Whistleblower Lawyer Blog

The Justice Department has just announced that, to protect patients from harm in seven Georgia psychiatric hospitals, its Civil Rights Division has filed for relief including immediate appointment of a monitor to protect those patients.

DOJ cited the threat to patients of "imminent and serious threat of harm to their lives, health and safety."

The seven hospitals include East Central Regional Hospital, Georgia Regional Hospital at Savannah, Georgia Regional Hospital at Atlanta, Southwestern State Hospital, Central State Hospital, West Central Georgia Regional Hospital, and Northwest Georgia Regional Hospital.

The announcement is repinted below:

Continue reading "Georgia Psychiatric Hospitals: Justice Department Suit for Immediate Relief to Protect Patients" »

How does the IRS treat whistleblowers who receive awards under the False Claims Act's "qui tam" provisions, which allow private citizens who expose fraud to share in the government's recovery of money?

The Tax Court this week addressed that question. It held that awards to whistleblowers or "relators" are part of "gross income" and thus are taxable, but that the whistleblower nonetheless may deduct the attorney's fees paid as a miscellaneous itemized deduction.

Thus, no income taxes were owed on that portion of the whistleblower's award that was paid as attorney's fees to the whistleblower's attorney.

This result not only makes sense, but also is consistent with precedent. Since the whistleblower would have had no recovery but for the attorney's efforts, it would be unfair to conclude otherwise.

The case is ALBERT D. CAMPBELL, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, decided January 21, 2010. It is reprinted below:

Continue reading "Taxation of Qui Tam Whistleblower Awards by IRS Addressed by Tax Court " »

Attorneys from across the country will gather tomorrow in Atlanta to discuss health care fraud and the 2009 amendments to the False Claims Act, the nation's primary whistleblower statute.

I am pleased to be on the panel discussing "False Claims Act Developments," moderated by Jack Boese of Fried Frank. This will be a particularly interesting year for this annual meeting, as Congress enacted major changes to the False Claims Act that took effect on May 20, 2009.

In addition, the "Health Care Fraud Enforcement Act" pending in the Senate would enhance further the government's tools used to investigate and remedy Medicare and Medicaid fraud. This bill would remove any question that all payments made pursuant to illegal kickbacks are "false" for purposes of the False Claims Act.

Among the significant 2009 changes to the False Claims Act made by the Fraud Enforcement and Recovery Act are the following:

1. The amendments expanded the definition of "claim," and fraud directed against government contractors, grantees, and other recipients is now plainly covered by the False Claims Act.

2. Funds administered by the United States government (e.g., in Iraq) are now protected.

3. Retaining overpayments of money from the government is now a stated basis of liability, which is a source of concern for health care providers, among others.

4. Liability for "conspiracy" to violate the Act is now broader.

5. Protection of whistleblowers and others against "retaliation" now extends not only to "employees," but also to "contractors" and "agents"; and persons other than "employers" potentially may be liable for retaliation.

6. In investigations, the government now has authority to use "Civil Investigative Demands" more broadly, and to share information more with state and local authorities and with whistleblowers/relators.

7. A standard definition of what is "material" now applies in False Claims Act cases.

8. The statute of limitations has been clarified for when the government asserts its own claims, after the whistleblower (or "relator") has filed a qui tam case under the False Claims Act.

The full agenda for tomorrow's "SOUTHEASTERN HEALTH CARE FRAUD INSTITUTE" is below:

Continue reading "Health Care Fraud Lawyers Gather to Discuss Amendments to False Claims Act and Other Whistleblower Developments" »

Since the Madoff and Stanford schemes proved ruinous to so many investors, many have asked why the SEC has no meaningful "whistleblower" program to expose wrongdoing, a topic we have written about previously.

Perhaps Harry Markopolis' voice is finally being heard, albeit faintly. Last week, the House Financial Services Committee approved legislation that would expand both whistleblower rewards and whistleblower protections, among other things.

Still, past experience with the False Claims Act and the IRS Whistleblower statute shows that the proposed rewards need to be beefed up to be effective.

The “Investor Protection Act of 2009” (excerpted below) also would increase the SEC’s budget and make other changes designed to strengthen enforcement.

