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The Elusive Rewards and High Costs of Being a Whistleblower

Earlier this year, a tailor in New York City with a celebrity clientele pleaded guilty to a ten-year scheme to avoid state sales taxes and agreed to pay $5.5 million in back taxes and penalties. The whistleblower who turned him in is slated to receive $1.1 million.

SEE ALSO: Should I Blow the Whistle on a Co-Worker?

A Florida dermatologist agreed to pay $26 million to resolve charges of receiving illegal kickbacks from a pathology lab and of billing Medicare for unnecessary procedures. The pathologist who brought the alleged activities to light will get a $4 million share of the settlement.

And in Washington, D.C., the U.S. Department of Justice joined a lawsuit by a cyclist-turned-whistleblower who accused Lance Armstrong and others of defrauding the U.S. Postal Service of more than $30 million by using perform­ance-enhancing drugs while on the USPS-sponsored team. The whistleblower reward could reach tens of millions of dollars.

We’re in the midst of a war against fraud, and the government and corporate America are enlisting an army of citizen whistleblowers to fight it. New and enhanced laws make it harder to retaliate against anyone who reveals wrongdoing at work, whether the boss is Uncle Sam or the company CEO, while bounty programs are starting to pay off for tipsters exposing tax cheats and shareholder rip-offs. “Whistleblowers are making a difference as never before, and their rights are stronger than ever before,” says Tom Devine, legal director of the Government Accountability Project (GAP), an organization that represents and advises whistleblowers.

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Last year, the Justice Department recovered $3.3 billion in taxpayer funds thanks to whistleblowers, who originated hundreds of lawsuits and shared $439 million of the proceeds. (In 1988, there were just 43 whistleblower suits, leading to $2 million in collections.) The Securities and Exchange Commission paid out the first whistleblower bounty in August 2012, in a program launched in 2011—nearly $50,000 to an unnamed tipster who helped unravel an undisclosed scheme, netting the agency $150,000 in sanctions so far. And the Internal Revenue Service made headlines with an eye-popping $104 million check to Bradley Birkenfeld, the UBS insider who exposed the secrets of Swiss-bank tax dodges, leading to the recovery of $5 billion in unpaid taxes.

Blowing the whistle isn’t all about bounty-hunting, though. The Department of Labor’s Occupational Safety and Health Administration (OSHA), which administers a broad swath of provisions to protect whistleblowers but does not pay for information, reported 2,787 cases in fiscal 2012, up more than 40% from 2005. Meanwhile, corporations -- some kicking and screaming but nonetheless compelled by law -- are initiating and beefing up whistleblower programs, too.

Weighing the costs

Don’t get the idea that whistleblowing is easy. Disclosing waste, misconduct or outright fraud is a complicated process that entails a lot of work and enormous commitment. It can cost you your job, take a toll on your family and consume years of your life. Monetary rewards are rare and, headlines aside, rarely life-changing. Even generous payouts can pale in comparison with steep costs. “There can be loss of income, house, friends, marriage,” says John Phillips, a Washington lawyer who specializes in advising whistle­blowers. “There are health issues and sometimes even death because of the stress of going through this.”

Take, for example, Jim Holzrichter’s bittersweet experience. “I lost a career,” says Holzrichter, 59, who struggled to make ends meet for much of the 17 years he was embroiled in a whistleblower suit with his former employer, defense contractor North­rop Grumman. In 2005, without admitting guilt, Northrop settled charges of improperly billing the government for aircraft parts, but Holzrichter didn’t receive his share, roughly $2 million after lawyers’ fees and taxes, until 2010, following five more years of squabbling with other whistleblowers in the case.

When Holzrichter left Northrop, he was under a doctor’s care for symptoms mimicking a heart attack. “The last three weeks, I was at my desk every day but was locked out of my computer so I couldn’t do my job. People I’d had lunch with for years would see me coming down the hall and walk the other way.” A search for work in his field yielded more than 400 rejection letters. “It was hard on my kids, going from middle class to poverty. By the time I got the $2 million, the kids were grown and gone with families of their own.” Holzrichter, who lives just outside Chicago, counsels other whistleblowers through Taxpayers Against Fraud, a nonprofit organization. He is now a paralegal, and he also consults with attorneys on whistleblowing cases.

The possibility of such hardships aside, the distinct policy shift in favor of those who speak out is understandable. Whistleblowing works. According to the Association of Certified Fraud Examiners, 43% of fraud within organizations is detected through tips. Less than 15% is ferreted out by management or internal auditors; outside auditors uncover just 3%. “No question, whistleblowing is effective,” says fraud expert Kristin Rivera at PricewaterhouseCoopers. “I always say, If you want to find a needle, look in the sewing kit, not the haystack. Likewise, if I wanted to find fraud in a company, I’d go to the [whistleblower] hotline.”

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