RULE 5

Avoid the Traps

Introduction

Whistleblowing involves reporting fraudulent activities within an organization, and doing so can be a challenging process. This chapter of Rules for Whistleblowers highlights five common mistakes whistleblowers make and how to circumvent them.

Practice Tips

Trap #1: When facing a legal battle, your employer often has more resources at their disposal. Simply reporting fraud isn’t enough to guarantee a smooth process. Be prepared for potential challenges from your former employer, and ensure you meet all deadlines and complete necessary paperwork.

Ernesto Reuben and Matt Stephenson, “Nobody Like a Rat: On the Willingness to Report Lies and the Consequences Thereof,” 93 Journal of Economic Behavior & Organization 384 (Sept. 2013).
An excellent book discussing what employees face after they blow the whistle is by Myron and Penina Glazer, The Whistleblowers: Exposing Corruption in Government and Industry (New York: Basic Books, 1989).
Aaron Kesselheim et al., “Whistle-Blowers’ Experiences in Fraud Litigation against Pharmaceutical Companies,” N. Engl. J. Med. 362:19 (May 13, 2010).

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Trap #2: While some cases involve employment issues, the most effective whistleblowers remain undetected by their employers. These “recruitments-in-place” discreetly provide information to the government without jeopardizing their jobs. Whistleblowing doesn’t necessitate public exposure; working behind the scenes can protect your livelihood.

Chairman Mary Jo White, Securities and Exchange Commission, Remarks at the Securities Enforcement Forum, Washington, DC (October 2013).
Decisions of the SEC discussing rewards paid in anonymous and confidential cases can be found on the website of the SEC’s Office of the Whistleblower, www.sec.gov/whistleblower. The Commodity Futures Trading Commission’s rulings are located at www.whistleblower.gov.

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Trap #3: Whistleblower-triggered cases have resulted in billions recovered, demonstrating the effectiveness of these informants. Whistleblower rewards are guaranteed for those who follow the correct steps, and financial incentives have been proven to encourage people to come forward.

The most important new whistleblower laws are:

False Claims Act, 31 U.S.C. § 3729-32.
Tax Evasion and Underpayments (IRS), 26 U.S.C. § 7623.
Dodd-Frank Act (Commodities Frauds and Market Manipulation), 7 U.S.C. § 26.
Dodd-Frank Act (Securities and Foreign Corruption), 15 U.S.C. § 78u-6.
Motor Vehicle Safety Act, 49 U.S.C. § 30172.
Anti-Money Laundering Act, 31 U.S.C. § 5323.
The University of Chicago study was initially published as: Alexander Dyck et al., “Who Blows the Whistle On Corporate Fraud?” The Initiative on Global Market’s Working Paper No. 3, Chicago Booth School (October 2008).
The Harvard Business School professors paper is available at Aiyesha Dey et al., “Cash-for-Information Whistleblower Programs: Effects on Whistleblowing and Consequences for Whistleblowers,” Harvard Law School Forum on Corporate Governance (June 10, 2021).

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Trap #4: Delaying your report can jeopardize your case, even if it is strong. To qualify for an award, you must meet the statute of limitations, be the first to file original information, and voluntarily report. If you delay, you risk losing the opportunity for financial compensation, as demonstrated in the case of Eugene Ross, who reported and never saw a penny in the famous Bear Stearns case.

U.S. Supreme Court decision explaining the False Claims Act’s “first to file” rule. Kellogg Brown & Root et al., v. U.S. ex rel Carter, 575 U.S. 650 (2015).
The SEC and CFTC regulations narrowly defining the timing necessary to be considered a voluntary whistleblower. The rules are codified at 17 C.F.R. § 240.21F-4(a) (SEC) and 17 C.F.R. § 165.2(o) (CFTC).
Eugene Ross’s SEC decision is located on the commission’s Office of the Whistleblower website as decision Whistleblower Award Proceeding File No. 2021-67 (July 9, 2021)

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Trap #5: Don’t deny your whistleblower status. Report promptly to avoid missing critical deadlines that could undermine your case. Informally addressing the issue internally instead of initiating a formal government investigation may lead to retaliation from your employer.

Every statute has its own definition of a protected disclosure—choose carefully.
Phillips v. Interior Bd. Mine Op., 500 F.2d 772 (D.C. Cir. 1974) (broad definition of internal protected activity).
The latest Supreme Court wisdom on reporting internally is Digital Realty Trust v. Somers, 138 S.Ct. 767 (2018). Read this case before you report a violation of law internally or to corporate compliance.
Cases interpreting the scope of protected disclosures can be found in further readings on this Rule page.

