Whistleblower Lawyer Blog

The Justice Department has just announced that, to protect patients from harm in seven Georgia psychiatric hospitals, its Civil Rights Division has filed for relief including immediate appointment of a monitor to protect those patients.

DOJ cited the threat to patients of "imminent and serious threat of harm to their lives, health and safety."

The seven hospitals include East Central Regional Hospital, Georgia Regional Hospital at Savannah, Georgia Regional Hospital at Atlanta, Southwestern State Hospital, Central State Hospital, West Central Georgia Regional Hospital, and Northwest Georgia Regional Hospital.

The announcement is repinted below:

Continue reading "Georgia Psychiatric Hospitals: Justice Department Suit for Immediate Relief to Protect Patients" »

Since Congress authorized new awards to IRS whistleblowers in December 2006, we have followed closely the progress of the new IRS Whistleblower Office led by Director Stephen Whitlock.

IRS Whistleblower Office Director Stephen Whitlock has just announced that the IRS Whistleblower Office is preparing to make award determinations on whistleblower claims submitted under the "new" rewards program.

The IRS Whistleblower Office (and no doubt the IRS Chief Counsel's Office) have been working on "guidance" for determining the amount of awards within the range authorized by law.

We have written extensively on many of the issues that have arisen and will arise in handling IRS Whistleblower claims. Recent multi-million dollar payments apparently relate to claims under the "old" program. Those payments are encouraging signs of the success of the new program, which authorizes a higher range of awards of 15-30% of the recovery by the IRS.

Tax Analysts reported on Director Whitlock's comments at the recent ABA meeting.

We are encouraged that the steady progress of the IRS Whistleblower Office continues, as this promises to be an extremely successful program to discourage tax cheats. Only meaningful rewards to whistleblowers will accomplish that goal.

Continue reading "IRS Whistleblower Office Prepares to Make Awards to IRS Whistleblowers Under New Program" »

How does the IRS treat whistleblowers who receive awards under the False Claims Act's "qui tam" provisions, which allow private citizens who expose fraud to share in the government's recovery of money?

The Tax Court this week addressed that question. It held that awards to whistleblowers or "relators" are part of "gross income" and thus are taxable, but that the whistleblower nonetheless may deduct the attorney's fees paid as a miscellaneous itemized deduction.

Thus, no income taxes were owed on that portion of the whistleblower's award that was paid as attorney's fees to the whistleblower's attorney.

This result not only makes sense, but also is consistent with precedent. Since the whistleblower would have had no recovery but for the attorney's efforts, it would be unfair to conclude otherwise.

The case is ALBERT D. CAMPBELL, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, decided January 21, 2010. It is reprinted below:

Continue reading "Taxation of Qui Tam Whistleblower Awards by IRS Addressed by Tax Court " »

Attorneys from across the country will gather tomorrow in Atlanta to discuss health care fraud and the 2009 amendments to the False Claims Act, the nation's primary whistleblower statute.

I am pleased to be on the panel discussing "False Claims Act Developments," moderated by Jack Boese of Fried Frank. This will be a particularly interesting year for this annual meeting, as Congress enacted major changes to the False Claims Act that took effect on May 20, 2009.

In addition, the "Health Care Fraud Enforcement Act" pending in the Senate would enhance further the government's tools used to investigate and remedy Medicare and Medicaid fraud. This bill would remove any question that all payments made pursuant to illegal kickbacks are "false" for purposes of the False Claims Act.

Among the significant 2009 changes to the False Claims Act made by the Fraud Enforcement and Recovery Act are the following:

1. The amendments expanded the definition of "claim," and fraud directed against government contractors, grantees, and other recipients is now plainly covered by the False Claims Act.

2. Funds administered by the United States government (e.g., in Iraq) are now protected.

3. Retaining overpayments of money from the government is now a stated basis of liability, which is a source of concern for health care providers, among others.

4. Liability for "conspiracy" to violate the Act is now broader.

5. Protection of whistleblowers and others against "retaliation" now extends not only to "employees," but also to "contractors" and "agents"; and persons other than "employers" potentially may be liable for retaliation.

6. In investigations, the government now has authority to use "Civil Investigative Demands" more broadly, and to share information more with state and local authorities and with whistleblowers/relators.

7. A standard definition of what is "material" now applies in False Claims Act cases.

8. The statute of limitations has been clarified for when the government asserts its own claims, after the whistleblower (or "relator") has filed a qui tam case under the False Claims Act.

