Qui Tam, Anyone?

It's not a Chinese pastry or an obscure Renaissance dance. It's not something you whisper in the ear of a fellow Mason or offer up to Satan in a cult ritual.

It references a kind of law suit that can in fact make a whistleblower a lot of money while doing the rest of society - and the government - much good and it's been around for some time. Qui Tam is a legal mechanism - a provision of what's known as the False Claims Act - that sets aside a percentage of monies to a whistleblower who sounds the alarm that fraud has been committed against the government. First used by Honest Abe during the Civil War it targeted contractors ripping off the Union with all sorts of scams, cons and assorted procurement frauds. Under President Reagan's watch Congress modified the law to incentivize anyone -- with or without a direct affiliation to the company under scrutiny - to collect between 15 and 30 percent of what's recovered from the bad guys. All a potential Sherlock needed was compelling evidence and an inclination to bring the information to the attention of the Department of Justice. And it's not only the Feds who employ this legal six-shooter; twenty-nine states and the District of Columbia have their own Qui Tam variations.

New York Attorney General Eric Schneiderman - ever the ethics hound-dog -- is currently proposing a new, more muscular incarnation of the law specifically targeting those who dabble in and profit from securities fraud. The Financial Services Industry is clearly in his sights and the bill adds an additional layer of worry for Wall Street by referencing the New York State agency that's grown into a major bogeyman for the Big Bankers: the Department of Financial Services (DFS) under the aggressive leadership of Benjamin Lawsky. A former federal prosecutor Lawsky doesn't fool around nor mince his words when going after consumer unfriendly malefactors. Most recently Ocwen Financial, the nation's largest non-bank servicer, has been the subject of his displeasure and he's held their feet over a very hot fire for having screwed homeowners with less than accurate mortgage statements and initiating highly suspect foreclosures (the subject of a three-part series I wrote for In These Times). The proposed legislation would create a specific whistleblower rewards program at DFS which would hand potential "relators" (legal for whistleblower) ten to thirty percent of what the agency recovers (although the minimum is one millions bucks). The confidentiality of said relators would be preserved and the AG would guarantee that any retaliation by the company would not be a good thing. This should give pause for thought among those Titans of Finance (and their lawyers) who feel that employee signed non-disclosure agreements provide protection from the regulator's long legal reach. These keep-it-to-yourself-or-else documents would be rendered as effective as a needle-pinched prophylactic.

How rich can you become by being a tipster? The payday can be stratospheric as Sherry Hunt happily found out. Employed by the mortgage unit at Citigroup she blew the whistle on the bank after discovering that something like 60% of mortgages peddled to investors, including the Gov't Sponsored Enterprises (GSE's) Fannie, Freddie and Ginnie Mae, were defective and lacking in documentation. DOJ picked up the case and eventually, in 2011, settled with Citi for 158 million. Sherry's cut: a cool 31 million.

Kyle Lagow made out with 14.5 million in 2012; his slice of a one billion dollar settlement with Bank of America that involved Angelo Mozilo's corrupt-to-the-core Countrywide Financial (which the Bank had acquired in 2008). Lagow had worked at a subsidiary, Landsafe, as an appraiser and was shown the door after reporting to his bosses that home appraisals were being deliberately inflated for loans packaged and sold on the secondary market. Insured through the Federal Housing Administration when homeowners went belly up there was so much more for Countrywide and its cronies to feast on.

While tempting the road to riches is paved with more than a few emotional land-mines. Sherry Hunt and her husband endured nerve rattling stress when the decision was made to go whistleblower. If the Department of Justice had not pursued the leads Sherry's future would have looked bleak. Kyle Lagow's situation was even worse. Unemployed while the Department of Justice pursued the case he struggled to feed his family while dealing with a diagnosis of thyroid cancer. While Hunt and Lagow eventually triumphed many like Alayne Fleischmann, who tried to call attention to JP Morgan's mortgage indiscretions, ended up on the street -- no job and no money.

Sherry Hunt and Kyle Lagow harkened up a noble vision: undaunted Davids exposing all those financial Goliaths with their uber-profitable scams perpetrated during the run up to the financial crisis and beyond.

It begs the question: How many more like Sherry and Kyle are out there?

The Department of Justice reported that 2014 was a banner year for recoveries under the False Claims Act. Qui tam lawsuits - 713 of them -- netted nearly three billion dollars. The whistleblowers cut: 435 million.

If New York AG Schneiderman's proposal becomes law it may create another lucrative revenue stream for potential do-gooders; one that may rival the New York State lottery in payouts.

Whistleblowing, no doubt, seems like a growth industry.

Joel Sucher is a filmmaker/writer/blogger with Pacific Street Films.

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