Additional Resources

Trap #1: Doing the Right Thing Is Not Enough

The hardships and emotional distress facing whistleblowers, even those who prevailed and obtained large monetary recoveries, are set forth in a “Special Report” published by the New England Journal of Medicine: Aaron Kesselheim et al., “Whistle-Blowers’ Experiences in Fraud Litigation against Pharmaceutical Companies,” N. Engl. J. Med. 362:19 (May 13, 2010).
The loopholes that face many employees were well stated in Bricker v. Rockwell, 1991 U.S. Dist. LEXIS 18965 (E.D. Wash.), where he noted that a “gap in coverage” had “caught” a well-deserving whistleblower in “limbo.”
- After highlighting the credibility of the whistleblower and his “compelling evidence of health and safety problems,” the court found that the “system” “failed him miserably.” The whistleblower’s case was thrown out of court.
Whistleblowers have been criminally prosecuted when they tried to alert the public to serious public wrongdoing by the government, including national security whistleblowers Reality Winner, Tom Drake, and Daniel Ellsberg (see Rule 30) and tax whistleblower Bradley Birkenfeld (see Rule 18).
- In each of these cases, although the whistleblower tried to do the right thing, they were not immunized from prosecution. The Justice Department can be very short-sighted when it comes to whistleblowers, even when it is obvious that the whistleblowers served the public interest.

Trap #2: Thinking Whistleblowing is an Employment Dispute

The new whistleblower laws place an emphasis on providing the government with actionable evidence of serious crimes and frauds. Under these laws whether or not the whistleblower has been fired is irrelevant. The issue is whether the company committed the crime, not whether the whistleblower was a good employee. The success of these non-employment related whistleblower laws are are extensively discussed in the Annual Reports issued by the SEC, CFTC and IRS.

The webpages of the IRS, SEC and CFTC Whistleblower Offices also explain in great detail the success of these non-employment related whistleblower laws, and how they should be used. Non-employment laws are set forth in Checklist 1, found in Rules for Whistleblowers.

Trap #3: Ignoring Powerful Tools

See Rules 16–25. The most important “new” whistleblower laws are:

False Claims Act, 31 U.S.C. § 3729-32.
Tax Evasion and Underpayments (IRS), 26 U.S.C. § 7623.
Dodd-Frank Act (Commodities Frauds), 15 U.S.C. 78u-6.
Dodd-Frank Act (Securities and Foreign Corruption), 7 U.S.C. § 26.
Motor Vehicle Safety Act, 49 U.S.C. § 30172.
Anti-Money Laundering Act, 31 U.S.C. § 5323.

The tremendous success of these laws are discussed in Rules 1, 6, and in the Conclusion.

Trap #4: Delay

English v. General Electric Company, 85-ERA-2, Decision and Order of Administrative Law Judge (Aug. 1, 1985), reversed by Final Decision and Order of the Under Secretary of Labor (Jan. 13, 1987).
Laws discussing how to calculate statute of limitations include Delaware State College v. Ricks, 449 U.S. 250 (1980); Chardon v. Fernandez, 454 U.S. 6 (1981) (key Supreme Court cases discussing how to calculate running of the statute of limitations); National Railroad v. Morgan, 536 U.S. 101 (2002) (continuing violation theory).
The doctrines of “equitable tolling” and “equitable estoppel” may provide grounds for an employee to enlarge the filing deadlines based on the actions or statements of an employer: “Equitable tolling focuses on the plaintiff’s excusable ignorance of the employer’s discriminatory act. Equitable estoppel, in contrast, examines the defendant’s conduct and the extent to which the plaintiff has been induced to refrain from exercising his rights.”– Rhodes v. Guiberson Oil Tools Div., 927 F.2d 876, 878 (5th Cir. 1991), quoting Felty v. Graves-Humphreys, 785 F.2d 516, 519 (4th Cir. 1986).
See also…
- Zipes v. Transworld Airlines, 455 U.S. 385 (1982)
- Bonham v. Dresser Industries, 569 F.2d 187 (3rd Cir. 1977)
- School District of Allentown v. Marshall, 657 F.2d 16 (3rd 1981)
- Carlile v. South Routt School Dist., 652 F.2d 981 (10th Cir. 1981)

All whistleblower reward programs encourage employees to quickly file allegations of fraud with the appropriate authorities. They all have a version of a “first to file” rule that can result in the disqualification of whistleblowers who delay filing a rewards claim, if another whistleblower files a similar or identical claim first. See Rules 16–22.

The statute of limitations for filing a False Claims Act reward case is six years after the date of the violation or within three years of the date for which an official of the United States should have been reasonably aware the violation occurred (but in no event greater than ten years from the initial violation), 31 U.S.C. § 3731(b).

A wrongful discharge case under the FCA must be filed within three years, 31 U.S.C. § 3739(h)(3). The United States has a catch-all statute of limitations for cases for which a civil fine, penalty, or forfeiture may be imposed. See 28 U.S.C. § 2462. Under this law, if a statute does not impose a specific statute of limitations, civil cases that can result in a fine or penalty being imposed must be filed within five years of the violation.

