Whistleblower Lawyer Blog

Two days ago on 1/28/08 President Bush signed into law the National Defense Authorization Act for the fiscal year 2008. This legislation includes a provision protecting defense contractor employees who blow the whistle on contracting fraud. 10 U.S.C. § 2409 has specifically been amended via Section 846 to protect employees for disclosing “information that the employee reasonably believes is evidence of gross mismanagement of a Department of Defense contract or grant, a gross waste of Department of Defense funds, a substantial and specific danger to public health or safety, or a violation of law related to a Department of Defense contract (including the competition for or negotiation of a contract) or grant.” Obviously, this new whistleblower protection encourages defense contractor employees to come forward if they have knowledge of such misconduct.

The new whistleblower law is intended to protect all defense contract employees to come forward in good faith so that they need not fear reprisal if they do so. If the employee who blows the whistle on contractor fraud is retaliated against, the affected employee may file a complaint with the Inspector General of the Agency and unless the complaint is determined to be frivolous, the Inspector General will conduct an investigation. If the employee is not satisfied with the Inspector General’s handling of the complaint, the employee may bring an action in federal court and is entitled to a jury trial. If the complainant is retaliated against for bringing legitimate good faith complaints of government contract fraud out in the open, then his or her remedies would include reinstatement, back pay, compensatory damages, attorneys fees and costs.

This new law is a giant step forward when it comes to protecting whistleblowers who are brave enough to come forward and expose defense contractor misconduct. By protecting such employees from retaliation, the law is intended to encourage their coming forward to expose waste, fraud and mismanagement. If the employee who does come forward is retaliated against as a result of blowing the whistle, this law is intended to make sure that they will be fully compensated for any damages sustained as a result of such retaliation including reinstatement of the job taken from them or reimbursement for wages and benefits lost as a result of any retaliation. As stated, the employee is also entitled to have his or her attorneys fees and costs paid should they be retaliated against for blowing the whistle.

This is an excellent piece of legislation which is good for the country and hopefully will help to reduce defense contractor fraud and abuse.

Our whistleblower lawyer blog has followed closely investigations of hedge funds and other offshore investors for tax fraud and other IRS violations. After investigating a tax fraud conspiracy involving offshore companies and offshore bank accounts, the Justice Department and the IRS have announced that an attorney and two certified public accountants have pleaded guilty to tax fraud and aiding the preparation of a false tax return.

Attorney Graham R. Taylor of Tiburon, Calif., pleaded guilty last week, shortly before a trial scheduled in Salt Lake City before U.S. District Court Judge Tena Campbell. Certified Public Accountants Stephen F. Petersen of Coalville, Utah, and Reed H. Barker of Littleton, Colo., pleaded guilty to the tax fraud a week earlier, and Petersen also entered a guilty plea to aiding in the preparation of a client's false tax return.

The alleged $20 million fraud scheme included using phony documentation for fictitious currency transaction losses, false insurance expense deductions, and "bogus" capital losses for the purpose of fraudulently offsetting taxable income for clients, according to the government. The defendants used offshore companies, offshore bank accounts, the services of offshore nominees, and opinion letters that allegedly gave legal authority for the fraudulent transactions.

CPA Petersen of Coalville also admitted that he and an attorney who still faces charges would typically receive a fee of up to 30 percent of the tax evaded by the clients.

Attorney Taylor admitted that he devised, marketed and implemented a tax shelter known as "The Hybrid" to assist others in evading income taxes. Taylor also admitted that he prepared tax opinion letters with fraudulent misrepresentations; that he used persons in the Cayman Islands as nominees for his clients; and that he falsely disguised client funds through fraudulent transfers.

The three defendants who pleaded guilty, together with alleged co-conspirators attorney Dennis B. Evanson of Sandy, Utah, accountant Brent H. Metcalf of Cottonwood, Utah, and investment broker Wayne F. DeMeester of Sammamish, Wash., had been indicted in late 2005 for conspiracy to defraud the United States, conspiracy to commit mail fraud, and wire fraud. Five of these defendants also were charged with tax evasion and assisting in the filing of false tax returns.

