Whistleblower Lawyer Blog

The IRS agents we have been meeting with since January to pursue whistleblower claims under the new IRS Whistleblower Rewards Program have a new boss, the IRS announced today.

The Criminal Investigative Division of the IRS will be led by Eileen Mayer, who was most recently head of the IRS's Office of Fraud/Bank Secrecy Act.

We are encouraged by IRS Commissioner Mark W. Everson's comments that "she will play a key role in IRS efforts to halt tax fraud." Agents of the Criminal Investigative Division work tax fraud cases, some of which are now originating under the new IRS Whistleblower Rewards program.

As a result of the IRS's efforts, the Department of Justice has brought many successful prosecutions.
The IRS's press release is reprinted below:

Continue reading "IRS Names New Head of IRS Criminal Investigative Division" »

We were encouraged to see that Georgia has just joined the states that are considering a State "False Claims Act" with whistleblower provisions.

As we have discussed before on the Whistleblower Lawyer Blog, Congress has created great financial incentives for states that pass their own versions of the federal False Claims Act, with qui tam provisions that encourage whistleblowers. States can increase by 10% their share of Medicare fraud recoveries by passing their own False Claims Acts, but the state laws must pass muster with OIG and be at least as effective as the federal False Claims Act. Otherwise, as approximately seven other states were disappointed to find, the state does not receive an increase in its share of Medicare fraud recoveries.

Rep. Ed Lindsey is the sponsor of Georgia's proposed "State False Medicaid Claims Act." The new law would apply to Medicaid fraud and false claims, but not other fraud and false claims that cost the state taxpayers money.

The challenge will be to make sure that the new law is tough enough and broad enough to meet OIG's criteria. As we reported before, OIG has disapproved the False Claims statutes of California, Florida, Louisiana, Indiana, Michigan, Nevada, and Texas, as not as effective as the federal False Claims Act. No approval by OIG, no extra money for the state.

We will be discussing this new whistleblower statute, as well as others. Those who wish to read it can do so here:

Continue reading "New Medicaid False Claims Act Proposed in Georgia" »

Congressional Committee Explores Contractor Overcharges

Of great interest to whistleblower lawyers is how much suspected fraud and abuse has occurred in Iraq reconstruction contracts. Goverment auditors recently announced that they now believe that Iraq contractor fraud and abuse may be three times greater than the previous estimates--and may affect one out of every six dollars spent in the Iraq reconstruction effort.

The estimate has grown from $3.5 billion to more than $10 billion in "questioned and unsupported costs," according to the Defense Contract Audit Agency (DCAA), which audits Iraq reconstruction contracts and troop support contracts of the Department of Defense and the U.S. military.

We find it sobering that this report is based on audits of only a small amount of the total taxpayer dollars spent on Iraq contracts. Only approximately $57 billion of our government contracts have been audited, and many significant contracts have not been audited.

The DCAA memo acknowledges that the total is probably much greater than the more than $10 billion found to date.

We believe this report shows that there cannot be enough auditors to catch every act of fraud and abuse--and even audits cannot detect every fraud. The American taxpayer will continue to depend on whistleblowers to expose and stop fraud, whether in Iraq contract fraud, Hurricane Katrina relief contract fraud, or in Medicare and Medicaid fraud.

You can read more about how this this report was received by the House Committee on Oversight and Government Reform, Congressman Waxman's committee. That congressional committee is busy this week, with the following schedule:

Full Committee Business Meeting, immediately followed by Full Committee hearing on Reforming the Presidential Library Funding Disclosure Process
Wednesday, February 28, 2007, 10:00 a.m., in 2154 Rayburn House Office Building

Subcommittee on Goverment Management, Organization, and Procurement hearing on 9/11 Health Effects: Federal Monitoring and Treatment of Residents and Responders
Wednesday, February 28, 2007, 12:00 noon, in 2247 Rayburn House Office Building

POSTPONED: Full Committee hearing to Examine Allegations of Political Interference with Government Climate Change Science (Part II)
This hearing has been postponed. Schedule information will be available shortly.

Subcommittee on Information Policy, Census, and National Archives hearing on The Presidential Records Act
Thursday, March 1, 2007, 2:00 p.m., in 2154 Rayburn House Office Building

Since we began the Whistleblower Lawyer Blog to discuss topics of interest to attorneys, potential whistleblowers and others about developments in the new IRS Whistleblower Rewards Program, in qui tam litigation under the False Claims Act, and other whistleblower developments that might be of interest to other lawyers or whistleblowers, we have received some very positive feedback.

