Whistleblower Lawyer Blog

Health care cases that our lawyers see most often involve whistleblowers who know of violations of the False Claims Act. While we also pursue many IRS violations under the IRS Whistleblower Program, the health care industry is not the source of most of those claims.

In perhaps a new trend, last week a federal court in Florida agreed with the IRS that a hospital CEO is personally liable for failing to pay over to the IRS close to $2 million in payroll taxes. (Doulgeris v. United States, M.D.Fla., August 03, 2009).

Earlier this year, the chairman of the board of a tax-exempt hospital was held personally liable for the hospital's failing to collect and pay to the IRS payroll taxes, as the Fifth Circuit Court of Appeals affirmed that decision. (Verret v. United States, 5th Cir., 2009). The board chair, however, had extensive involvement in the operations of the entity.

Payroll tax fraud thus appears to remain an IRS priority. The reasoning of the Florida federal judge explains how the CEO was found personally liable for unpaid payroll taxes;

Continue reading "Court Agrees with IRS That Hospital CEO Is Personally Liable for Unpaid Payroll Taxes" »

The statute authorizing the SEC in insider trading cases to pay whistleblowers "bounties" of up to 10% of civil penalties is below. (See our separate post discussing why the SEC needs a new, meaningful whistleblower program to help stop the next Madoff scheme.)

Continue reading "SEC "Bounties" for Whistleblowers--The Statute" »

I had the pleasure of seeing again and speaking last week with Harry Markopolis, the "whistleblower" now renowned for his excellent work in recognizing and reporting to the SEC that Bernie Madoff was running a huge Ponzi scheme. Harry was in Washington attending the "IRS Whistleblower Boot Camp" sponsored by Taxpayers Against Fraud.

Harry Markopolis exemplifies the whistleblower who works diligently to "do the right thing." His appearance on 60 Minutes gave us a taste of his frustration over the years in attempting to cause the SEC to take action about Madoff.

We commend Harry for wearing the "white hat" so well--and we take our hats off to him. Let's hope the SEC creates a meaningful whistleblower program and listens to Harry about how it should operate.

Offshore tax evasion and international tax avoidance schemes have been priorities of the IRS and its IRS Whistleblower Program, as our whistleblower lawyer blog has followed repeatedly.

This week, the U.S. prosecution of the former head of UBS AG's wealth management business, Raoul Weil, took a strange turn as he failed to surrender himself and was declared a fugitive. Weil allegedly conspired to help 17,000 American taxpayers conceal approximately $20 billion of assets in Swiss accounts, to avoid payment of U.S. taxes.

Weil is not the only person to try to conceal himself from the many ongoing DOJ and IRS investigations into tax fraud, tax evasion, and other tax cheating and fraud. In June, former hedge fund manager Samuel Israel III reportedly tried to fake his own death, rather than face a 20-year prison sentence for defrauding investors out of $400 million. (He later turned himself in to authorities.)

Of course, these disappearances raise questions about Bernard Madoff's actions while not incarcerated as he faces the music for what is apparently perhaps the largest known fraud scheme in history.

Continue reading "Offshore Tax Evasion Case: Former UBS AG's Raoul Weil Declared a Fugitive" »

Continuing the "bailout," the Treasury Department has just announced the release of $14.77 billion in TARP funds to what it refers to as 43 "local" banks (listed below).

"Local" may be a misnomer, as the list includes $10 billion to Bank of America Corp., and more than $3 billion to American Express Company.

Let's hope that Congress and the Treasury Department make good on the promise to protect these taxpayer funds through effective oversight, meaningful restrictions, and whistleblower protections, and that Sen. Grassley's prediction that the qui tam whistleblower provisions of the False Claims Act will be used vigorously to redress any fraud or abuse with TARP funds comes true.

Below are today's announced recipients of the funds:

Continue reading "Treasury Department Announces $14 Billion in TARP Funds to More Than 40 "Local" Banks" »

The IRS Large and Midsize Business Division (LMSB) has published a new memorandum on how it will handle IRS Whistleblower claims, the process for citizens to report tax fraud, tax evasion, and other tax noncompliance--and share in the government's recovery of money. (http://www.irs.gov/pub/foia/ig/lmsb/lmsb-4-1108-052.pdf).

The LMSB Division has responsibility over corporations, subchapter S corporations, and partnerships with assets greater than $10 million. This IRS Division is divided by industry groups, including (1) Communications, Technology, and Media; (2) Financial Services; (3) Heavy Manufacturing and Transportation; (4) Natural Resources and Construction; and (5) Retailers, Food, Pharmaceuticals and Healthcare. (The IRS Financial Services group, as well as the IRS overall, will be especially busy as the troubled economy and the TARP "bailout" motivate more citizens to report tax cheating through IRS Whistleblower claims.)

Among the procedures discussed are measures to protect the confidentiality of the whistleblower and the whistleblower's information:

Protection of Whistleblower’s Information

It is a longstanding practice of the Service that the identity of a confidential source of information, including a whistleblower, will not be disclosed, except to those officials with a "need to know" in the performance of their official duties. This practice applies whether the request is made under the Freedom of Information Act or in the context of an administrative or judicial proceeding. If anyone outside the Service asks if a whistleblower has provided information impacting the examination, examiners should neither confirm nor deny that a whistleblower is involved in any matter. This response must be provided in all cases because the knowledge that a whistleblower provided information may, in fact, identify the whistleblower.

The IRS Whistleblower Program is an excellent initiative that states should emulate to recover scarce taxpayer dollars from those who cheat the law-abiding public, by not paying their fair share of the tax burden.

The Treasury Department last week issued its December 2008 report to Congress on what it has done with the "bailout" funds through the Troubled Asset Relief Program (TARP) and Capital Purchase Program (CPP). With more than 200 institutions receiving taxpayer money, an overriding question is how to prevent and redress the inevitable fraud and abuse of TARP and other taxpayer funds, through whistleblowers and other means.

Treasury reported that, as of December 31, 2008, it had invested $177.5 billion in more than 200 U.S. financial institutions. As discussed previously on the whistleblower lawyer blog, Treasury recounted its announced assistance to General Motors and GMAC, as part of the Automotive Industry Financing Program (AIFP).

Treasury also described its New Year's Eve investment in Citigroup of $20 billion in preferred stock and warrants, as part of a new Targeted Investment Program (TIP). It also discussed reporting to Congress on the "Asset Guarantee Program," an insurance program.

Treasury's list of institutions receiving funds is reprinted below.

With abuses already being reported by TARP whistleblowers, we urge the government to act decisively to plan for and redress the inevitable abuses that will occur. Sen. Grassley has emphasized that the qui tam whistleblower provisions of the False Claims Act be used to deal with TARP bailout fraud and abuse, as we have discussed previously. The IRS Whistleblower Rewards Program should also serve an essential role in protecting taxpayer funds, as well as rewarding whistleblowers.

Continue reading "With Treasury Reporting TARP Funds to More Than 200 Financial Institutions, Who--Besides Whistleblowers--Can Guard Against Fraud and Abuse?" »

The TARP bailout funding continues, as the Treasury Department announced today that it will buy $5 billion in senior preferred equity with an 8% dividend from GMAC LLC.

Senator Charles Grassley has emphasized that TARP and other "bailout" funds must be protected through whistleblower protections and whistleblower laws such as the False Claims Act. The GMAC announcement today will present ample opportunities to test those premises on which Congress approved the bailout funding.

The Treasury announcement is reprinted below:

Continue reading "Treasury Department Announces TARP Investment in GMAC" »

The Justice Department has announced that its investigation of offshore tax evasion will expand to include Europe's largest bank, HSBC in London, and Credit Suisse in Zurich. The increasing scrutiny of illegal offshore tax schemes comes as the Wall Street bailout and turmoil in the banking and financial services industries generate more interest in IRS Whistleblower Program claims.

DOJ and IRS continue to investigate UBS, Switzerland's largest bank. Last month saw the unsealing of the an indictment of Raoul Weil, a UBS senior executive, who faces charges of conspiring to defraud the United States by concealing American clients' taxable assets.

Scrutiny of Credit Suisse and HSBC reportedly includes whether the two banks may have helped U.S. clients hide up to $30 billion from U.S. tax authorities.

The IRS and DOJ investigations highlight differences in U.S. and Swiss law. Switzerland does not criminalize routine tax evasion, and bank secrecy rules in Switzerland prohibit disclosure of account holder information in these cases.

U.S. officials have already obtained previously "secret" UBS bank information reportedly revealing that some 20,000 U.S. citizens have maintained offshore accounts with UBS, and that approximately 17,000 of those accounts were never disclosed to the IRS. Estimates of willful tax evasion of $300 million per year have been reported previously.

These investigations also underscore problems in compliance with the IRS qualified intermediary program. Foreign financial institutions and foreign branches of U.S. financial institutions can agree with the IRS to be qualified intermediaries, and thus be subject to simplified withholding and reporting rules. The program seeks to make sure that the IRS is informed of foreign accounts with taxable assets, but many of these assets continue to be concealed from the IRS.

As U.S. taxpayers face an ever-increasing cost to "rescue" or bail out financial institutions, tax evasion and tax fraud schemes revealed by whistleblowers through the IRS Whistleblower Program will attract greater and greater scrutiny. Perhaps some of these whistleblowers can help offset the bailout's ultimate costs by reducing the several hundreds of billions in unpaid tax liability each year (the "tax gap").

One of the hallmarks of the new IRS Whistleblower Rewards Program is that whistleblowers have an enforceable right to rewards, and can appeal the IRS Whistleblower Office's rewards decisions to the U.S. Tax Court.

The Tax Court has taken a step forward in issuing new proposed amendments to its Rules of Practice and Procedure to prepare for IRS whistleblower cases. The amendments are reprinted below.

A critical improvement is that the Tax Court has listened to concerns expressed by whistleblower attorneys about the need to allow whistleblowers to proceed "anonymously" and not reveal their identity publicly. The explanation of New Rule 340 would allow anonymous filings to endeavor to preserve confidentiality:

"Pursuant to section 7461(b)(1), the Court may issue protective orders, upon motion by a party or any other person and for good cause shown, to prevent or restrict the disclosure of trade secrets and other information. See Tax Court Rule 103(a). As result of this authority, in appropriate cases, the Court may permit a petitioner to proceed anonymously and seal the record in that case. See, e.g., Anonymous v. Commissioner, 127 T.C. 89 (2006). The Court contemplates that these generally applicable statutory provisions, Rule 103, and related case law, while they do not require the Court's records in all whistleblower actions to be sealed or require the Court to permit all petitioners in those cases to proceed anonymously, do provide authority for the Court to allow a petitioner to proceed anonymously and to seal the record when appropriate in whistleblower actions."

The full text is as follows:

Continue reading "Tax Court Prepares for IRS Whistleblower Cases by Adopting New Proposed Amendments to Rules of Practice and Procedure " »

Will the IRS Whistleblower Program and the False Claims Act be powerful weapons in redressing the fraud and abuse that led to the current financial crisis--and to the future fraud and abuse that is certain to target the "bailout" billions of taxpayer funds?

Fraud and abuse have never been in short supply. The ongoing financial crisis points to staggering amounts of past financial abuses that now threaten to wipe out Americans' savings, if not undermine the world economy.

Now, the federal government's stated plans to spend hundreds of billions of taxpayer funds for the "bailout"--largely because of the lack of past oversight--will create countless opportunities for more fraud against the taxpayers.

In the Savings and Loan debacle, a judge asked, "Where were the lawyers?" Where were those who could have spoken out and stopped those abuses before they caused ruinous harm?

Today, the toxic loans, collateralized debt obligations, and credit default swaps that infect our financial system raise a broader question: how many persons failed to speak out to try to stop their corrupting misuse?

Scoundrels depend on silence from others while they loot the public fisc. To stop the looting, Americans (and others) must stand up, and speak up.

Whistleblowers will be essential to minimizing the theft of the bailout billions, through the IRS Whistleblower Program and the qui tam provisions of the False Claims Act, on which we have written extensively. Each allows private citizen whistleblowers to help the government recover taxpayer funds, and rewards the whistleblowers with what is typically 15-30% of the funds recovered.

It will be justice to see those whistleblowers courageous enough to speak up share in the government's recovery of the billions already lost, and the billions more of taxpayer funds that are about to be spent.

When Congress authorized the new IRS Whistleblower Program in December 2006, it required annual reporting to Congress about how the new whistleblower provisions have been used, what results were obtained, and what recommendations to improve the program should be considered.

The Secretary of the Treasury has recently issued the first such Report, which summarizes the first 12 months of the new IRS Whistleblower Office.

For those who follow the IRS Whistleblower Program, the Report provides a look into the substantial progress made in a short time by this very small group within the IRS. These developments have been followed on this whistleblower lawyer blog since the infancy of the IRS Whistleblower Office.

Much-anticipated data about recoveries and rewards paid under the IRS Whistleblower Program is included in the Report. In FY 2007, the IRS paid $13 million in rewards to "informants" (whistleblowers), but those rewards were based on the lower percentages that applied before the IRS Whistleblower statute was amended effective December 20, 2006, to double the size of rewards available to 15-30% of the government's recovery. Rewards for IRS Whistleblower claims submitted after December 20, 2006 should be much greater, especially since the new Program has generated a wave of submissions.

The IRS's priorities for the Whistleblower Program in FY 2008 include revising old policies and procedures concerning whistleblower rewards, developing the criteria to be used in making reward decisions, soliciting feedback to help guide the new Program, and testing and then deploying a new case management system. (Some of the same information will be discussed in an upcoming article on "best practices" in pursuing IRS Whistleblower claims that I was requested to write for the TAF Quarterly Review, based on my interview of IRS Whistleblower Office Director Stephen Whitlock in early September.)

We congratulate the very capable staff of the IRS Whistleblower Office for all of their progress to date. For those interested in reading the full Report, the body of the Report is reprinted below:

Continue reading "1st Annual Report on New IRS Whistleblower Program Issued by Secretary of the Treasury" »

As this whistleblower lawyer blog has discussed before, accounting firms that promote fraudulent tax shelters are prime targets of IRS enforcement efforts (often assisted by IRS tax whistleblowers).