The case was investigated by the IRS Criminal Investigation division. It is being prosecuted by the Department of Justice's Tax Division and the U.S. Attorney's Office for the District of Utah. Jury selection for the remaining defendants began yesterday.

Continue reading "Tax Fraud Prosecution Over Abuse of Offshore Transactions Leads to Convictions of CPAs and Attorney by IRS and Justice Department (from Whistleblower Lawyer Blog)" »

The "Big Dig" collapse has led to a $458 million settlement by contractors responsible for the Boston Central Artery/Tunnel highway project. Whistleblowers using the federal and state False Claims Acts helped bring about that result.

Of the $458 million settlement, $23 million is being paid to the United States under the federal False Claims Act, and $40 million will go to Massachusetts under its state False Claims Act, as a result of qui tam whistleblower litigation. (As we have written about extensively on this whistleblower lawyer blog, more and more states are enacting state versions of the federal False Claims Act to recover damages for fraud against the government. Private citizen whistleblowers or "relators" can receive up to 25 or 30% of the recovery.)

Congratulations to Massachusetts and the Justice Department for concluding this settlement.

Both the IRS Financial Services group (part of its LMSB Division) and the IRS Whistleblower Office have emphasized to me--as recently as yesterday--their strong interest in hedge fund abuses that violate the tax laws.

The tax whistleblower section of our whistleblower lawyer blog has followed the expanding probes and increased scrutiny of hedge funds, including our segments on "IRS to Scrutinize Derivatives--Do They Allow Offshore Investors to Avoid Withholding Taxes on U.S. Stock Dividends?" in July 2007, and on "IRS Whistleblower Program: Hedge Funds and Private Equity Firms Under Increasing IRS Scrutiny for Tax Abuses" in November 2007.

Subpoenas from the U.S. Senate Permanent Subcommittee on Investigations reportedly have been issued to Citigroup Inc., Lehman Brothers Holdings Inc., Morgan Stanley, and Swiss bank UBS AG, according to this week's Wall Street Journal reports, relating to use of derivatives by hedge funds and other offshore investors. (January 15, 2008 WSJ).

Clients in the hedge fund industry who have contacted our firm often occupy sensitive positions that require them to exercise great care in not subjecting themselves to legal sanctions, as they witness apparent improprieties that trouble them.

We appreciate the predicaments that persons in high positions of responsibility can face. As former federal prosecutors who have litigated (and defended) criminal tax cases, we know that they need counseling first on avoiding exposing themselves to criminal or civil liability, as they weigh whether to report these improprieties through the IRS Whistleblower Program.

Since most people who contact us are honest persons who are troubled by abuses of the tax laws, we applaud their integrity--and congratulate those who are reporting these improprieties that defraud other taxpayers.

The progress of the new IRS Whistleblower Program has been a subject of great interest of this whistleblower lawyer blog. I would like to congratulate two fellow tax whistleblower attorneys, Erika Kelton of Phillips & Cohen, LLP, and Paul D. Scott of the Law Offices of Paul D. Scott, for their contributions to its progress.

Last September, I had the pleasure of appearing with them, IRS Whistleblower Office Director Stephen Whitlock, and Professor Dennis Ventry in a panel discussion in Washington to explain the new IRS Whistleblower Program at the Taxpayers Against Fraud annual conference. Since then, Erika and Paul have continued to work hard on the IRS Whistleblower Committee of TAF, and have contributed greatly to the development of the new IRS Whistleblower "guidance."

Their contributions to making the new program a success should be recognized! Thank you, Erika and Paul.

This whistleblower lawyer blog reported earlier that the New Jersey Assembly had passed the New Jersey False Claims Act, which provides incentives to whistleblowers ("relators") to expose fraud affecting state funds--much like the federal False Claims Act does.

