Few like bounty-hunter law that encourages reporting of defense industry fraud. Some say whistle-blowers are patriots. Others call them malcontents. Either way, many find lives in ruins.
September 13, 1993|RALPH VARTABEDIAN | TIMES STAFF WRITER
William Schumer once had a life that was stable and blessed with good fortune. The former Hughes Aircraft executive negotiated multibillion-dollar defense contracts, earning $87,000 a year. He lived in a stylish suburban home with his wife, a past Olympic swimmer, and two children.
Then he became a whistle-blower, alleging in a 1989 federal lawsuit that Hughes had cheated the Air Force on the B-2 bomber project. Schumer began a treacherous slide, eventually losing his home, his career, his emotional health and nearly his life.
Earlier this year, Schumer hit bottom when he purchased a gun and threatened to kill himself. He was held by Los Angeles police for 48 hours of psychiatric observation. While in his hospital bed, an attorney called to say his wife was divorcing him.
With his lawsuit virtually dead, Schumer lamented recently, "all I have left is a little bit of dignity and a conviction that I did the morally correct thing. I don't have any money. I don't have any prospects. I am now contemplating homelessness."
Schumer says he is a victim of the False Claims Act, the controversial system that is supposed to be the federal government's front line against defense industry fraud.
The law, which dates back to the Civil War, was virtually moribund until it was amended in 1986 to attract more whistle-blowers like Schumer. It is a bounty-hunter system that allows individuals to sue contractors on behalf of the government and share up to 30% of any recovery.
Since the law was changed, about 590 suits have been filed and $400 million recovered by the government, according to Michael Hertz, director of commercial litigation at the Department of Justice.
However, the law also has drawn criticism from all sides--whistle-blowers, the defense industry, the Pentagon and even some Justice Department attorneys.
For whistle-blowers, although a few have received large rewards, the preponderance have not fared as well. The Justice Department elects to prosecute less than half the lawsuits because they often lack merit. Many others wither away in a legal system that grinds down those who filed them.
And like Schumer, who left Hughes last year on stress leave, many whistle-blowers say the experience has been ruinous--leading to lost careers and marriages, financial devastation, emotional turmoil and alienation from society.
Such problems can befall whistle-blowers whether they turn out to be right or wrong. This fallout can also change normal lives that are consumed by the cases.
To supporters, whistle-blowers are victims who are ostracized by their fellow employees and are easy targets for a politically powerful industry. One vocal advocate, Sen. Charles E. Grassley (R-Iowa), calls them patriots and says they should be decorated by President Clinton in the Rose Garden. The validity of their claims is proven by the $400 million in fraud recoveries, he says.
But to defense industry executives and other critics, the whistle-blowers are zealots and greedy malcontents whose allegations are often based on incomplete knowledge.
Industry executives, including many small contractors, say that whistle-blowers' "frivolous claims" have forced the industry to spend millions of dollars for legal defenses, expenses that are passed on to taxpayers through higher weapons prices.
The Justice Department plays a key role by having the right to intervene and prosecute the charges brought by whistle-blowers, whose moniker derives from sports referees. Though the agency endorses the law, many Justice Department attorneys privately believe that the system is an unconstitutional breach of their jurisdiction.
"You can't have private citizens running around as bounty hunters after corporations," former U.S. Atty. Gen. William Barr said in an interview. "Turning that power over to any Tom, Dick or Harry is a very unfair way to proceed. That's no way to run the government."
Pentagon officials despise the system, as well, saying it destroys business relationships and further diminishes their diluted authority.
Among the few who say the system works are certain legislators and the whistle-blowers' attorneys, some of whom have earned millions of dollars in contingency fees.
Whether patriots or zealots, whistle-blowers in case after case have fallen out of society's mainstream, ending up obsessed with proving their allegations and unable to get their lives moving again.
Many of the two dozen whistle-blowers interviewed for this story said they would not do it again. Cases filed under the False Claims Act usually take years to resolve--the result of legal maneuvers by industry and government, as well as a lack of resources in the Justice Department.
David Peterson, a former Northrop supervisor of 125 engineers, has been waiting six years for a much-distracted Justice Department attorney to bring his fraud allegations to trial. In the meantime, his life has disintegrated.
In 1987, Peterson alleged that Northrop had set up a wacky scheme to circumvent Pentagon purchasing regulations on a nuclear missile guidance system. Peterson testified before Congress and appeared on the TV news show "60 Minutes."
But the momentary fame expired and he lost his wife and his $83,500-a-year. He says somebody burned down his house. And an effort to start a gun business failed.
