Whistleblower Lawyer Blog

At the annual "Continuing Judicial Education" conference in St. Simon's Island, Georgia this week, I was honored to be invited to speak to the assembled judges about the new state False Claims Act in Georgia, the State False Medicaid Claims Act.

As this whistleblower lawyer blog has written about extensively, there is a wave of new state False Claims Acts across the country, as Congress has urged states to replicate the dramatic successes of the federal False Claims Act in stopping those who steal taxpayer funds.

In 2007 and 2008 to date, Georgia, New York, New Jersey, Oklahoma, Rhode Island, and Wisconsin have joined the 16 other states that have enacted some version of the False Claims Act.

Because the False Claims Act has unique procedures that are foreign to most lawyers, judges, and courthouse staffs, the focus of the discussion was on how to manage cases under state False Claims Acts.

I am grateful to former Chief Judge Stephen Boswell (who has joined our firm as counsel) for his invaluable help in this project.

At the Senate Finance Committee's hearing on the Cayman Islands and offshore tax evasion last week, Senator Charles Grassley reiterated the importance of the new IRS Whistleblower program to combat tax evasion, but also stressed the need for Congress to provide the IRS greater tools to address offshore tax evasion.

The July 24 hearing focused on GAO's investigation into the Ugland House, a law firm's office building in the Cayman Islands that is the registered address of thousands of corporations. The hearing also examined "U.S. income tax evasion by taxpayers who hide their assets and income in foreign bank accounts and foreign entities."

Sen. Grassley discussed the importance of the IRS Whistleblower program, as he observed that he had "pushed to get legislation passed that would increase rewards for individuals who blew the whistle on tax cheats and created an office at the IRS to coordinate whistleblower claims. These improvements were based on my experience with the False Claims Act that rewards whistleblowers who help the government find fraud in government contracting. This allows the IRS to take better advantage of whistleblower information that is often detailed, inside information. This is information that the IRS may not have otherwise received."

Recognizing some of the results of that effort, Grassley stated that he is "pleased that many at the IRS and Treasury now recognize the benefits of rewarding tax whistleblowers. It is vital that the IRS take full advantage of those who are willing to blow the whistle on tax fraud."

Grassley concluded by stating that he will announce new proposals to fight offshore tax evasion.

In our own discussions with IRS officials about our whistleblower clients, we have already seen (and written here about) the IRS's great enthusiasm for pursuing offshore tax abuses, involving hedge funds and otherwise. Private citizen whistleblowers are perhaps the best source of information about concealed abuses of the tax laws, which make us all pay more than our fair share of taxes.

We applaud Senator Grassley and the IRS for their resolve on these types of abuses.

This past week the IRS Commissioner of the Large and Midsized Business Division summarized the IRS's efforts to combat offshore tax evasion. He predicted that whistleblowers will become increasingly important to the IRS' efforts, given the existence of the new IRS Whistleblower rewards.

IRS Commissioner Frank Ng described to Congress the "critical importance to tax administration in this country -- the practice of sheltering U.S. earned income in foreign jurisdictions as a means of avoiding U.S. taxation."

He identified as "Tier I" issues the following transactions::

Transfer of intangibles/cost sharing
Abusive foreign tax credit transactions
Abusive hybrid instrument transactions
Transfer pricing
Foreign earnings repatriation

The IRS Commissioner described some of what has been revealed through ongoing investigations:

Ongoing IRS Investigations

In the area of ongoing investigations, let me start by laying out some of the facts about one case that I am able to discuss, because the case that I am about to describe is a matter of public record. It involves a major Swiss bank.

Continue reading "IRS Predicts Whistleblowers Will Be Important to Efforts to Combat Offshore Tax Evasion After UBS" »

Having lunch this week with a public servant who investigates heath care fraud, I was struck once again by his descriptions of abuses that nursing home residents too often suffer, many of which our whistleblower attorneys had also encountered in past cases.

It is damnable enough to steal federal and state taxpayer funds that are supposed to pay for care of our elderly through Medicare and Medicaid. It is another level of depravity to ignore our elder citizens' medical needs--and even to steal from patient accounts--for personal gain.

The Attorney General of Massachusetts this past week announced that two such persons--brothers who operated nursing homes--have pleaded guilty to charges based on stealing funds and neglecting nursing home patients.