The full agenda for tomorrow's "SOUTHEASTERN HEALTH CARE FRAUD INSTITUTE" is below:

Continue reading "Health Care Fraud Lawyers Gather to Discuss Amendments to False Claims Act and Other Whistleblower Developments" »

In "Protecting Whistleblowers from Criminal Prosecution," we expressed our amazement at how UBS "whistleblower" Brad Birkenfeld got himself prosecuted for a federal felony while attempting to set himself up for rewards through the new IRS Whistleblower Program. Birkenfeld's case is highlighted in recent articles by Lynnley Browning in Friday's New York Times and by Martha Brannigan in Saturday's Miami Herald.

To attorneys with prosecution experience who represent whistleblowers, it is shocking that Birkenfeld apparently missed a clear opportunity to avoid prosecution altogether by simply "coming clean" and telling the whole truth about his own actions at the outset.

We have a much different take on Birkenfeld's case than those who suggest it should scare away potential IRS whistleblowers. Whistleblowers who are willing to tell the truth from the start can easily avoid Birkenfeld's fate, so long as they listen to advice from experienced counsel. At the same time, we take issue with critics who say Birkenfeld should not even be considered for an IRS Whistleblower reward, since the "rule of law" should determine the answer to that question.

First, Birkenfeld's case should make other potential IRS whistleblowers careful about pursuing IRS whistleblower claims, but not fearful. Most IRS whistleblowers face no realistic chance of prosecution, especially since the government often must depend on whistleblower information to make cases.

Even those relatively few whistleblowers with possible exposure such as Birkenfeld (who admitted to engaging in a tax fraud scheme) can often negotiate protection from prosecution, but only if they tell the whole truth from the start, and follow the rules for obtaining protection. This was a topic in the "IRS Whistleblower Boot Camp" panel discussion that I led this past March, with panelists including IRS Whistleblower Office Director Steve Whitlock--how to protect the whistleblower who has potential exposure.

Why Birkenfeld apparently thought he could get away with withholding information from the government about his own wrongdoing--a foolish move to us--remains a mystery, even after we reviewed his sentencing transcript. That horrendous judgment call distinguishes Birkenfeld's case from all other whistleblower cases we have seen.

At Birkenfeld's sentencing, prosecutor Kevin Downing explained that Birkenfeld's information was extremely valuable to the IRS, and that Birkenfeld probably would not have been prosecuted had he simply been forthcoming by disclosing his own misconduct in assisting tax evasion:

"BUT FOR MR. BIRKENFELD FAILING TO DISCLOSE HIS INVOLVEMENT WITH THE FRAUD AND THE U.S. CLIENTS THAT HE AIDED AND ASSISTED IN TAX EVASION, I BELIEVE WE WELL WOULD HAVE NONPROSECUTED MR. BIRKENFELD. BUT GIVEN THE FACT THAT HE REFUSED TO PROVIDE THAT INFORMATION AND LED US DOWN A COURSE WHERE WE HAD TO START [TO] INVESTIGATE MR. BIRKENFELD AND HIS ACTIVITIES, THAT IS WHY WE ARE HERE TODAY, THAT IS WHY HE WAS INDICTED, AND THAT'S WHY HE PLED." (Birkenfeld Sentencing Tr. 12-13)(emphasis supplied).

Continue reading "IRS Whistleblower Rewards to Convicted UBS Whistleblower Birkenfeld? The Rule of Law Will Sort It Out." »

We have followed with great interest the IRS Voluntary Disclosure Program, especially after the UBS settlement created fear of discovery in many U.S. taxpayers with offshore accounts.

IRS Commissioner Doug Shulman announced that the IRS Voluntary Disclosure Program was flooded with submissions by more than 14,000 taxpayers, according to the Wall Street Journal.

IRS Whistleblower cases have been impacted--and in some cases probably pre-empted--by the submissions of recalcitrant taxpayers to the IRS Voluntary Disclosure Program. The IRS Criminal Investigative Division in certain areas has been inundated.

It will be fascinating to see the progress of IRS recoveries as a result of these voluntary disclosures by taxpayers.

Since the Madoff and Stanford schemes proved ruinous to so many investors, many have asked why the SEC has no meaningful "whistleblower" program to expose wrongdoing, a topic we have written about previously.