We have discussed not only how the IRS Whistleblower Program and the False Claims Act work, but we have also tried to highlight specific areas we have been working in, such as Hurricane Katrina fraud, Iraq fraud, Medicare and Medicaid fraud, and the new IRS Whistleblower Rewards Program, to name a few. We are always looking to improve the Whistleblower Lawyer Blog and solicit your input on any other issues who would like to see addressed.

Please reply directly to me with comments at msullivan@finchmccranie.com. Thanks for your input!

Recognizing how important whistleblowers are to stopping fraud, the U.S. House Oversight and Government Reform Committee today approved the Whistleblower Protection Enhancement Act (H.R. 985).

The new whistleblower protections would apply to federal employees and government contractors. The law would establish whistleblower protections for scientific, intelligence and transportation security employees. It would also apparently mean that officials would investigate whether security clearances are revoked as retribution for a whistleblower's reporting allegations of waste, fraud or abuse.

Congressman Henry Waxman (D-Cal.) introduced the bill last week. Additional amendments would strengthen the effectiveness of the whistleblower provisions.

We find it very encouraging that Congress is taking such logical steps to protect the public's money from waste, fraud and abuse.

The specific sections of the proposed new whistleblower law are as follows:

H.R.985
Whistleblower Protection Enhancement Act of 2007 (Introduced in House)

Continue reading "New Whistleblower Protections Approved by House Committee" »

We find it staggering to read about how blatant Medicare fraud can be, which often provokes a whistleblower to step forward. Today's L.A. Times reports on a shameless scheme to defraud Medicare:

Elderly and mentally ill patients allegedly were offered doughnuts, candy and other gifts to lure them into more than $12 million worth of unnecessary respiratory treatments that were fraudulently billed to Medicare, according to the Indictment. Doctors and administrators were charged, according to this report.

What can you say about such criminality, when health care dollars in this country are sorely needed?

Whistleblower suits that reveal Medicaid fraud in Texas have grabbed the attention of the Texas Legislature--which apparently recognizes how powerful state False Claims Acts can be.

Today's Houston Chronicle reports that Texas is working through a "backlog" of Medicaid fraud cases, the top 20 of which could bring another $700 million to the State (and presumably a significant amount to whistleblowers).

Whistleblower cases have been so effective that the legislators asked what more could be accomplished with more resources provided to pursue these fraud cases. The Texas Attorney General's Office seems to have done a commendable job with the resources it now has, but Attorney General Greg Abbott (my law school classmate at Vanderbilt Law School) agrees that more resources would produce even greater recoveries.

Patrick O'Connell, chief of the Civil Medicaid Fraud Section in Texas, has been impressive. He has led the team that since 1999 reportedly has recovered $72 million for Texas, and assisted in recovering $139 million more for the federal and other state governments.

And we keep wondering why every state has not enacted its own whistleblower False Claims Act---especially since Congress has offered huge financial rewards to states that have qui tam whistleblower statutes that are at least as effective as the federal False Claims Act.

We are excited to see the new IRS Whistleblower Office's procedures being developed. We obtained a copy of a recent letter from IRS Commissioner Mark W. Everson, describing how the new Whistleblower procedures are taking shape, to Senator Charles Grassley.

Senator Grassley has been instrumental in pushing for effective whistleblower laws, both in qui tam litigation under the False Claims Act, and now in the new IRS Whistleblower Program. Here is an excerpt of Commisioner Everson's January 29, 2007 letter describing the implementation of the new IRS Whistleblower Program:

"The IRS has already taken steps to establish the new Whistleblower Office, which will report directly to the Deputy Commissioner for Services and Enforcement. This places the new office on par with other Operating divisions at the IRS. It will be headed by an IRS executive who has experience with IRS operations as well as with whistleblower operations in other government agencies. This executive should be assigned to the new position by February 4, 2007 [and our Whistleblower Lawyer Blog readers can learn about the new Director here] and will be available to attend your bipartisan roundtable discussion to obtain first-hand input from key stakeholders.

"The IRS Chief counsel and Assistant Secretary for Tax Policy are responsible for issuing the guidance required by the Tax Relief Act of 2006. Both offices are currently studying the legislation to identify areas and issues to be addressed in the guidance. They will obtain input from all interested parties, including the new executive in charge of the Whistleblower Office, to determine issues needing guidance. We are hopeful that the roundtable discussion will provide an opportunity to receive additional input. Chief Counsel and Tax Policy plan to issue this guidance within the one year timeframe required in the legislation."

