006

[2] For example, Johnson, Roberta Ann. Whistleblowing: When It Works and Why. Boulder: Lynne Rienner Publishers. 2003;  Lindblom, Lars.  “Dissolving the Moral Dilemma of Whistleblowing.” Journal of Business Ethics 76 (2007): 413-426; Vandekerkhove, Wim and M.S. Ronald Commers.  Whistleblowing and Organizational Social Responsibility. Aldershot, Hampshire, England: Ashgate Publishing Company. 2006;  Drake v. Agency for International Development (2008); and the case of Dale Klein