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 Whistleblowers Play A Critical Role 

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Michael Santos

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Whistleblowers play a critical role in revealing deceptive and criminal conduct that may otherwise go undetected.


Elizabeth Holmes’ federal criminal fraud trial begins this week. Jury selection is now underway. Founder and CEO of the biotech startup Theranos, Holmes faces multiple counts of wire fraud and conspiracy to commit wire fraud. If convicted, Holmes faces up to 20 years in prison on each count. (Click here for additional information on Wire Fraud & Mail Fraud.)

Whistleblowers will play an important role at Holmes’ trial. The alleged white-collar crimes at Theranos came to light more quickly because whistleblowers called out the company’s lies and deception when others failed to act. 

Undoubtedly, whistleblowers play a critical role in bringing to light conduct that may otherwise remain undetected. To augment their efforts, law enforcement agencies count on the willingness and courage of insiders to expose corporate wrongdoing.

At least two whistleblowers are likely to testify at Holmes’ criminal trial. Erika Cheung was among the first to highlight that the company’s blood-testing technology did not work as promised. So was Tyler Schultz. 

Significantly, Holmes raised approximately $700 million in investor capital, and Theranos achieved a $9 billion valuation based on Theranos’ false claims about its groundbreaking technology. 


Nearly 20 years before Theranos, there was Enron. 

The Enron corporate financial scandal involved an intrepid whistleblower named Sherron Watkins. Watkins was an accountant working at Enron for about eight years who uncovered disturbing shortfalls on Enron’s books, as well as unethical conflicts of interest and self-dealing. The unethical conduct involved her boss and Chief Financial Officer Andrew Fastow. 

*Pro-Tip: Anyone considering becoming a whistleblower or involved in an investigation involving a whistleblower complaint should consult legal counsel for help navigating through the process. Prison Professors, an Earning Freedom company, helps clients locate and vet potential lawyers with experience in whistleblower cases. 

As the Enron and Theranos cases show, whistleblowers play a significant role in law enforcement’s ability to hold people accountable for civil and criminal wrongdoing that would otherwise remain undetected. Each year, the government’s law enforcement efforts get a boost from whistleblowers like Watkins, Cheung, and Schultz, willing to reveal potential wrongdoing. Whistleblowers often become victims of retaliation.


In the early to mid-1990s, Kenneth Lay, Chairman of Enron, took an otherwise boring natural gas pipeline firm and turned it into a booming enterprise with close to $100 billion in annual revenues. In 2000, Enron was the sixth-largest energy company worldwide and the seventh-largest company on the Fortune 500. But by the following year, Enron was a worldwide symbol of corporate scandal and fraud. 

In 1993, Andrew Fastow, Enron’s CFO, hired a career accountant/auditor named Sherron Watkins. Watkins managed an Enron asset portfolio until late 1996; then, she took on a role in Enron’s Mergers and Acquisitions Group. 

By June of 2001, Watkins again worked directly for CFO Fastow. 

During a review of Enron’s asset portfolios, Watkins noticed some disturbing entries. Enron used complicated off-the-books transactions with related companies to mask hundreds of millions of dollars in financial losses.

Watkins felt compelled to raise her concerns with Enron’s top management, but she distrusted both Fastow and others at the top. Rightfully, she feared retaliation, including losing her job. 

Apprehensive at first, Watkins wrote an anonymous letter but quickly realized that would not be enough. So she promptly followed up with a meeting with Enron Chairman Kenneth Lay to share her findings. Although Lay told Watkins that he would look into her concerns, she remained skeptical. Given his position, Watkins could not imagine that Lay did not already know about the hidden losses and condoned them.

As a result of Watkin’s actions, Enron took the extraordinary step of restating its financial statements for 1997 through 2001. The financial consequences were massive. Restating the financial statements reduced Enron’s net income for 1997-2001 by hundreds of millions of dollars and reduced shareholder equity by over $2 billion. Debt on Enron’s books increased by over $2.5 billion. 

As word leaked that several top executives received tens of millions of dollars through the improper transactions that helped hide these ongoing losses, multiple investigations and lawsuits ensued. By the end of 2001, the company had filed for bankruptcy.


