Whistleblower Lawyer Blog

Smart and effective state Attorneys General have fought fraud against their citizens through encouraging greater use of the country's major whistleblower law, the False Claims Act, and state versions of that law.

Texas AG Greg Abbott, for example, has a staff that has long distinguished itself for recovering millions of stolen taxpayer funds in health care fraud cases, under the leadership of Pat O'Connell and, more recently, Ray Winter.

Following this tradition, Indiana AG Greg Zoeller is urging employees of pharmaceutical companies and heath care entities to help stop health care fraud, and possibly share in the recovery as qui tam whistleblowers under the state and federal False Claims Acts.

While we have discussed in detail how the False Claims Act operates, AG Zoeller's announcement gives a succinct summary. We have reprinted it below, and applaud his efforts.

Continue reading "Indiana Attorney General Invites Qui Tam Whistleblower Cases by Health Care & Pharmaceutical Employees To Stop Health Care Fraud" »

When IRS whistleblowers save U.S taxpayers money, they deserve the rewards that lawmakers such as Sen. Chuck Grassley fought to establish. In 2006 his efforts resulted in the first meaningful IRS Whistleblower program ever, which is attracting many tax whistleblowers with significant evidence.

We have discussed previously the many positive aspects of the long-awaited IRS Whistleblower procedures published in June--and one illogical, self-defeating feature. Some in the IRS--and apparently not the IRS Whistleblower Office--thought whistleblowers should not be rewarded when they report tax violations that prevent a tax refund, or reduce a credit balance. (See, e.g., IRM 25.2.2.1(7)). The Washington Post's David Hilzenrath has reported on this anomaly.

Sen. Grassley acted swiftly to protect the IRS Whistleblower program. In a June 21, 2010 letter to Treasury Secretary Tim Geitner, Grassley forcefully urged that a more sensible rule replace this new IRM oddity:

In addition to the IRS posting the new IRM provisions without public comment, there are many substantive concerns within the IRM. For example, the new definition of"collected proceeds" is particularly troubling because it seems to limit the payment of awards to whistleblowers only in those instances where the IRS receives cash payment from a taxpayer. An IRS spokesperson, in response to an inquiry from the media, stated that the IRS is bound by the written statute. Yet, this was never raised with me or my staff. The denial of a whistleblower award where the whistleblower's information leads to the denial of a claim for refund seems to create a perverse incentive for the whistleblower to wait until the IRS has paid an improper refund. In addition, the IRM says that satisfaction of a taxpayer's liabilities by reducing a credit balance is not within the scope of collected proceeds so the whistleblower would receive no award.

The IRS position is even inconsistent with its prior rule on paying rewards.

The IRS should listen to Sen. Grassley and modify this nonsensical rule. Billions in taxpayer funds can be saved by whistleblowers who help prevent bogus refunds, or reduce a tax cheat's credit balance. Grassley has more knowledge of what makes an effective whistleblower program to protect taxpayer funds than perhaps anyone in government.

We (and our whistleblower clients) look forward to reason prevailing at the IRS, and a change in this interpretation of "collected proceeds."

When Pharma manufacturers are targeted by the Department of Justice, qui tam whistleblower cases under the False Claims Act are often the reason.

Now, whistleblowers may also receive rewards for reporting violations of the Foreign Corrupt Practices Act (FCPA), thanks to the new whistleblower provisions of the Wall Street financial reform law. Announcements like Merck's recent SEC filing that it is now the subject an FCPA investigation involving other Pharma companies should become common, as corruption will now be increasingly exposed in a new wave of SEC Whistleblower cases.

The recent 10-Q filing of Merck & Co., Inc. stated in part:

The Company has received letters from the DOJ and the SEC that seek information about activities in a number of countries and reference the Foreign Corrupt Practices Act. The Company is cooperating with the agencies in their requests and believes that this inquiry is part of a broader review of pharmaceutical industry practices in foreign countries.

As we have followed through its development, the Dodd-Frank financial reform law created the new SEC Whistleblower and CFTC Whistleblower programs, which will include FCPA cases.

The FCPA, as we have discussed previously, prohibits bribery of foreign government officials in international business transactions, and false entries in books and records of those companies within the statute. Whistleblowers who assist the SEC recover monetary sanctions in FCPA cases now have an enforceable right to a monetary award of 10-30%.

Pharma's exposure for any bribes and kickbacks abroad are a ripe subject for FCPA enforcement.

Continue reading "Merck and Other Pharma Companies Probed by DOJ and SEC in Foreign Corrupt Practices Act (FCPA) Investigation" »

Only days after the new financial reform law created the first potentially meaningful awards for whistleblowers reporting securities and commodities violations and abuses, the SEC may have signaled a new attitude toward encouraging whistleblowers.

The SEC recently announced its first million dollar award for a whistleblower's report of information about insider trading involving hedge fund adviser Pequot Capital Management, Inc., its chief executive, Arthur J. Samberg, and David E. Zilkha, a Microsoft employee.

Although $1 million may not sound like much when compared to the losses caused by the Madoffs of the world, it is a dramatic improvement over what the SEC had done before.

In following the development of the new SEC Whistleblower Program, we previously discussed the Inspector General's summary of how, over the past eleven years, the SEC had paid a total of less than $160,000 to reward whistleblowers under the "old" SEC bounty program for whistleblowers. The IG reported:

The SEC bounty program has made very few payments to whistleblowers since its inception and received a relatively small number of bounty applications. As a result, the program’s success has been minimal and its existence is practically unknown.
Since the inception of the SEC bounty program in 1989, the SEC has paid a total of $159,537 to five claimants as detailed in Table 1 below.

