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Comment by stuff4ben | Hacker News Reader

This is a bit of a click-baity article title. He went broke because he assumed he was getting a payout and did stupid things.

From the bottom of article:

Early in the Life Partners saga, Mr. McPherson was so beguiled by the lure of whistleblower millions that he essentially quit his day job to become a full-time whistleblower, using his accounting and life-insurance knowledge to spot potential miscreants...In 2018, he took out a $1 million litigation-funding loan at very high interest rates, secured by the Life Partners whistleblower claims, to pay back taxes and continue to pursue his cases.

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> he essentially quit his day job to become a full-time whistleblower

It sounds like you're criticizing him here, but this is a good thing, right? We incentivize whistleblowing because we want more whistleblowing. He was successful in bringing frauds to justice. We got exactly what we wanted. This is exactly how it should work.

> 2018, he took out a $1 million litigation-funding loan at very high interest rates, secured by the Life Partners whistleblower claims

This isn't necessarily stupid either. If it was a secured loan, then as I understand it he probably won't have to pay the million back. He transferred the risk to the lender and they lost. He paid his back taxes and should emerge from bankruptcy without the debt.

Not if you turn it into a career, no. Then you should have signed up for an undercover investigator position, drawing a normal salary, instead of assuming your reporting will net you an income.

Should whistleblowers be rewarded? Absolutely. Should that come from a pool allocated and managed by the SEC? Most certainly, because we want folks to be secure in their whistleblowing. Is it the American way to go "there's money here, I can probably take repeat-advantage of that"? You bet your star spangled butt it is. But is that last part also on you, and not anyone else? In most American fashion: boy howdy yes.

> Then you should have signed up for an undercover investigator position

Why though? Is this a moral judgement against whistleblowing as a profession, or something? I expect that offering whistleblower rewards is a much more scalable and effective way to discover frauds than employing a standing army of investigators.

The problem here is that he leveraged himself and pursued a case which resulted in bankruptcy which makes it hard for the SEC to collect a fine that they can disburse part of to the whistleblower.

Whistleblower rewards are great, but they must have limits, and he bumped into them here (while highly leveraging himself).

No, the problem here is that the whistleblower reward program is less effective than it should be because payouts are divorced from the effectiveness of the whistleblowing. If you set up a program that is supposed to reward a specific behavior, and then you don't actually reward that behavior, that is a problem.

As I said, the leveraging he did is mainly a problem for the lender, who is now out $1m, not him.

> Why though?

One reason being that then you have a strong financial incentive to "whistleblow" on things that are less clear-cut, making it likely that (a) you'll eventually harm innocent people in the process, and (b) you'll inject too much noise/unnecessary work into the system.

As a rough analogy, imagine someone calling to report an impaired driver they encountered by pure happenstance, vs. someone who made it their personal full-time career to just go around on roads finding people he can report. I'm not sure if you see a difference but I certainly do.

Was he harming innocent people? Was he injecting too much noise/unnecessary work into the system?

I don't see how him doing it as more of a freelance thing rather than an undercover position guarantees a different outcome. It seems like we have to look at the actual outcome and we can't paint with such broad strokes about how one model or the other is better.

> Was he harming innocent people? Was he injecting too much noise/unnecessary work into the system?

It doesn't matter because we don't base societal incentives on 1 guy.

What you're saying seems to be based on nothing.

Yeah, it's not like financial social incentives have any history of inflicting collateral damage or anything of that sort. I'm just imagining things.

> One reason being that then you have a strong financial incentive to "whistleblow" on things that are less clear-cut, making it likely that (a) you'll eventually harm innocent people in the process, and (b) you'll inject too much noise/unnecessary work into the system.

It's not like a whistle blowing claim just results in enforcement action without investigation. The claim gets investigated by the relevant agency first, and then if and only if it is found to be justified is an enforcement action taken. That enforcement action can then be challenged in the courts, too, if the entity in question perceives the agency to be in the wrong.

I don't think there's much risk of whistle blowers significantly harming innocent companies here.

Do you see any difference with the impaired driving analogy? Or with someone spending 40h/week just walking around calling the cops every time they see some dude do something that looks appears illegal to them? If we don't even agree on those it's going to be too much effort to argue...

Yeah, that is a great point. Often, we don't consider the unintended consequences of policies.

Exactly. Or imagine people spending their time finding security flaws and collecting bug bounties as a career instead of just reporting security issues whenever they occasionally happened upon them.

What's the point of whistleblowing? I thought it was to provide a framework for people who've come across shady behavior on the part of their employer in the execution of their day-to-day work. So, I guess it is more scalable because it is operating under the assumption that the whistleblowers were receiving their normal paycheck while "investigating."