Trap #5: Denial

The Institute for Internal Auditors survey of auditors is known as the Global Internal Audit Common Body of Knowledge. The survey’s results were analyzed in The Politics of Internal Auditing by Patricia Miller and Larry Rittenberg, published by the IIA Research Foundation, Altamonte Springs, Florida (2015). See also Larry Rittenberg, Ethics and Pressure: Balancing the Internal Audit Profession (The IIA Research Foundation, 2016). These surveys explain in gory detail how auditor are subject to retaliation and pressure to cover up wrongdoing simply by doing their job to well. Auditors and compliance officials are not immune from retaliation, even when they are paid by the company to investigate fraud. Persons in these positions must be on alert to the early signs of retaliation, and should not think that their position within the company gives them sanctuary.

The Senate Judiciary Committee, “The Corporate and Criminal Fraud Accountability Act of 2002,” S. Rep. No. 107-146 (May 6, 2002), pp. 4–5, 10, 20 (discussing Enron attorneys’ advice regarding firing Sherron Watkins after she blew the whistle internally to her management).
- Also see Mimi Swartz and Sherron Watkins, Power Failure: The Inside Story of the Collapse of ENRON (New York: Doubleday, 2003).
- Supreme Court decisions finding internal whistleblowing not protected under the Dodd-Frank Act and First Amendment: Digital Realty Trust v. Somers, 138 S.Ct. 767 (2018), and Garcetti v. Ceballos, 547 U.S. 410 (2006).
  - However, a wealth of cases decided before Digital and Garcetti explained the fact that whistleblowers often used internal reporting processes and should deserve protection. See Rule 11.

Once you are identified as a whistleblower, retaliation often follows.

Myron and Penina Glazer, The Whistleblowers: Exposing Corruption in Government and Industry (New York: Basic Books, 1989)
Aaron Kesselheim et al., “Whistle-Blowers’ Experiences in Fraud Litigation against Pharmaceutical Companies,” N. Engl. J. Med. 362:19 (May 13, 2010) (documenting the severe emotional distress and hardships suffered by whistleblowers, even when they prevail in a major case)
Greenberg v. Kmetko, 840 F.2d 467, 477 (7th Cir. 1988) (en banc) (dissenting opinion of Judge Cudahy)
- “Dissenters and whistleblowers rarely win popularity contests or Dale Carnegie awards. They are frequently irritating and unsettling. These qualities, however, do not necessarily make their views wrong or unhelpful. . .”

Praise for Whistleblower Programs

Prevent Pollution from Ships: Motion by U.S. Attorney Christopher Christie on whistleblower rewards in ocean pollution cases: United States v. Sun Ace Shipping Company, 2:06-cr-00705, “Motion and Memorandum in Support of Award” (D. N.J. Nov. 15, 2006). Also see index to APPS cases.

Dodd-Frank Act (SEC): The Chair of the SEC’s statement on the effectiveness of whistleblower reward laws is found at Mary Jo White, “Remarks at the Securities Forum” (Oct. 9, 2013). Also see former Chair White’s speech entitled “The SEC as the Whistleblower’s Advocate.”

Chair Gary Gensler’s speech praising the SEC program was released on Whistleblower Day, 2021:

“Whistleblowers provide a critical public service and duty to our nation. The tips, complaints, and referrals that whistleblowers provide are crucial to the Securities and Exchange Commission as we enforce the rules of the road for our capital markets.Each week, when I see the Commission’s enforcement actions, I am reminded how the whistleblower program helps us to be better cops on the beat, execute our mission, and protect investors from misconduct.”

SEC Chair Gary Gensler statement on the whistleblower program published on Youtube. Chair Jay Clayton, “Strengthening our Whistleblower Program”:

“Over the past ten years, the whistleblower program has been a critical component of the Commission’s efforts to detect wrongdoing and protect investors and the marketplace, particularly where fraud is well-hidden or difficult to detect.”

False Claims Act: Statement of Attorney General on the False Claims Act: Eric Holder, U.S. Department of Justice, “Attorney General Eric Holder Speaks at the 25th Anniversary of the False Claims Act Amendments of 1986” (Jan. 31, 2012); Statement of the Assistant Attorney General on the False Claims Act: Assistant Attorney General, U.S. Department of Justice, “Remarks at American Bar Association’s 10th National Institute on the Civil False Claims Act and Qui Tam Enforcement” (June 5, 2014); The testimony of the Senate Judiciary Chair in support of the False Claims Act: “Statement for the Record by Senator Chuck Grassley of Iowa, Chairman, Senate Judiciary Committee at a House Judiciary Subcommittee on the constitution and Civil Justice Hearing on ‘Oversight of the False Claims Act,’ April 28, 2016.”

Wildlife Whistleblower Laws: See the Special Report published by the National Whistleblower Center that extensively cites to the award decisions issued by the U.S. Fish and Wildlife Service confirming the key contributions of whistleblowers.

Frequently Asked Questions

Related Rules

RULE 32
Your Disclosures Must be Protected Under Law
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RULE 31
Winning a Case
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