For anyone interested in how corporate wrongdoing is disclosed and investigated, a furious legal battle poses a challenging question: should a whistleblower lawsuit be unsealed in just 60 days? And the issue, which will be decided by a federal appeals court, is being closely watched not only because First Amendment arguments have been raised, but because the flow of these lawsuits may well be diminished if federal prosecutors are forced to hasten their pursuit of alleged crimes.

Here’s the background: two years ago, a federal court judge ruled that certain provisions of the False Claims Act do not violate the First Amendment and, therefore, the public good is not harmed. Specifically, the ruling shot down the argument that qui tam, or whistleblower, lawsuits should be unsealed after a 60-day period because this would allow the public to learn as soon as possible about alleged corporate wrongdoing, whether it took place in a lab, conference room or manufacturing plant.

To some, the rationale for requiring whistleblower lawsuits to remain sealed for at least 60 days is entirely logical. Federal prosecutors, who are allowed to seek extensions beyond that initial period, need time to investigate the oft-complicated claims that are made. Such examinations, as a practical matter, can take months or years to determine the extent to which allegations are not only true, but have sufficient merit to warrant intervention – as a plaintiff – by the federal government.

There’s a catch, however. During the time that prosecutors are sorting out the claims, the alleged wrongdoing is not known to the public, because a whistleblower lawsuit must remain sealed as long as extensions are granted. This means that only a very few people – the whistleblower, his or her attorney, and the prosecutors – are supposed to be know such a lawsuit exists. A whistleblower lawsuit that is under seal does not show up in a court docket. Moreover, the whistleblower is not allowed to discuss the lawsuit. Under wraps, in these circumstances, really does mean under wraps.

This disturbs a few non-profit groups – the American Civil Liberties Union, the Government Accountability Project and OMB-Watch – that believe the federal government should move faster to sort out whistleblower lawsuits that demonstrate merit. As far as these groups are concerned, the longer it takes for prosecutors to determine that intervention is warranted, the longer it takes for the public to learn that a company may be doing something illegal. Extending a seal beyond 60 days, in their view, only allows a crime to continue and the public becomes an unwitting victim.

In their recent appeal of the federal court ruling, the groups argued, “[A]llegations in (False Claims Act) complaints are inherently of great public interest because they pertain to the fraudulent use of U.S. taxpayer funds and to the quality of services being performed on behalf of taxpayers. In addition, FCA cases may allege ongoing fraud or ongoing threats to the public welfare.” As they see it, this is really a First Amendment issue because the public is barred from knowing potentially vital information and the whistleblower is effectively gagged until the feds either decline to intervene or the case is completed.

This is, of course, a matter of great concern to the pharmaceutical industry, which remains high on the list of federal prosecutors. Health care fraud, including violations committed by drug makers, has been a particularly fruitful target for the feds in the past few years. Last November, in fact, federal officials called a press conference simply to discuss their success in prosecuting fraud perpetrated against the federal government. They boasted that, overall, the U.S. Department of Justice secured $3 billion in civil settlement and judgments in the fiscal year that ended Sept. 30.

Guess what? Of that $3 billion, more than $2.3 billion was recovered thanks to pursuing cases first uncovered in lawsuits citing violations of the False Claims Act and that were filed by whistleblowers. Moreover, the lion’s share of the $2.3 billion – a cool $1.6 billion – came from settlements with drug and device makers, specifically. In other words, more than half of the funds recovered from fraud can be traced to whistleblower lawsuits filed against a drug or device maker. This helps explains why the feds object to the argument raised by the non-profit groups.

In its reply to the appeal, the Justice Department explained that whistleblowers strike a bargain when they file their lawsuits. In exchange for a portion of any recovery that may occur, they are required to maintain silence while the investigation and prosecution plays out. In other words, a whistleblower can go public with his or her accusations, but why do so before the feds have decided to intervene? In cases where the feds choose not to intervene, whistleblowers can then talk to anyone they wish. They can tweet about their case if they desire or hire a skywriter.

But the Justice Department argues that mandatory disclosure would impede investigations and, significantly, fail to protect whistleblowers “who have sometimes gone to great risk to bring fraud to the government’s attention.” Indeed, a study published last year in The New England Journal of Medicine found the process takes a heavy toll on personal and professional lives, because the average whistleblower case lasts nearly five years.

The financial difficulties that follow such suits caused divorces, severe marital strain or other family conflicts. Thirteen had stress-related health problems, including shingles, psoriasis, autoimmune disorders, panic attacks, asthma, insomnia, joint disorders, migraines, and general anxiety. The study interviewed 26 people who filed 17 lawsuits against drug makers between January 2001 to March 2009, and the whistleblowers received shares of settlements that ranged from $100,000 to $42 million – with an average of $3 million. The personal toll aside, a fair amount of money may be at stake.

Arguing in favor of maintaining the status quo is the National Whistleblowers Center, which maintains that, if the appeal is “successful in striking the seal period it will cause long-term permanent damage to the government’s ability to evaluate FCA claims filed by whistleblowers. Moreover, striking the whistleblower’s right to initially file the FCA claim under seal will have a tremendous ‘chilling effect’ on whistleblowers and will strengthen the hand of already powerful corporate criminals to both cover-up the wrongdoing and to retaliate against the whistleblowers who bring these claims.”

Indeed, retaliation is a concern. Consider the possibilities when a whistleblower lawsuit is unsealed after 60 days but before the feds have had a chance to thoroughly review the merits of the case. In this hypothetical scenario, the feds then choose not to intervene and the lawsuit shows up in a court docket, where the whistleblower’s employer learns of the accusations. At this point, the whistleblower does not have the clout and resources of the federal government to continue pursuing the case. Even if he or she chooses to press the case, the employer is now in a position to make life difficult for the whistleblower, assuming the whistleblower still works for the company.

However, Mark Cohen of the Government Accountability Project says that, unless there are extraordinary circumstances, these lawsuits should not be kept under seal. If the government can’t make a decision to intervene and pursue a conviction or settlement, then he says that the whistleblower should be free to act. After all, he correctly points out that the purpose of this process is to expose wrongdoing and reward the person who exposed the wrongdoing, not stretch out the process interminably while the alleged crimes continue.

Both sides, of course, have a point. Numerous whistleblowers have complained privately that the feds do seem to take too long to decide whether to intervene. And an average of five years is, indeed, a long time to wait for such a lawsuit to go from start to finish when so much personal and professional disruption hangs in the balance. This suggests the process should move more quickly. But how should this be accomplished?

Given the amount of money that is being recovered from health care fraud – and the enthusiasm with which federal officials gush about the payback – it may make sense for some of those monies to be reinvested in improving the investigatory process. In an era when closing the deficit is paramount, Congress should take notice.

Meanwhile, perhaps the appeals court will suggest a new litmus test for granting extensions. Whatever the decision, whistleblower lawsuits do serve a worthwhile purpose and striking the right balance between preventing public harm and conducting a useful investigation must be found. But choosing intervention prematurely is no better than taking too long to make such a decision.

Ed Silverman is a prize-winning journalist who has covered the pharmaceutical industry for The Star-Ledger of New Jersey, one of the nation’s largest daily newspapers, for more than 12 years. Prior to joining The Star-Ledger, Ed spent six years at New York Newsday

and previously worked at Investor’s Business Daily. Ed blogs about the drug industry at Pharmalot, at www.pharmalot.com. He can be reached at [email protected].