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How to Make Money As a Whistleblower

Written by Eric Reed

"Whistleblowing. Nice concept in theory. Appeals to the inner self and all that. But whistleblowers end up penniless and ostracized. This thing'll take years to get to court, while your life will be ruined tomorrow." - "Boston Legal" A Greater Good

NEW YORK (MainStreet) The SEC has announced a new award out of its Office of the Whistleblower. Two informants will split $875,000 between them for reporting information that helped the agency to bring an unspecified enforcement action. These are the seventh and eighth payments out of this office since it was created in 2011. This is a big win for corporate reporting but it also renews an important issue about whistleblower protection.

Dodd-Frank just isn't enough.

One of the biggest untold stories from the Great Recession remains how many people knew it was coming well ahead of time. Contrary to popular belief, lots of people knew and could have known just how bad the securities market had gotten. The bankers working on Wall Street, the guys actually trading these papers, knew exactly what was coming. They kept quiet for a very good reason: common sense.

Before the Recession blowing the whistle on corporate wrongdoing was a plan for martyrs, not heroes. Whistleblowers got fired and became virtually unemployable. They went broke trying to find new work and got sued over issues like breach of confidentiality and trade secrets. It's a dirty little secret, after all, about spilling your company's dirty little secrets: employees are generally under contract not to do that.

The problem is, and was, that we also need whistleblowers. Often industry insiders are the only ones who can spot a problem before it happens. They have access to the data that shows how toxic assets, or chewable vitamins, have really become. Yes, eventually these secrets will come out, but if someone blows the whistle it can all come to light before the desperate product recall.

Denny Crane from "Boston Legal" was not exaggerating. Whistleblowers save lives while generally ruining their own.

The Dodd-Frank Act tries to address this through the Office of the Whistleblower. This office can hand out potentially enormous rewards to employees who report on corporate wrongdoing, between 10 and 30% of what the SEC collects in an enforcement action. In an era where $100 million is considered a slap on the wrist, this is enough of a payout to keep you from having to work again.

The catch is a big one: whistleblowers collect their reward only when the SEC does.

Lawsuits take years to resolve, and the lawyers hired by these firms make sure of that. Dragging out cases is a strategy to bury already overworked government offices in so much paperwork that they can't pay attention to it all. Big firms try to exhaust their opponents, especially when they legitimately have something to hide, and the whistleblower is waiting through every motion and appeal.

Dodd-Frank tried to mitigate the worst problems by banning employers from retaliating against whistleblowers in any way. A fired employee can take the issue to federal court and almost certainly win. If an employer sues in retaliation the employee can almost certainly win. But once again, even successful lawsuits take a long time and a lot of money.

This is the flaw with Dodd-Frank's protections for whistleblowers: they all depend upon a court system that increasingly can't keep up with real life. While whistleblowers now have protected jobs and get an award for their actions, in reality a vindictive employer can do a lot of damage in the time it takes to actually enforce those rights.

The SEC's rules helping to protect and award whistleblowers are a good start, but they don't get us all the way there. These things take years to get out of court. Their lives can be ruined tomorrow.

--Written for MainStreet by Eric Reed, a freelance journalist who writes frequently on the subjects of career and travel. You can read more of his work at his website

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