Whistle stop

Electronic News, July 27, 1992 by Jack Robertson

Defense contractors are whistling in the dark about the threat of megabuck damages from the False Claims Act.

Companies bewail the law, assail their whistle blower employees, and claim their damages are minimal. That last assertion is the biggest false claim of all. The industry is hurting-- even more in reputation, if not financially.

Probably the only good news is that the public seems to be tiring of making contractors a whipping boy for every single misdeed by a few miscreants in an industry of one million workers. Ironically, the whistle blower suits seem to be exposing more contractor malfeasance than any of the headlined Project III Wind probes of the Feds that sullied the industry's public image.

A former Singer Link employee whistle blower, Christopher Urda, was just awarded $7.5 million from both the predecessor company and CAE-Link, the new owner. As a result of his fraud charges against the firm for false billing to the government, both firms will pay $55.9 million to Uncle Sam to settle the case.

Chester Walsh, still a tenuous employee of General Electric, is expected to get an even larger share of a pending $70 million settlement by GE in a false claims suit oiginated by the whistle blower for false billing on GE aircraft engines for Isreali aircraft. Despite the imminent settlement of the case, GE is threatening to counter-sue Mr. Walsh to recover his bounty in the case.

Scores of other whistle blower cases are pending in the courts--eating up legal expenses, dragging out corporate dirty laundry in public, and increasingly subjecting companies to costly financial settlements.

The whistle blower amendment to the False Claims Act has been controversial from the day it was enacted six years ago.

Contractors argued that the legislation, which allowed whistle blowers to collect a share of any resulting damages from fraud suits they brought, would only encourage a wave of spurious litigation, often abetted by "ambulance chasing" lawyers smelling potential big legal fees.

The legal bite is certainly correct. Lawyers in the Link and GE cases will collect an unidentified, but sizable, share of the settlement award. A public interest legal group, Taxpayers Against Fraud, will collect $1.5 million in the Link case, in addition to the awards to Mr. Urda, the lawyers and Uncle Sam.

But then the high share that lawyers skim off any major legal action--from corporate acquisitions to medical claims--poses a broad dilemma in our society, so far defying any resolution. The whistle blower law has been no more a lawyers-full-employment-act than any of the scores of regulatory, finanical and tax government minutia assailing industry and the public.

Top management takes the whistle blower hits especially hard--since industry brass has worked diligently to set up extensive corporate ethics programs and tighter safeguards. Instead of getting credit for this hard work, the executives still find their companies are tarnished by isolated misdeeds of a few bad employees. In magasize companies, there is probably almost no way to ensure that even the best of safeguards will stop every possible malfeasance at some remote company level.

There is also almost no chance that industry can bring about any change in the law. If anything, the more the whistle blowers become a pain under the Act, the more entrenched it becomes. The only recourse seems to be: learn to live with it.

That means continuing to do just what companies have been working on all along: making corporate ethics programs meaningful, tightening controls, taking internal complaints seriously. Contractors must also back away from conditions that pressure malfeasance in the first place: buy-ins, bidding liars' contests, inordinate pressure to make unrealistic company targets, rewarding corporate high-flyers who win at any cost, looking the other way on suspicious data.

It would help, of course, if some of the industry-baiters would at least give the overwhelming majority of contractors even a fleeting pat on the back for all the ethics endeavors so far. However, probably the best that can be hoped for is to escape any further public frenzy over the scattered whistle blower victories that are sure to continue.