In a decision last week, the prosecution of 13 former KPMG partners and other executives for their alleged involvement in fraudulent tax shelters was thwarted--again. A panel of judges from the Second Circuit Court of Appeals affirmed the trial judge's dismissal of the charges against these KPMG defendants.

The court did not find the tax shelters to be lawful, however. Instead, it agreed with the trial court that "the government deprived [the defendants] of their right to counsel under the Sixth Amendment by causing KPMG to place conditions on the advancement of legal fees to [the defendants], and to cap the fees and ultimately end them. Because the government failed to cure the Sixth Amendment violation, and because no other remedy will return [the defendants] to the status quo ante, we affirm the dismissal of the indictment."

We await the government's announcement whether it will ask the entire court to reconsider its ruling; seek review by the Supreme Court; or seek to bring other charges.

As we have written, tax fraud, tax evasion, and other violations of IRS laws, rules and regulations can be addressed--in criminal and civil cases, often with the help of whistleblowers--without violating the Constitution. Those enforcement efforts must continue, so that honest citizens do not get stuck paying more than their fair share of the tax burden.

On July 31, Congress enacted a new Whistleblower Law designed to promote consumer product safety. The new federal legislation specifically was enacted to protect public and private sector employees who disclose to their employers, a regulatory agency or a state Attorney General any perceived violation of the Consumer Product Safety Commission. The law also provides protection for employees who refuse to participate in violations of the Consumer Product Safety Commission Act. Obviously, the purpose of this legislation was to protect employees who, in good faith, report potential safety problems connected with consumer products and to prevent retaliation against such an employee either in the private or public sector. Any employee who, in good faith, reports or discloses potential violations of the Consumer Product Safety Commission Act, is protected from retaliation by this legislature.

Under the new whistleblower legislation, an employee who believes that they have been unlawfully retaliated against for disclosing a violation of the Consumer Product Safety Commission Act must file with the Occupational Health and Safety Administration (OHSA) a complaint of retaliation within 180 days of becoming aware of the retaliatory action. Afterwards, on an administrative basis, OHSA will conduct an investigation. Either the employee or the employer can request a hearing before an Administrative Law Judge (ALJ) and can appeal an adverse decision to the Department of Labor’s Administrative Review Board. If the Department of Labor has not issued a final decision within 210 days after the filing of the complaint, an employee may remove the complaint to Federal Court and ask for a jury trial.

Under the new Act’s provisions, in order to deter employers from retaliating against employees who, in good faith, report violations or potential violations of the Consumer Product Safety Commission Act, a prevailing employee who has been unlawfully retaliated against will be entitled, among other things, to reinstatement, back pay, compensatory damages and litigation costs including reasonable attorney’s fees.

We applaud this new legislation and hope that it will fulfill its statutory goals. All whistleblowers who have knowledge of safety violations involving consumer products now should feel more comfortable in coming forward to disclose such violations. If they do so, they are now legally protected.

As another step toward the further development of the new IRS Whistleblower Program, our friends at the IRS Large and Midsize Business Division (LMSB) in Lower Manhattan have announced a three-step process for IRS Whistleblower claims that are eligible for the new "rewards" authorized by Congress in December 2006.

IRS Commisioner Frank Ng describes it as a "process for analyzing informant information and disseminating it to the field" for claims with at least $2 million in question, which is the threshold amount for whistleblowers to be eligible to receive the new IRS whistleblower rewards of 15-30% of the government's recovery.

The first step is the "initial receipt of information and the initial review of the claim from the informant [whistleblower]," primarily by the IRS Whistleblower Office.

Second, the Whistleblower Office will "send the informant information to a Subject Matter Expert (SME) in each Business Operating Division," who will "evaluate the information provided by informants to determine its merit and what action should be taken."

As our whistleblower lawyer blog has written about previously, the IRS has taken steps to ensure that privileged or unlawfully obtained information is not presented. The 'Subject Matter Expert" will "insulate the audit team from direct contact with the whistleblower and must ensure the audit team does not receive 'tainted' information. Tainted information may include documents that are subject to privilege or were illegally obtained by the informant."

In the third step, "Counsel and the SME will make a recommendation to the Industry Director on the legal issues and risks associated with the informant information." The Industry Director then "will decide whether and how to proceed with the case."

The complete Memorandum from Commissioner Ng can be found at http://www.irs.gov/businesses/article/0,,id=185244,00.html.

We congratulate the IRS on the continued development of this valuable program!

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" »

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.

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!

One of the most meaningful improvements of the new IRS Whistleblower Program authorized by Congress in December 2006 is that IRS Whistleblowers have an enforceable right to a reward when they report significant tax violations. To enforce that right, tax whistleblowers can seek review by the U.S. Tax Court of award decisions.

This week, the United States Tax Court has proposed amendments to its Rules of Practice and Procedure regarding whistleblower award actions, which can be found at http://www.ustaxcourt.gov/press/060208.pdf. The IRS Whistleblower Office is expected to review the proposed Rules now and provide feedback to the Court.

The Tax Court also has invited public comments on the proposed amendments, to be received by July 31, 2008.

Excerpts of the Tax Court's announcement of the new proposed Rules for IRS Whistleblower claims are below:

Continue reading "New IRS Whistleblower Rules Are Issued by U.S. Tax Court " »

Bogus tax shelters and other tax fraud and evasion are among the common reports by tax whistleblowers to whistleblower attorneys. Today, the government launched a new, coordinated federal effort by the IRS, the Justice Department's Tax Division, and U.S. Attorneys to stop fraudulent tax claims, frivolous tax returns, and bogus tax schemes.

Quoting former Supreme Court Justice Oliver Wendell Holmes’ famous observation that “[t]axes are what we pay for a civilized society,” Nathan J. Hochman, the Tax Division’s Assistant Attorney General, announced the "National Tax Defier Initiative," or "TAXDEF." Its purpose is to "investigate, pursue and, where appropriate, prosecute those who take concrete action to defy and deny the fundamental validity of the tax laws."

According to the Tax Division, this TAXDEF initiative will:

--"Strengthen and expand coordination" among the Tax Division, the IRS, and U.S. Attorneys’ offices "to ensure that both criminal and civil enforcement tools are fully considered and utilized."

--"Leverage expertise and resources" so that agents and attorneys across the country may "efficiently detect, investigate and where appropriate, prosecute tax defiers," from a national perspective.

--Expand the government's use of injunctions to stop "tax defier activity. Since 2001 the Tax Division has obtained over 300 civil injunctions against tax promoters and preparers, over a third of which directly involved tax defier activity." The government views injunctions as a "powerful method of stopping the promotion of tax defier activity at the earliest possible moment," and estimates its collections at more than $600 million from these efforts.

--Maximize the government's use of technology to "detect, develop and prosecute cases." According to the Tax Division, the Internet in the last decade has "greatly facilitated tax defier activity and turned what was once a paper–based local or regional enterprise into a click and download national operation."

--"Alert and educate the public to the falsity of tax defier claims and publicize the consequences of tax defier conduct." The government says it wants "to pull back the curtain and show the public that the promoters of these schemes are not wizards imparting the secrets of a 'tax-free universe' but are nothing more than garden variety hucksters and modern day snake oil salesmen peddling tax evasion schemes."

Our whistleblower lawyer blog agrees with the government's theme today that tax cheats place a greater burden on the vast majority of honest Americans who pay their taxes. For this reason, those who expose tax cheating should be thanked for their efforts.

The government's announcement is at http://www.usdoj.gov/opa/pr/2008/April/08_tax_275.html.

Today saw a major development that could affect every whistleblower, whistleblower attorney, and whistleblower case involving the False Claims Act, the nation's primary whistleblower law. The U.S. Senate Judiciary Committee today approved new legislation to restore the False Claims Act to its originally intended strength, by eliminating a series of "loopholes" that dishonest government contractors had used to avoid liability.

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

The advocacy group Taxpayers Against Fraud (with which I am proud to be associated) describes the new law as "A Better Rat Trap" designed to put more "snap" into the False Claims Act, and 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.

According to Jeb White, President of Taxpayers Against Fraud, "[t]his is common sense legislation that we expect to sail through the House and Senate. . . . It's hard to be opposed to building a better rat trap to catch corporate cheats, chiselers, and con artists."

The bill passed the Judiciary Committee overwhelmingly, and moves forward in the legislative process.

We congratulate everyone who had a part in moving the new law forward, so that these loopholes for dishonest contractors may finally be closed.

The new IRS Whistleblower Program authorized by Congress in December 2006 continued its progress this week, with the IRS's announcement yesterday approving the use of contingent fee arrangements in retaining tax whistleblower attorneys.

Our whistleblower lawyer blog has followed the development of the new IRS Whistleblower Program since its infancy. The new tax whistleblower provisions are extremely important in the fight to protect taxpayer funds from fraud and other violations of the law.

In this March 27, 2008 announcement, Notice 2008-43, the IRS announced interim rules that would apply until it amends section 10.27(b) of Circular 230.

Citing the revised IRS Whistleblower statute, the interim rules state that "[a] practitioner may charge a contingent fee for services rendered in
connection with a claim under section 7623 of the Internal Revenue Code."

This is the second IRS announcement just this week about the new IRS Whistleblower Program. On March 25, 2008, the IRS announced temporary regulations concerning disclosing information to whistleblowers under contracts among the IRS, whistleblowers, and their attorneys.

We congratulate the IRS on moving forward with the new Whistleblower Program's development.

The IRS this week announced another interesting development in its new IRS Whistleblower Program, which this whistleblower lawyer blog has followed closely. This announcement addressed new regulations permitting the IRS to share tax return information with whistleblowers and their lawyers under written contracts with the IRS, and also to advise those whistleblowers and their attorneys about the status of their whistleblower claims.

On March 25, 2008, the IRS announced new, temporary regulations permitting "disclosure of [tax] return information . . . to a whistleblower and, if applicable, the legal representative of the whistleblower, to the extent necessary in connection with a written contract among the IRS, the whistleblower and, if applicable, the legal representative of the whistleblower, for services relating to the detection of violations of the internal revenue laws or related statutes."

If return information is disclosed to the whistleblower and the whistleblower's attorney under such an agreement, the information must be kept confidential. It "may not be disclosed or otherwise used by the whistleblower or a legal representative of a whistleblower, except as expressly authorized by the IRS."

How much the IRS may communicate with whistleblowers, and still fulfill legal requirements about privacy of taxpayers' returns, has been an interesting topic of discussion since the new IRS Whistleblower Program was created in December 2006. We look forward to discussing the new provisions with the very capable IRS officials who administer the new Whistleblower Program.

The new temporary regulations may be found at 26 C.F.R. § 301.6103(n)-2T(b)(1).

The Justice Department has announced that Besler & Company, Inc., a New Jersey health care consulting firm, and its principal Philip Besler, have agreed to settle allegations of fraud against the federal Medicare program, which were initiated by two qui tam whistleblower cases. The settlement is for $2.875 million, plus interest, paid to the federal government.

The settlement concludes that the Besler firm counseled hospital clients to improperly increase charges to Medicare patients, so that they would obtain enhanced reimbursement from Medicare.

Medicare pays supplemental reimbursements or "outlier payments" to hospitals when the cost of care is unusually high. Congress enacted the supplemental outlier payment system to ensure that hospitals possess the incentive to treat inpatients whose care requires unusually high costs.

The Justice Department's announcement alleged that, "between January 2001 and August 2003, Besler & Company advised hospitals to purposefully inflate charges for inpatient and outpatient care to make these cases appear more costly than they actually were, and thereby augment their outlier reimbursements."

We congratulate those involved for bringing about this result!

Tomorrow, the Senate Judiciary Committee will hold a hearing on a much-needed bill that will restore to its intended effectiveness the government's primary law for combating fraud.

Our whistleblower lawyer blog has written previously about the "False Claims Act Correction Act." The Act is one of the most significant developments in whistleblower law since the 1986 amendments that created the modern False Claims Act.

This is a bipartisan bill designed to restore the government's "primary" tool for fighting fraud against taxpayers, the False Claims Act, to its intended usefulness. Several court decisions have weakened the False Claims Act and inhibited its effectiveness in fighting fraud.

The publication Legal Times contacted me last week to discuss the bill's importance. In its February 25, 2008 issue, Legal Times (http://www.law.com/jsp/dc/PubArticleDC.jsp?id=1203508156014&hub=TopStories) includes only one comment from a "whistleblower" lawyer, my comment that:

"'This would remove a series of technicalities for those who get away with stealing taxpayer funds,” says Michael Sullivan, a plaintiffs lawyer at Atlanta’s Finch McCranie."

What was edited out is that those who have succeeded in defrauding the public now often take advantage of a series of "technical" defenses that allow them to escape accountability--defenses that were never intended by Congress in enacting the current version of the False Claims Act.

No contractor who has not committed fraud will have any concerns about the new bill.

We will continue to report on the bill's progress!

The trend of new state False Claims Acts with qui tam whistleblower provisions continues, as Louisiana considers whether to adopt its own version of the federal False Claims Act.

The growing number of state False Claims Acts 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.

New Jersey enacted its new False Claims Act in January 2008. It became the 20th state with such a qui tam whistleblower law.

We applaud Louisiana's progress with its new False Claims Act!

Whistleblowers and their attorneys filing suit under the False Claims Act helped federal authorities recover $2.2 billion in Medicare and Medicaid fraud cases in fiscal year 2006, according to a government report just released. The whistleblowers or "relators" received $140 million of the proceeds for their efforts, under the qui tam provisions of the False Claims Act.

As this whistleblower lawyer blog has written about extensively, the federal False Claims Act is the government's "primary" weapon for combating fraud. As health care expenditures have grown as a share of the federal budget, health care fraud now accounts for more than 70% of the government's annual fraud recoveries.

It was encouraging to see the new "Health Care Fraud and Abuse Control Program Annual Report For FY 2006." This report by the Office of Inspector General (OIG) of the Department of Health and Human Services (HHS), and the Department of Justice, summarizes both organization's FY 2006 results in battling Medicare and Medicaid fraud and recovering money improperly obtained from these programs.