Continue reading "Watching the New IRS Whistleblower Procedures Take Shape" »

We are encouraged that the IRS is taking action in response to the fraudulent practice of "back-dating" of stock options. Potential whistleblowers may wish to see the IRS' description of its program to deal with an aspect of this problem.

Here is an excerpt from the IRS' announcement of how it is permitting employers to "step forward" and pay a penalty, and a related IRS Release can be read here:

(From IRS Release:)

IRS Offers Opportunity for Employers to Satisfy Tax Obligations of Rank-and-File Employees with ‘Backdated’ Stock Options

IR-2007-30, Feb. 8, 2006

WASHINGTON — Internal Revenue Service officials today announced an initiative aimed at providing relief for rank-and-file employees affected by their companies’ issuance of backdated and other mispriced stock options. While the program will be available to help these employees who may be unaware that they held backdated options, the opportunity will not be available for backdated options exercised by most corporate executives or other insiders.

If an employee exercised a ‘backdated’ stock option in 2006, the employee may owe an additional 20-percent tax, plus an interest tax, under the Federal tax laws governing deferred compensation. If the option had been properly priced, the employee normally would only have owed income tax on the difference between the value at the date of grant and exercise.

Continue reading "Potential Whistleblowers: IRS Offers Program for Employers "Back-Dating" Stock Options " »

Taxpayers every day lose money because of fraud against their government. Current examples include government contracting fraud in Iraq, procurement fraud regarding the efforts of the Federal Emergency Management Agency and Hurricane Katrina and numerous false claim schemes under both the Medicare and Medicaid programs. Those who are bent of fraud are usually clever and devious. This is the very reason why President Abraham Lincoln enacted the False Claims Act during the American Civil War in 1863.

During the Civil War, as today, there were greedy contractors bent on defrauding the government at taxpayer’s expense. At President Lincoln’s request, the False Claims Act was enacted into law and was specifically directed at an effort to “root out fraud against the government. . .[a]nd to encourage individuals who are aware of fraud being perpetrated against the government to bring information forward.” Thus, “Lincoln’s law,” the False Claims Act, has literally been on the books for over 140 years.

The False Claims Act as sponsored by President Lincoln was designed to help the government stop procurement fraud during the Civil War. Congress intended that the False Claims Act would encourage private citizens to file cases in the name of the United States to recover damages when false and fraudulent claims were submitted to the government. These lawsuits, oftentimes called Whistleblower or Qui Tam cases, provide a way for private citizens to share in the recovery of damages recovered. The term “Qui Tam” described the procedure well and derives from a Latin phrase which means “Who pursues the action on our Lord the King’s behalf as well as his own.”

While Lincoln’s law worked reasonably well after its passage in 1863, over one hundred years later in 1986 Congress acted to strengthen the False Claims Act. Specifically, when the False Claims Act was amended in 1986, Congress increased the damages and penalties that can be recovered in such actions, and added protection against retaliation for whistleblowers. Quite literally, the 1986 amendments to the law created statutory enhanced incentives for private citizens to “blow the whistle” against fraudulent conduct. Congress did this by increasing the penalties that could be imposed against those committing fraud against the government to a minimum of $5,000.00 and a maximum of $10,000.00 for each false claim for payment plus three times the government’s actual damages. Additionally, the law as amended provides that if the government were successful in pursuing a Qui Tam case brought by an individual on its behalf, that the whistleblower “relator” could obtain a recovery of between fifteen (15%) and twenty-five (25%) percent of the amount recovered plus reasonable expenses and attorney’s fees. If the government does not intervene in a whistleblower case filed by the “Relator,” (the individual relating the information to the government), and the private citizen or Qui Tam plaintiff nonetheless proceeds with private counsel on behalf of the government, the whistleblower/relator may recover up to thirty (30%) percent of the damages recovered, plus fees and expenses.

Finch McCranie, LLP is honored to practice in this area and is willing to assist in the very necessary effort to root out fraud against our government. Our firm’s ability to represent whistleblowers is enhanced because most of our firm partners are former federal prosecutors. Thus, our attorneys have experience in prosecuting fraud cases on a federal level, including high profile cases. Since leaving the federal government, our attorneys have also represented clients in a White Collar business context as well. All of our Qui Tam or Whistleblower clients benefit from this experience as often times it is necessary to protect a “whistleblower” from retaliation by their employer or from any personal liability they may have by virtue of their company or employer putting them in a position where they may have unwittingly participated in a scheme to defraud the government.