Holed up in a cheap motel in the Nevada desert this year, Peterson said: "Since I left Northrop, I carry an AK-47 and three handguns--a .45, a 9-millimeter and a .38--and a 12-gauge shotgun. Maybe it is a little security blanket. I always have a thousand rounds of ammunition with me."
Peterson said he doubts Northrop executives would attempt to hurt him, explaining his guns as just "something to keep handy. This is just a normal thing for me." Meanwhile, he works full time on his lawsuit, sorting through 40,000 pages of evidence in his motel, linked to the outside world by fax and personal computer.
"If you do this, you have to be prepared to sacrifice everything," he advises other potential whistle-blowers. "You have to be prepared to lose your family and your job. And to be called crazy. It does take a toll."
Experts disagree whether the pressure of fighting big corporations is to blame for the fall of whistle-blowers.
"The first time I meet a whistle-blower I look into their eyes," said Joe Coyne, an attorney who represents Northrop, Honeywell and other contractors. "There is a glint in their eyes and you can tell whether they are crazy or not."
Coyne estimates that defense contractors have spent $100 million since 1986 fighting mostly frivolous allegations. Whistle-blowers break rank precisely because they are disgruntled, he said.
"People who whistle-blow are not the top 10% of performers. They are the bottom 10% of performers. The guy who is on a golden career is happy about that. His home life may be better because of that," Coyne said.
But such harsh judgments come from an industry that has made its own embarrassing admissions. Virtually every big contractor has pleaded guilty to felonies and some former executives are now ex-cons.
"You are fighting $300-an-hour attorneys, a multibillion-dollar corporation and their connections in Congress," said George Pointon, who with John Kolbach alleged in testimony before Congress in 1987 that Lockheed had lost thousands of secret documents concerning the F-117A Stealth fighter. Though the two security officials never filed a lawsuit, Pointon said he was fired in 1990 and Kolbach in 1989.
"It was painful to tell my children that this would screw up their lives, but it was important enough to do," said Pointon, who operates four homes for abused children in Phoenix. "I have landed on my feet, but it separated me from my children and family."
Regardless of whether whistle-blowers are right or wrong--or whether they are emotionally equipped to cope with their crisis--the stresses on them can be enormous.
Jeff Kraul, 42, a production manager who joined David Peterson in suing Northrop for fraud, lives in a windowless warehouse at a secret location in Southern California, partly out of concern for his safety. He declared bankruptcy, lost his wife to divorce, has undergone five years of psychotherapy and doubts that he "will ever be allowed to work for a major corporation."
Roland Gibeault, who charged in a lawsuit that Genisco, a Simi Valley defense electronics firm, had falsified tests on Harm missiles in 1987, worked undercover with federal agents for a year, not even telling his wife about his secret job as an informer. The enormous time commitment and stress created by the case led to his divorce, a pattern in many other cases.
"I was out of my league," said Gibeault, a test technician. "I came from a dairy farm in New Jersey. I had no idea what was going on. They eat people like me for their breakfast. I was heartbroken."
Gibeault's allegations led to a recovery of $525,000. He was supposed to receive $131,000, mostly in 110,000 shares of Genisco stock with restricted sales rights. The stock price plunged and today it is worth less than the income taxes he owes on the award.
Brian Hyatt, a Northrop senior engineer who made national headlines in the mid-1980s when he alleged in testimony before Congress and in a federal lawsuit that the MX missile guidance system was faulty. He says he was fired from Northrop and he lost his lawsuit. He now works as a night security guard.
Grassley, the leading sponsor of the 1986 amendments, acknowledges that whistle-blowers remain vulnerable.
"I would encourage whistle-blowers to come forward, but I would know in the back of my mind that even with the best of intentions the laws don't offer much protection," Grassley said. "Whistle-blowing has to be a merit badge that is proudly worn."
That's a far cry from reality. The aerospace bust has jangled nerves in an already uptight business, fueling fears that more disgruntled workers will file lawsuits.
"It is an industry where people have a very high risk of psychological breakdown," said Bill Spindell, a psychologist who has treated whistle-blowers. "It is an industry characterized by very hard work and very good salaries. But alcohol and substance abuse are endemic in the community. Illicit sexual affairs are more common than average."
Spindell said whistle-blowers are "extremely moral people," but they have an exaggerated sense of their ability to correct wrongdoing--a form of narcissism, adding: "Once you blow the whistle, you are squeezing toothpaste out of the tube and you will never put it back in again."
