On August 30th, 2016, a whistleblower who gave crucial information about fraud to the SEC was awarded over $22 million. It was the second-largest whistleblower award ever offered by the SEC, and it brought the commission’s total awarded amount since 2011 to more than $100 million. While awards of that size are not the norm, financial incentives are an important component of many industries’ whistleblower programs.
Whistleblower awards are typically offered when the government recovers a significant amount of defrauded funding from an organization.
Being a whistleblower is never easy, so being rewarded is more than a fair trade for the time, uncertainty and stress that is often involved in helping the government combat fraud. Before people blow the whistle on their employer’s fraud, they should therefore weigh the potential risks against the potential rewards.
Here is a breakdown of how three major American whistleblower laws calculate fraud penalties and their associated whistleblower awards.
The False Claims Act
The False Claims Act (FCA) is one of the most comprehensive pieces of whistleblower legislation in the country. It applies to companies that have any type of contract with the government that involves federal funding. Certain states also have False Claims Acts, which apply to companies that receive state funding.
FCA cases most often involve the healthcare sector, but they can also involve defense contractors, universities, or any other company that uses federal funding. In order to administer funding, the government requires organizations to submit claims that accurately describe the services rendered and the cost of those services.
Any company that lies about the services rendered, their cost, or otherwise intentionally submits a false claim can be accused of violating the FCA. Whistleblowers that sue the fraudulent company on behalf of the government are known as qui tam relators.
If a qui tam relator’s information demonstrates that the company has submitted false claims to the government, the company is subject to strong penalties. The company can be liable for treble damages–that is, three times the defrauded amount.
There can also be additional civil penalties that range from a minimum of $10,781 per false claim to a maximum of $21,563.
That means that if a company submits 1,000 false claims and receives $100 in unearned reimbursements for each one, it could be ordered to pay back three times that amount ($300,000), plus the minimum civil penalty ($10,781) for each false claim. In that case, the fraudulent company could be required to pay the government a minimum of $11,081,000.
It’s important to note that the defrauded amount is not always the entire amount of the claim itself.
For example, if a hospital bills Medicare for a procedure performed by an oncologist when it was in fact performed by a physician assistant, the defrauded amount would be considered the difference between what Medicare would have paid the physician assistant and what it pays oncologists for that service.
If, on the other hand, the hospital bills Medicare for a service that was never provided at all, the defrauded amount would be considered the amount of the entire claim.
The whistleblower’s award would then be calculated from that total, and the amount would depend on the following factors:
- Whether the government intervened in the qui tam lawsuit
- How central the whistleblower’s information was to the investigation
- Any involvement the whistleblower may have had in the fraudulent activity
For cases in which the government intervenes, the whistleblower can earn 15% to 25% of the amount the government recovered. If the government does not intervene, that range is 25% to 30%.
If the fraudulent company is forced to pay back $11,061,000, the qui tam relator could therefore be awarded anywhere between $1,662,150 to $3,318,300 for reporting those 1,000 false claims submissions.
The Dodd-Frank Act
Both agencies encourage individuals with information about securities fraud and market manipulation to report it promptly. In order to become eligible for a whistleblower award, the information provided by the whistleblower must lead to recoveries of at least $1 million.
The types of fraud that fall under the Dodd-Frank Act include insider trading, misleading investors about corporate losses, accounting fraud, and manipulating securities prices. Securities fraud can be committed by individuals or by companies.
Securities violations are of great concern to the government because they can lead to severe repercussions on America’s economy, as the country experienced in the wake of the 2008 financial crisis.
As demonstrated by cases like the Bernie Madoff scandal, securities fraud can also cause investors to lose their life savings. That scheme took place before the SEC whistleblower program was created. A man named Harry Markopolos attempted to warn the government about the scheme in 2000, but his tip was ignored. Since the SEC created the Office of the Whistleblower, however, the protections and rewards for securities whistleblowers have improved drastically. Click here to view the SEC’s interactive map of whistleblower tips submitted nationwide from 2011-2015.
SEC and CFTC whistleblower awards can range from 10% of 30% of the total amount defrauded. The award amount depends on the timeliness of the whistleblower’s tip, the originality of the information, and the whistleblower’s culpability in the fraud scheme. When determining culpability, the SEC is concerned not only with whether the whistleblower actually participated in the fraud scheme, but also whether that person interfered with internal compliance procedures at the fraudulent company.
IRS Whistleblower Rules
Blowing the whistle on IRS fraud can be a lengthy and complex process, but there are financial awards available to whistleblowers that meet the agency’s criteria.
IRS fraud concerns deliberate tax evasion schemes, including the submission of false tax returns, intentional failure to report income, or the claiming of false deductions and credits. The IRS whistleblower program, which falls under section 7623 of the bureau’s legislative code, is primarily designed to catch large-scale fraud schemes involving millions of dollars in unpaid taxes.
As with other whistleblower programs, any tips that lead to successful enforcement action by the IRS should involve original information. To be eligible for the maximum financial reward, IRS whistleblowers must report fraud that exceeds $2 million.
If the alleged fraud was committed by an individual rather than a business, that individual’s gross income must also exceed $200,000 per year.
If a whistleblower meets these criteria and the case leads to a successful recovery, the reward can be anywhere from 15% to 30% of the total recovery. If the whistleblower’s information does not meet the criteria but still leads to a successful recovery, the IRS may award up to 15% of the total recovery.
The IRS Whistleblower Program has been instrumental in recovering billions of dollars in tax revenue. From 2007-2015, the agency awarded over $400 million to whistleblowers that helped report tax fraud.
Know Your Rights
Since whistleblower reward opportunities and protection laws often vary by industry, it’s important to know which may apply to you before going forward with a claim.
In most cases, the government reaches a settlement with the fraudulent company, which may or may not pertain to the specific fine amounts stipulated by the corresponding qui tam law. An attorney can help advocate for the highest possible relator share, so that your efforts as a whistleblower do not go unrewarded.
Blowing the whistle on fraud committed against the government is no easy task, but it is essential to ensuring that taxpayer funding and investor trust is handled appropriately in every industry. Those brave enough to put integrity first do the country an enormous service, and are deserving of legal protections and financial compensation. Learn more about eligibility requirements for whistleblower awards here.