Perhaps Harry Markopolis' voice is finally being heard, albeit faintly. Last week, the House Financial Services Committee approved legislation that would expand both whistleblower rewards and whistleblower protections, among other things.

Still, past experience with the False Claims Act and the IRS Whistleblower statute shows that the proposed rewards need to be beefed up to be effective.

The “Investor Protection Act of 2009” (excerpted below) also would increase the SEC’s budget and make other changes designed to strengthen enforcement.

The new rewards to whistleblowers would be up to 30% of monetary sanctions of more than $1 million:

"In any judicial or administrative action brought by the Commission under the securities laws that results in monetary sanctions exceeding $1,000,000, the Commission, under regulations prescribed by the Commission and subject to subsection (b), may pay an award or awards not exceeding an amount equal to 30 percent, in total, of the monetary sanctions imposed in the action or related actions to one or more whistleblowers who voluntarily provided original information to the Commission that led to the successful enforcement of the action."

The proposed new whistleblower rewards are reminiscent of those under the new IRS Whistleblower Program, but need at least two corrections to be effective.

First, the current SEC bill creates no enforceable "right" to a reward--a defect that made the old IRS Whistleblower statute ineffective before it was amended in December 2006.

Second, there should be a minimum percentage of perhaps 15% for the SEC rewards; it should not be left at 0-30%, as the bill now reads. Who would risk a 1% (or even lower) reward? The False Claims Act only became effective after 1986 amendments increased rewards to at least 15% in most cases. The new IRS Whistleblower law is attracting whistleblowers left and right because it provides for a minimum of 15% in most instances.

The proposed SEC law has one advantage over the IRS version: The IRS law unfortunately omits protection of whistleblowers from retaliation, but the proposed SEC whistleblower provisions would provide a remedy similar to that furnished whistleblowers under the False Claims Act. Here is what the proposed bill states (in part):

"An employee, contractor, or agent prevailing in any action brought under subparagraph (B) shall be entitled to all relief necessary to make that employee, contractor, or agent whole, including reinstatement with the same seniority status that the employee, contractor, or agent would have had, but for the discrimination, 2 times the amount of back pay, with interest, and compensation for any special damages sustained as a result of the discrimination, including litigation costs, expert witness fees, and reasonable attorneys' fees."

The bill's proposed SEC whistleblower language is below; the entire bill may be found here:

Continue reading "New SEC Whistleblower Rewards and Whistleblower Protections Approved by House Committee--But Improvements Are Needed" »

The battle against those who steal taxpayer dollars through Medicare fraud and other health care fraud took a step forward this week. The Senate is now considering the "Health Care Fraud Enforcement Act," which will enhance the government's tools used to investigate and remedy Medicare and Medicaid fraud.

After a Senate Judiciary Committee hearing Wednesday on “Effective Strategies for Preventing Health Care Fraud,” Senators Leahy, Kaufman, Specter, Kohl, Schumer, and Klobuchar sponsored the new anti-fraud measure.

Excerpts of the Senate announcement follow:

The bill makes straightforward but critical improvements to the federal sentencing guidelines, to health care fraud statutes, and to forfeiture, money laundering, and obstruction statutes, all of which would strengthen prosecutors’ ability to combat this particularly destructive form of fraud. These improvements include:

o Increasing funding: Money spent on health care fraud prevention and enforcement is returned manifold through costs savings and civil and criminal recoveries. This bill authorizes a modest, yet significant, increase in federal antifraud spending of $20,000,000 per year through 2016.

The new bill would add to legislation earlier this year to strengthen law enforcement statutes aimed at fraud, the Fraud Enforcement and Recovery Act.

Of particular importance to qui tam whistleblower cases under the False Claims Act, the nation's major whistleblower law, the new bill removes any ambiguity that "kickbacks" violate the False Claims Act. The official summary discusses kickbacks in section 2(c):

Section 2(c). Kickbacks

All too often, health care providers secure business by paying illegal kickbacks, which needlessly increase health care risks and costs. When a doctor’s independent judgment is compromised by a kickback, the patient faces the risk that the doctor is making decisions that are not in the patient’s best interest. In addition, excessive payments to doctors increase health care costs, may result in unfair competition, and may compromise medical research independence and the standards of scientific integrity.

