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For Whistle-Blowers, Virtue May Be the Only Reward

Richard Bagley, who took on TRW, will pocket $8 million. But he's an exception -- and even he questions if the effort was worth it.

June 16, 2003|Peter Pae | Times Staff Writer

HENDERSON, Nev. — Richard Bagley doesn't sound like someone who just hit the jackpot.

Last week, he became one of the nation's wealthiest whistle-blowers when Northrop Grumman Corp. agreed to settle a case he and the Justice Department brought against TRW Inc., and the department awarded him $27.2 million. In all, Los Angeles-based Northrop Grumman, which recently acquired TRW, agreed to pay $111.2 million to resolve claims that TRW padded bills for defense work done in the early 1990s.

Bagley's share of the settlement, 24.5%, is close to the maximum allowed under federal law. But he didn't pop any champagne when he learned that, after nine grueling years, he had finally won his case.

"If I knew what I know now, I would not do it again," he said, slouching in a tattered armchair in his one-bedroom apartment here. A quiet man with white hair and Coke-bottle glasses, he continued, "I could easily have ended up homeless."

Bagley's lonely odyssey highlights the personal sacrifice made by whistle-blowers, most of whom never see a dime for their efforts. Taking on your employer is "like being a skunk at a picnic," said Sen. Charles E. Grassley (R-Iowa). "Win or lose, you've probably ruined your reputation, and perhaps even your health."

Laid off as chief financial officer at TRW's Redondo Beach unit in 1993 -- a few years after he began raising questions internally about the unit's accounting practices -- Bagley couldn't find another job.

Married once, with no children, and single for the last few decades, Bagley survived the misfortune, albeit within financial limits.

He lived on a modest pension, restricting himself to raisin bran for breakfast and cutting out meat altogether. He bought food in bulk, sometimes 24 boxes of cereal when there was a 2-for-1 sale, and learned to freeze milk when buying three gallons at once.

"I wasn't destitute, but I came close," recalled Bagley, now 64.

Of course, he won't be destitute once the government cuts his check. After paying taxes and attorney's fees, he figures he'll pocket more than $8 million. That, though, seems to provide little comfort. "I'm very happy to have gotten the settlement but there were just too many pitfalls," he said.

Federal officials hope the Bagley case -- and the riches he ultimately earned for blowing the whistle -- will encourage others to come forward and help uncover wrongdoing against the government. "They really are patriotic people," said Grassley, noting that the government recovered more than $1 billion last year under the False Claims Act, the Civil War-era law that Bagley used to bring his case.

The act allows employees who discover fraud to sue a contractor on behalf of the government. Typically, whistle-blowers get 15% to 25% of any money recovered. But the odds of winning are low.

Since 1986, when the statute was amended to motivate more whistle-blowers, nearly 4,000 cases have been filed, mostly involving defense contractors and medical companies, according to the Justice Department. Of 3,200 cases that have been resolved, settlements were reached in 736, for a success rate of 23%.

A whistle-blower's chances of winning increase dramatically, to about 80%, if the federal government joins the case as a co-plaintiff. If the whistle-blower goes it alone, the success rate is a meager 5%.

Losing a case can be devastating. Terry Schielke was among the first to blow the whistle in the defense industry in the mid-1980s, alleging that Northrop, which later merged with Grumman, had falsified test results for the MX ballistic missile. He lost his case after more than a decade of legal wrangling. Last year, Schielke committed suicide.

"I spoke to him right before it happened," said attorney Phil Benson, who specializes in False Claims Act suits and represented Schielke. "He was never able to get back on track. His whole life was shattered."

For Debra Krahel, winning was a moral victory that cost her a great deal.

While a senior administrator at UC Irvine's medical center, she blew the whistle on medical fraud in the mid-1990s. She accused hospital administrators of allowing medical interns to treat patients and then claiming they were attended by doctors. The university eventually paid the federal government $22 million to settle the case.

But Krahel didn't receive any money because the university wasn't a federal entity; the Supreme Court had ruled that state entities can't be sued by individuals under the False Claims Act. Though federal prosecutors had intervened in her lawsuit and helped her press her case, they refused to give Krahel a share of the settlement.

"I feel like one of those good Samaritans who got kicked in the butt for doing what was right," Krahel said.

Her marriage dissolved and she was forced to sell her home when she couldn't find a job after filing her suit. Still, she said she would do it all over again, because what the university was doing "was wrong and had to be corrected." Recently, Krahel landed a job with a diabetic supply company.

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