Why Whistleblowers Are So Helpful in Fraud Cases

October 26th, 2017

You know when something’s not right at work. Numbers don’t add up. Documentation doesn’t reflect what you know to be true. Safety procedures aren’t being followed. Fraud and illegal activity is a reality at many workplaces, and it’s often you – the employee – who identifies and has the courage to bring that fraud to light. If your employer or government contractor is engaged is some sort of fraud/illegal activity, you may be wondering what you can do about it, what the risks might be to your livelihood and reputation, and whether or not it’s worth it to “blow the whistle.” While whistleblowers have often been labeled “disgruntled employees” by the companies they’re seeking to expose, they are more likely champions of the truth, and there are statutes that both protect and reward whistleblowers for taking a stand.

Employees Who Identify Fraud

You, as an employee or contractor, are often in the perfect position to identify fraud in a corporate setting because you see it first-hand— you’re in a position of power to reveal that wrongdoing and make a difference. According to the Association of Certified Fraud Examiners 2016 Report to the Nations on Occupational Fraud and Abuse, 39.1% of occupational frauds are initially detected from whistleblower tips, and “are consistently and overwhelmingly the most common method by which frauds are detected.”

Besides the satisfaction of being a champion of the truth, blowing the whistle can result in real rewards. Many laws are in place that reward successful whistleblower claims, such as the False Claims Act (FCA), which focuses on combating fraud that results in financial loss to the Government. As a protection to the whistleblower, FCA cases are filed “under seal” and remain confidential during the government investigation into the allegations. Under the FCA, whistleblowers may receive 15%-30% of the amount recovered by the Government.

SEC Whistleblowers

Whistleblowers with information about securities violations by publicly traded companies can file a claim with the Securities and Exchange Commission Whistleblower Office and may be entitled to 10%-30% of recovered funds. Whistleblowers reporting to the SEC can keep their identities confidential – if they are represented by counsel. Similar rewards are available to those reporting IRS or CFTC1 fraud.

The frightening part of blowing the whistle is that it carries real risks – for some, the loss of a job. The good news is that there are laws that protect whistleblowers from retaliation. For example, the FCA prohibits adverse action, including threats, harassment and termination, against employees, independent contractors and “associated others” (e.g. family) or agents; and the Dodd-Frank Wall Street Reform and Consumer Protections Act created and enhanced protections for whistleblowers across many different statutes.

Blowing the Whistle on Fraud

With proper legal counsel, whistleblowers have the power to bring fraudulent companies to justice, and receive significant rewards for doing so. Perhaps no one knows better what power whistleblowers can have than Sam Antar, a convicted felon and former CPA (currently a forensic accountant), who as the CFO of Crazy Eddie participated in one of the largest securities frauds uncovered during the 1980s. When asked, “What was your biggest threat to you while you were committing your crimes?” he answered: “The biggest threat was that a whistleblower from within the company would inform the government of our crimes. Lying to auditors, Wall Street analysts, and journalists was easy.”
(Excerpt from Sam Antar’s Crazy Eddie FAQs.)