In 2006, DOJ and OIG surpassed their 2005 recoveries totalling $1.47 billion in cases involving health care fraud and abuse.

This report cited 836 new investigations begun during 2006, for a total of 1,677 active investigations. 547 defendants in heath care fraud cases were convicted in criminal prosecutions in 2006.

In civil cases, DOJ took on 915 new health care fraud cases, which raised the total to more than 2000 in 2006.

The largest single recovery was a $900 million settlement Tenet Healthcare Corp. Whistleblowers came forward to report that Tenet was abusing Medicare and paying kickbacks to physicians to send patients to Tenet hospitals.

Other notable recoveries from hospital systems in FY 2006 included St. Barnabas Health Care System in New Jersey ($265 million), Beth Israel Medical Center in New York ($73 million), the Chattanooga-Hamilton County Hospital Authority in Tennessee ($37 million), University Hospitals Health System in Ohio ($13.8 million), Our Lady of Lourdes Regional Medical Center in Louisiana ($3.8 million) and the Milton S. Hershey Medical Center in Pennsylvania ($2.9 million).

Pharmaceutical fraud recoveries included $704 million from drug manufacturer Serono, and $435 million from Schering-Plough.

Durable medical equipment (DME) fraud also resulted in significant recoveries.

For those wishing to review the complete report, it is at http://oig.hhs.gov/publications/docs/hcfac/hcfacreport2006.pdf.

We congratulate OIG and DOJ on their successful efforts in recovering more than $2 billion of money fraudulently obtained from health care programs in FY 2006.

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.

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!

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" »

The IRS a few hours ago issued the long-discussed "interim" guidance on pursuing Tax Whistleblower claims under the new IRS Whistleblower Program. This IRS Notice 2008-4 on filing claims under the IRS Whistleblower Program is effective January 14, 2008, and appears at http://www.irs.gov/pub/irs-drop/n-08-04.pdf.

Our whistleblower attorneys who work with the IRS in representing Tax Whistleblower clients will be continue their discussions of how the new IRS Whistleblower program is operating. The IRS Notice is reprinted below for convenience of whistleblower lawyer blog readers:

Continue reading "IRS Whistleblower Instructions for Filing Tax Whistleblower Claims Issued by IRS--and Are Reprinted Here on Whistleblower Lawyer Blog" »

Our whistleblower lawyer blog has followed closely the evolution of the new IRS Whistleblower Program, which celebrates its one-year anniversary on December 20, 2007. Late today, on the eve of that anniversary, the new IRS Whistleblower Office issued long-awaited interim "guidance" for filing Tax Whistleblower claims--which should help tax whistleblowers and their attorneys.

Until now, whistleblower lawyers and their clients had to learn the procedures from reports of various public statements and discussions with IRS officials. I had the pleasure of getting to know how the IRS Whistleblower Office's Director Stephen Whitlock intends to approach these claims, through appearing on a panel discussion with him in September in Washington to explain how the new IRS Whistleblower Program operates.

This interim guidance appears in IRS Notice 2008-4, which will be reprinted on this whistleblower lawyer blog in the next post. The IRS is soliciting comments, and much discussion undoubtedly will follow, both on our whistleblower lawyer blog and elsewhere.

It is an exciting day to see the new Guidance from the IRS on this important new IRS Whistleblower Program! We look forward to discussing it in detail on this blog, but simply wanted to get the word out tonight about this IRS announcement received from the IRS shortly before 6:00 p.m. tonight.

Continue reading "Tax Whistleblowers: IRS Whistleblower Office Issues Long-Awaited Guidance for Tax Whistleblower Claims" »

At a conference on False Claims Act Litigation on November 30, attorneys representing the government, relators or whistleblowers, and defendants gathered to discuss whistleblower law issues. The conference was organized by the law firm of Balch & Bingham LLP.

This whistleblower lawyer blog writer had the pleasure of appearing on a panel with the Chief of the Civil Division of the U.S. Attorney's Office in Atlanta, Amy Berne, and with Balch & Bingham's John Markus.

Amy Berne opened with an overview of how the government handles False Claims Act cases, and answered many questions about what affects the government's assessment of an FCA case. It is always informative to be able to ask the chief prosecutor what influences her decisions.

John Markus offered a very interesting perspective on compliance issues. From 2004 to 2007, John served as Executive Vice President and Chief Compliance Officer for HealthSouth Corporation, where he directed the development of a regulatory compliance program as part of a comprehensive restructuring initiative. He also negotiated and directed the implementation of Corporate Integrity Agreement with the Office of Inspector General for the Department of Health and Human Services.

This whistleblower lawyer spoke on some of the reasons whistleblowers come forward and report fraud; goals in representing whistleblowers or relators; and new legal developments such as the wave of new State False Claims Acts, and proposed dramatic changes to the federal False Claims Act.

I appreciated the opportunity to join this group of accomplished lawyers, and thank Balch & Bingham's Mike Bowers, Rich Saunders, John Markus, and Christopher S. Anulewicz for organizing the seminar.

Two important topics of this whistleblower lawyer blog are addressed in a recent Government Accounting Office (GAO) Report on tax cheating by Medicaid providers. The Report shows the wisdom of the new IRS Whistleblower Program, which fills a "gap" in the coverage of the major whistleblower statute, the False Claims Act.

GAO reports that thousands of Medicaid providers collect large amounts of federal dollars each year, while cheating the government by failing to pay taxes owed--usually payroll taxes and personal income taxes. In testimony before the Permanent Subcommittee on Investigations, Senate Committee on Homeland Security and Governmental Affairs, GAO's Gregory D. Kutz, described these abuses.

These tax abuses reportedly included:

• The owner of a chain of nursing homes, who owed more than $14 million in taxes, while having a $2 million home with crystal chandeliers, porcelain china, and Oriental rugs.

• The owners of a hospital, who owed $5 million in payroll taxes, but who bought a vacation home worth $1 million.

• A medical-clinic owner, who owed more than $1 million to the IRS, had a $4 million house, luxury vehicles, and a pleasure boat.

According to the Report, "[r]ather than fulfill their role as 'trustees' of federal payroll tax funds and forward them to IRS, these providers diverted the money for other purposes. Willful failure to remit payroll taxes is a felony under U.S. law. Individuals associated with some of these providers diverted the payroll tax money for their own benefit or to help fund their businesses. Many of these individuals accumulated substantial assets, including million-dollar houses and luxury vehicles, while failing to pay their federal taxes. In addition, some case studies involved businesses that were sanctioned for substandard care of their patients. Despite their abusive and related criminal activity, these 25 providers received Medicaid payments ranging from about $100,000 to about $39 million in fiscal year 2006." (http://www.gao.gov/new.items/d08239t.pdf, at 2).

The new IRS Whistleblower Program may provide a means to stop this abuse. Authorized by Congress in December 2006 (with the new regulations due to be issued by December 20, 2007), the new IRS Whistleblower Program established an enforceable right for "whistleblowers" or informants to receive 15-30% of money recovered by the IRS, including interest and penalties.

The federal False Claims Act, which was invigorated in 1986 with provisions that have made it the government's "primary" weapon against fraud, allows rewards for whistleblowers who report Medicare fraud, Medicaid fraud, and most other types of fraud and false claims against the federal government. The False Claims Act expressly does not apply to IRS obligations, however. Thus, the new IRS Whistleblower Program allows whistleblowers to help stop tax fraud and evasion by Medicaid providers, and to receive a share of the recovery.

Our whistleblower attorneys will continue to work both with the IRS and with the Department of Justice in representing whistleblowers who bring such fraud to light.

Once again displaying the effectiveness of the False Claims Act in combating government fraud, the Justice Department has announced that it recovered $2 billion in fraud cases in the latest fiscal year that ended September 30, 2007. Qui tam whistleblower cases under the False Claims Act accounted for at least $1.45 billion of those recoveries, with the whistleblowers (or "relators') sharing in those recoveries.

In all but one year since 2000, False Claims Act cases have generated at least $1 billion in recoveries, with whistleblowers responsible for cases that produced most of those judgments and settlements.

Health care fraud cases involving Medicare, Medicaid, and other government programs once again generated the most dollars--$1.54 billion, more than 75% of the total recoveries.

Pharmaceutical companies paid the lion's share of the health care fraud recoveries. The government's settlements with Bristol-Myers Squibb Co., Aventis Pharmaceuticals, Inc., Medco Health Solutions, Inc., Purdue Pharma L.P., Purdue Frederick Co., and InterMune, Inc. totalled over $800 million.

The Justice Department has focused on cases of Pharma's “off-label” marketing; kickbacks to physicians, wholesalers, and pharmacies to induce sales of drugs or medical devices; inflating the drug "prices" that federal programs use to reimburse providers, then "marketing the spread” between the federal reimbursement and the provider’s lower cost; and failing to report the drug company’s actual “best price” so as to reduce rebates required to be paid.

In addition to the federal dollars recovered, states recovered an additional $264 million in pharmaceutical fraud cases--demonstrating why state versions of the False Claims Act such as those enacted in 2007 by New York, Georgia, and Oklahoma are such a good idea.

The defense industry once again holds the number two position in government fraud, accounting for more than $48 million.

For an understanding of the False Claims Act, please see our in-depth article explaining the False Claims Act and its increasing importance in combating fraud by rewarding whistleblowers for stepping forward.

Anticipating the new IRS Whistleblower Program regulations that are due by the December 20, 2007 first anniversary of the new IRS Whistleblower Program, the IRS Office of Chief Counsel has just issued a Notice on "Coordination of Section 7623 Whistleblower Claims in the Tax Court."

As discussed extensively on this whistleblower lawyer blog, one of the major features of the new IRS Whistleblower Program is that whistleblowers who meet the program's criteria now have an enforceable right to share in money recovered by the government based on the whistleblower's information submitted. The Tax Court now has jurisdiction to consider appeals of whistleblower rewards.

The Notice on November 1, 2007 from the IRS Office of Chief Counsel, CC-2008-001, provides guidance relating to this new cause of action in the Tax Court, the review of award determinations made by the IRS Whistleblower Office. (See http://www.irs.gov/pub/irs-ccdm/cc-2008-001.pdf.)

This Notice recites that, pending additional procedures being established in the CCDM regarding pleadings, motions and decision documents, if a petitioner raises a section 7623 ("whistleblower reward") issue in a Tax Court case, certain notifications should be given to the Office of Associate Chief Counsel (Procedure & Administration), Branch 7, and the Office of Associate Chief Counsel (General Legal Services), Public Contracts and Technology Law Branch, to discuss how the issue should be "handled and coordinated."

For information provided to the IRS before the effective date of the new Whistleblower Program, December 20, 2006, the IRS has stated that the "old" law applies.

I know from speaking with IRS Whistleblower Office Director Stephen Whitlock this Fall, before and after our presentation together in Washington on the new IRS Whistleblower Program, that the IRS is busy working to complete the new regulations that will govern this first meaningful IRS Whistleblower Program. We look forward to reporting on these developments, and to continuing to work with the IRS in representing whistleblowers with information about significant tax noncompliance and tax fraud.

After all, why should honest citizens continue to pay more, becuse of tax cheating by those who refuse to bear their share of the load?

Continuing this whistleblower lawyer blog's discussions of the IRS's strong interest in hedge funds and private equity firms, there have been several recent public statements and reports about IRS efforts to identify and stop tax fraud and tax noncompliance in these segments of the financial services industry.

Today, suspected tax abuses by hedge funds and private equity managers were the subject of a Tax Notes report, which cites a November 1, 2007 statement by the IRS. That same day, Bloomberg reported that IRS officials have identified seven areas of "interest" to examine for tax violations and abuses:

(1) failing to file or improper filing of tax returns and information returns;

(2) circumventing withholding requirements on cross-border loans;

(3) managers' failing to pay tax on all income they receive;

(4) improperly classifying ordinary income as capital gains;

(5) circumventing tax laws by funds flowing between onshore and offshore entities;

(6) the timing and allocation of incentive payments and other income; and

(7) using improper accounting methods to minimize income.

On the same day, the House Ways and Means Committee voted to approve legislation to treat (and tax) payments to private equity firm partners who perform investment services as ordinary income, rather than as capital gains; and also to tax nonqualified deferred compensation paid by offshore hedge funds to investment managers. The debate continues in Congress about these issues.

With those many honest persons at hedge fund and private equity firms apparently being asked to "look the other way" in the face of such abuses--and perhaps risk exposing themselves to criminal or civil liability by appearing to "go along" with the wrongful acts--the number of "whistleblowers" who take advantage of the confidential procedures of the new IRS Whistleblower Program is increasing.

The new IRS Whistleblower Program will help identify and discourage these abuses, as hedge funds and private equity firms remain a great priority for the IRS. As IRS official Stuart Mann of the IRS Financial Services group emphasized to me when I saw him recently, "Bring your hedge fund whistleblower clients directly to me." These whistleblowers perform an essential public service.

This week, the United States Supreme Court agreed to hear a False Claims Act whistleblower case filed against the General Motors Corporation and its former division, Allison Engine Company. The alleged fraud concerns subcontracts for building parts for the U. S. Navy’s guided missile destroyers. Each of the 50 destroyers in question costs the taxpayers over $1 billion.

At issue in this case is an argument being made by the defendants that the whistleblower and the government cannot attack the alleged fraud scheme under the False Claims Act based on the failure of the subcontractor (Allison Engine Company) to personally present claims for payment to the United States government. (In short, even if fraud occurred, the subcontractor cannot be sued under the False Claims Act because the subcontractor did not itself present false claims to the federal government.) This rule, known as the “Totten” rule, was first articulated by the now Chief Justice of the Supreme Court John Roberts when he previously served on the U. S. Court of Appeals for the D. C. Circuit. The “Totten” rule allows subcontractors to escape liability under the False Claims Act if they were not the actual party who formally presented the claim to the government for payment.

In the case which the Supreme Court has agreed to review, the lower Appeals Court supported the whistleblower’s claims and explicitly rejected the “Totten” rule. The Court of Appeals reasoned that the subcontractor’s liability should not depend on a technical presentment of a claim to the government, but whether government money was used to pay a false and fraudulent claim for payment on the contract.

