Yes, a competitor can file a whistleblower complaint. In fact, competitors can be highly effective whistleblowers under U.S. whistleblower laws like the False Claims Act. While whistleblowers are often insiders with access to internal information about fraud or misconduct, companies or individuals in competition with the wrongdoer can also blow the whistle if they possess firsthand knowledge of fraudulent activities. Competitors are uniquely positioned to observe industry trends and detect suspicious behavior, particularly in areas like government contracting & procurement schemes, healthcare fraud, and customs fraud.
In many cases, competitors are motivated to file whistleblower complaints not only to expose fraud but also to level the playing field in their industry. When one company gains an unfair advantage through illegal practices, it can harm competitors who follow the rules, making it difficult to compete fairly. An experienced whistleblower lawyer can help these companies to hold wrongdoers accountable while potentially earning the whistleblower a financial reward for their efforts.
How Competitor Whistleblower Complaints Work
Under the False Claims Act (FCA), competitors can file a qui tam lawsuit on behalf of the government, alleging that a rival company has engaged in fraudulent practices that result in financial harm to the government. The whistleblower (also called a “relator”) must provide evidence of the fraud and show that the information is not already publicly available. If the government investigates and recovers money through settlements or judgments, the whistleblower is entitled to a portion of the recovery, typically between 15% and 30%.
The FCA applies to various types of fraud, particularly those involving government contracts, healthcare fraud, customs violations, and procurement fraud. A competitor can bring a qui tam lawsuit if they have direct knowledge of fraudulent activities by a rival business that affect government programs or contracts. Two notable examples demonstrate how competitors have successfully used the FCA to expose fraud.
Example 1: Sigma Corp.
In a significant case involving whistleblowing by a competitor, Island Industries Inc., a domestic manufacturer of fire-protection sprinkler system parts, filed a False Claims Act (FCA) lawsuit against competitor Sigma Corp. The case centered on Sigma’s alleged evasion of anti-dumping duties by falsely claiming on customs documents that its imported pipe fittings from China were not subject to anti-dumping duties. These fittings, however, were covered by a 1992 anti-dumping order issued by the U.S. Department of Commerce, imposing a duty rate of 182.9% on certain imports sold below fair market value.
Island Industries, armed with evidence of Sigma’s misrepresentations, filed the whistleblower lawsuit in 2017. The case proceeded after the U.S. Department of Justice declined to intervene, with Island continuing to pursue the action on its own. The whistleblower complaint alleged that Sigma had knowingly circumvented anti-dumping duties, creating an unfair competitive advantage in the U.S. market for fire protection products.
After a jury trial in 2021, the court found in favor of Island Industries, awarding the company over $24 million in damages and penalties. The verdict underscored the importance of whistleblower actions in holding competitors accountable for fraudulent practices that distort fair competition.
Sigma has since appealed the decision to the Ninth Circuit, which is still pending.
Example 2: Tungsten Heavy Powder & Parts
In another high-profile case, Tungsten Heavy Powder & Parts, a California-based defense contractor, was accused of violating the False Claims Act by using Chinese-sourced materials in a military procurement contract with the government of Israel. The U.S. Defense Security Cooperation Agency provided $1.7 million in grant funding for the contract, which required the materials to be sourced and manufactured in the United States. However, the company allegedly sourced tungsten cubes from China and assembled the components in Mexico, while falsely certifying that the materials were made in the U.S.
This case was brought to light by a competitor, Global Tungsten & Powders Corporation, which filed a whistleblower complaint under the False Claims Act. As a result, Tungsten Heavy Powder was ordered to pay nearly $500,000 in attorney’s fees, and the whistleblower was entitled to a portion of the government’s recovery. This case is a prime example of how competitors can use whistleblower laws to expose fraudulent practices that not only violate government regulations but also create an unfair competitive advantage.
Why Competitors Make Effective Whistleblowers
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Whistleblower Practices
- False Claims Act/Whistleblower Lawsuits
- Import Duty Evasion & Customs Fraud
- COVID-19 Relief Fraud
- Healthcare Fraud
- Government Contracting & Procurement Fraud
- Grant Fraud
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- Securities Law Violations & the SEC Whistleblower Program
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