Snitches Get Riches


Remember the landmark $25 billion federal foreclosure settlement from February?  The one which has provisions to help prevent foreclosure on homeowners, provisions most states are ignoring?  Which doesn’t yet seem to be doing much for foreclosure victims at all?  Well, at least one person has benefited from the settlement: the whistleblower who drew the curtains back on the wizards at Countrywide Financial to kick off the case in the first place.  Kyle Lagow, who was fired for pointing out illegalities in Countrywide’s foreclosure appraisal business, first brought the situation to the government’s attention with a lawsuit in 2008.  That particular lawsuit, which rolled into one huge suit with a bunch of similar ones, was eventually settled for $1 billion.  Whistleblower laws entitle a citizen who first brings up a case and turns over evidence to a certain percentage of the money eventually won in that case.  In Lagow’s case, that amount is $14.5 million.  Not bad for a lowly house appraiser.

The laws were first brought around in 1863 after the Civil War.  Back then, the False Claims Act was enacted to combat dishonest merchants who, during the war, had sold the Union and Confederacy faulty guns, sick horses, bad food, etc.  The FCA included what’s called a qui tam provision, in which a citizen can bring forth a lawsuit on behalf of the government and in return for a small portion of the winnings.   This way, the government didn’t have to investigate every business on its own — presumably, moral citizens who were aware of illegal actions but were afraid of losing money in the process of reporting them would come forward with the promise of protection.

Over the years, qui tam suits have been used time and time again, with varying success.  Lagow’s windfall is by no means ordinary — sometimes these suits go nowhere, and whistleblowers receive only scorn from former coworkers and employers in return.  This big foreclosure suit also turned out to be lucrative for another whistleblower, Gregory Mackler, though he has declined to announce the amount.  We can safely assume it’s at least in the same ballpark as Lagow’s $14.5 million.

Long story short:  sometimes honesty really is the best policy.