James Holzrichter has a new book out.
It’s called A Just Cause.
The book is about Holzrichter’s battle with his former employer — Northrop Grumman.
Holzrichter brought one of the first major False Claims Act cases in the late 1980s against the company.
Holzrichter claimed that the company was double billing the government on defense contracts.
And after a ten year litigation battle, Northrop paid up — to the tune of $134 million.
That’s the nutshell version.
But the nutshell doesn’t do this story justice.
That’s why Holzrichter wrote the book.
Holzrichter’s story is a very human one.
Before joining Northrop in 1984, Holzrichter was addicted to alcohol and cocaine.
He went into recovery January 29, 1985 — and has been clean and sober since.
And that’s quite remarkable, given what he went through at Northrop.
Holzrichter wondered why the company was trashing perfectly fine cables.
Then one thing led to another.
And soon, a federal agent named Richard Zott was calling him at home.
“I was at home that evening, when out of the blue, just before dinner, the phone rang,” Holzrichter recalls in an interview with Corporate Crime Reporter last week. “My wife answered the phone. And she said it was for me.”
“When I took it, I thought it was another telemarketer. I somewhat abruptly said — yes? I was a bit annoyed for being bothered at that time of the evening. He identified himself as a Richard Zott, a criminal agent with the Defense Criminal Investigative Service. He said he wanted to talk to me.”
“The dialogue went back and forth. The gist of it was — I had no way to check to see who this person was. Earlier, I was called in by Northrop security and accused of passing documents to someone in a parking lot. I didn’t know if this was Northrop trying to find out if I was trying to sell them out, as it were, or if they were foreign agents. I can’t check people’s credentials. I didn’t have the ability to do that.”
“I informed Zott that Northrop had a policy — it was in their handbook — that if you are contacted by someone identifying themselves as a federal agent or a government authority, that I needed to report that to Northrop. And they would check the person’s credentials. And if it panned out that they were who they said they were, they would arrange an opportunity for us to discuss the matter that the agent wanted to talk about.”
“When I laid this all out to Richard in somewhat shorter terms, he said — Jim, that’s not is what is going to happen. I’m going to tell you what is going to happen. If you go into Northrop tomorrow, and tell them that I called you, the first thing they are going to do is within five minutes, they will have you in front of your corporate lawyers. And they are going to scare the hell out of you. And you are not going to talk to me. And I’m going to put you in jail.”
“And I said — well, what time can you be here tomorrow?”
For the next sixteen months, Holzrichter worked undercover for Zott at Northrop.
“It was about a week or two after our original meeting with Richard,” Holzrichter recalls. “And he snuck me up through the freight elevator in the Dirksen Federal Building in downtown Chicago. In driving me there, he had me duck in the back seat and put a coat over me.”
“They were fearful Northrop was tracking the federal agents. You have 5,000 employees. Who is it easier to follow? Five to ten federal agents or 5,000 employees?”
Then, remarkably, his cover was blown.
“After one particular incident at Northrop — one of my supervisors bombastically yelling at me, I tried to contact Richard and I couldn’t,” Holzrichter says. “So, I called the Assistant U.S. Attorney about this one particular meeting with what was called The Attrition Committee.”
“The assistant said he would get back to me the next day. And unfortunately he did. The next day he called me at work — while I was at this highly top secret classified defense contractor. They monitor every phone call that comes into that building and where it comes from.”
“You can imagine how I felt when I’m sitting at my desk. And I pick up the phone and say — Hello, Jim Holzrichter.”
“And he says — hi, this is Chris from the U.S. Attorney’s Office. Got a moment?”
“I felt like throwing up.”
“He asked me if I wanted to wear a wire at the next Attrition Committee meeting.”
That was it.
Holzrichter’s cover was blown.
And he was forced out of the company.
Holzrichter helped Zott and the federal officials pursue the federal criminal case.
Two grand juries and many years later, the investigation was closed without action.
Holzrichter believes that they were shut down because Northrop was too powerful to criminally prosecute.
But he did pursue his False Claims Act case.
Initially, in 1992, the Justice Department declined to intervene.
Same reason — Northrop was too powerful to pursue.
“They wanted to get as far away from this case as they possibly could — because of the power of Northrop,” Holzrichter said.
“The Justice Department considered the Air Force as its client. And they said their client didn’t want to prosecute. And so they decided not to join.”
It was the worst possible news at the worst possible time.
Without work and with a wife and five kids, Holzrichter ended up for a period of time with his family in a homeless shelter.
“But my attorneys believed we could win this case,” he said. “And because of the documentation that I had gotten out of the company, we could show that Northrop did what they denied doing.”
And eventually Holzrichter did prove his case.
“Yes, but it took ten years,” he said. “The Justice Department declined to join in 1992. And then they joined ten years later.”
How did you pay your bills during those ten years?
“My wife and I took seven different jobs at one time. And we were still on public aid. It just wasn’t enough to make ends meet.”
“But during those ten years, we had filed so much evidence that the Justice Department didn’t have much of a choice but to join.”
How often did you go back to the Justice Department?
“My lawyer Ron Futterman had hired second a lawyer — Michael Behn — to help out. After ten years, Mike had developed relationships with the Department attorneys. We started to believe in our case because of the evidence.”
And in 2001, the Justice Department joined the case and in 2005 Northrop settled.
“The recovery to the government was $99 million. But they also recovered an additional $40 million in legal fees. That’s $139 million.”
“When defense contractors are accused of wrongdoing, during the time these cases are undergoing investigations and prosecutions, the government fronts them the money to defend themselves. All the legal fees that Northrop was paying its law firms was coming from the government’s pocket.”
What was Holzrichter’s portion?
“They decided that myself and the estate of another relator — Rex Robinson — would share $12.4 million. Rex had passed away two years before the case ended. The two other relators had departed the case in 1993.”
What was your recovery?
“Well, there was also personal damages from Northrop to make us whole from what they had done. Those were sealed. I’m not at liberty to discuss that amount.”
Your portion of the relator’s share was $6.2?
“But the lawyers take 40 percent off the top.”
So you are down to $3.72.
“Then the IRS takes 40 percent,” he says.
So you are left with about $2 million.
“Something like that,” he says.
There is the story of when someone broke into his house to look at documents.
There is the story about when someone turned back the lug nuts on his car so that the wheel would shear off while he was driving. (Luckily, he was driving slowly when it happened and he wasn’t hurt.)
Homeless shelters. Break ins. Attempts to hurt him. And all this aimed at a man who was in recovery.
It’s enough to drive you crazy.
“The whistleblowers who are stable are a small percentage — less than five percent,” Holzrichter says. “It’s a debilitating journey. It damages people.”
“Of 100 cases filed under the False Claims Act, 85 percent fail immediately. That leaves 15 percent. Of those 15 percent that remain, only one to two percent of them get a recovery that actually compensates the whistleblower with anything that can affect their lives. The rest are left with — by the time the lawyers and taxes are done — about $100,000, maybe $200,000.”
It’s an occupation that drives you crazy and drives you broke?
“Yes,” he says. “And that’s intentional.”
Holzrichter has set up a website – jameshholzrichterconsultancy.com – to help whistleblowers — and he is working with Taxpayers Against Fraud to mentor other whistleblowers all over the country.
[For the complete question/answer format transcript of the Interview with James Holzrichter, see 27 Corporate Crime Reporter 17(10), April 29, 2013, print edition only.]