Analysis: U.S. whistleblower awards rise as fraud cases grow

By Grant McCool

NEW YORK (BestGrowthStock) – Blow the whistle, wait years in the hope you have a watertight case for prosecutors to clinch criminal charges and then reap your reward.

That was the experience of former GlaxoSmithKline Plc employee Cheryl Eckard, who this week won $96 million in what is believed to be the largest award ever given to an individual U.S. whistleblower. The award is part of the $750 million the drugmaker is paying to settle government fraud charges over its manufacturing practices.

But for hundreds of other would-be whistleblowers, there is no large pot of money awaiting them, say lawyers who bring their cases. They say that coming forward and reporting corporate misconduct carries many perils, including the risks of losing careers.

“To look at one huge case and say people are going to get rich off of this is a bit of a distortion.” said David Colapinto, general counsel of the Washington-based National Whistleblower Center advocacy group. “It’s not a typical case.”

Whistleblower cases are frequently brought under the U.S. False Claims Act, a Civil War-era statute that was amended in 1986 to allow a person, known by the legal term of “relator,” to sue on behalf of the U.S. government.

Such cases are also known as “qui tam” lawsuits, the abbreviation for a Latin phrase that means someone is suing “for the King as well as for himself.”

These lawsuits are typically filed in secret, and the U.S. Department of Justice then decides whether it thinks a case is strong enough for it to get involved. The awards to whistleblowers are designed to give people who spot corporate wrongdoing an incentive to come forward.

Lawyers said that one of the reasons whistleblower payments are getting larger is an increase in the number of cases alleging how companies, many of them in pharmaceuticals and healthcare, devise new ways to overbill the U.S. government.

The awards are set by statute and provide 15 percent to 25 percent of the whole settlement, or sometimes part of the settlement. Whistleblowers pay their lawyer fees out of the awards.

GLAXO AND PFIZER SETTLEMENTS

In the Glaxo settlement, Eckard, 51, was a member of a compliance team at the company that first encountered problems at a drug-making plant in Puerto Rico in 2002. After repeatedly telling company executives about breaches, she was sidelined and eventually laid off in May 2003.

The $750 million Glaxo settlement was not the largest under the False Claims statute, according to Justice Department records between 1987 and 2009, the latest year for which statistics are available.

That distinction belongs to Pfizer Inc, which paid $1 billion under the False Claims Act in September 2009 over kickbacks and off-label marketing. Including a criminal fine, Pfizer’s settlement in the case totaled $2.3 billion.

Six whistleblower awards were disclosed in the Pfizer case. The top two were $51.5 million and $29 million.

“With rare exception, people who have concerns and issues about a company’s practices will raise them internally first, and it is only after they have been dismissed, both figuratively and literally, that they turn to other remedies,” said Erika Kelton, a partner with Phillips & Cohen LLP who represented a whistleblower in the Pfizer case.

More protections for whistleblowers could usher in more cases in other industries. The provisions in this year’s Dodd-Frank law include new awards and protections for financial industry employees to report allegations of wrongdoing directly to the Securities and Exchange Commission.

“What I think will be created will be a lot more cases,” said Gerald Lefcourt, past president of the National Association of Criminal Defense Lawyers.

“From the point of view of an ethical business, they may be faced with a lot of investigations they wouldn’t ordinarily have to face and the increased expenditure of all actions.”

SECRET FILINGS

Individual lawsuits under the False Claims Act are filed under seal. Plaintiffs wait an average of 15 months for the government to decide whether to investigate their claims.

“A lot of times the client is spending time on the investigation while still working for the subject company,” said Hassan Zavareei, a partner at the Washington law firm Tycko & Zavareei LLP, which represents some whistleblower cases under seal.

“They may help get information sometimes, there are sting operations and sometimes it is very cloak and dagger,” he said.

Experts say there are many cases waiting to be resolved. The latest statistics, released by U.S. Senator Chuck Grassley of Iowa, a backer of the 1986 changes in the law, showed there were 985 “qui tam” healthcare fraud cases pending, plus 200 to do with pricing and marketing pharmaceuticals, and 205 of alleged procurement fraud with the Defense Department.

Citing figures provided by the U.S. Department of Justice, Grassley said there were 130 pending qui tam cases the department had joined and 490 cases it had declined to pursue.

“The backlog of cases is slowly growing and what that means is we are literally leaving billions of dollars on the table and we are not doing what we need to do in order to discourage fraud,” said Patrick Burns, spokesman for Taxpayers Against Fraud, a group funded by lawyers and whistleblowers.

(Editing by Steve Orlofsky)

Analysis: U.S. whistleblower awards rise as fraud cases grow