Case Incident:
WHISTLE-BLOWERS: SAINTS OR SINNERS?
Corporate whistle-blowers, individuals who report company wrongdoings, are often lauded for their courage and integrity. For example, one famous whistle-blower, former Enron executive Sherron Watkins, was named by Time magazine as one of 2002’s Persons of the Year. Given that whistle-blowers face unemployment, and, often times, ridicule from their company, many people do not come forward to report illegal activity. To encourage whistleblowers, the whistle-blower law, adopted in 1986, pays informants as much as 30 percent of legal fines reaped during lawsuits. With settlements often exceeding $100 million, whistle-blowers can sometimes see huge payoffs. Some experts are concerned that these payoffs are creating a culture where employees quickly report wrongdoings instead of trying to rectify the situation internally.
Douglas Durand, for example, was a former vice president of sales at TAP Pharmaceutical Products. In 1995, he began to suspect that TAP was conspiring with doctors to defraud Medicare. Pharmaceutical companies routinely provide doctors with free samples of the latest drugs; however, Durand believed that TAP was working with doctors to bill Medicare for the free drugs, a practice that is against federal law. Later that same year, Durand became more worried when he discovered that TAP had decided to pay a 2 percent fee to individual doctors to cover “administrative costs”—a kickback in Durand’s opinion. Durand then began preparing to blow the whistle on TAP and its affiliates. “I wanted to do the right thing,” he says. After being referred to attorney Elizabeth Ainslie by one of his colleagues, Durand started keeping notes and collecting company documents, while his lawyer attempted to get the federal government involved.
In February 1996, Durand received a $35,000 bonus from TAP and then quit the company. Three months later, he and Ainslie filed suits against TAP. For the next five years, Durand and Ainslie built their case against TAP. At one point, Durand even obtained some of his former coworkers’ home phone numbers and called them while the FBI listened in. During one call to a former TAP colleague, Durand lied, saying that he had been subpoenaed, all in an attempt to get his former colleague to incriminate himself. All in all, over 500 boxes of documents were collected containing evidence against TAP. Although TAP fought the lawsuit, it finally settled in April, 2001. Durand’s take was a cool $126 million.
On the day that TAP settled, prosecutors filed criminal fraud charges against the company. One of those prosecutors, Michael Sullivan, said that the charges were filed to send “a very strong signal to the pharmaceutical industry.” However, as the trial progressed, holes in Durand’s story began to appear. The kickbacks that Durand claimed were paid by TAP to doctors never occurred, the company didn’t overcharge Medicare, and a conference that Durand believed TAP used to bribe doctors into using their drugs was actually paid for by the doctors themselves. Finally, in July 2002, a federal jury in Boston cleared TAP of the charges, but not before TAP had incurred over $1 billion in legal fees. Durand is now retired and lives with his wife and daughter in Florida.
Supporters of whistle-blowing, such as Senator Charles Grassley (R-Iowa), say that having informants report on company wrongdoings is the best way to prevent illegal activity. “There can never be enough bureaucrats to discourage fraudulent use of taxpayers’ money, but knowing colleagues might squeal can be a deterrent,” he states. However, others disagree. According to David Stetler, defense attorney for TAP, “It’s absolutely a form of extortion.” Whatever position one takes, it seems clear that whistle-blowing is a strong means to deter corporate wrong-doing. However, when this right is abused, whistle-blowers can become as unethical as the companies that they are blowing the whistle on.
Question 1. Do you believe that whistle-blowing is good for organizations and its members, or is it, as David Stetler believes, often a means to extort financial gains from companies?
Question 2. How might self-fulfilling prophecy affect a whistle-blower's search for incriminating evidence against a company?
Question 3. When frivolous lawsuits occur, how might these cases affect future whistle-blowers who have a valid legal claim against their company? Would they be more or less likely to come forward? How might their claims be evaluated? What should companies and the government do to prevent frivolous lawsuits?
Question 4. Do you believe that employees of a company have an ethical obligation to first attempt to report wrong-doing to members of the company itself, or should they go straight to the authorities when they suspect illegal activity? What are some advantages and disadvantages of both actions?