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New law includes reward for fraud whistle-blowers

For whistle-blowers a chance for a million-dollar pay

For whistle-blowers a chance for a million-dollar pay day in a share of what the government recoups from financial misdeeds. (2004) Photo Credit: Newsday / Julia Gaines

WASHINGTON -  The new financial reform law has what some lawyers call a secret weapon against fraud on Wall Street and in corporate America --  the promise of a million-dollar jackpot to insiders who reveal an illegal scheme to the government.

Tucked in the massive bill is a provision that for the first time extends to the private sector a concept long applied to government contracts. It gives whistle-blowers a mandatory 10 percent -- and up to 30 percent - of what the government recoups in fines and settlements in financial fraud cases. These can include insider trading, false earnings reports and classic Ponzi schemes.

To claim a bounty, the whistle-blower must provide the Securities and Exchange Commission with "original information" that reveals the fraud and leads to a successful recovery.

The Internal Revenue Service has used similar bonuses to pay those who expose tax cheats. The largest awards in recent years have involved medicines and government-paid health care.

Last year, John Kopchinski, a Gulf War veteran and a former pharmaceutical salesman for Pfizer, was awarded a $51.5-million whistle-blower reward for exposing problems with the drug Bextra, which was pulled from the market in 2005.

But some are worried about unintended consequences of the provision.

"Most people want their company to be strong and do the right thing," said Martin Rosenbaum, a Minneapolis lawyer. "This has the potential to be a game changer," but not necessarily a good one, he said.

Some management experts said they foresee a flood of new claims driven by aggressive law firms that represent whistle-blowers.

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