Joel K. Logan and Todd Logan reportedly pled guilty to charges of Larceny, Medical Assistance Fraud by a Provider, Conspiracy, Fiduciary Embezzlement, and Neglect of Patients in Long-Term Care Facilities.

According to the State, the Logans and their nursing home corporations admitted that they converted Medicaid funds to their own personal use, and failed to provide patients in the homes necessities such as food, medicine, sanitary conditions and bed linens. The defendants reportedly used the money for personal expenditures, including "horse racing activities and luxury boats."

They also admitted to "stealing $82,000 from the statutorily regulated Patients Needs Accounts (PNA)" for three of the nursing homes, to embezzling funds from the employer-sponsored 401(k) Plan, and to other misconduct, according to the State.

Because nursing home residents are so vulnerable, they depend on honest persons to "blow the whistle" on such abuses. We commend those who helped stop these abuses--and urge others to speak out to protect our elderly citizens and taxpayer funds.

The government's announcement this week of a $60 million Medicare fraud settlement with a Missouri hospital system is yet another example of the need for ongoing deterrence of health care fraud.

According to the government, Lester E. Cox Medical Systems violated the False Claims Act, the nation's primary tool for combating fraud against taxpayer funds. Dating back to 1995 and continuing to recent years, Cox allegedly committed various unlawful acts, including submitting fraudulent cost reports to obtain Medicare funds, entering into illegal arrangements with doctors that violated the Stark Law and the Anti-Kickback Statute, and other misconduct.

Cox reportedly will pay $35 million immediately, with five annual payments of $5 million (plus interest) to follow. Cox also has entered into a "comprehensive" Corporate Integrity Agreement with the Office of Inspector General of the United States Department of Health and Human Services, designed to cause compliance with federal requirements for receiving federal dollars.

Although the settlement amount sounds substantial, it appears that the government alleged that the Medicare program's losses were far greater. The government says it took into account Cox's "ability to pay" and continuation of services to the community.

I have been most impressed by the federal prosecutors I have dealt with in Missouri who investigate health care fraud cases brought under the qui tam provisions of the False Claims Act. The government's attorneys' work is to be applauded.

Still, from a taxpayers' perspective, the settlement only recovers a portion of the taxpayers' loss. As doctors and patients fight to keep scarce Medicare dollars available for patient care, we cannot tolerate fraud that reduces the funds needed by patients.

This settlement demonstrates the need for continued action any time health care fraud is detected. It was this need that motivated Congress in 1986 to create meaningful financial incentives for private citizens (relators) to bring qui tam cases under the False Claims Act, and to share in the government's recovery of damages from those who defraud the government.

The False Claims Act provides awards of 15 to 30 percent of judgments and settlements against those individuals and companies that perpetrate schemes to defraud the federal government. In the event a whistleblower files a lawsuit in the name of the United States, “blows the whistle” on the fraud scheme and a financial recovery results, the whistleblower is entitled to a percentage of the recovery. Those cheating the government pay these rewards. Not one dime comes from taxpayers. The reason for this is that the False Claims Act imposes treble damages against the wrongdoer(s) so that not only can the government can be made whole from the fraud and recover all costs of the whistleblower’s awards but also recover the cost of the investigation and prosecution and lost interest on the money.

More than 80% of False Claims Acts which are pursued by the United States Department of Justice are initiated by whistleblowers. The federal government has never had a good record of investigating fraud on its own, especially in complex and technical areas like healthcare and defense procurement where specialized knowledge is required to uncover sophisticated and concealed schemes to defraud, price gouging, shotty goods and services, etc. In the history of the United States, no law has worked better to safeguard taxpayer money against fraud than the False Claims Act. False Claims Acts judgments and settlements have totaled over $14 billion since 1986. In the healthcare arena alone, the federal government is recovering $13.00 for every dollar spent in investigations, prosecutions and whistleblower awards. In addition to these direct recoveries, obviously, false claims prosecutions deter other companies and individuals from similar acts of fraud.

The reason the False Claims Act works so well is that informants/whistleblowers with special knowledge of frauds, often corporate insiders, are given incentives to blow the whistle and bring to justice corporations that are stealing monies from the American taxpayer. Whistleblowers that come forward often risk their careers. They are routinely ostracized. Many times they are retaliated against for blowing the whistle on wrongdoing. Thus, it is only just that the whistleblower should be rewarded for taking these risks and exposing fraud for the betterment of all taxpayers.

