Price whistle-blowers pay for a secret

A $104 million award for a whistle-blower is probably enough of an incentive to make most people divulge secrets about their employer, or even their friends, for that matter. The award, the largest ever paid by the Internal Revenue Service, went to Bradley C. Birkenfeld last week for revealing secrets about the Swiss banking system.

Richard Convertino, a former assistant United States attorney in Detroit, says that he has spent his life’s savings on litigation to clear his name.

But lawyers and government officials had this warning for anyone thinking about following in Mr. Birkenfeld’s footsteps: Make sure you understand what you are getting into.

“It’s a life-changing experience,” said John R. Phillips, founder of the law firm Phillips & Cohen and the man credited with devising the amendments that strengthened the government antifraud law, the False Claims Act, in 1986. “If you look at the field of whistle-blowers, you see a high degree of bankruptcies. You may find yourself unemployable. Home foreclosures, divorce, suicide and depression all go with this territory.” As if that were not sobering enough, he added, “You can’t believe how long these things take.”

And the payoff for putting your career and family at risk is usually a fraction of what Mr. Birkenfeld received. Last year, the I.R.S. paid $8 million to 97 people. This year, it said it was on track to pay $24 million to about 100 people, excluding the amount awarded to Mr. Birkenfeld. But even the Justice Department, which administers awards through the False Claims Act, generally pays out 16.8 percent of what it takes in, and the average penalty is $2 million to $3 million. That works out to about $330,000 to $500,000, before taxes and lawyer fees are deducted.

That is a not a lot of money considering the risks. (Mr. Birkenfeld will probably pocket around $40 million, if the usual third of his award goes to his lawyers and 40 percent of what is left goes to taxes.)

Still, the interest in inducing whistle-blowers to come forward is on the rise. Under the Dodd-Frank Act, the Securities and Exchange Commission created the Office of the Whistleblower. It began operating in August 2011, and received 2,700 tips in the first year, said Sean McKessy, chief of the office.

“Not every tip was a home run, but I’ve been surprised by the quality,” he said. “We require that people sign a declaration under penalty of perjury that the information they are submitting is true. It’s a control. We didn’t want to be inundated with nonsense.”

© 2012 The New York Times News Service