Whistleblower Lawyer Blog

Last week the government's criminal trial of former GlaxoSmithKline vice president and associate general counsel Lauren Stevens ended abruptly, as the judge found no basis to allow the case to go to a jury. Prosecutors had charged that she obstructed justice and made false statements to cover up the company’s improper marketing of the antidepressant drug Wellbutrin SR.

While she dodged a bullet, the case jolted lawyers handling health care fraud investigations, which are more typically civil cases under the False Claims Act.

Yet also last week, prosecutors succeeded in convicting Raj Rajaratnam for insider trading. Wall Street's hedge fund industry took note of the government's use of investigative tools such as recorded phone calls.

Jury selection begins today in the trial of Zfi Goffer, his brother Emanuel Goffer, and securities trader Michael Kimelman, on charges of securities fraud and conspiracy. More than one lawyer at a white-shoe firm was ensnared in this investigation and pleaded guilty.

Writers at the Wall Street Journal blog correctly observed recently that the federal government--after years of targeting primarily companies engaged in fraud--has turned to pursuing individuals allegedly responsible for corporate fraud.

In egregious cases--especially those involving falsifying or concealing evidence--individuals now face criminal prosecution more frequently. Even if the person escapes prosecution, exclusion and debarment of individuals who had responsibility over their companies' fraud is a growing trend.

Fraud hurts taxpayers and investors. If sanctioning the company is seen as just a "cost of doing business," it is a logical step for the government to pursue those individuals who direct fraud.

False Claims Act history repeated itself today.

Since Congress acted decisively in 1986 to breathe life into the False Claims Act through amendments intended to expand use of the nation's major anti-fraud whistleblower law, the Supreme Court and some lower courts have regularly intervened by imposing their own views on what Congress must have meant in writing the 1986 amendments.

Those decisions hostile to enforcement of the False Claims Act included Allison Engine Co. v. United States ex rel. Sanders, 553 U.S. 662 (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)).

Since then, in 2009 and 2010 Congress responded emphatically with three more sets of FCA amendments to state, in essence, what Congress actually intended in 1986, and still intends, the law to mean. We have previously discussed those amendments made by the 2009-2010 legislation known as FERA, PPACA, and Dodd-Frank. (Fraud Enforcement and Recovery Act of 2009, Pub. L. No. 111-21, 123 Stat. 1617 (“FERA”); Patient Protection and Affordable Care Act, Pub. L. 111-148, 124 Stat. 119 (“PPACA”); Dodd-Frank Financial Reform Act ("Dodd-Frank"), Pub. L. No. 111-203, 124 Stat. 1376.)

Today's decision in Schindler Elevator Corp. v. United States ex rel. Kirk is a victory for those who seek to make it more difficult to use the "old" version of the False Claims Act to battle fraud against taxpayers. The Supreme Court's decision today continued the legislative tennis match with Congress.

The Court held that what is known as the "public disclosure bar" of the False Claims Act deprived courts of jurisdiction over this qui tam whistleblower case, because the whistleblower had attempted to corroborate his allegations through FOIA requests.

Fortunately for those who favor stopping fraud against taxpayers, the decision should have no effect on qui tam cases filed after the March 22, 2010 enactment of PPACA, the major health reform bill.

Continue reading "New Supreme Court False Claims Act Decision Today: Could This Court Be Any Friendlier to Qui Tam Defendants?" »

As has been reported today in Tax Notes and CCH, my colleague Richard Rubin and I addressed the IRS at its hearing yesterday on the proposed IRS Whistleblower rules. We were able to speak for roughly one-third of the hearing.

The government panelists were (1) the Department of Treasury's Alexandra Minkovich, an attorney-advisor in the Office of Tax Policy; (2) Stephen A. Whitlock, the Director of the IRS Whistleblower Office; (3) Thomas J. Kane, Senior Level Counsel at the IRS Office of Associate Chief Counsel (Procedure and Administration); and (4) Kirsten N. Witter, Chief, Ethics and General Government Law Branch, Office of Associate Chief Counsel (General Legal Services).

We focused on fundamentals. We urged that Treasury and the IRS must stay true to the intent of Congress to expand the number and types of IRS whistleblower claims that the IRS receives and pursues, and that merit awards to whistleblowers.

I argued that, from the outside, it appears that some in the IRS may be determined to undermine and thwart the the creation of the broad new tax whistleblower program that Congress has plainly ordered. Instead, major rules and policies proposed to date are in many ways more restrictive than those under the "old" program, which cannot be the result Congress intended.

Those restrictions and policies also create needless obstacles--such as a proposed two year delay that did not exist under the "old" system--that will discourage IRS whistleblower claims. The public will suffer as a result, becuase many unlawful tax schemes will go undetected without whistleblowers exposing them.

We argued for a straightforward rule that fulfills Congress's intent that any whistleblower claims providing a financial benefit to the Treasury should merit a whistleblower reward. Predictability of rewards is essential to attracting whistleblowers, especially those with information about the largest and most complex tax schemes.

Excerpts of an unofficial transcript of the hearing are reprinted below:

Continue reading "Tax Whistleblower Attorneys At IRS Hearing Urge Treasury and IRS to Be True to Congress's Intent in Expanding the IRS Whistleblower Program" »

A frequent question I receive is whether non-US citizens can receive rewards under the IRS Whistleblower Program. There is no limitation to US citizens, and persons around the world are eligible to participate in the IRS Whistleblower Program, regardless of citizenship.

Perhaps this is one reason why the May 11 hearing in DC on the IRS Whistleblower rules has attracted attention far and wide, from the India Times, to the American Banking and Market News, to the Northside Neighbor. We will keep you posted on what happens at the hearing.

The 2008 financial sector collapse has led to another False Claims Act case against financial institutions. Today, Deutsche Bank and MortgageIT were named in a mortgage fraud case under the False Claims Act, filed by U.S. Attorney Preet Bharara of the Southern District of New York.

The government's Complaint alleges that Deutsche Bank and MortgageIT "repeatedly lied to be included in a Government program to select mortgages for insurance by the Government. Once in that program, they recklessly selected mortgages that violated program rules in blatant disregard of whether borrowers could make mortgage payments. While Deutsche Bank and MortgageIT profited from the resale of these Government-insured mortgages, thousands of American homeowners have faced default and eviction, and the Government has paid hundreds of millions of dollars in insurance claims, with hundreds of millions of dollars more expected to be paid in the future."

While health care fraud has been the subject of most qui tam cases under the False Claims Act in recent years, bank fraud, mortgage fraud, and other financial fraud and abuse promise to be growing areas of enforcement in False Claims Act cases.

Financial fraud can fall not only within the False Claims Act--the nation's major whistleblower law--but also within the IRS Whistleblower Program and the new SEC Whistleblower Program and CFTC Whistleblower Program being created as a result of the 2010 Dodd-Frank financial reform law.

We have followed the IRS, SEC, and CFTC whistleblower programs carefully as we have pursued cases on behalf of our whistleblower clients. After meeting separately with the Chairman of the SEC and its commissioners, and later with the Chairman of the CFTC to discuss their agencies' proposed whistleblower rules, I will be in D.C. on May 11 to address the IRS rules for whistleblower claims. Of course, the False Claims Act under which Deutsche Bank and MortgageIT were sued was the model for these newer whistleblower programs. We have written extensively about the dramatic success of this law enforcement statute in fighting fraud that robs taxpayer funds.