An informant for federal investigators has surfaced in the alleged insider-trading inquiry of Martha Stewart's sale of ImClone, Inc. stock. And some journalists think federal officials are seeking an informant in their investigation of Quest. They likely would be just as happy with a whistleblower. And it's time for the Colorado legislature to beef up our whistleblower law.
Informants and whistleblowers are not the same. An informant usually bargains for immunity from prosecution or seeks a reward for information provided. When possible, informants prefer anonymity. Informants are often held in disrespect by the public.
A whistleblower usually acts through outrage and frustration after informing a superior of wrongful acts discovered, and failure of the superior to act. The consequence for whistleblowing is firing, demotion, family stress, and ultimately vindication, restitution, public approval, but lack of consequential employment elsewhere.
President Bush has signed into law the Sarbanes-Oxley Act, H.R. 3763. It provides "whistleblower protection for employees of publicly traded companies who provide evidence of fraud." The new law prevents discharge, demotion, discrimination, and provides reinstatement with normal seniority, back pay with interest and legal costs. But there is no sharing in proceeds recovered for the fraudulent acts of a corporation, officers, or directors.
However, another federal law, the Federal False Claims Act, does provide an incentive for whistleblowers where fraud occurs in government contracts with business. They receive a percentage of the funds recovered. The latest Colorado whistleblower using this approach is Ali Bahrani, a former ConAgra employee who alleges the company altered required federal documents to save fees.
Colorado has two "whistleblower" laws, one for acts committed within government and one for employees of companies or persons having contracts with government. Both provide "restitution" but no sharing in any proceeds recovered.
Two of the more famous whistleblower cases in Colorado concerned the state Dept. of Revenue. Both were prior to the change in governorship in 1998. One concerned a new computer system begun in 1994 for collecting income taxes. A state employee, Gar Olmsted, began voicing his concerns in 1996 to superiors that the new system would not work.
Demoted and transferred, Olmsted appealed to an administrative judge who ruled Olmsted had been demoted in retaliation for whistleblowing. The state auditor's office refused to investigate what happened to Olmsted, but did investigate and issue a report in 2000 castigating Revenue for wasting $10 million of $12 million spent. Olmsted also received $165,000 in 2000 from the state as a settlement.
The other case concerned George Lanes who was initially employed by the Dept. of Revenue. In 1977, Lanes was assigned to review Revenue's cash management practices. He found substantial delays (sometimes several weeks) between the time checks were received and the time when they were deposited in a bank.
According to an appeals court decision, it was estimated the state, in 1977 alone, lost in excess of one million dollars in interest it would have earned with timely deposits.
Lanes also found what he considered a pattern of late deposits in the Liquor Enforcement Division, for certain, specified taxpayers, whose checks for substantial sums were customarily delayed in being deposited. He made recommendations to his superiors to correct these deficiencies.
According to a 1987 appeals court decision, Revenue in August, 1978, implied that except in peak periods, Revenue was depositing all funds received within a 24 hour period, a representation which both Lanes and later the State Auditor, considered to be untrue. In 1979, Lanes took his concerns to a state legislator.
Lanes was transferred out of Revenue to the State Auditor's office, which had a rule that a transferee could not continue to review a department he was previously in. Lanes went back to legislators and newspapers and was subsequently terminated in 1980. The cost to the state, under the 1987 appeals court decision in his favor was $450,000 plus money the state spent in opposing Lanes' appeal of his dismissal.
If Lanes had not come forward to reveal waste, he would have kept his job and his security, and who knows how many millions of dollars more that Colorado would have lost in interest on tax payments.
There isn't a state government in the Union without waste and fraud in its operations. Candidates for office use "waste and fraud" as campaign themes and then do nothing about it. Colorado, in 2003, should reward whistleblowers by adopting a state False Claims Act to uncover waste or fraud. I tried, unsuccessfully, to do so in the 1988 whistleblower act to protect employees of government contractors.
(Jerry Kopel served 22 years in the state legislature.)
P.S. The whistleblower's first name is really Gar and not Gary.
Copyright 2012 Jerry Kopel & David Kopel