Obviously, this technicality is being used by defendants in many cases where the subcontractor does not actually itself submit a false claim for payment to the government, but instead “causes" it to be submitted (usually by the general contractor), but still ends up collecting substantial taxpayer monies. Obviously, the central focus of the False Claims Act is not only to hold liable not only those who submit a false claim to the government, but also anyone who causes such a false claim to be submitted with the intent that the government be defrauded. Obviously, the “Totten” rule needs to be overruled by the Supreme Court but given the fact that Chief Justice Roberts issued the “Totten” opinion when he was an Appellate Court Judge himself, court observers are mixed as to whether the Supreme Court will reject the rule and uphold the intent of the False Claims Act, or whether it will side with defendants and make it easier to escape liability for fraudulent conduct on technical grounds.

We have already written about the new amendments recently proposed to the False Claims Act in the Senate that would eliminate the Totten defense, and restore the False Claims Act to its original intended result in other ways as well. The “Totten” rule is bad law and bad public policy. If one causes a false claim to be submitted, this should be sufficient; otherwise form is elevated over substance. This whistleblower firm hopes that common sense will prevail in the Supreme Court.

On this whistleblower lawyer blog, we have written previously about abuse of stock options--and how the IRS has declared that tax fraud and evasion from back-dating of stock options is a "Tier I" priority. Now, stock option fraud and income tax evasion will send a former stock options administrator to prison for almost four years.

The Securities and Exchange Commission has announced that Vencent Donlan was sentenced in a California federal court to 46 months in prison after pleading guilty to wire fraud and tax evasion charges. He was alleged to have fraudulently obtained stock and stock options from Wireless Facilities Inc.

Between November 2002 and November 2003, Donlan allegedly received more than $7 million by abusing his position as WFI's stock option grant administrator. The SEC alleged that Donlan issued and transferred more than 700,000 shares of the company's stock and stock options to a brokerage account that Donlan held with his wife. Donlan was alleged to have made false entries in WFI's stock options software to hide unauthorized stock option grants he made to his wife, as well as to have provided false information to the company's brokerage firm and transfer agent.

The tax law violations included that Donlan had evaded paying more than $2.2 million in federal income taxes on the income from his sales of this stock in 2002-2003. Donlan had already been ordered to disgorge all of his ill-gotten gains and pay interest and penalties.

We are encouraged by the successes of these government representatives who are working to stop fraud that causes losses to other persons or our public bodies.

Accounting fraud can create liability for violating the securities laws and IRS tax rules and regulations. This whistleblower lawyer blog regularly comments on cases of interest, as whistleblowers often play an important role in bringing the violations to light.

The U.S. Securities and Exchange Commission has announced civil fraud charges against Nortel Networks Corp. and Nortel Networks Ltd., alleging improper revenue recognition by Nortel between 2000 and 2003, designed to make the company look appear more profitable. Nortel agreed to pay $35 million to resolve these accounting fraud allegations.

Previously, the SEC reportedly announced civil fraud charges against Nortel's former CEO Frank Dunn, former CFO Douglas Beatty, former Controller Michael Gollogly, and former Assistant Controller Mary Anne Pahapill for their roles in the alleged accounting fraud. The SEC also later alleged involvement in the fraudulent scheme by four former vice presidents of finance of Nortel's business units.

We applaud the good work of the SEC in combatting these fraudulent practices.

Our whistleblower lawyer blog attorneys have written about how abusive and fraudulent tax shelters promoted by accounting firms are priorities on the list of conduct that the IRS (and IRS tax whistleblowers) seek to stop. We have followed the KPMG tax shelter prosecution, which was set for opening statements to begin on October 23.

Just before the trial, Judge Lewis A. Kaplan responded to a late motion by the government pointing out potential conflicts of interest by counsel for former KPMG partner John Larson, by disqualifying his attorney. A new trial date will be set in November, once new counsel is obtained.

The 2005 KPMG indictment concerning alleged abusive and illegal tax shelters has been clear evidence that the government is prepared to hold accountable the accountants, financial advisers, lawyers and bankers who participate in illegal tax schemes.

The case is pending in the United States District Court for the Southern District of New York, UNITED STATES v. JEFFREY STEIN, et al., S1 05 Crim. 0888 (LAK).

The new IRS Whistleblower Rewards Program--and observations by one of the whistleblower lawyer blog attorneys--were featured in an October 15, 2007 article by Nicholas Rummell in Financial Week. Financial Week is a publication geared toward the CFO and other professionals in finance and accounting, with coverage of economics and business markets, regulatory and legislative actions, financing, banking, insurance, real estate, cash management, investment management, benefits and retirement finance, investor relations, accounting and technology.

This article discusses the fast start of the new IRS Whistleblower Program authorized by Congress in December 2007, which our whistleblower attorneys have written about extensively. I had the pleasure of speaking at length with writer Nicolas Rummell about the new IRS program, which is most promising. (The Financial Week article is at http://www.financialweek.com/apps/pbcs.dll/article?AID=/20071015/REG/71012026.)

Of particular interest was how those in the financial services industry, including hedge funds, have utilized the new IRS Whistleblower Program.

I want to clarify some of the comments attributed to this whistleblower lawyer blog author. In particular, based on comments by those in the Whistleblower Program, the statute of limitations is three years for tax noncompliance or tax violations that do not necessarily amount to tax fraud or tax evasion. It increases to six years if there is an open audit or investigation by the IRS. But for tax fraud or tax evasion, there is no statute of limitations as a matter of law. (We have written about the statute of limitations previously.)

Based on our dealings with the IRS, the new Whistleblower Office is operating with extremely professional and capable officials, who are looking to reward individuals who come forward with useful information about tax noncompliance and violations of the tax laws. We are excited to represent clients in the financial services industry and other industries in the new IRS Whistleblower Program. The new IRS regulations to be released by December 2007, should answer many questions that currently exist about the new IRS program.

The just released October 2007 edition of the Georgia Bar Journal, the primary bar magazine for lawyers practicing in Georgia, includes a key Whistleblower article written by one of the co-authors of this blog, Michael A. Sullivan. The article is entitled A "False Claims Act” is Finally Enacted in Georgia: What Georgia Lawyers Should Know About The State False Medicaid Claims Act. Obviously, Finch McCranie, LLP is proud that one of its partners had this article published by the State Bar’s leading journal and is particularly pleased that the Bar Journal decided to disseminate information to all lawyers in Georgia about the enactment of the new False Medicaid Claims Act.

It is noteworthy that the State Bar recognizes that the enactment of this new law is an important event in Georgia. The federal False Claims Act over the last six years has brought in over $12 billion in recoveries for the federal government. With Medicaid fraud becoming an ever-growing problem in Georgia, and nationally, obviously, the Georgia Legislature intended that this new law should duplicate some of the success of the False Claims Act in generating recoveries for the State when Medicaid fraud has occurred. By offering financial rewards to induce Whistleblowers with knowledge of Medicaid fraud to come forward, we believe this new law will undoubtedly produce significant financial recoveries for the State.

As former federal prosecutors, it is always a pleasure representing individuals who are willing to help root out fraud against their government. Georgia’s False Medicaid Claims Act is an important tool in combating Medicaid fraud. It is particularly gratifying to us that the Georgia Bar Journal has decided to educate its members about this new law through our partner’s article.

Your whistleblower lawyer blog attorneys are proud to announce that a retired judge has joined their firm, Finch McCranie, LLP, to assist in representing their clients.

Stephen E. Boswell, former Chief Judge of Clayton County Superior Court in the metro Atlanta, Georgia area, has joined the firm as "counsel."

Judge Boswell recently retired from the Superior Court bench after serving 13 years as a Superior Court Judge, over two periods of service since 1982. Previously, he was in private practice in the Atlanta area for 16 years, with a variety of experience in civil and criminal jury trials.

As of Oct. 1, 2007, he has become “counsel” to Finch McCranie and will assist the firm’s attorneys and clients in, among other things, qui tam “whistleblower” cases under the federal False Claims Act and the state False Claims Acts, and claims under the new IRS Whistleblower Rewards Program.

“I am excited to be joining a group of excellent lawyers who have earned an outstanding reputation over decades for representing their clients with integrity to great success,” Judge Boswell said. “Finch McCranie is one of the most well-respected firms around, and I have known its lawyers both for the quality of their work and for their character in representing clients in my court. I am pleased to be able to help represent those clients now.”

“Our firm is proud to have Judge Boswell join our practice,” said Richard W. Hendrix, partner in the firm. “He brings a wealth of knowledge and experience from having been in involved in literally hundreds of trials over his career. “He’ll be an invaluable resource for our clients. No one knows how to try a case any better than Judge Boswell, and that experience also will benefit all of our clients.”

Judge Boswell, a native of Hogansville, Georgia, is a 1974 graduate of the University of Georgia Law School. Before completing his legal education, he served as a U.S. Army officer and was awarded a Bronze Star in Vietnam. In addition to his years on the trial court bench, Judge Boswell has been appointed to sit specially on the Georgia Supreme Court, has taught courses at the American Bar Association's National Judicial College, and is a former President of the Clayton County Bar Association.

Judge Boswell also has served on the Boards of Heritage Bank and of many community organizations, including as Chairman of the board of the Salvation Army. He has also successfully acted as a mediator in bringing many cases to resolution. He has elected not to accept cases as a Senior Superior Court Judge at this time.

As former federal prosecutors who prosecuted fraud against the government and have tried many cases, we are thrilled to add Judge Boswell's expertise in evaluating cases for trial to the services we provide our whistleblower clients. In addition, his civil and criminal trial experience and our experience in defending white collar criminal cases are a huge advantage to whistleblower clients who need to evaluate whether they have any exposure or liability themselves.

Finch McCranie, LLP is an “all-litigation” trial practice law firm with more than 40 years of continuous practice. The firm's main office is in Atlanta, Georgia. It holds numerous records, including the first million dollar jury verdict in the state. The firm’s practice includes representation of citizens who report fraud against the government, including qui tam "relators" or whistleblowers under the False Claims Act and the state False Claims Acts, as well as IRS tax whistleblowers. Members of the firm also testified in legislative hearings and helped draft one of the nation's newest qui tam “whistleblower” statutes, Georgia's new State False Medicaid Claims Act in 2007.

This is Part 2 by whistleblower lawyer blog of a detailed overview of the federal False Claims Act and the new state False Claims Acts with qui tam whistleblower provisions. It is based on an article by whistleblower lawyer blog author Michael A. Sullivan, and is reprinted with permission of the Georgia Bar Journal.

This Part 2 discusses the sound policy reasons underlying the False Claims Act.

I. Why A “False Claims Act”?

Fraud is perhaps so pervasive and, therefore, costly to the Government due to a lack of deterrence. GAO concluded in its 1981 study that most fraud goes undetected due to the failure of Governmental agencies to effectively ensure accountability on the part of program recipients and Government contractors. The study states:

For those who are caught committing fraud, the chances of being prosecuted and eventually going to jail are slim. . . . The sad truth is that crime against the Government often does pay. [5]

Fraud—and allegations of fraud—plague government spending at every level. Today, as the federal and state governments struggle to fund the billions of dollars spent annually on health care through Medicare and Medicaid; national security and local security efforts; Hurricane Katrina and other disaster relief; and government grants and programs of every description, there is no shortage of opportunities for fraud against the public fisc.

The federal False Claims Act has been the federal government’s “primary” weapon to recover losses from those who defraud it. [6] The Act not only authorizes the government to pursue actions for treble damages and penalties, but also empowers and provides incentives to private citizens to file suit on the government’s behalf as “qui tam relators.” Over the past 20 years, recoveries for the federal government have grown dramatically since Congress amended the Act in 1986 to encourage greater use of the qui tam provisions, as part of a “coordinated effort of both the [g]overnment and the citizenry [to] decrease this wave of defrauding public funds.” [7]

The federal False Claims Act has been successful in recovering billions of dollars, increasingly through qui tam lawsuits brought by private citizens. In light of the federal Act’s successes, Congress in the Deficit Reduction Act of 2005 [8] created a large financial “carrot” for states that adopt state versions of the False Claims Act. Any state that passes its own “False Claims” statute with qui tam or whistleblower provisions that are at least as effective as those of the federal Act becomes eligible for a 10% increase in its share of Medicaid fraud recoveries. [9]

Thus, Georgia’s and other states' impetus in enacting these new state False Claims Acts in 2007 was this incentive of more dollars. In 2007 to date, Georgia, New York, and Oklahoma have joined the 16 other states that have enacted some version of a “False Claims” statute. [10] At least a dozen other states [11] are considering enacting similar statutes of their own so that they, too, qualify for increased funds under the Deficit Reduction Act.

Continue reading "Part 2: The False Claims Act and the Growing Number of State False Claims Acts With Qui Tam Whistleblower Provisions--the Basics" »

We at whistleblower lawyer blog hope this detailed article assists those interested in the federal False Claims Act and the new state False Claims Acts with qui tam whistleblower provisions. A version of this article by whistleblower lawyer blog author Michael A. Sullivan [1] has just been published in the October 2007 Georgia Bar Journal. For ease of reading, we have divided the article in six parts--this is Part 1.

The federal False Claims Act [2] has inspired a wave of new state False Claims Acts with qui tam whistleblower provisions, as the New York False Claims Act, the Oklahoma Medicaid False Claims Act, and the Georgia State False Medicaid Claims Act [3] in 2007 have joined sixteen other state laws that allow qui tam whistleblowers to pursue cases based on fraud and false claims that rob taxpayers' dollars.

These new state qui tam whistleblower laws are critical to stopping fraud against taxpayers. For example, in April 2007, the Georgia Legislature enacted a state version of this important—but commonly misunderstood—federal law, the False Claims Act. The new “State False Medicaid Claims Act” mirrors the federal False Claims Act in important respects, but differs in some significant ways.