Governor Jon Corzine signed the new bill into law yesterday, which makes New Jersey the 20th state to enact a state False Claims Act with qui tam whistleblower provisions similar to those of the federal False Claims Act. (Click here for a detailed explanation of the False Claims Act and why states are passing their own False Claims Acts.)

New Jersey's citizens should be proud that their taxpayer dollars have the additional protection of the new statute. Congratulations to all who accomplished this result!

Some of the many types of health care fraud that this whistleblower lawyer blog has followed involves "durable medical equipment" (DME). The sale of wheelchairs, walkers, oxygen supplies and equipment, hospital beds, orthotics, prosthetics, and various medical devices is yet another opportunity for dishonest suppliers to defraud taxpayers.

This week, the Centers for Medicare & Medicaid Services (CMS) announced an initiative designed to improve care, save $1 billion annually, and lower Medicare beneficiaries’ out-of-pocket costs--by promoting competition in the sale of durable medical equipment.

Seventy new areas across the country have been added to the second phase of a competitive bidding program. One goal is to "prevent unscrupulous suppliers from participating in Medicare."

According to CMS Acting Administrator Kerry Weems,“Competitive bidding means that Medicare beneficiaries will have access to these products at substantially lower costs.” Mr Weems noted that “[s]ince all successful bidders will be required to meet quality standards and be accredited by Medicare, people with Medicare in these 70 new areas can be assured of access, low prices and high quality."

The new program is also intended to provide another layer of protection against Medicare fraud. As our whistleblower clients and other whistleblower attorneys know too well, fraud in health care is bleeding our nation's precious health care resources--and cost taxpayers millions each year.

We congratulate CMS for its ongoing efforts to to root out health care fraud.

The new IRS Whistleblower Office's Rewards Program that we have followed closely on this whistleblower lawyer blog made further progress this week. The IRS gave notice on January 9 that it intends to create a proposed new system of records--"Whistleblower Office Records."

The purpose is to allow the new IRS Whistleblower Office to administer the IRS Whistleblower program more effectively, in contrast to the "old," decentralized procedures that the IRS used before Congress authorized the new IRS Whistleblower Rewards in December 2006.

The new Whistleblower Office Records will contain records pertaining to whistleblower award applications that were filed before or after the new Whistleblower Office was created in early 2007. Based on my earliest discussions with IRS Whistleblower Office Director Stephen Whitlock, it is an essential step to bring all whistleblower submissions to the same place so that the Whistleblower Office can administer the program effectively.

We congratulate Mr. Whitlock and the Whistleblower Office on their continued efforts and progress to make the Whistleblower Program as effective as it can be.

The Notice is "Whistleblower Office Records -- Treasury/IRS 42.005," 73 F.R. 1667-1669. It is reprinted below:

Continue reading "IRS Tax Whistleblower Procedures Continue to Take Shape" »

The wave of new state False Claims Acts with qui tam whistleblower provisions has been a frequent topic of this whistleblower lawyer blog. In 2007, New York, Georgia, and Oklahoma joined the 16 other states that have enacted versions of the federal False Claims Act, the government's primary weapon for fighting fraud against taxpayers.

Today, New Jersey's Assembly unanimously passed the New Jersey State False Claims Act, which upon signature by the Governor will make New Jersey the 20th state to have a state version of the venerable qui tam whistleblower statute.

We congratulate New Jersey for taking the prudent action of passing a state False Claims Act. As we have written about extensively, Congress through the Deficit Reduction Act of 2005 has created financial incentives for states that pass such qui tam whistleblower laws that are at least as effective as the federal False Claims Act.

The New Jersey False Claims Act expands on the federal Act. It also includes criminal provisions as well as civil liability for treble damages and civil penalties. The text of the Act passed today is reprinted below:

Continue reading "False Claims Act Passed in New Jersey Continues Trend of New State Qui Tam Whistleblower Statutes" »