What’s Wrong with Financial Incentives Anyway?

Whistleblowers need incentives.

Whistleblowers need incentives.

The history of qui tam actions has been shaped largely by fears of the “parasitic” relator.  People are endlessly concerned that whistleblowers will somehow take advantage of the government and obtain a financial reward that the whistleblower doesn’t deserve. After hundreds of years of tinkering, the federal False Claims Act gives a lot of discretion over the fate of an FCA to government prosecutors, ostensibly to prevent some unduly opportunistic relator from inappropriately profiting from a government investigation, government knowledge, or information in the public domain.

Why not be a little more tolerant of parasitic relators?  They perform a necessary service.  Does one have to suffer to fight fraud?  Shouldn’t those who fight against fraud be well compensated when they are successful?  Doesn’t the government need the help?  What whistleblower would take on these fights for no financial gain?  Most people walk away and say nothing because they believe that nothing good can come from their complaints, and they are usually right.

Blowing the whistle sometimes exacts a great toll on the relator.  Senator David Pryor is quoted as saying, “[I]n the cruel world of the bureaucracy, most Government whistleblowers can expect extraordinary efforts by their own agency to shut them up, to discredit them, or to eliminate them.”  Insiders are often reluctant to pay the price associated with bringing fraud information forward.  One whistleblower stated that her boss “… told me that he would say that I did it[,] and I would be the one going to federal prison.” Co-workers threatened her by saying that if she told the government about the fraud she would be responsible for 350 people losing their jobs. Many would-be whistleblowers would prefer that an outsider investigate and address fraud rather than experience the reprisals that go hand in hand with such reports.

Despite the common knowledge that whistleblowers suffer enormously because of their actions, courts presume that people just cannot wait to file fraud claims.  Legal scholar Erwin Chemerinsky discusses the “floodgates” objection to qui tam promotion, the fear that parasitic relators will deluge the court system with their False Claims Actions.  One commentator complains that the FCA “forces” the Department of Justice to take a “reactive posture to screen the suits in deciding whether to intervene, rather than focusing on its own investigations of fraud.”  Chemerinsky wryly notes that such arguments necessarily concede that a deluge would mean that many fraud cases are not now being prosecuted.  Courts have the ability and the tools to screen out truly frivolous claims in their early stages.  Surely it is better, Chemerinsky reasons, to burden the judiciary a bit than it is to allow huge numbers of fraud cases to go un-prosecuted.  After all, the sheer amount of money recovered by the Treasury – $20 billion that would otherwise be lost to fraud – makes the possible cost to the system worthwhile.  As a public corruption tool, the qui tam action is unmatched in terms of the resources – both manpower and money – it generates.

I’ve only heard one official from a government whistleblower reward program articulate anything close to Chemerinsky’s position.  Sean McKessy said in a workshop for Taxpayers Against Fraud in 2012 that the SEC understands that some whistleblowers are in the whistleblowing business for the money, and the SEC recognizes and supports the concept of monetary incentives for those fighting fraud.  In fact, McKessy pointed out, the SEC is in the business of qui tam to make money too.  It recognizes that whistleblowers have good information that can lead to increased dollars from enforcement efforts, but they don’t want to get involved in a whistleblower process that does nothing but penalize them for speaking up.  The SEC understands that a whistleblower reward can overcome the resistance most will have for reporting wrongdoing in the markets. Hurray for McKessy and the SEC’s enlightened view of whistleblowers.  From my perspective, whistleblowers should get a very healthy percentage of the cash they find for the Treasury.  What’s wrong with that?

Comments are closed.