Both the state and federal Acts create civil liability for treble damages and potentially huge penalties for fraud and false claims submitted to the government. Both authorize “qui tam” or “whistleblower” lawsuits by private persons, who may share in the government’s recovery. Both have unique procedural requirements that are foreign to most lawyers. Like the federal whistleblower law, most state qui tam whistleblower laws protect all state government funds. A few states such as Georgia have opted for the narrower reach of the Georgia Act, which applies only to fraud or false claims affecting the Georgia Medicaid Program, rather than all State programs.

This article explains how the new state False Claims Acts work, which itself requires an explanation of the unique and sometimes perplexing federal False Claims Act on which the state Acts are based. This article summarizes the background of the federal False Claims Act, outlines how it operates, and discusses the Act’s increasing use to combat fraud directed at public funds. This article also highlights the important differences between the state and federal Acts, using Georgia's as an example. Finally, this article also compares other states’ False Claims Acts and discusses some of the recoveries that other states have obtained to date.

The new Georgia “State False Medical Claims Act” became law on May 24, 2007. Participating in the signing ceremony with Governor Sonny Perdue were (shown above from left to right) Carrie Downing, Director of Legislative and External Affairs of the Georgia Department of Community Health; Dr. Rhonda Medows, Commissioner of the Georgia Department of Community Health; Inspector General Doug Colburn; Governor Perdue; Rep. Edward Lindsey, sponsor of the State False Medicaid Claims Act; whistleblower lawyer blog author Michael A. Sullivan of Finch McCranie, LLP; and Philip Consuegra, Legislative Assistant to Rep. Lindsey.

Footnotes:
1 Michael A. Sullivan has worked with the False Claims Act since the late 1980s and has both defended and prosecuted cases under the False Claims Act. He is the co-author of www.whistleblowerlawyerblog.com. At the request of Georgia legislators, Mr. Sullivan provided input in the drafting of the new Georgia State False Medicaid Claims Act and testified in each of those legislative hearings to explain the False Claims Act. His practice includes whistleblower litigation under the False Claims Act and the IRS Whistleblower Program, serious injury litigation, and white collar criminal defense. He is a graduate of the University of North Carolina and Vanderbilt Law School, where he was Senior Articles Editor of the Vanderbilt Law Review. He clerked for U.S. District Judge Marvin H. Shoob in Atlanta from 1984-86. From 1995-98, he served as a federal prosecutor in the Independent Counsel investigation of the Department of Housing and Urban Development, including the prosecution of a former Secretary of the Interior. His most recent article appears in the Health Care Compliance Association’s September 2007 edition of Compliance Today, entitled “New State ‘False Claims Acts’: An Executive Summary for Health Care Compliance Professionals.” He also appeared with the Director of the new IRS Whistleblower Office in discussing and explaining the new “IRS Whistleblower Program” in September 2007 at the Taxpayers Against Fraud Annual Conference in Washington.

2 The federal False Claims Act is at 31 U.S.C. §§ 3729-33.

3 The new Georgia State False Medicaid Claims Act is codified at O.C.G.A. §§ 49-4-168 to 49-4-168.6.

IRS officials explained long-awaited details of how the new IRS Whistleblower Rewards Program will work to whistleblower attorneys gathered last week at the annual Taxpayers Against Fraud Conference in Washington.

This whistleblower lawyer blog author had the pleasure of appearing with the Director of the new IRS Whistleblower Office, Stephen Whitlock, in a panel discussion on the new IRS Whistleblower Program. I enjoyed spending time with Director Whitlock and with the other participants, Professor Dennis Ventry of American University's Washington College of Law, and attorneys Erika Kelton and Paul Scott. (Paul Scott, our moderator, deserves special thanks put putting together an extremely useful and informative program).

Later, before a second IRS Whistleblower presentation, I enjoyed having lunch and a long discussion of the particulars of the new IRS Whistleblower Program with two other IRS officials: Stuart Mann, one of the lead IRS officials with responsibility over the Financial Services industry, Large and Mid-Size Business Division (LMSB), which includes corporations, subchapter S corporations, and partnerships with assets greater than $10 million; and Nicole Cammarota, who is also with the IRS LMSB Division and who I understand is working on the new IRS Whistleblower regulations.

The Large and Mid-Sized Business Division of the IRS is dealing with IRS Whistleblower claims concerning these larger entities, which can involve very substantial tax liability. The IRS has divided its LMSB Division into five industry subgroups: (1) Communications, Technology, and Media; (2) Financial Services; (3) Heavy Manufacturing and Transportation; (4) Natural Resources and Construction; and (5) Retailers, Food, Pharmaceuticals and Healthcare.

The Financial Services group at the IRS is based at the Manhattan IRS Office at 290 Broadway (near City Hall). Its responsibilities include tax issues relating to commercial banking, savings and loans, life insurance, property & casualty insurance, securities and private pools of capital, including hedge funds and private equity.

After our lunch, Mr. Mann and Ms. Cammarota discussed with the larger group their observations about the new IRS Whistleblower Program, in a panel discussion with Marcella Auerbach and Brian Kenney, led by David Stone. The Director of the IRS Whistleblower Office, Stephen Whitlock, also attended and chimed in about his own areas of responsibility, apparently to make sure the IRS is giving consistent direction about the new Whistleblower Program overall.

Senators Specter and Leahy to Co-Sponsor Pro-Taxpayer Law to "Correct" Recent Court Decisions That Limited Effectiveness to Government of Qui Tam Whistleblower Law, the False Claims Act

In one of the most potentially significant developments ever discussed on this whistleblower lawyer blog, Senator Charles Grassley (R-Iowa) announced today that he and Senator Dick Durbin (D-Illinois) are co-sponsoring a bipartisan bill designed to restore the government's primary tool for fighting fraud against taxpayers, the False Claims Act, to its intended effectiveness. Court decisions in recent years had weakened the False Claims Act and impaired its usefulness in fighting fraud.

The new bill, the "False Claims Act Correction Act," will also be co-sponored by Republican Senator Arlen Specter of Pennsylvania, and Democratic Senator Pat Leahy of Vermont. Representative Howard Berman (D-California) is expected to introduce similar legislation in the House to strengthen the qui tam whistleblower law, which allows private citizens to report fraud against the government and be rewarded.

Senator Grassley and Rep. Berman are largely credited with creating the modern False Claims Act through sponsoring Amendments in 1986 to the whistleblower law.

We applaud this bipartisan effort by these lawmakers to ensure that taxpayers' funds are protected from fraud through the most effective means ever devised--encouraging private citizens to report fraud by allowing them to receive rewards as qui tam whistleblowers. The False Claims Act is as important now as it was when enacted in President Lincoln's time.

One of the many types of fraud and false claims that whistleblowers can report to whistleblower attorneys is unlawful "kickbacks" paid by companies that do business with the federal government.

The Justice Department has announced a settlement with IBM and PriceWaterhouseCoopers for more than $5.2 million, to resolve allegations that these firms violated the False Claims Act through business arrangements that allegedly constituted unlawful kickbacks. The announcement followed a whistleblower suit under the qui tam provisions of the False Claims Act, which we have explained on this whistleblower lawyer blog previously.

According to the government, it investigated IBM and PWC as part of an ongoing investigation of government technology vendors and consultants. Other complaints have been filed in April 2007 in Arkansas against Accenture, Hewlett-Packard, and Sun Microsystems, according to the Justice Department.

We congratulate the agencies involved in securing this victory for taxpayers: the Justice Department’s Civil Division; the U.S. Attorney’s Office of Little Rock, Ark.; the Department of Energy’s Office of Inspector General (OIG); ; the Defense Criminal Investigative Service; the General Services Administration Office of the Inspector GeneralNASA Office of the Inspector General; the Army Criminal Investigation Command; the Defense Contract Audit Agency; the Environmental Protection Agency (EPA) Office of the Inspector General; the Postal Service Office of the Inspector General; the Navy Criminal Investigative Service; and the Air Force Office of Special Investigations.

Medicaid Fraud Recovery Announced by Missouri Attorney General

False and fraudulent billings were uncovered in a Missouri Medicaid fraud investigation that has produced a recovery by the Missouri Attorney General's Office's Medicaid Fraud Control Unit. Billings like this typically violate the False Claims Act or the various state False Claims Acts.

Prescriptions that had not been authorized by physicians were submitted and paid for by the Medicaid program. Once the suspicious activity was reported, the Attorney General's Office's investigation followed and produced a recovery of $462,926 from apparently a single pharmacy in DeKalb County, Missouri, the Randolph Drug Store in Maysville.

The Attorney General's press release does not make clear whether a whistleblower other than the owner of the pharmacy was involved in reporting this health care fraud. We commend the Missouri Attorney General and the Medicaid Fraud Control Unit on their successful effort to stop fraud against taxpayers.

This past week produced examples of why whistleblowers and their attorneys must continue to insist that false claims and health care fraud not be tolerated. The indictments of Texas medical equipment suppliers--who are alleged to have overbilled Medicare and Medicaid for expensive scooters and chairs while providing cheaper ones --show how prevalent false claims are.

The indictment of a physician in West Virginia for allegedly falsifying the time spent in patient visits shows another common type of health care fraud and false claims.

A Virginia home health care provider's indictment for allegedly using unqualified nurses and nurses aides is yet another example of health care fraud that whistleblowers can help stop.

You can read the new articles at the links above--we attorneys who write this whistleblowerlawyerlog want to keep public awareness of health care fraud and other fraud against taxpayers front and center.

IRS Seeks Documents from Citigroup and Lehman Brothers Holdings on Derivatives

Now that Congress has created a meaningful IRS Whistleblower Rewards Program, tax whistleblower attorneys took note of yesterday's report that the IRS is looking into whether derivatives trades for hedge funds and other investors are being used to avoid tax withholding obligations, according to the Wall Street Journal yesterday. The IRS reportedly has issued "Information Document Requests" to Citigroup and Lehman Brothers Holdings to find out.

As Reuters reports, the derivatives trades in question are when securities firms buy stocks from offshore hedge-fund clients; the banks then pay their clients any principal return and dividends that these stocks generate. Because the fund technically does not hold the stock, the funds escape paying up to 30 percent in taxes on the dividend, according to sources discussed by Reuters.

Schemes to avoid paying taxes place greater burdens on the millions of honest Americans who satisfy their own tax obligations. We applaud the IRS's efforts to stop unlawful schemes.

The new IRS Whistleblower Rewards Program should make the IRS's efforts all the more effective. The enthusiasm of the three IRS agents we met with this week remind us how important the new IRS Whistleblower program should be!

Alleged Overcharging for Prescription Drugs Leads to $13 Million Settlement in Boston

Pharmaceutical fraud harms the Medicare and Medicaid programs--and the citizens who pay for them. Drug companies' alleged overcharging for prescription drugs has led to fraud investigations and lawsuits by whistleblower attorneys in the past. This week, shortly before trial, pharmaceutical manufacturer Bristol-Myers Squibb Co. reportedly agreed to pay $13 million to resolve allegations that it overcharged for its Taxol cancer medicine and other drugs.

The settlement follows a ruling last month ordering Bristol Myers-Squibb, AstraZeneca Plc and Schering-Plough Corp. to pay damages for allegedly overcharging on drugs by inflating the "average wholesale price" (AWP).

The lawsuit alleged that consumers' insurance co-payments were inflated under Medicare Part B, through use of average wholesale prices for prescription drugs, including Taxol, that were substantially greater than what the drug manufacturer actually charged doctors and hospitals.

The upcoming trial was to have addressed co-payments for Bristol's drugs. According to Bloomberg, the drug Taxol produced $1.6 billion in sales in 2000 alone before Bristol lost the patent protection for this drug.

The lawsuit is In Re: Pharmaceutical Industry Average Wholesale Price Litigation, MDL No. 1456, U.S. District Court, District of Massachusetts.

Cheating the public out of scarce health care dollars should be stopped--and whistleblowers are crucial to that effort.

Most Defendants in KPMG Case Escape Prosecution--At Least For Now

As we have written about previously, abusive and fraudulent tax shelters promoted by accounting firms are high on the list of conduct that the IRS (and IRS tax whistleblowers) seek to stop. Today, the government's prosecution of 13 former KPMG partners and other executives was derailed--at least for now--when the trial judge dismissed charges against them, while allowing the charges to remain against other defendants.

Judge Lewis Kaplan had already ruled that these defendants' constitutional rights had been violated when the government pressured KPMG not to advance the legal fees and expenses of the defendants.

With that prior ruling, the government agreed that the Court should dismiss the charges against these 13 defendants. The government now may attempt to upset the judge's ruling on appeal, or perhaps try to bring other charges against these defendants.

As former prosecutors, we have followed the separate indictment of four Ernst & Young partners for tax fraud conspiracy and other federal criminal charges relating to tax shelters.

We believe that tax fraud, tax evasion, and other violations of IRS laws, rules and regulations can be battled effectively--in criminal cases or civil ones, whether or not whistleblowers are involved-- within our Constitution's protections. It will be interesting to see if the ruling in the case of the former KPMG executives, is appealed and stands.

The case is pending in the United States District Court for the Southern District of New York, UNITED STATES v. JEFFREY STEIN, et al., S1 05 Crim. 0888 (LAK)..

IRS Tax Whistleblowers with Knowledge of Stock Option Backdating Should Take Note

Now that the IRS has an effective IRS Whistleblower Rewards Program for whistleblowers who report tax fraud, tax evasion, or other violations of the Internal Revenue laws, the IRS' recent announcement of focusing on back-dating of stock options should be interesting. In continuing our past discussions of claims under the IRS Whistleblower Rewards Program, we point out the tax fraud that the IRS has decided to target involving back-dated stock options.

The IRS recently announced that backdating of stock options is a "Tier I Compliance Issue and therefore is a mandatory examination item for taxpayers with backdated stock option grant and/or exercise prices."

This unlawful practice can produce adverse tax consequences for the corporation issuing the option. As the IRS announcement explains, corporations are subject to a $1 million annual limit on the deduction for compensation to the CEO and four other highest compensated officers in a publicly traded corporation.