Ironically, some small contractors are in the same boat as whistle-blowers, alienated and financially devastated. Fred Clark virtually shut down his Orlando Helicopter Co. in Florida after an employee's fraud suit triggered an aggressive three-year probe into whether Clark violated contract specifications--though the Army said the aircraft were fine.
The legal defense cost Clark $150,000, but more important, diverted his attention from business. The government, without apology, dropped the matter in May, 1992. The suit withered away, as well. But by then, the company, which Clark founded, was down to two employees from 40.
"The investigators should have been able to see through this whistle-blower very quickly," Clark said. "There is no fairness."
Prime contractors have the same complaints, but also have the resources for top legal talent and lengthy legal campaigns.
Sam Iacobellis, Rockwell International executive vice president, said the industry takes fraud allegations very seriously, but would rather deal with them by taking its own strong actions.
"That is the alternative to some whistle-blower lining his own pockets at the expense of somebody else," he said. "How often do these people see something they don't understand? It happens quite often. Some of these guys can barely write. It has not done anything to help the health of the industry."
Many Pentagon officials share that contempt.
"As a citizen, I feel this system stinks," said John Welch Jr., recently retired assistant Air Force secretary. "It is bounty-hunting. It creates a whole other loop of operation. It belies any trust in the system."
But Phillip Benson, a whistle-blower attorney, said that most cases are filed only after individuals have exhausted efforts to get management's attention. Benson has charged that the Pentagon is in cahoots with industry, accepting fraud to politically shelter weapons programs.
Indeed, Congress amended the law in 1986 because it believed that the Pentagon and Justice Department were slow to correct waste, fraud and abuse, Grassley said.
John Phillips, a Washington attorney who helped write the 1986 amendments, insists that the system is working well now. His firm, Hall & Phillips, has recovered $217 million, more than the Justice Department in recent years, he said.
One of Phillips' clients, Chester Walsh, received a record $11.5-million share of a $69-million settlement last year, stemming from his allegations that General Electric was involved in bribing an Israeli general.
Many Justice attorneys hate the whistle-blower law. Former Atty. Gen. Barr believes Congress encroached on the executive branch when it empowered private attorneys to represent whistle-blowers and sue on behalf of the government. A 1989 memo by Barr, asserting the law to be unconstitutional, has become part of an industry legal challenge.
Although Atty. Gen. Janet Reno endorses the False Claims Act, many Justice attorneys side with Barr. For one thing, many government attorneys deeply resent the multimillion-dollar fees won by private lawyers in the same types of cases they prosecute.
Justice officials have sought to low-ball whistle-blowers, according to one government attorney who asked not to be identified. Based on figures supplied by the department in March, $42 million was paid out to whistle-blowers out of recoveries of $358 million since 1986. That amounts to about 12%, less than the 15% minimum specified by law.
In addition, the Justice Department's 55 attorneys in Washington assigned to False Claims cases are too bureaucratic and have scant courtroom experience, he said. Whistle-blowers have long contended that the Justice Department is weak on prosecution.
Hertz said the Justice Department is serious about defense fraud and is attempting to carry out the will of Congress. The payout ratio appears low because settlements have occurred faster than payouts; and the ratio has risen recently to 15%, he said.
"Overall, the Justice Department would say the mechanism is a good idea," Hertz said. But he declined comment on his personal view of the system's constitutionality or merit.
Justice Department critics say the agency cannot be trusted to prosecute cases that jeopardize important weapons programs and that may interfere with civil servants' plans to get industry jobs. The government often cannot protect its own internal whistle-blowers.
"Whistle-blowers commit the cardinal sin in the defense industry: telling an embarrassing truth," said Ernest Fitzgerald, the dean of whistle-blowers who first told Congress of Lockheed's $2-billion overrun on the C-5A program in 1968.
Fitzgerald was fired from his Air Force job as a financial analyst. The Watergate tapes later revealed that then-President Richard Nixon had ordered his subordinates to "Get rid of that son of a bitch." Fitzgerald sued Nixon and settled for $142,000 in 1980. Congress then forced the Air Force to rehire him.
Fitzgerald came out a legendary hero, but many others have been left only with grief. Schumer's case was thrown out by a federal judge in Los Angeles, a decision he has appealed. Although he has a law degree, Schumer, now 59, has been unable to restart his career because of severe depression.
"Even if you do get money out of it, it's not worth it," said the former Hughes Aircraft executive. "How much money could compensate you for the loss of your career, your wife, your family and your home?"