The Department of Justice has had success both prosecuting illegal kickbacks and pursuing False Claims Act (FCA) matters predicated on underlying violations of the Anti-Kickback Statute (AKS). Nevertheless, defendants in such FCA cases continue to mount legal challenges. A court recently held that, even though a device company may have paid a kickback to a doctor to use a particular medical device, the bill for the procedure to implant the device was not false because the claim was submitted by the innocent hospital, and not by the doctor. United States ex rel. Thomas v. Bailey, 2008 WL 4853630 (E.D. Ark.) (Nov. 6, 2008). In other words, a claim that results from a kickback and that is false when submitted by a wrongdoer is laundered into a "clean" claim when an innocent third party finally submits the claim to the government for payment. This has the effect of insulating both the payor and the recipient of the kickback from FCA liability. This obstacle to a successful FCA action particularly limits Department’s ability to recover from pharmaceutical and device manufacturers, because in such instances the claims arising from the illegal kickbacks typically are not submitted by the physicians that received the kickbacks, but by pharmacies and hospitals that had no knowledge of the underlying unlawful conduct.

This section remedies the problem by amending the AKS to ensure that all claims resulting from illegal kickbacks are false, even when the claims are not submitted directly by the wrongdoers themselves. (Notably, in such circumstances, neither AKS nor FCA liability will lie against an innocent third party that submitted the claim but lacked the requisite intent required under those statutes.)

The full text of the bill is below:

Continue reading "New ‘‘Health Care Fraud Enforcement Act of 2009’’ Includes Health Care Whistleblower Provisions Aimed at Kickbacks" »

With the nation's health care costs growing, a DOJ and HHS initiative to combat health care fraud continues to show progress.

Building on past enforcement efforts, in May 2009 the government announced its Health Care Fraud Prevention and Enforcement Action Team (HEAT), as part of what is now a Cabinet-level battle against Medicare fraud. To date in FY 2009, the Department of Justice has recovered close to one billion dollars in health care fraud cases, and has obtained 300 convictions.

Last week, the government announced that its Medicare Fraud Strike Force has charged twenty California defendants with $26 million in Medicare fraud from the sale of durable medical equipment (DME). That same week, the government charged six Houston area residents with participating in a scheme to submit claims to Medicare for medically unnecessary DME.

DME fraud and abuse are frequently reported in the calls we receive in representing "whistleblowers" under the qui tam provisions of the False Claims Act. The nation's major whistleblower law, the False Claims Act allows private citizens who report fraud or false claims to share in the government's recovery of damages.

Significant changes to the False Claims Act made earlier this year will improve its effectiveness in stopping fraud against taxpayer funds.

Defrauding the government of taxpayer dollars has gotten tougher over the past five months.

Important changes to the nation's primary anti-fraud statute, the False Claims Act, took effect on May 20, 2009, when the Fraud Enforcement and Recovery Act of 2009 became law.

Among the most significant changes, Congress clarified and corrected the False Claims Act by legislatively overruling certain court decisions that sought to limit the scope of the Act, including Allison Engine Co. v. United States ex rel. Sanders, 128 S. Ct. 2123 (2008); United States ex rel. Totten v. Bombardier Corp., 380 F.3d 488 (D.C. Cir. 2004), cert. denied, 544 U.S. 1032 (2005); and United States ex rel. DRC, Inc. v. Custer Battles, LLC, 376 F. Supp. 2d 617 (E.D. Va. 2005), rev'd, 562 F.3d 295 (4th Cir. 2009).

These important 2009 changes to the False Claims Act include the following:

1. The amendments expand the definition of "claim," and fraud directed against government contractors, grantees and other recipients is now plainly covered by the law.

2. Funds administered by the United States government (such as in Iraq) are now protected.

3. Retaining overpayments of money from the government is now an explicit basis of liability, which will be a source of concern for health care providers, among others.

4. Liability for "conspiracy" to violate the Act is broader than before.

5. Protection of whistleblowers and others against "retaliation" now extends not only to "employees," but also to "contractors" and "agents"; and persons other than "employers" potentially may be liable for retaliation.

6. In investigating, the government now has authority to use "Civil Investigative Demands" more broadly, and to share information more with state and local authorities and with whistleblowers/relators.

7. A standard definition of what is "material" now applies in False Claims Act cases.

8. The statute of limitations has been clarified to allow the government to assert its own claims, after the whistleblower (or "relator") has filed a qui tam case under the False Claims Act.