Under Treasury Regulations section 1.162-27(e)(2)(vi), there is a “qualified performance based compensation” exception to the $1 million deduction limit for compensation attributable to option exercises if the option exercise price equals or exceeds the per share value on the grant date and certain other requirements are met. A failure to satisfy this requirement may cause compensation attributable to the option exercise to be subject to the $1 million deduction limit.

Continue reading "IRS Declares That Tax Fraud and Evasion from Back-Dating of Stock Options Is a Top Priority" »

Fraud and False Claims by Government Contractor in Dallas Leads to $2.6 Million Settlement with Justice Department

The statute most used by whistleblowers and whistleblower attorneys has resulted in yet another recovery of money for false claims. The Justice Department has announced that Affiliated Computer Services, Inc. (ACS) has agreed to pay more than $2.6 million to settle a False Claims Act case.

The government alleged that ACS, from 2002-2005, inflated its claims for payment of government funds for recruiting and enrolling individuals in various government programs funded by the U.S. Department of Agriculture (USDA), the U.S. Department of Labor (DOL), and the Administration for Children and Families of the U.S. Department of Health and Human Services (ACF).

According to the government, ACS "self-reported" its violations of the False Claims Act to the government. Based on our experience as federal prosecutors before we began representing whistleblowers, this type of perceived "cooperation" by a defendant sometimes can reduce what it ultimately pays.

A company that discloses its wrongdoing and offers to pay back funds that it wrongfully obtained is to be commended. Of course, most wrongdoers do not--and this is why whistleblowers perform such a valuable service in bringing corruption to light.

AARP Applauds State Law to Combat Medicaid Fraud with Qui Tam Whistleblower Approach

We were pleased to see that Florida has joined New York, Georgia, Oklahoma and more than a dozen other states in creating a State False Claims Act with qui tam whistleblower provisions similar to the federal False Claims Act. As we have discussed at length on this whistleblower lawyer blog, Congress has created financial incentives for states to pass whistleblower laws with qui tam provisions to protect Medicaid funds.

Florida's Governor signed the Florida False Claims Act into law on June 28, 2007.

AARP supported the legislation to "preserve scarce resources for Florida's most vulnerable citizens."

The wave of new False Claims Acts is a responsible and cost-effective approach to protecting taxpayer dollars. We congratulate Florida on its new law.

Durable Medical Equipment Company Received Kickbacks from Pharmacy Owners in Health Care Fraud Case

In a Medicare fraud case of interest to whistleblowers and whistleblower attorneys, a Miami a federal jury convicted a home health care operator of conspiracy to defraud and submit false claims and receive kickbacks, conspiracy to commit health care fraud, and three counts of receiving kickbacks. Gisela Valladares, owner of PRN Home Health Care, Inc., faces up to 30 years in prison.

According to the Justice Department, two pharmacy owners billed Medicare for more than $20 million in connection with the referral of false prescriptions for “compounded” aerosol medications furnished by Valladares and other co-conspirator owners of durable medical equipment (DME) companies. The pharmacy owners paid kickbacks of approximately half of the money paid by Medicare.

The pharmacy owners testified that Valladares played a key role--acquiring the patients’ information. The medication charged to Medicare was unlawfully manufactured in shell pharmacies that contained almost no actual pharmaceutical products. One pharmacy owner testified that his business had no foot traffic, no patients, no sundries and no real medicine, but was simply a "mill" used to defraud Medicare.

Sham billing by health care providers bleeds essential dollars from our Medicare system. Whistleblowers who bring qui tam cases under the False Claims Act can help fight this fraud against all of us.

Whistleblower Reveals Alleged Drug Price Schemes to Defraud Medicaid

When drug companies hide the true prices charged for prescription drugs, the pharma companies can violate laws protecting state Medicaid programs from being defrauded by "overpaying" for drugs. The experienced Medicaid fraud prosecutors of the Texas Attorney General's Office have announced such allegations against three pharmaceutical manufacturers for tens of millions of dollars in Medicaid fraud in Texas.

For pharmaceutical products to be eligible for Medicaid reimbursement, the law generally requires that manufacturers accurately report "generally and currently available market prices" to the Medicaid program, according to the Attorney General's release.

The Attorney General alleges that these drug companies sold hundreds of Medicaid-covered drugs at large discounts to companies such as Wal-Mart, CVS Pharmacy and Walgreens, but failed to disclose the accurate pricing information to the Medicaid program. Consequently, the state was deceived about current market prices for the drugs.

When Wal-Mart, CVS, and Walgreens sought Medicaid reimbursement for these prescription drugs, the false pricing reports caused Medicaid to overpay by millions of dollars for these drugs. Ven-a-Care, an industry whistleblower, disclosed the scheme.

The pharma companies named by the Attorney General are:
• Mylan Laboratories Inc. of Pennsylvania (with national subsidiaries Mylan Pharmaceuticals Inc. and UDL Laboratories Inc.)
• Sandoz Inc. of New Jersey (with subsidiaries Geneva Pharmaceuticals Inc., Novartis Pharmaceuticals Inc., Eon Labs and Apothecon Inc.)
• Teva Pharmaceuticals Inc. of Pennsylvania (with subsidiaries Lemmon Pharmaceuticals Inc., Copley Pharmaceuticals Inc. Ivax Pharmaceuticals Inc., Sicor Pharmaceuticals Inc., Teva Novopharm Inc. and Teva Pharmaceutical Industries, Ltd.).

We applaud the Texas Attorney General's Office once again for leading the fight against health care fraud.

False Claims Act Case Continues Over Health Care Fraud Allegations

As other whistleblower attorneys who were former federal prosecutors know, Medicare fraud may sometimes lead not only to a qui tam whistleblower lawsuit, but also to prison time for the guilty party. A former home health care company owner now faces almost three years in prison after being convicted of defrauding Medicare of more than $1 million.

U. S. District Judge Nancy Edmunds in Detroit sentenced Amjad Khan, a certified public accountant and the former CEO of American Home Health Care Inc., to 33 months in prison. A False Claims Act case remains pending against the defendant.

The health care fraud case concerned fraudulent claims for nonreimbursable expenses between 1995 and 1999.

We agree with U.S. Attorney Stephen Murphy's comment about the case: “Health care fraud is a silent tax forcing honest citizens and corporations to pay more for health insurance premiums and medical services than they should."

Medicare Fraud and Medicaid Fraud Alleged by Nurses at Nursing Homes

Two nurses disturbed by nursing home abuse and neglect of nursing home residents--who apparently were subjected to gross nursing home malpractice--are the "whistleblowers" in a nursing home False Claims Act qui tam lawsuit in Missouri, which the U.S. Attorney's Office in St. Louis has recently announced it has joined. The whistleblower suit alleges that the nursing home operator defrauded Medicare and Medicaid by providing care that was essentially "worthless" to the nursing home patients, according to news reports.

In this "quality of care" whistleblower case, the nurses alleged that many nursing home residents suffered from dehydration, weight loss, and preventable bed sores that eventually led to amputations; that nursing home staffing was cut to unacceptable levels to save money; and that other nurses misused patients' medicines, which were not locked securely, according to reports.

The U.S. Attorney's Office in St. Louis saw enough merit in the allegations after investigating that it is pursuing its own case.

The case reportedly has been filed against Cathedral Rock Corp., an operator of nursing homes; Kent Harrington, president and CEO; and five nursing home facilities: Spring Place Care Center and McLaran Care Center in St. Louis, Oak Forest Skilled Care in Ballwin, Cathedral Gardens Care Center in north St. Louis County and Blanchette Place Care Center in St. Charles.

Nursing home abuse and neglect presents one of the most appalling types of cases imaginable. Our firm has seen similar abuses in bringing cases in which we have represented distraught family members of an elderly relative who, for example, has been allowed to develop bedsores so badly that amputations of limbs have been necessary.

We applaud nurses and other health care professionals for their courage and decency in speaking out to stop such abuses, and we hope that these Missouri nurses receive a substantial share of the money recovered by the government in this whistleblower case--they deserve it. We also commend the members of the Office of U.S. Attorney Catherine Hanaway in St. Louis for pursuing this case.

IRS whistleblowers and whistleblower attorneys take note: accounting firms participating in selling tax shelters were jolted by today's announcement of the indictment of four Ernst & Young partners for tax fraud conspiracy and other federal criminal charges relating to tax shelters.

The four accountants were alleged to have marketed tax shelter transactions based on fraudulent factual scenarios, through which wealthy taxpayers could eliminate or reduce the taxes paid to the IRS, according to the government's announcement. All four persons charged had worked in E&Y's group that developed tax shelters, initially named VIPER ("Value Ideas Produce Extraordinary Results"), and later SISG ("Strategic Income Solutions Group"), according to the government.

The indictment announced by the U.S. Attorney for the Southern District of New York named present or former E&Y tax partners in Texas, New York, and Louisiana. Three of the four reportedly were also lawyers. The indictments allege a scheme to defraud the IRS through fraudulent tax shelters from 1998 through 2004.

One defendant--a lawyer--was alleged to have instructed the accounting firm's employees to destroy documents when he knew of a pending IRS audit of the transaction, according to the announcement by the government. The government also alleged that eleven of the firm's used the tax shelter scheme to eliminate $3.7 million of their own tax liability.

"Where were the lawyers" was the refrain of a judge after the S&L collapse. Although defendants are presumed innocent until proven guilty, it appears the same question may be asked here.

We applaud the IRS Criminal Investigation Division for pursuing those who do not pay their fair share of taxes, leaving you and me to pay more.

I was excited to be invited to participate in today's signing of the new Georgia "State False Medicaid Claims Act," the newest state qui tam whistleblower law. The bill's sponsor, Rep. Edward Lindsey, asked this whistleblower lawyer blog author to join him and representatives of the Georgia Department of Community Health in the Governor's Office for the signing ceremony.

Having worked with legislators on this bill, I was very happy to celebrate the law's passage today:

Participating in the signing ceremony with Governor Sonny Perdue were (shown above from left to right) Carrie Downing, Director of Legislative and External Affairs of the Georgia Department of Community Health; Dr. Rhonda Medows, Commissioner of the Georgia Department of Community Health; Inspector General Doug Colburn; Governor Perdue; Rep. Edward Lindsey, sponsor of the State False Medicaid Claims Act; whistleblower lawyer blog author Michael A. Sullivan of Finch McCranie, LLP; and Philip Consuegra, Legislative Assistant to Rep. Lindsey.

With an excellent draft bill already prepared by the State Law Department headed by Attorney General Thurbert Baker and his Senior Assistant AGs Mary Beth Westmoreland and Charlie Richards, I had provided input to Rep. Lindsey on clarifying and improving the bill, before the Legislature considered it. Inspector General Doug Colburn and I then made the rounds through the three legislative committee hearings to explain how the False Claims Act works, and how the new State False Medicaid Claims Act would operate in Georgia.

The new whistleblower law protects the State's Medicaid funds by creating liability for "treble damages" (actual losses multiplied by three), and penalties of $5,500 to $11,000 for each false claim submitted to obtain payment by the State Medicaid Program. It also encourages private citizens who know of fraud in health care to file qui tam whistleblower cases, by permitting the whistleblower to share in up to 30% of the State's recovery of money.

Georgia has joined more than 15 other states that have enacted laws to protect tax dollars used in state programs. New York and Oklahoma likewise enacted their own False Claims Act this year. Congress has encouraged states to pass similar whistleblower laws with provisions that are at least as effective as the federal False Claims Act--the states that do so will receive an extra 10% of Medicaid fraud recoveries (which works out to more than 10% when you do the math, which I will not fo here, but can explain if you email me).

To explain the new law to Georgia attorneys, our firm has already scheduled what will be a great seminar at the State Bar of Georgia Headquarters in Atlanta on September 20, 2007. We are excited that joining us is the leader of Texas' already hugely successful effort to recover damages for Medicaid fraud, Pat O'Connell, the Chief of the Civil Medicaid Fraud Section of the Texas Office of Attorney General. We also have some other excellent speakers.

After today's signing of the new Georgia False Medicaid Claims Act, Rep. Lindsey convinced the Governor to join us for another photo. Left to right are yours truly, Governor Perdue, Rep. Lindsey's Assistant Philip Consuegra, and Rep. Edward Lindsey:

Georgia taxpayers will benefit by this smart new tool that the Legislature has created. It should help deter those who would consider cheating the State Medicaid system by classic fraudulent methods such as over-billing, upcoding, and billing for services not rendered.

There is no reason why Georgia cannot replicate Texas' successes in recovering large damages when, for example, drug companies overcharge or otherwise defraud the State. Many states have taken action against pharmaceutical companies over "off-label" marketing of drugs such as Zyprexa, to recover damages for their Medicaid programs.

I posted earlier today on this whistle blower lawyer blog about the comments of the Director of the new IRS Whistleblower Office, Stephen Whitlock, on how the IRS Whistleblower program is off to a good start, with credible claims and supporting evidence having been submitted by whistleblowers and their attorneys.

Since then, my partner commented that he believes one of our larger cases was referred to in the IRS Director's comments about "knowledgeable insiders." We also neglected to mention our IRS Whistleblower claims for our clients in New York and the Northeast.

So much for blogging on days when I am out with a bug. The new IRS Whistleblower Rewards Program goes on!

The head of the new IRS Whistleblower Office, Stephen Whitlock, reports that the new IRS Whistleblower Rewards Program is off to a strong start.

Today's Wall Street Journal quotes Mr. Whitlock as saying that the claims submitted to the IRS Whistleblower Office to date appear to have credibility and have evidence to support them.

Since the new IRS Whistleblower program was authorized by Congress in December, our firm has been working with the IRS in pursuing whistleblower claims in the Midwest, West, Southwest, and Southeast, and is evaluating IRS claims in other parts of the country. We have written about it extensively on this whistle blower lawyer blog, including a discussion of proposed legislation that would modify the program.

Senator Charles Grassley of Iowa, who pushed for such an IRS Whistleblower program for years, also complimented the progress of the IRS Whistleblower Office's efforts.

Our congratulations go to Mr. Whitlock and the IRS for protecting taxpayer funds by making tax cheats pay--like honest taxpayers do!

