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Corporate Counsel reported yesterday:

The new federal whistleblower law is proving a hot item for many plaintiff law firms. Attorneys say that tipsters with visions of becoming millionaires are flooding their offices with calls.

"In the last three weeks, I’ve had many, many more whistleblowing calls than I had in the last three years," said Rebecca Katz, a partner at Bernstein Liebhard in New York. Katz is a former senior counsel in the enforcement division of the Securities and Exchange Commission, where she served from 1990 to 1998.

"Will the complaints come to anything?" Katz asked. "Some will. But the number is just unbelievable."

The new law, the Dodd-Frank Wall Street Reform and Consumer Protection Act (pdf), went into effect in July. It authorizes the SEC to reward those who expose fraud at public companies with from 10 to 30 percent of the amount it recovers over $1 million.

No law firms wanted to divulge specific numbers about callers. But Erika Kelton, partner at the plaintiffs’ powerhouse Phillips & Cohen in Washington, D.C., agreed that the outpouring is huge.

"We’re inundated with calls," Kelton said, adding that many of the tips "appear to be good cases" and not bogus reports.

Kelton was the lead attorney for a whistleblower suit against Pfizer Inc., which paid a record-setting $2.3 billion in mid-2009 to settle civil and criminal charges for using illegal sales tactics. Of that amount, $70 million went to Kelton’s whistleblowing client, a former Pfizer salesman.

The SEC has made corporate fraud whistleblowing surprisingly easy to do. In a few short clicks you can get the process going. The SEC’s website even helpfully divides out the types of reportable fraud under Dodd-Frank, with direct links to the specific complaints:

(In contrast, the IRS requires you mail in a form to be a whistleblower under their new program for tax fraud. And let’s not even mention the onerous requirements of the False Claims Act.)

If you’re a whistleblower out there, Googling around for information about the process, and you only take one piece of advice to heart, make it this one:

Call a lawyer as soon as you can — certainly before you file a complaint with the government, and preferrably before you file a formal complaint with your employer.

I am by no means a dispassionate observer. I make money representing whistleblowers. They don’t necessarily need my, or any attorney’s, help — they could, in theory, go it alone and pin their hopes on the SEC (or the IRS) taking the claim, pursuing the claim to the bitter end, ensuring the whistleblower gets their fair share, and then protecting the whistleblower from retaliation.

But hear me out for a minute.

The prospect of being a successful whistleblower carries with it an intoxicating allure for plaintiffs and lawyers alike – what could be better than getting paid millions of dollars to be a crusader for justice?

The reality, though, is a bit more complicated:

"Basically, [whistle-blowing] ruins your life," says Luigi Zingales, a professor at the University of Chicago Booth School of Business who has studied the issue of whistle-blowers. "What is worth your life getting ruined? It’s pretty expensive."

It’s not assured that whistleblowing will ruin your life — there are certain circumstances in which the retaliation won’t be much worse than normal business, like when a self-employed person reports fraud by a particularly aggressive competitor — but make no mistake: if you report fraud by someone else, even if it ends up going nowhere, there’s a good chance that someone else is going to be, shall we say, very upset with you.

That’s where a whistleblower lawyer – who is typically paid on a contingent fee, and so has no interest in pursuing losing cases – first comes in. As obvious to you as the case may be, the case could be riddled with problems, problems that would either be apparent to an attorney upon their initial review or would be revealed during the attorney’s investigation. We, like most contingent fee firms, reject more than 90% of the cases we review, and everyone – including the potential clients and the potential defendants – is better off for it.

Put another way, if a potentially life-altering surgery is worth a second opinion from another physician, isn’t a potentially life-altering lawsuit worth a first opinion from an attorney?

But what if your claim does have merit? Why share a substantial portion of it – often 40%, plus costs – with a private attorney? Aren’t the government lawyers are going to do most of the work?

Not quite. Government civil attorneys are, as a rule, understaffed and overworked. They also have a tendency to take only cases they are certain they can win, and years of a symbiotic relationship with the private bar has trained them to expect not just prepackaged evidence and theories, but also substantial assistance in the prosecution of the claim — a big factor in their decision to pursue cases, considering that whistleblower cases are, as I’ve written before, among the most intense and prolonged claims out there.

There’s nothing wrong or inappropriate with that; the government has to work with the resources they have, not the resources they wish they had, and the whole point of whistleblower statutes is to encourage people outside the government to help out with enforcement efforts.

At the same time, though, it puts unrepresented parties at a significant disadvantage. They don’t have the resources or experience to navigate the nascent stages of the investigation and to put the case together for the government. Moreover, even once the case gets going, the government lawyers represent only the government itself; their interest in the whistleblower extends only to prosecuting a successful case on the government’s behalf. They don’t have an interest in sharing the eventual recovery with the whistleblower, and they only have a limited interest in protecting the whistleblower from retaliation.

I try to stay far away from "if you or a loved one…" faux-blogging here, but the influx of callers following Dodd-Frank is likely only the tip of the iceberg. I’ve seen way too many potential whistleblowers make mistakes in those crucial early stages, such as by disclosing the fraud in the wrong way, thereby tripping over issues like the "public disclosure" bar of the False Claims Act or the "original source" requirements for whistleblower recovery.

So, "if you or a loved one" is considering being a whistleblower, you certainly don’t have to call me for a free consultation, but you really should call someone. The earlier in the process a whistleblower can obtain an attorney, the better.