Whistling Rogues: A Comparative Analysis of the Dodd–Frank Whistleblower Bounty Program

Table of ContentsI. Introduction 1202II. The Dodd-Frank Program 1205III. Other Whistleblower Bounty Programs 1212A. The IRS Bounty Program 1213B. The Federal False Claims Act 12171. Non-Meritorious Claims 12262. Inherent Issues 1231C. State False Claims Acts 1236D. The Sarbanes-Oxley Act and Internal Reporting Requirements 12421. Sarbanes-Oxley 12422. State Internal Reporting Requirements 12463. Pubhc Pohcies Supporting Internal Reporting 1248IV. Recommendations 1253A. Reverse Attorney's Fees 1254B. Nurturing Unlawful Conduct 1255C. Internal Reporting Requirement 1256V. Conclusion 1257I have based [the False Claims Act] upon the old-fashioned idea of holding out a temptation, and "setting a rogue to catch a rogue," which is the safest and most expeditious way I have ever discovered of bringing rogues to justice.1I. IntroductionIn describing the concept upon which the forerunner to the False Claims Act2 was based, Senator Howard, perhaps unknowingly, pointed out one of the intrinsic issues of all whistleblower bounty programs: the innate conflict of using a "rogue" to catch a rogue. There is a necessary threshold assumption that these programs use informants they perhaps should not trust to catch cheats they do not trust. And therein hes the conflict. Whistleblowers provide an invaluable service, ferreting out fraud where the government simply does not have the access or ability to do so.3 However, in utilizing such "rogues" to accomphsh this laudable goal, one must also realize the inherent need to check the possibly roguish nature of whistleblowers that are incenti vized by bounties."Imagine getting 10% for blowing the whistle on Madoffs $50 billion scam. 'It's a simple thing that will stop a lot of fraud fast."'4 Under the new Dodd-Frank5 whistleblower bounty program, that is exactly what Harry Markopolos, the whistleblower in the Bernie Madoff scandal,6 would have been entitled to. In fact, under the new program, 10% would be the minimum he might collect, with a possible reward of up to 30%.7 With hundreds of millions, or even billions of dollars in awards to whistleblowers at play, the importance of this program is apparent.This Note's argument rests on the proposition that in any whistleblower bounty program three competing interests must be balanced: (1) those of the employee in reporting wrongdoing, (2) those of the employer in maximizing efficiency, and (3) those of society in encouraging the rule of law and accountability.8 This Note contends that the Dodd-Frank program unfairly misbalances these interests in a way that gives too httle weight to the interests of the employer."Whistleblower" is defined as "[a]n employee who reports employer wrongdoing to a governmental or law-enforcement agency."9 The virtues of whistleblower programs cannot be understated. In 2009, whistleblower lawsuits led to the recovery of nearly $2 bilhon in frauds against the government.10 Whistleblowers provide inside information about fraud and corruption that government authorities could otherwise not reach.11 As such, whistleblowers are an invaluable resource in any effective fraud-detection scheme. …