Because of our firm’s unique experience, our clients can help prevent fraud against our government and can also share in the reward for doing so because damages are available for each false claim submitted. The incentives and tools available to the whistleblower claimant are great not only because three times the amount of actual damages may be recovered in the “Qui Tam” case but also a five to ten thousand dollar penalty per each false claim for payment, plus reasonable attorney’s fees and expenses. Thus, “Lincoln’s Law” is alive and well today, 140 years after its passage, and is still helping to serve the salutary government interest of rooting out fraud by financially punishing those who would perpetrate schemes to defraud their government.

As former federal prosecutors, it is always of interest to us to read about grand jury indictments involving fraud schemes. We have presented many such indictments to grand juries ourselves and know how the system works. On Tuesday of this week, a grand jury in Washington, D.C., returned an indictment against three Army Reserve Officers and two civilians based on allegations that they steered more than $8.6 million dollars in Iraqi reconstruction funds to a contractor in exchange for a variety of kickbacks and other inducements. The 25 count indictment, which includes charges of conspiracy and money laundering, is obviously the “Tip of the Iceberg” because the amount of money at issue in this particular scheme ($8.6 million) is insignificant when it comes to the billions of dollars that are still unaccounted for according to the Special Inspector General’s Office responsible for the oversight of the expenditure of government monies in Iraq.

The Department of Justice has always tried to publicize indictments in specific areas because of the “deterrent affect” it might have relative to others. Here, however, the proverbial horse is already out of the barn and there is not going to be much deterrence with respect to the billions already spent and unaccounted for (typically in no bid contracts). Hopefully, this indictment is a sign of things to come in terms of holding accountable those who would defraud their own government when it comes to schemes of this nature.

We continue to believe that Whistleblowers and Qui Tam lawsuits are the best deterrent there is for schemes of this nature. When you hit someone’s pocketbook, particularly companies who enrich themselves at taxpayers’ expense, with the treble damages and attorney’s fees and other remedies available under the False Claims Act, this truly does have a deterrent effect on others. Indictments, of course, are necessary in order to prosecute the guilty but with respect to the ill-gotten gain, indictments are not the best vehicle for getting taxpayer money back. While the government presumably will proceed in this case with forfeiture actions because of the money laundering charges, nonetheless, whistleblower suits are still the government’s most effective tool at combating fraud and waste.

In its Press Conference announcing this indictment, U.S. Deputy Attorney General Paul McNulty stated that “U. S. Government Officials working in Iraq are not for sale. We will prosecute anyone who attempts to exploit the reconstruction efforts in Iraq for their personal gain.” While such bravado sounds good, the fact remains that the Department of Justice will not be able to indict those responsible for fraud schemes without the assistance of informants and whistleblowers. We encourage all whistleblowers with knowledge of fraud in the Iraqi reconstruction effort to come forward so that more indictments can be handed down and more ill-gotten gain recovered from those who would participate in such schemes. As former prosecutors ourselves, we would be delighted to assist those who have such knowledge in seeing to it that the guilty are punished and the ill-gotten gains recovered.

We saw more good news when the IRS announced the first director of the new IRS Whistleblower Office--Stephen A. Whitlock. Mr. Whitlock was formerly in charge of the Office of Professional Responsibility. He also had led anti-fraud and abuse programs at the Defense Department.

The IRS's press release is reprinted here:

IRS Begins Work on Whistleblower Office; Whitlock Named First Director

IR-2007-25, Feb. 2, 2007

WASHINGTON — The Internal Revenue Service today named Stephen A. Whitlock as director of its new Whistleblower Office, where he will be responsible for administering the program designed to receive information that helps uncover tax cheating and to provide appropriate rewards to whistleblowers.

“This is an important new office at the IRS, and Steve brings a strong background in ethics and tax issues to help get this program off to a good start,” said IRS Commissioner Mark W. Everson. “Under Steve’s leadership, we will meet expectations from Sen. Grassley and other supporters to run a robust program.”