Source: OIG Generated

Just as another Inspector General's report in 2006 set the stage for the successful new IRS Whistleblower Program that is attracting many reports of even billions in tax liability, let's hope this Inspector General's report has motivated the SEC to make full use of the opportunity to build a meaningful whistleblower program. We are already getting calls from potential Wall Street whistleblowers wishing to take advantage of it, and it could be a rewarding process--depending on how well the SEC seizes the opportunity.

The SEC's recent announcement of the $1 million reward is reprinted below:

Continue reading "Does SEC Whistleblower Reward of $1 Million Signal A New Attitude Toward Wall Street Whistleblowing? " »

To battle offshore tax abuses and other international tax fraud and tax evasion, the IRS has announced that it is "realigning" and renaming its Large and Mid-Size Business (LMSB) division. To reflect its new emphasis, it will known as the "Large Business and International" division (LB&I).

As more transactions cross international borders, and more corporations and wealthy individuals use offshore tax havens and foreign low tax jurisdictions to avoid their tax obligations, the IRS is smart to focus more of its enforcement efforts in this way.

Based on our experience with tax whistleblowers, it is clear that the IRS Whistleblower Program is already seeing increasing numbers of tax whistleblower claims dealing with offshore tax abuses and other international tax issues.

The new IRS international unit will include a "transfer pricing" director, as well as a chief economist, who will oversee the IRS’s economic positions pertaining to transfer pricing.

(Transfer pricing, in ordinary language, involves a multinational company's reallocating income or expenses between related entities in different countries with different tax rates to reduce taxes, by artificially increasing or decreasing the price one business entity charges another for goods, services, or intangibles. Transfer pricing cases can be good IRS Whistleblower claims.)

This action is the latest IRS step to address international tax evasion, including the investigation of the misuse of offshore accounts and foreign entities by U.S. taxpayers. Last fall, the IRS introduced a Global High Wealth Industry unit to improve monitoring of tax compliance by high income individuals, and their related enterprises.

Time will tell if the IRS succeeds in its stated goal "to create a more centralized organization dedicated to improving international tax compliance.”

The IRS announcement is reprinted below:

Continue reading "International Tax Evasion Targeted by IRS Move to Revamp Its Large Business Division" »

"Offshore" accounts are an increasing priority of IRS enforcement, aided by the new IRS Whistleblower Program. The Offshore World has changed and will never be the same again. The traditional tax haven assurance of secrecy and anonymity won't necessarily work any more.

The US has concluded Tax Information Exchange Agreements (TIEA’s) with a number of Offshore jurisdictions. Although the TIEA’s fall short of comprehensive Double Tax Treaties, they allow the IRS to obtain tax information about entities and accounts in Offshore jurisdictions under certain circumstances.

In many cases, these agreements allow the jurisdiction to forego financial secrecy laws when faced with a specific information request from the IRS. In most cases, the exchange of information potentially covers civil as well as criminal investigations by the IRS.

So far the US has concluded TIEA’s with a number of jurisdictions including Gibraltar, Lichtenstein, Isle of Man, Aruba, Antigua and Barbuda, Cayman Islands, Guernsey, Jersey, Bahamas, British Virgin Islands, Monaco, Bermuda, Barbados, Costa Rica, Dominica, Dominican Republic, Grenada, Guyana, Honduras, Jamaica and Netherlands Antilles.

In recent years the US has tended to regard any country or jurisdiction that offers undue secrecy to investors as being equivalent to Offshore.

In terms of the “Tax Havens Abuse Act,” U.S. draft legislation has existed since 2007, which lists 34 jurisdictions as secrecy jurisdictions. Included in the list are jurisdictions not traditionally regarded as Offshore, including Switzerland and Singapore, as well as Malta, Cyprus, Luxembourg and Hong Kong.

Tax whistleblowers--including persons with knowledge of offshore tax schemes--will be increasingly important to the IRS effort to recover from those who engage in tax fraud and tax evasion. Honest citizens will appreciate whistleblowers' efforts to recover from those who refuse to pay their fair share of taxes, especially with the current U.S."tax gap" of several hundred billion dollars each year owed but not collected.

When whistleblower attorneys bring a qui tam False Claims Act case, the most successful results usually occur when Government counsel and the whistleblower's lawyers (Relator’s counsel) work together in what is known as the “public-private” partnership model.

This approach to qui tam cases allows the government to leverage its limited resources by calling on the resources provided by private attorneys. This is essentially a “joint prosecution effort, ” in which the government counsel and investigators can rely on Relator’s counsel at each stage,

--from the beginning of its investigation,

--to obtaining input for preparation of subpoenas for documentary evidence from the defendants,

--to review of evidence compiled by the government in response to subpoenas,

--to evaluation of the responses and explanations that defendants provide,

--to providing analyses and summaries of evidence rebutting the defendants’ factual arguments,

--to performing research that ultimately will be used by the government to rebut the defendants’ legal arguments,

--to performing damages calculations and marshaling arguments in support,

--to consulting with the government on negotiation strategies and steps to be taken to resolve the matter,

--and, finally, to try the case, or otherwise resolve the case.

The taxpaying members of the public are the beneficiaries of this joint effort, which allows the government both to stop and recover damages for fraud, as well as to make those who steal from taxpayers think twice.

Continue reading "How Whistleblower Lawyers Work Alongside Government Lawyers In Successful Qui Tam Cases Under the False Claims Act" »