We continue to be proud of our association with whistleblowers and look forward to representing those courageous enough to expose their own employers and other wrongdoers under the False Claims Act. While the road to a successful result is often long and tedious, to expose a fraud scheme to the light of justice is a reward in and of itself. Whistleblowers should be encouraged by all taxpayers to come forward so as to root out fraud and expose schemes perpetrated by those who would defraud their own government.

"What motivates whistleblowers" is a question that our whistleblower attorneys are asked frequently. Basic honesty and integrity--trying to do the right thing--is what we see most.

It is deeply satisfying when a whistleblower's courage in insisting on honesty and integrity is recognized and applauded. I just received this note that was sent to a client who had "taken a stand" for honesty and integrity in handling federal grant funds at an educational institution, and I am reprinting portions here. Its truth and eloquence speak for themselves:

You don't know me, but we share a couple of things in common. I worked in the [same institution] from late 2002 to early 2004. . . .

Thank you for your personal example of integrity, of honoring academic standards, and persistence. To be sure, you are a gifted scholar AND champion to so many. I wish you and your family all good things in the future.

Very important amendments to the nation's major whistleblower law, the False Claims Act, cleared the House Judiciary Committee today. The False Claims Act Corrections Act of 2007 is intended to restore the False Claims Act to its originally intended usefulness. It will eliminate many "loopholes" that dishonest government contractors have used to avoid liability.

Our whistleblower lawyer blog has often written about the False Claims Act, the qui tam law that empowers private citizens to report fraud as whistleblowers or "relators," and to share in the government's recovery of damages. We have tracked the development of the Senate version of the new whistleblower law amendments, the False Claims Act Correction Act (S. 2041), since it was proposed last September by a bipartisan group that included Senators Grassley, Durbin, Leahy, Specter and Graham.

Taxpayers Against Fraud (with which I am proud to be associated) summarizes its key provisions as follows:

--to clarify that False Claims Act liability protects all federal funds;

--to solely vest the Government with the power to dismiss whistleblower- filed False Claims Act lawsuits that are based on public allegations;

--to remove confusion over the statute of limitations period;

--to explicitly clarify that the False Claims Act applies to those who discover an overpayment and decide to pocket the funds; and

--to provide strengthened employment protection for whistleblowers.

The bill moves on to consideration by the entire House of Representatives. We will continue to report on the progress of this essential bill, and applaud those who have worked for its passage!

This past week, more than 450 of the country's best employment lawyers who represent individuals gathered in Atlanta for the National Employment Lawyers Association's Annual Conference.

I had the pleasure of appearing with a group of excellent attorneys on a panel of that discussed "Strategic Thinking in Whistleblower Cases," moderated by Robin Potter of Chicago (who won a major victory last week).

Speakers at the 2008 NELA Conference panel on "Strategic Thinking in Whistleblower Cases" were (front row) David Marshall and Bryan J. Schwartz, and (back row) Michael A. Sullivan and Mark Kleiman.

David Marshall of D.C.'s Katz, Marshall & Banks, LLP began by discussing how nesessary whistleblowers are, as well as important considerations in pursuing Sarbanes-Oxley whistleblower cases.

Bryan J. Schwartz of Nichols Kaster & Anderson’s office in San Francisco then spoke on strategies in representing federal employees as whistleblowers.

Next, Michael A. Sullivan (this whistleblower lawyer blog author) of Finch McCranie, LLP discussed briefly the trend of new State False Claims Acts, and then explained in greater detail the new IRS Whistleblower Rewards Program.

Mark A. Kleiman of Santa Monica closed by regaling the audience with lessons he has learned from False Claims Act litigation, in particular from the recent case against Merck that resulted in a huge settlement.

I enjoyed this terrific opportunity to work with and hear from these accomplished lawyers, and thank NELA (especially Terri Chaw and the NELA staff) and my friends at NELA-Georgia for organizing this outstanding conference. I applaud the work not only of my co-panelists at the NELA Conference, but also of the many NELA members who strive tirelessly to obtain justice for their clients.