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.
[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.
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