BNY Mellon's tipster lost $5M in bonuses, but could reap up to $500M

Americans who blew the whistle on fraud, waste and abuse received a record $532 million in reward money last year, data show.

To pursue his share of whistle-blowing booty, Grant Wilson worked at The Bank of New York Mellon Corp. for two years, compiling inside information that was used by the government. He walked away from his currency-trading position Downtown — and $5 million in bonuses — in March to do so.

Formerly of Hampton, Wilson's inside information was relayed to prosecutors in New York who built a lawsuit filed in October that claimed the bank made more than $2 billion on fraudulent foreign currency transactions over 10 years.

Lawsuits in New York, Virginia and Florida allege BNY Mellon traded currencies for pensions and other institutional clients at one price, and then charged the clients a different price based on daily highs and lows. BNY Mellon's Pittsburgh currency trading desk allegedly conspired with the New York trading desk to set prices that made the bank extra money.

BNY Mellon brass repeatedly have denied wrongdoing.

"We think our legal defense is very strong," CEO Gerald Hassell assured Wall Street analysts on Wednesday.

Based in New York, BNY Mellon is the world's largest custody bank, overseeing $25.8 trillion in investments, including clients' foreign currency. It has foreign currency trading desks in Boston and cities in Europe and Asia.

Wilson, 53, could not be reached. A spokesman for the Boston law firm representing him declined to comment.

No guarantees

Under federal law, a whistle-blower receives 15 percent to 25 percent of what the government collects in sanctions or settlements. If the BNY Mellon case were resolved for $2 billion, Wilson theoretically would receive from $300 million to $500 million.

A whistle-blower can reap as much as 30 percent if government prosecutors decline to intervene in the whistle-blower's lawsuit.

"The larger the reward, the more enticement there is for a whistle-blower to come forward," said Stephen Kohn, executive director of the National Whistleblowers Center, a nonprofit group in Washington that helps fight waste, fraud and abuse.

"Whistle-blowers will say they have to put everything at risk, including their entire career, with no guarantee of a penny," Kohn said.

Wilson left BNY Mellon in March and moved to New England. He sold his modern, five-bedroom house in Hampton for $445,000 in early September, according to Allegheny County real estate records. He forfeited $5 million in deferred bonuses from BNY Mellon, according to the Wall Street Journal.

An expert in trading Japanese yen, Wilson secretly met with investigators at shopping malls and hotel restaurants to pass along information, and used a shell partnership in Delaware to avoid detection by BNY Mellon, according to the Journal.

The Sarbanes-Oxley Act of 2002 made it illegal for a company to fire an employee who exposes a federal crime committed at that company. When BNY Mellon employees began suspecting someone among them was helping state and federal prosecutors, the whistle-blower's lawyers told Florida investigators he worried about being discovered.

Civil War-era law

The process of blowing the whistle on corporate misdeeds dates to a Civil War-era law called the False Claims Act. It allows a private individual -- who becomes a "relator" in legal parlance -- to file a lawsuit confidentially against a company, and then turn over the complaint to the Justice Department to investigate.

In this way, the government recovered $3.03 billion in settlements and other sanctions in the fiscal year ended Sept. 30, according to a study by the law firm of Gibson Dunn & Crutcher in Washington.

The recoveries resulted in 638 whistle-blowers sharing a record $532 million, or about one-third higher than the $392 million that whistle-blowers received in fiscal 2010, according to Gibson Dunn. The firm declined further comment.

Included in last year's whistle-blower payments was $96 million for a former GlaxoSmithKline plc worker who helped expose the drug maker's manufacturing defects at a plant in Puerto Rico. The Justice Department said it recovered $750 million in penalties from the pharmaceutical company for making adulterated and impure drugs.

Two-dozen states enacted their own versions of the federal False Claims Act in the past 10 years, according to the Taxpayers Against Fraud Education Fund in Washington.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 allows whistle-blowers to inform on companies or government agencies confidentially and anonymously. The Wall Street Journal made Grant Wilson's identity public, though documents did not.

The 2010 law created an Office of the Whistleblower at the Securities and Exchange Commission and the Commodity Futures Trading Commission.

'Justice' prevails

The size of Wilson's reward -- if any -- would be hard to predict, experts say.

For one, the bank could prevail. BNY Mellon denies it did anything wrong and is fighting the charges in court. The bank argues it properly notified customers they would be charged a price within a published range for each transaction.

In a partial settlement of the federal lawsuit in New York last Tuesday, BNY Mellon agreed to clarify and fully disclose for clients its pricing practices. But the agreement was not for money, and the bank is still contesting fraud claims.

"You must first prove there's fraud to get one penny," Kohn said. "There's no reason to come forward with unreliable information, so you tend to get high-caliber whistle-blowers."

Ultimately, the Justice Department determines how much credit and money a whistle-blower gets, Kohn said. For example, the government settles a fraud lawsuit against a company for $200 million but determines its whistle-blower helped secure just $100 million. Then, the whistle-blower would be rewarded 15 percent to 25 percent of $100 million, not $200 million.

"If there's a large recovery, often the Justice Department will recommend a smaller (percentage) reward," Kohn said.

If whistle-blowers think they haven't received their due rewards, he said, they can sue the Justice Department.

Additional Information:

By the numbers

• Federal whistle-blowers have made more than 7,800 claims under the federal False Claims Act and received more than $3.4 billion since 1986.

• Judgments and settlements under the False Claims Act have totaled more than $25 billion since 1986.

• The federal government recovered more than $3 billion in fiscal 2011 from False Claims Act lawsuits. When payments collected by states with whistle-blowers are added, the total topped $4 billion.

• Whistle-blowers themselves received payments of $532 million last year -- the most ever.

• Of the 20 largest False Claim Act payments to date, 18 were made by drug or health care companies such as Pfizer, Tenet Healthcare, Merck, AstraZeneca and Lilly Pharmaceuticals.

• In the largest settlement, drug-maker Pfizer agreed to pay $1 billion in September 2009 over allegations it illegally promoted four drugs and caused false claims to be submitted to government health care programs.

• Among the top nonmedical claims, Northrop Grumman agreed in 2009 to pay $325 million to settle claims that a former company it owns made defective parts for spy satellites.

• Four drug salesmen who brought a whistle-blower claim against pharmaceutical company Eli Lilly split a $78 million settlement share in 2009.

• Pennsylvania and Ohio are the only states among the nation's 10 most populous that do not have False Claims Act laws.

• Among local jurisdictions, only Allegheny County, New York City and Chicago have False Claims Act laws. Allegheny County Council unanimously approved the whistle-blower legislation in May.