A qui tam whistleblower and his lawyer are very happy as a result of a $102 million jury verdict--to be shared by the whistleblower--in a False Claims Act trial that ended on May 14.

The defendants in this whistleblower case included Bill Harbert International Construction Inc.; Harbert Construction Services; Bilhar International Establishment; Harbert Corp.; and Harbert International. The case alleged bid-rigging on three U.S. government-funded construction contracts in Egypt in the 1980s and 1990s.

The jury found that defendants violated the False Claims Act and awarded $34 million in damages, which are "trebled" under the False Claims Act.

The Department of Justice lawyer, Carolyn Mark, is a veteran prosecutor. She handled one of my first cases under the False Claims Act in the late 1980s--another bid-rigging case against electrical contractors, one of whom I was defending (in my former life, before I represented whistleblowers). I sent Carolyn a note of congratulations today.

AUSA Keith Morgan also deserves kudos, as does Robert Bell, who represented whistleblower Richard Miller.

Two of my favorite D.C. federal judges presided over the case. Initially, the late Judge William Bryant had it, and it was later transferred to Judge Royce Lamberth.

Continue reading "Whistleblower Case Victory in D.C. Bid-Rigging Trial" »

Because health care fraud in the Medicare and Medicaid programs is such a huge problem, this week our whistleblower lawyer blog writers (former federal prosecutors who are now whistleblower attorneys) begin a series of posts on "Lessons from Health Care Fraud in Medicare and Medicaid."

We will discuss how whistle blowers in the medical services profession have been important resources in revealing and stopping health care fraud in hospitals, nursing homes, physicians' practices, and the pharmaceutical or drug industry. We also discuss how the new IRS Whistleblower Rewards program may apply to unlawful referral arrangements involving hospitals or other medical facilities.

You may be surprised that more than 70% of the federal government's recoveries in fraud cases are in health care fraud cases affecting Medicare and Medicaid. Many health care fraud cases have addressed over-billing or up-coding, fraudulent cost reporting, and billing for services not provided. Medicare, Medicaid, Tricare and Champus are some of the federal programs affected.

The government also sometimes views the failure to furnish the required "quality of care" in nursing homes as fraudulent, which is encouraging to anyone who believes in caring for the elderly with dignity. Nursing home fraud and abuse, or neglect of nursing home patients, makes any decent American citizen's blood boil.

Unlawful referral arrangements involving hospitals or other medical facilities and doctors can be considered fraudulent. These referral agreements can trigger tax liability that makes the new IRS Whistleblower Program that we have written about extensively even more important in the effort to combat health care fraud in medicine.

Please stay tuned to our series on "Lessons from Health Care Fraud in Medicare and Medicaid."

We are pleased to see yet another state--Oklahoma--realize how effective qui tam whistleblower laws are by passing a state False Claims Act this week.

The Oklahoma legislature has passed the Oklahoma Medicaid False Claims Act (SB 889). The bill's primary author was Cox Crain.

The new whistleblower law appears to be modelled on the federal False Claims Act. As we have written about often on this whistleblower lawyer blog, states that pass such laws with qui tam whistleblower provisions that are at least as effective as the federal False Claims Act qualify for a 10 point increase in the state's share of Medicaid fraud recoveries.

This incentive created by Congress in the Deficit Reduction Act of 2005 makes it even more desirable for states to have their own whistleblower laws--a true no-brainer! Congratulations to Oklahoma..

In a whistleblower lawsuit settlement, the Loma Linda Behavioral Science Center agreed to pay more than $2 million to resolve allegations of overbilling.

This False Claims Act whistleblower case was filed by a former employee of Healthcare Financial Advisors (HFA), a consulting firm that advises hospitals in preparing cost reports. The lawsuit alleges that HFA assisted its clients in seeking reimbursement for unallowable costs from Medicare and Medi-Cal.

Health care cases remain busy this week. The Justice Department on April 26 announced that it is joining whistleblowers in pursuing three qui tam lawsuits against HealthEssentials Solutions Inc. (HES) that allege false claims were submitted to Medicare.

The cases involve allegations of upcoding -- improperly using a diagnosis code that is not supported by the medical record, for the purpose of obtaining greater reimbursement--and billing for medically unnecessary services.

The three cases were filed separately in the U.S. District Court in Louisville, Ky., by former employees of HES.

Another state whistleblower law, with qui tam provisions that follow the federal False Claims Act, was born today. The Georgia Senate passed the "State False Medicaid Claims Act" today, and it goes to Governor Sonny Perdue for his signature.

We have been writing about this and other new state whistleblower statutes. Representative Edward Lindsey deserves credit for his sponsorship of the bill.

Our firm was fortunate enough to have been part of the legislative effort. Rep. Lindsey asked Michael A. Sullivan (one of this whistleblowerlawyerblog co-authors) to testify and explain the whistleblower law three times, before the House Judiciary Committee and the Senate Insurance and Labor Committee. There were no dissenting votes in any of the committee votes.

New York also recently approved a state False Claims Act, and many other states are considering them.

We look forward to following the progress in other states that are considering state False Claims Acts, so that they take advantage of the financial incentives Congress created in the Deficit Reduction Act.

Continue reading "Another State Qui Tam Whistleblower Law is Born--Georgia Bill Passes Senate and Goes to Governor for Signature" »

A new qui tam whistleblower law has cleared another hurdle toward passage. Georgia's Senate Insurance and Labor Committee unanimously approved the new "State False Medicaid Claims Act" this afternoon. As we have written about previously on this whistleblower lawyer blog, the new whistleblower law has already passed the Georgia House.

After an introduction by Senator Seth Harp, the bill's sponsor, Rep. Edward Lindsey, asked Inspector General Doug Colburn of the Department of Community Health and attorney Michael A. Sullivan (co-author of this whistleblower lawyer blog) of Finch McCranie, LLP to join him in testifying about how the new whistleblower law would work. Rep. Lindsey explained the incentives that Congress has provided to states to enact their own qui tam whistleblower laws, and then asked Sullivan to explain how the law would function.

Sullivan testified about the successes of the federal False Claims Act in not only recovering money from those who have defrauded the government, but also serving as a deterrent to those who might otherwise cheat the public. He explained how the funds recovered have increased dramatically since the 1986 Amendments that created the modern False Claims Act, especially in the health care area. Sullivan also described other states' successes with their own whistleblower statutes, as well as the strict review of state false claims statutes by the Office of Inspector General of the Department of Health and Human Services.

Inspector General Colburn explained to the Senators some of the other major provisions of the bill, and answered questions about the amount of suspected Medicaid fraud in his state. The Senators also questioned Rep. Lindsey, Inspector General Colburn, and Sullivan about how the bill would apply to medical providers in certain examples.

Although representatives of the health care industry were present, none cam forward to speak out against the bill or express any concerns.

The Committee voted unanimously to approve the new whistleblower law. It moves on to the Senate Rules Committee before consideration by the full Georgia Senate.

Once again, we at Finch McCranie, LLP are proud to be part of the process of helping enact laws that stop fraud against the government. We will continue to report on the progress of these smart and cost-effective laws both in Georgia and in other states.

We have had many calls this week from potential clients in our IRS Whistleblower practice, probably because msn.com featured an article about the IRS Whistleblower program on Monday that linked to our whistleblower lawyer blog.

As I have explained to many whistleblower clients, the new regulations for the IRS Whistleblower Rewards Program are in the works, but have not been issued. We have been pursuing IRS Whistleblower claims under the new program and have found the IRS agents to be excited about it.

Adding to the mix for those seeking a whistleblower attorney is that Congress is considering amendments to the law that established the new IRS Whistleblower Program in December 2006. Among the possible changes/additions are a provision opening up the Whistleblower Program to more claims by setting a different threshold for the amount of money in question, which could allow more whistleblowers to qualify for a reward.

Another provision would appropriate funds for the IRS Whistleblower Office, some of which might help defray expenses incurred by the whistleblower's legal representative. Yet another provision addresses the confidentialty of whistleblowers in Tax Court proceedings.

These proposed changes are part of HB 2, the "minimum wage" bill, which passed the Senate in February.

We will continue to keep up with any developments affecting the IRS Whistleblower Program, which we believe promises to be a great success. If you have any questions about the IRS Whistleblower program, feel free to email me here.

The current section of the proposed HB 2 that applies to the IRS Whistleblower Program is below:

Continue reading "Amendments to New IRS Whistleblower Law Considered" »

A subsidiary of the drug manufacturer Pfizer has agreed to plead guilty in a kickback scheme and to pay a criminal fine of $19.68 million, according to the U.S. Attorney for the District of Massachusetts, Michael J. Sullivan (not to be confused with Michael A. Sullivan, one of the authors of this whistleblower lawyer blog).

The government's announcement was that Pharmacia & Upjohn Company, Inc., a subsidiary of Pfizer, Inc., was charged with offering a kickback in connection with the administration and distribution of its human growth hormone, Genotropin. Another Pfizer subsidiary, Pharmacia & Upjohn Company LLC entered into a Deferred Prosecution Agreement with the Government for what the government described as illegally promoting Genotropin for “off-label” uses as anti-aging, cosmetic use and athletic performance enhancement. The result is that the companies will pay a total amount of $34.7 million.

The New York legislature has become the latest state to agree to the enactment of a State False Claims Act, when it approved passage of such a whistleblower law as part of approving the state budget. The Buffalo Times reported on this encouraging development.

We have written before about why states are passing their own whistleblower laws to protect taxpayer money. Congress has created significant financial incentives for states that pass their own state false claims acts, with whistleblower provisions that are at least as effective as the federal False Claims Act.

States whose whistleblower laws are approved by the Office of Inspector General are entitled to a 10% increase in their share of Medicaid fraud recoveries. OIG recently approved the whistleblower laws of Hawaii and Virginia, which now join Illinois, Massachusetts, and Tennessee as having whistleblower laws that qualify the state for the extra funds. OIG has disapproved the whistleblower laws of seven other states, California, Florida, Louisiana, Indiana, Michigan, Nevada, and Texas, which can still strengthen their laws to make them as effective as the federal False Claims Act.

New York Governor Elliott Spitzer and Attorney General Andrew Cuomo supported the whistleblower law.

We are encouraged that New York has taken the responsible step of protecting taxpayer funds by passing its own whistleblower law.

We have been writing about why states are passing their own whistleblower laws, with qui tam provisions that are at least as effective as the federal False Claims Act. Georgia's legislature took a giant step forward when its House of Representatives today passed the State False Medicaid Claims Act--by an overwhelming margin of 164-2!

As we have mentioned before on this whistleblower lawyer blog, when the House Judiciary Committee met to discuss and approve the new whistleblower statute, two witnesses were invited to explain the new law: the Inspector General of the Department of Community Health, and this whistleblower blog author. We at Finch McCranie, LLP are proud to be part of this effort to protect taxpayer dollars in the Medicaid program.

States are figuring out how to pass whistleblower laws with effective "qui tam" provisions, so that they qualify to receive more money from Medicaid fraud settlements. The Office of Inspector General of the Department of Health and Human Services has announced that, unlike 7 of the 10 state whistleblower laws that OIG had previously reviewed, the whistleblower laws of Hawaii and Virginia pass muster under the Deficit Reduction Act of 2005.

We have previously discussed why states are passing or improving their own whistleblower laws with qui tam provisions--Congress creative large financial incentives because effective qui tam whistleblower laws are essential to preventing fraud against the government. We applaud Hawaii and Virginia for making their whistleblower law provisions as effective as those of the federal False Claims Act!

Whistleblowers and whistleblower attorneys may consider Senator Charles Grassley of Iowa as the "patron saint" of protecting taxpayer money from fraud against the government. Sen. Grassley continues his great work as he testifies today before the Senate Judiciary Committee about Iraq contractor profiteering and fraud.

The Senator already claimed another recent victory by spearheading passage of the new IRS Whistleblower Rewards Program. Sen. Grassley saw how cost-effective the False Claims Act has been in recovering more than $20 billion for the government--largely because of the improved qui tam whistleblower enhancements enacted in 1986. (Sen. Grassley and Rep. Howard Berman were sponsors of the landmark 1986 amendments to the False Claims Act.)

Sen. Grassley was to testify that the False Claims Act whistleblower statute should be strengthened to deal with contractors such as Halliburton. He mentioned trying to recover $60 billion for meals not provided to the military by the defense contractor.

We find it refreshing to see someone like Sen. Grassley who is a true public servant--again and again. Congress and the American people should follow his lead in recognizing the value of effective whistleblower programs that encourage whistleblowers to report fraud, waste, and abuse of taxpayer dollars.

Otherwise, crime does pay for those who cheat the government--and thus other taxpayers.

This afternoon I had the privilege of joining the Inspector General of Georgia's Department of Community Health, Doug Colburn, in serving as the two invited witnesses who were asked to explain how the new "State False Medicaid Claims Act" would work, in testimony before the full Judiciary Committee of the Georgia House of Representatives.

The new whistleblower law was approved unanimously by the Judiciary Committee, and is gaining steam toward passage.

Chairman Wendell Willard expressed his strong support for encouraging whistleblowers to report wrongdoing. The bill's sponsor, Rep. Edward Lindsey, thanked the cooperative efforts by the Georgia Department of Community Health, the Office of Attorney General, and the private bar to fashion what is a "very good bill."

A representative of the Medical Association of Georgia also testified that it supports the bill as passed by the Committee, after one change was made to make the statute of limitations consistent with the federal False Claims Act.

We have written before about this proposed new whistleblower law, one of many that various states are now considering to qualify for the financial incentives created by Congress in the Deficit Reduction Act of 2005. States that have or enact False Claims Acts with qui tam whistleblower provisions that are at least as effective as the federal False Claims Act are entitled to receive a 10% increase in their share of Medicaid fraud recoveries.

Our firm, Finch McCranie, LLP, is proud to contribute its experience to assist the legislature in enacting a very good "State False Medicaid Claims Act."

The new IRS Whistleblower Rewards Program that we have been discussing is featured in the March 13 issue of Smart Money Magazine--and Smart Money cites our Whistleblower blog and quotes one of our authors.