Click here for a detailed discussion of the False Claims Act and the wave of new State False Claims Acts.

The amended False Claims Act is reprinted below, in its entirety:

Continue reading "New False Claims Act Amendments Strengthen Enforcement of Health Care Fraud and Procurement Fraud Laws " »

We wrote yesterday about the just-released report on the new IRS Whistleblower Program by the Treasury Inspector General for Tax Administration (TIGTA). The "rest of the story" should be told.

Some history is essential to evaluate how far the handling of whistleblower (or "informant") claims has progressed since the newly created IRS Whistleblower Office was formed in early 2007, and what is still needed.

Although information provided by whistleblowers is extremely effective in exposing fraud, before 2006 Congress had not authorized an effective IRS whistleblower rewards program--and some in Congress affirmatively opposed one.

Some of this history is described in a 2006 report by TIGTA, which helped prompt Congress to create the new IRS Whistleblower Rewards Program. That 2006 report described the value of informant claims--and also the absence of any centralized process within the IRS for coordinating those claims. It described what the new IRS Whistleblower Office Director and still-to-be-hired staff would inherit in February 2007.

First, the 2006 IG Report leaves no doubt about how valuable "informant" information has been to the IRS--even when there was no coordination of informant claims:

The Informants’ Rewards Program has significantly contributed to the IRS’ efforts to enforce tax laws, but additional management focus could enhance the effectiveness of the Program as an enforcement tool and make the process more accommodating to informants. Our analysis of IRS data indicated that examinations initiated based on informant information were often more effective and efficient than returns initiated using the IRS’ primary method for selecting returns for examination.

Nonetheless, perhaps based in part on the past hostility toward the IRS's making effective use of whistleblowers before 2006, the old "informant" program was no program at all. This was the "mess" that the new Whistleblower Office Director and tiny staff of four inherited and had to start revamping in 2007, as described by TIGTA's 2006 report:

Continue reading "Part 2: IRS Whistleblower Program Report by Treasury Inspector General for Tax Administration (TIGTA)" »

Today the Treasury Inspector General for Tax Administration ("TIGTA") released a Report on the IRS Whistleblower Program that urges Congress to protect IRS whistleblowers from retaliation by employers, and recommends various administrative changes to the Program.

The Report's title, "Deficiencies Exist in the Control and Timely Resolution of Whistleblower Claims," is misleading to this writer, who has followed the progress of the new Program since its inception. Before Congress created the new IRS Whistleblower program in December 2006, the Inspector General had observed that the IRS had no centralized approach to dealing with "informant" claims under the "old" program." The new legislation was designed to create a "Whistleblower Office" for the first time ever--with brand new staff hired to "invent" the various procedures and systems needed to fulfill Congress' intent.

To illustrate, when we submitted a substantial IRS whistleblower claim in early January 2007 through the IRS Criminal Investigative Division, the new IRS Whistleblower Office had no Director or staff. Director Steve Whitlock was not appointed until several weeks later, and he promptly set out to hire highly qualified professionals within the IRS to help establish the new Whistleblower Program. The same professionals simultaneously had to keep up with submissions of new claims from all over the country, as well as capture older submissions to the IRS.

Perhaps the IG means that the Whistleblower Office still has not worked out all of the kinks in this new program. Director Whitlock agreed with the recommendations for continuing to improve the claims process.

The most significant part of the Report may be its strong recommendation that Congress authorize protecting IRS whistleblowers from retaliation, as whistleblowers who file qui tam cases under the False Claims Act are protected:

The False Claims Act covers false claims by government contractors but specifically excludes tax fraud. The Whistleblower provisions in the Tax Relief and Health Care Act of 2006 cover actions in the area of tax compliance and provide a structure that is similar in certain respects to the False Claims Act. However, unlike the False Claims Act, Whistleblower law related to tax fraud does not include specific provisions for employee protection against retaliation by an employer. Our discussions with representatives within the operating divisions who work with whistleblowers identified that whistleblowers are concerned regarding possible retaliation from employers and that their confidentiality is their utmost concern.

* * * *
Legislative Recommendation
Legislation is needed to ensure that informants are protected against retaliation by their employers and to provide specific relief to informants who are retaliated against.

One note of caution: the Report refers to $65 billion in "alleged income unreported" in 2008. There is no way to verify this number now, given that informants may be wrong in their estimates.

The full Report is here.