For Whistle-Blowers, Virtue May Be the Only Reward

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.

Liam Weston, a former El Segundo councilman, exposed overcharging by a small Culver City defense contractor where he was vice president in 1998. Pursuing such a case, he said, is “not something I would recommend anyone go through.”

The contractor, Research & Development Laboratories Inc., paid $4.5 million to the government to settle charges that it billed the Air Force too much for supplying university professors and students to government labs. Weston, who quit the company after he filed his whistle-blower suit and now lives in Colorado, pocketed $300,000 after taxes and attorney fees.

“There is a misunderstanding of what a whistle-blower is,” said Weston, whose case was among the shortest on record, lasting about two years. “You often have to prove the case yourself -- and in the process your life is consumed by it.”

For his part, Bagley was proud to be part of Southern California’s storied aerospace sector. A Pasadena native, he had graduated from UC Berkeley with an accounting degree and earned an MBA with honors at UCLA before joining TRW. His father, George Bagley, a noted physicist at Caltech’s Jet Propulsion Laboratory, was elated that his son was working in the industry.

Bagley describes himself as a model company man. He started at the bottom, as a staff accountant, rising to become the top financial manager in charge of 600 employees. During his 26-year TRW career, he was promoted six times.

It was in the late 1980s that he began quizzing top managers in Redondo Beach about TRW’s practice of shifting research and development expenses for commercial projects onto government contracts. He says he was often rebuked for raising questions. By 1991, Bagley says, he sensed he was being characterized as a troublemaker. “I said, ‘I better start watching myself,’ ” he recounted.

He began collecting documents -- not to blow the whistle on the company, he said, but to “protect myself in case the schemes backfired and they tried to blame me for them.”

When he was laid off in 1993, he lost a corner office and a $180,000 salary. He took one box of documents with him.

Unable to find a position with another aerospace company, he concluded that he was being blackballed. After waiting a year until his TRW pension kicked in, he filed a wrongful-termination suit against the company in 1994. His lawyers told him he had enough material to file a whistle-blower suit, too. So he did.

TRW counter-sued, accusing Bagley of stealing proprietary company documents. By then he was having second thoughts.

“I tried to get any kind of a job, and I couldn’t do it. I said to myself: ‘I made a mistake. I’ve ruined my career and I’ve alienated all my friends,’ ” Bagley recalled. He became convinced that he was gong to lose.

A judge eventually dismissed TRW’s lawsuit, and federal prosecutors agreed in 1998 to intervene in his case, though only in two of the five claims Bagley had lodged against the company.

During the discovery phase of his case, Bagley’s prospects improved. His lawyer began getting swamped with TRW documents -- 400 boxes in all -- containing such strong evidence that prosecutors decided in 2000 to join Bagley on the three other claims.

“I knew then I would win it,” he said.

Among his allegations: TRW improperly charged the government to build and operate a commercial satellite-based telephone system that the company never developed, and inflated costs for in-house research to develop a never-built “universal spacecraft bus,” a rocket system to send satellites into space. In all, TRW wrongly billed the government more than $56 million, Bagley and the feds claimed.

As the case dragged on, Bagley says, he survived financially because he had very few expenses. His mortgage payments were small because he had purchased his modest Rancho Palos Verdes house in 1969 for $31,500. He put the house up for sale recently after moving to the apartment in Henderson, a suburb of Las Vegas, three months ago.

He was anticipating that TRW’s new parent would settle, and he picked Nevada because there is no state income tax.

“I was lucky that the government intervened, and I was lucky that I had a judge willing to take on a complicated case. Not many whistle-blowers get that kind of chance,” he said.

The emotional toll was greater, he said. Virtually all his TRW colleagues and friends, many of whom he had worked with for more than a quarter-century, shied away from him. “They saw me as a Benedict Arnold,” he said. So isolated is Bagley’s life in Henderson, he had trouble giving directions to his apartment. “Nobody’s ever visited me here before,” he explained.

Asked what he planned to do with his share of the settlement, Bagley looked puzzled. “To me, it’s not over yet until I get paid,” he said, noting that a judge still must approve the settlement and that it may be three months before the check arrives.

After living frugally for nearly a decade, he doesn’t see himself going on a spending spree. He has no plans to replace his 1984 Mercedes. Perhaps he’ll take a trip to Italy or go surfing along the west coast of Mexico, as he did during his college days.

“I don’t want to be encumbered by physical things,” Bagley said.

He did splurge when a settlement looked imminent a few weeks ago: He went into Las Vegas to see a Wayne Newton concert.