Following the Enron scandal, Congress passed additional whistleblower protection measures. Specifically, the Sarbanes-Oxley Act prohibits publicly traded companies from retaliating against people who assist in investigations of securities violations. Sarbanes-Oxley Act has significant protections to ensure that employees can safely disclose information that may harm investors in the public markets.

In addition, the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) strengthened a whistleblower’s ability to remain anonymous while supporting an SEC government investigation. Dodd-Frank established bounty programs enabling individuals to report violations of federal securities laws anonymously with the help of lawyers.

Many people don’t come forward because of potentially negative repercussions. In a recent interview, Enron whistleblower Watkins told the Wall Street Journal that becoming a known whistleblower caused significant career harm. Current whistleblower protections might have helped Watkins maintain anonymity and allowed her to sue her employer for retaliation. Existing laws also allow the SEC to file a lawsuit against an employer who retaliates against a whistleblowing employee. 


Over the last two decades, Congress has strengthened whistleblower protections. The SEC, the IRS, and other federal agencies have robust whistleblower programs and provide financial incentives. 

In addition, the False Claims Act allows whistleblowers to file claims on behalf of the government and also provides financial incentives.

The SEC Whistleblower Program

The SEC’s whistleblower program guidelines provide a framework for how such government agency programs generally operate.

*Pro-Tip: Remember to consult legal counsel about the specific program requirements of any government agency’s whistleblower program.

The SEC will pay awards to eligible whistleblowers who voluntarily provide information about federal securities laws violations. The information provided must be “original,” which means not already publicly available or known to the SEC. The agency encourages tipsters to provide as much detail as possible.

When whistleblower information leads to successful government action, and the SEC recovers over $1 million in monetary sanctions, the agency can provide whistleblower awards. Rewards are typically between 10% to 30%. Since the program’s start, the SEC has paid nearly $1 billion in awards to whistleblowers. The SEC recently indicated that about 68% of its awards to date went to current or former insiders of the company involved.

The SEC is more likely to open up an investigation based on whistleblower tips related to SEC enforcement priorities. The SEC’s top enforcement priorities include: 

  • trading price manipulation
  •  FCPA enforcement
  • cyber security
  • misleading or excessive investor fees
  • accounting fraud 
  • insider trading
  • misconduct by trading exchanges
  • investor misrepresentations and fraud.

The False Claims Act 

In 1986, Congress increased whistleblower incentives for people to file FSA lawsuits on the government’s behalf. Whistleblower actions, or qui tam actions, are a significant percentage of all FSA cases. Whistleblowers earn a percentage of the government’s recovery, ranging between 15 and 30 percent. 

These incentives increase the number of people likely to come forward. According to government data, whistleblowers filed over 650 FSA cases in 2020. In the last year, the government recovered over $1.6 billion from pending FSA cases. For the 2019 fiscal year, the government recovered over $3 billion. 

This data confirms that whistleblowers play a critical role in the government’s efforts to recover monies siphoned off from government programs. Of the $3 billion recovered in fiscal 2019, about 72% resulted from FSA whistleblower cases. (Healthcare fraud remains the largest area of fraud recovery.)


The Enron case from almost 20 years ago and the Theranos case today show the significant role whistleblowers play in law enforcement efforts to hold people accountable for civil and criminal wrongdoing. Most often, such misconduct would otherwise remain undetected.

Corporate insiders are increasingly coming forward through whistleblower programs and lawsuits, incentivized by monetary awards, confidentiality, and anti-retaliation protections. 

Anyone considering coming forward as a whistleblower, or involved in an investigation of a whistleblower complaint, should consult legal counsel for help navigating through the process. Prison Professors, an Earning Freedom company, helps clients locate and vet potential lawyers with experience in whistleblower cases. 

Prison Professors, an Earning Freedom company, works alongside (not in place of) civil and criminal defense counsel to help clients proactively navigate through investigations and prosecutions. Our team also helps clients prepare mitigation and compliance strategies.

If you have any questions or are uncertain about any of the issues discussed in this post, schedule a call with our risk mitigation team to receive additional guidance.

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