Certainly no negative moral judgement on people intentionally going for those bounties, fighting corruption is admirable. But the system is probably not calibrated to provide for their their day-to-day expenses or the cases where their investigations aren't successful. If it were, it would be equivalent to just employing that army of investigators (just, without any official organization, so it'd miss out on any benefits from legal authority or economies of scale).

No moral judgement, it's just risky. As he discovered, you may not get the big payout, for any number of reasons.

If you expect to make a living at anything, you have to be prepared to manage the risks that go along with it.

> we want folks to be secure in their whistleblowing

People are not. I'd advise against it in almost all circumstances, unless you're 5 minutes from retiring anyway.

and your retirement funds are not anyhow tied to the party you are blowing whistle against

And if you don't have any friends or family working in whatever field you are whistling against.

Or you can get a cut of the action.

That is great advice. Even bringing up things internally is a financially dangerous thing to do.

Yes, that was the point: we want them to be secure, but we don't offer that even though the SEC is a branch of government.

> Not if you turn it into a career, no.

> Then you should have signed up for an undercover investigator position, drawing a normal salary, instead of assuming your reporting will net you an income.

That's your opinion.

> It sounds like you're criticizing him here, but this is a good thing,

It _is_ a good thing, even if it wasn't great for him. Lots of people do things that are ultimately less optimal than other paths. That being said, more scrutiny is better, regardless of the participation in specific programs that some people think is better suited.

I don't think the SEC even goes undercover by getting hired as an accountant or something. And second, he wouldn't get any large payouts he wanted.

You use "wouldn't" to contrast it against some current situation in which he has an actual career that makes him the large payouts he wanted.

...why? Why is this any different than the spreadsheet-based version of being a bounty Hunter? Why, in involving stock trades/financial instruments, does it somehow become wrong for someone to specialize in a very niche skill, and then choose contract work instead of a salaried position? Is this a moral judgment about a particular person's greed? You might be misunderstanding US-style "capitalism" if you truly find that distasteful.

That's a "he was no angel" argument, and like all such it's really an attempt to deflect. The reason to reward whistleblowers isn't to make sure the money goes to Objectively Good and Unimpeachably Moral individuals, it's to incentivize enforcement of laws and norms.

The guy could be a raging narcissist with a gambling problem (which would be quite a bit worse than trying to be a "full-time whistleblower") and we would STILL want him to blow the whistle on wrongdoing he witnesses, right?

You would think that if he were so invested in the whistleblower program he would do his due diligence to understand the fine print.

The fine print seems to be that the bankruptcy process privileges investors, rather than requiring companies to pay fines (which pay for the whistleblower program.) I don't know if this is good or bad, but it's the important substance of the article -- not the silly detail about this particular person's finances.

Well the crime the company committed was fraud against their investors... shouldn't the victims get their money back?

Paying out the whistleblower before the victims would be like if someone stole your bike, then the cops arrest the guy and recover your bike because of a tip... and then the cops give your bike to the guy who called in the tip

It's all about the incentives. You have to decide what you want, a criminogenic environment or fairness.

wow, that would be like having a bounty program that paid whistleblowers 10% of value of the theft for encouragement and was catching enough perps to act as a deterrent and lowered the overall crime rate and got victims 90% of their losses back, kind of an ex post insurance pool...

...and then figuring you could get victims 100% of their losses back by taking that 10% from the whistleblowers and sending them to the back of the line, and then coming back a year later and seeing that...

...while victims were getting 100% of their losses back when these crimes were discovered, very few of these crimes were being discovered, and using your impeccable logic concluding that the crime rate must have gone down! who needs whistleblowers!?

> and got victims 90% of their losses back

We do not have a justice system in which the victim pays for the cost of investigating, prosecuting, and punishing offenders. All of that is paid by the general public. That does not mean there are no bounties -- there are, but the bounties are never paid by subtracting out amounts due victims. Changing that, so that victims would not be entitled to full restitution in order to help finance law enforcement would require changing a lot of laws, not just adding a whistleblower law. It would also overturn a lot of precedent. It would be a big change that a large majority of the public would oppose.

> that a large majority of the public would oppose

source?

Against their investors or on their investors behalf? And either way, it is the investors who could (supposedly) bring an end to it.

Not having a whistleblower would be like if someone stole your bike, got away with it, then went on to have a long, successful career in stealing bikes.

The crime has already been committed. The whistleblower is the reason you're getting anything back.

Eggs were counted before they hatched. News at 11.

Chickens.

>This is a bit of a click-baity article title. He went broke because he assumed he was getting a payout and did stupid things.

Is that something different than what the title says?

This is Y Combinator's Hacker News.

Investing in a new business is not "stupid things".

Taking out a personal loan instead of using an LLC is "stupid things".

Even if the loan was taken out under a LLC, lenders would require a personal guarantee for a new and unproven venture.

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