The Smart Money reporter, Lisa Scherzer, contacted our firm, Finch McCranie, LLP, to discuss the IRS Whistleblower Rewards program and our experiences in representing clients in the IRS Whistleblower program. We commented that most potential whistleblowers who have contacted us are ethical, conscientious persons who are troubled by improper practices at their firms. They usually have tried unsuccessfully to correct the improprieties internally, and have found that the wrongdoers are unwilling to listen.

In fact, many whistleblower clients have begun to experience repercussions for trying to do the right thing, before they ever contact a whistleblower lawyer.

Fortunately, Smart Money got it right in describing why whistleblowers typically come forward!

We were excited to see that the U.S. House of Representatives today passed an important new whistleblower protection law, the Whistleblower Protection Enhancement Act.

We have discussed this new whistleblower bill previously, as an encouraging development for whistleblowers and whistleblower lawyers. The new whistleblower law would protect federal employees and, now, also federal contractors, who report evidence of fraud, waste, abuse, gross mismanagement, or "substantial and specific danger to public health or safety."

Rep. Henry Waxman sponsored the new whistleblower protection bill, but Rep. Bruce Braley of Iowa also spoke eloquently today about why American taxpayers--and the American public's security--demand that honest citizens must be able to bring to light evidence of fraud, waste, and abuse that affects government dollars (which are taxpayer dollars).

Home with a bug today, I was able to watch the debate on C-Span. The bill passed the House by a vote of 331-94, with 8 members not voting. Let's hope the Senate also acts responsibly by approving the bill.

Rep. Braley was inspiring in his remarks about the courage and contributions of important whistleblowers such as former FBI Agent Colleen M. Rowley, whose comments in speaking out after 9/11 are worth remembering and repeating below:

* * * * * * * * * * * *

Continue reading "New "Whistleblower Protection Enhancement Act" Passes U.S. House" »

Whistleblowerlawyerblog Author Testifies In Support of Georgia Department of Community Health's "State False Medicaid Claims Act"

This morning, a new state False Claims Act cleared a hurdle as it was approved by a Georgia legislative subcommittee.

Georgia's new "State False Medicaid Claims Act," which has qui tam whistleblower provisions similar to the federal False Claims Act, received unanimous support among members of the subcommittee of the House Judiciary Committee chaired by Rep. Edward Lindsey of Atlanta.

Testifying in support of the new False Medicaid Claims Act were Inspector General Doug Colburn of the Georgia Department of Community Health, and Mary Beth Westmoreland of the Georgia Attorney General's Office.

Also testifying in support of the law was Michael A. Sullivan of Finch McCranie, LLP (one of the authors of this whistleblowerlawyerblog). Sullivan was asked to address how the federal False Claims Act has worked in practice since he began working with the statute in the late 1980s, and how the states have seized the opportunity to create their own whistleblower laws, similar to the False Claims Act. He discussed the great successes of the federal statute as the government's "primary weapon" for combatting fraud. Sullivan also provided the legislators a version of his article explaining how the False Claims Act works, which also appears on this whistleblower lawer blog.

Georgia, like the many other states now considering a False Claims Act, stands to increase its share of Medicaid fraud recoveries substantially if it enacts a bill that passes muster with the Office of Inspector General of HHS.

We were very pleased to be a part of the process of assisting legislators in protecting taxpayer funds. We will be there as the new whistleblower law progresses through the legislative process.

We found a very interesting article from last week's Legal Times, with an excerpt of interest to whistleblower lawyers as follows:

"Last fall, the Justice Department launched a National Procurement Fraud Task Force to focus "resources at all levels of government to increase criminal enforcement" in areas of procurement fraud. The stepped-up attention to this area throughout the government may signal that the $3.1 billion record in federal fraud recoveries in 2006 could soon be broken. More than 50 inspectors general from across all government departments and agencies also are actively pursuing thousands of investigations."

"In addition, powerful newly installed Democratic committee and subcommittee chairs in Congress are launching dozens of oversight investigations of alleged government and contractor abuses, focusing on the reconstruction effort in Iraq and in the U.S. Gulf Coast following Hurricane Katrina, numerous areas of military and homeland-security procurement, the pricing of pharmaceuticals and other significant areas of federal contracting. For instance, House Oversight and Government Reform Committee Chairman Henry Waxman, D-Calif., in the first week of February began one set of hearings on alleged waste, fraud and abuse by government contractors in Iraq and another set of hearings on alleged overcharging by drug companies in federal health programs."

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

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 " »

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" »

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):

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

We have been working with the IRS to bring information about large tax cheating to the IRS's attention, so that clients can participate in the new IRS Whistleblower rewards. The IRS officials sound excited to have this new tool at their disposal, and we are happy to help our whistleblower clients obtain the new rewards. Our latest one deals with fraud in the Hurricane Katrina relief effort, where the public and government have been cheated out of what appears to be many millions of dollars.

We find it especially exciting when a qui tam whistleblower client also has information that qualifies the client to participate in the new IRS whistleblower rewards. This new IRS law enacted in late December 2006 provides for rewards to the whistleblower of 15 to 30% of the government's recovery of taxes, interest, and penalties when income has been under-reported or underpaid.

You might be interested to know that the new IRS whistleblower program is different than the qui tam provisions of the False Claims Act, the main tool the government has had to date for combating fraud. The IRS whistleblower program permits payments of up to 10% of the government's recovery, even when the whistleblower is not an "original source" of the information.

We are excited to offer this service to our whistleblower clients and potential clients. We already feel like we have a "leg up" in helping clients because, as former federal prosecutors, we use that experience to advise our whistleblower clients on criminal law issues. After all, many times our clients have been uncomfortably close to the fraud they are reporting. Now, we can offer this third area of experience-the IRS whistleblower rewards program.

We think the increase in rewards to IRS whistleblowers is an excellent change in the law, which we will use to benefit our clients.

We all remember how Hurricane Katrina and Hurricane Rita left the Gulf Coast devastated. As government agencies began to provide disaster relief with public dollars, dishonest contractors saw a huge opportunity for fraud against the government. Too many FEMA contracts have been the targets of dishonest contractors.

The "watchdogs" of the federal government agencies--the various Inspectors General of the many agencies involved in Katrina relief--have combined their efforts and sent hundreds of auditors to the Gulf region to examine fraud and mismanagement of Katrina contracts. The Inspectors General website on Hurricane Katrina fraud describes these efforts.

We learn more about Hurricane Katrina fraud each time we are contacted by a potential whistleblower client who has something new to report. Many whistleblowers have acted to help the government stop this fraud by filing qui tam lawsuits under the False Claims Act, which can provide the whistleblower a share of the government's recovery of money damages and penalties, as well as attorney's fees and expenses.

We hear from many lawyers and clients that they are not aware of the new IRS Whistleblower Rewards Program. The new provisions took effect on December 20, 2006, and yet so far they are locate on the web.

We hope it is helpful to you to find the new IRS Whistleblower Rewards amendments here, in the amended version of the statute:

26 U.S.C. § 7623.

(a) In general.--The Secretary, under regulations prescribed by the Secretary, is authorized to pay such sums as he deems necessary for--

(1) detecting underpayments of tax, or

(2) detecting and bringing to trial and punishment persons guilty of violating the internal revenue laws or conniving at the same,

in cases where such expenses are not otherwise provided for by law. Any amount payable under the preceding sentence shall be paid from the proceeds of amounts collected by reason of the information provided, and any amount so collected shall be available for such payments.

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I looked into the experiences that states have had with their own False Claims Acts, because almost every state is considering passing its own. I have tried to provide a brief summary that I hope is useful to you.

To encourage states to enact their own False Claims statutes with qui tam whistleblower provisions that are at least as effective as the federal Act, Congress created a large financial incentive when it passed the Deficit Reduction Act of 2005. States that have or enact such acts become eligible as of January 1, 2007, for a 10% increase in the state's share of Medicaid fraud recoveries.

Many states, therefore, will consider whether to follow suit by enacting their own False Claims Act as early as 2007. Thus, it is important to consider other states' experiences with their own state statutes governing false claims.

Most qui tam cases filed under the state statutes have been related to health care. Many are "global" Medicaid cases that were first developed in federal courts as Medicare and Medicaid fraud cases and that concerned a nationwide fraud which had been investigated by multiple federal and state jurisdictions.

Texas recovered $45.5 million in 2004 from pharmaceutical companies based on their allegedly overstating the price of prescription brand-name and generic-brand drugs. The Texas Attorney General stated that neither the lawsuit nor the settlement would have been possible had the state not enacted a qui tam provision.

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This is part 4 of my article on the False Claims Act. This part discusses the huge increase in federal dollars recovered in the past few years:

IV. Recent Recoveries and Other Developments In Qui Tam Litigation

A. An Explosion of Federal Dollars Recovered Since 1986, Under the False Claims Act

Over the past 20 years since the modern False Claims Act was established through the 1986 Amendments, the federal government’s recoveries of dollars have grown astronomically. The Department of Justice statistics reprinted in Appendix 2 tell the story:

In 1987, the government’s recoveries in qui tam cases totaled zero, presumably because the 1986 Amendments had just taken effect; and total recoveries under the False Claims Act were just $86 million. The following year, qui tam and other False Claims Act settlements and judgments began a steady climb upward, exceeding $200 million by 1989, and $300 million by 1991. By 1994, the government’s recoveries broke the $1 billion mark for the first time, with $380 million of that amount attributable to qui tam case recoveries alone.51

In 2000, the government recovered more than $1.5 billion, of which $1.2 billion was derived from qui tam actions. In 2001, the government recovered more than $1.7 billion, with almost $1.2 billion of that amount from qui tam cases. With the exception of 2004, in each year since 2000 the government has recovered more than a billion dollars per year under the False Claims Act, and qui tam actions were responsible for the lion’s share of those recoveries. For example, in 2003, government recoveries exceeded $2.2 billion, of which $1.4 billion derived from qui tam cases. Similarly, in 2005, of the government’s total recovery of $1.4 billion, $1.1 billion of that amount derived from qui tam cases.

Continue reading "The Growing Importance of the Qui Tam Whistleblower Cases Under the False Claims Act" »

This is part 3 of my article on how the False Claims Act works:

III. Brief Overview of How the Modern False Claims Act Works

A. Conduct Prohibited

The federal False Claims Act imposes civil liability under several different theories:

First, the Act makes liable any person who knowingly presents, or causes to be presented, a “false or fraudulent claim for payment or approval” to the federal government.27 “Claim” is broadly defined to include not only submissions made directly to the federal government, but also “any request or demand . . . for money or property” made to a “contractor, grantee, or other recipient” if the federal government provides any portion of the money or property in question.28

Second, the Act creates liability for using a “false record or statement” to obtain payment of a false claim. It imposes liability on any person who “knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the government.”29

Third, the False Claims Act imposes liability under a “conspiracy” provision. Any person who “conspires to defraud the Government by getting a false or fraudulent claim allowed or paid” is also liable under the Act.30

Fourth, since the government also can be defrauded when a private entity underpays or avoids paying an obligation to the government, the modern Act contains what is known as a “reverse false claim” provision. It creates liability for any person who “knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government.”31 For example, a company that is obligated to pay royalties to the government under an oil lease can be held liable if it uses false records or statements to pay less than what it owes.

Continue reading "How the Modern False Claims Act Works in Qui Tam Whistleblower Cases" »

I wrote this article for a seminar to explain the False Claims Act to those who may not know about it. I hope it may be useful to those who are interested in the Act. I have divided it into several sections--this is the first section, summarizing how the False Claims Act came to be in the time of Abraham Lincoln, and how it has evolved since then:

I. Introduction

Fraud is perhaps so pervasive and, therefore, costly to the Government due to a lack of deterrence. GAO concluded in its 1981 study that most fraud goes undetected due to the failure of Governmental agencies to effectively ensure accountability on the part of program recipients and Government contractors. The study states:

For those who are caught committing fraud, the chances of being prosecuted and eventually going to jail are slim . . . The sad truth is that crime against the Government often does pay.1

Fraud–and allegations of fraud–plague government spending at every level. Today, as the federal and state governments struggle to fund the billions of dollars spent annually on health care through Medicare and Medicaid; the Iraq war and reconstruction effort; other Department of Defense procurement; Hurricane Katrina and other disaster relief; and government grants and programs of every description, there is no shortage of opportunities for fraud against the public fisc.

The federal False Claims Act, 31 U.S.C. §§ 3729 - 3733, has been the federal government’s “primary” weapon to recover losses from those who defraud it.2 The Act not only authorizes the government to pursue actions for treble damages and penalties, but also empowers and provides incentives to private citizens to file suit on the government’s behalf as “qui tam relators.”3 Over the past 20 years, recoveries for the federal government have grown dramatically since Congress amended the Act in 1986 to encourage greater use of the qui tam provisions, as part of a “coordinated effort of both the [g]overnment and the citizenry [to] decrease this wave of defrauding public funds.”4

The False Claims Act has unique procedural requirements that create many pitfalls for a lawyer prosecuting or defending cases under the Act. In addition, the law varies among the different federal circuits in ways that can determine the outcome of a False Claims Act case, depending on where it is filed.

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1 Legislative History to P.L. 99-562, False Claims Amendments Act of 1986, Senate Report No. 99-345 S. Rep. 99-345, 3, 1986 U.S.C.C.A.N. 5266, 5268 (hereinafter “Legislative History”) (quoting 1981 GAO Report to Congress, “Fraud in Government Programs: How Extensive is it? How Can it be Controlled?”).

2 Legislative History, at 2, 1986 U.S.C.C.A.N. at 5266.

3 The term “qui tam” is derived from the Latin phrase, “qui tam pro domino rege quam pro se ipso in hac parte sequitur,” which means “who pursues this action on our Lord the King's behalf as well as his own.” Vermont Agency of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765, 769 N.1 (2000).

4 Senate Report No. 99-345 S. Rep. 99-345, *2, 1986 U.S.C.C.A.N. 5266, **5267. Appendix 2 shows the growth in revenues, which is discussed in section IV infra.

Continue reading "Introduction to the False Claims Act and Qui Tam Whistleblower Cases" »