Continue reading "New IRS Whistleblower Office Has First Director" »

According to a recent report issued by the Inspector General of the Department of Health and Human Services, State enforcement results regarding Medicaid fraud cases have been disappointing. Virtually every state in the country has a State Medicaid Fraud Control Unit whose principle job is to uncover and detect fraud and to prosecute the offenders. Such units are also tasked with the responsibility of attempting to recover monies fraudulently obtained from the Medicaid program. Because Medicaid is approximately twenty (20%) percent of the total federal budget and involves staggering amounts of money, one would hope that State Medicaid Fraud Control Units (MFCUS) were aggressive in their efforts at addressing this problem. Unfortunately, the HHS Inspector General, Daniel Levenson, studied the efficacy of state enforcement efforts through state MFCUs and found that on average, only twelve (12) cases per year were even referred to the State Medicaid Fraud Control Units by their State Medicaid Agencies.

According to the Inspector General’s report, twenty-six (26) Fraud Control Units said that in the last year of the study (which was conducted from July, 2002 through June, 2005) they received less than twelve (12) referrals each year from State Medicaid Agencies averaging therefore less than one referral per month. Thus, over half (½) of the states in this country report less than one case per month being referred to the State Medicaid Fraud Control Unit for investigation concerning fraud.

The report of the Inspector General clearly establishes the need for the passage of State False Claims Acts. Like the Department of Justice, the government itself is poorly equipped to deal with undetected fraud when it comes to Medicare and Medicaid in general. The Department of Justice has recognized that the most important enforcement tool it has to root out fraud is the Federal False Claims Act which encourages whistleblowers /informants to come forward. Because the states themselves have such a poor track record in uncovering fraud and referring cases for investigation, it is clear that each state in this country needs its own State False Claims Act to encourage the reporting of fraudulent claims submitted to Medicaid by whistleblowers. The more encouragement for such reports by whistleblowers the more likely it is that fraud will be detected and addressed.

The Inspector General’s report has clearly established the need for increased enforcement in this area. The report did not attempt to take into consideration performance standards for Medicaid agencies nor could they determine how well the State Medicaid Agencies perform. Nonetheless, the report is instructive in establishing that the vast majority of states have failed to effectively address fraud through internal enforcement within the State Medicaid programs they administer. This being the case, one would hope that the Inspector General’s report would encourage Legislatures throughout this country to enact State False Claims Acts so that states might have the same experience that the federal government has experienced vis a vis increased enforcement in this area.

The ranking Republican of the Senate Finance Committee, Senator Charles Grassley of Iowa, after review of the Inspector General’s findings, was critical of the efforts of some of the states. “You can’t recover what doesn’t get reported” Grassley said. “And if . . . state agencies are reporting only part of the fraud, then whistleblowers and others probably account for a good part of the rest of the recoveries that would otherwise be lost to Medicaid fraud.” To his credit, Senator Grassley has pushed for legislation that would encourage states to reward whistleblowers financially. Of course, we continue to hope that the State of Georgia and other states similarly situated which have yet to enact their own versions of the Federal False Claims Act on a state level will act to do so without further delay.

We saw yesterday's quarterly audit report on Iraq fraud, published by the Special Inspector General for Iraq Reconstruction (SIGIR), Stuart Bowen Jr. The message is sobering:

"The security situation in Iraq continues to deteriorate, hindering progress in all reconstruction sectors and threatening the overall reconstruction effort," in the words of the Inspector General.

We all have already seen reports of how the United States is being exploited by dishonest and incompetent contractors in Iraq. This IG Report discusses not only poor security, but also corruption among Iraqi officials and bad management of the contracts.

You may have seen footage on the news of shoddy construction of a police building in Iraq, with the Special IG blaming the contractor.

From what our whistleblower clients report to us, efforts to defraud the U.S. government continue--shamelessly. We are continuing to evaluate potential cases of Iraq fraud and, when appropriate, to pursue for our whistleblower clients litigation under the qui tam provisions of the False Claims Act.

We saw another significant whistleblower case against a drug company hit the news wire this week.

The government announced that it was joining a qui tam lawsuit under the False Claims Act against the company Boehringer Ingelheim Roxane, Inc. The Complaint alleges overcharging on pharmaceutical products.

In joining this lawsuit, the United States has alleged that the drug company engaged in a "scheme to report fraudulent and inflated prices for several pharmaceutical products, knowing that federal health care programs established reimbursement rates based on those reported prices."

We have reprinted the government's announcement of why it is joining this qui tam whistleblower lawsuit below (from the U.S. Department of Justice press release):

+++++++++++++++++++++++++++++++++++++++++++++++++++++++

Continue reading "Government Joins Whistleblower Case Against Pharmaceutical Firm for Overcharging on Generic Drugs" »