The new rewards to whistleblowers would be up to 30% of monetary sanctions of more than $1 million:

"In any judicial or administrative action brought by the Commission under the securities laws that results in monetary sanctions exceeding $1,000,000, the Commission, under regulations prescribed by the Commission and subject to subsection (b), may pay an award or awards not exceeding an amount equal to 30 percent, in total, of the monetary sanctions imposed in the action or related actions to one or more whistleblowers who voluntarily provided original information to the Commission that led to the successful enforcement of the action."

The proposed new whistleblower rewards are reminiscent of those under the new IRS Whistleblower Program, but need at least two corrections to be effective.

First, the current SEC bill creates no enforceable "right" to a reward--a defect that made the old IRS Whistleblower statute ineffective before it was amended in December 2006.

Second, there should be a minimum percentage of perhaps 15% for the SEC rewards; it should not be left at 0-30%, as the bill now reads. Who would risk a 1% (or even lower) reward? The False Claims Act only became effective after 1986 amendments increased rewards to at least 15% in most cases. The new IRS Whistleblower law is attracting whistleblowers left and right because it provides for a minimum of 15% in most instances.

The proposed SEC law has one advantage over the IRS version: The IRS law unfortunately omits protection of whistleblowers from retaliation, but the proposed SEC whistleblower provisions would provide a remedy similar to that furnished whistleblowers under the False Claims Act. Here is what the proposed bill states (in part):

"An employee, contractor, or agent prevailing in any action brought under subparagraph (B) shall be entitled to all relief necessary to make that employee, contractor, or agent whole, including reinstatement with the same seniority status that the employee, contractor, or agent would have had, but for the discrimination, 2 times the amount of back pay, with interest, and compensation for any special damages sustained as a result of the discrimination, including litigation costs, expert witness fees, and reasonable attorneys' fees."

The bill's proposed SEC whistleblower language is below; the entire bill may be found here:

Continue reading "New SEC Whistleblower Rewards and Whistleblower Protections Approved by House Committee--But Improvements Are Needed" »

The battle against those who steal taxpayer dollars through Medicare fraud and other health care fraud took a step forward this week. The Senate is now considering the "Health Care Fraud Enforcement Act," which will enhance the government's tools used to investigate and remedy Medicare and Medicaid fraud.

After a Senate Judiciary Committee hearing Wednesday on “Effective Strategies for Preventing Health Care Fraud,” Senators Leahy, Kaufman, Specter, Kohl, Schumer, and Klobuchar sponsored the new anti-fraud measure.

Excerpts of the Senate announcement follow:

The bill makes straightforward but critical improvements to the federal sentencing guidelines, to health care fraud statutes, and to forfeiture, money laundering, and obstruction statutes, all of which would strengthen prosecutors’ ability to combat this particularly destructive form of fraud. These improvements include:

o Increasing funding: Money spent on health care fraud prevention and enforcement is returned manifold through costs savings and civil and criminal recoveries. This bill authorizes a modest, yet significant, increase in federal antifraud spending of $20,000,000 per year through 2016.

The new bill would add to legislation earlier this year to strengthen law enforcement statutes aimed at fraud, the Fraud Enforcement and Recovery Act.

Of particular importance to qui tam whistleblower cases under the False Claims Act, the nation's major whistleblower law, the new bill removes any ambiguity that "kickbacks" violate the False Claims Act. The official summary discusses kickbacks in section 2(c):

Section 2(c). Kickbacks

All too often, health care providers secure business by paying illegal kickbacks, which needlessly increase health care risks and costs. When a doctor’s independent judgment is compromised by a kickback, the patient faces the risk that the doctor is making decisions that are not in the patient’s best interest. In addition, excessive payments to doctors increase health care costs, may result in unfair competition, and may compromise medical research independence and the standards of scientific integrity.

The Department of Justice has had success both prosecuting illegal kickbacks and pursuing False Claims Act (FCA) matters predicated on underlying violations of the Anti-Kickback Statute (AKS). Nevertheless, defendants in such FCA cases continue to mount legal challenges. A court recently held that, even though a device company may have paid a kickback to a doctor to use a particular medical device, the bill for the procedure to implant the device was not false because the claim was submitted by the innocent hospital, and not by the doctor. United States ex rel. Thomas v. Bailey, 2008 WL 4853630 (E.D. Ark.) (Nov. 6, 2008). In other words, a claim that results from a kickback and that is false when submitted by a wrongdoer is laundered into a "clean" claim when an innocent third party finally submits the claim to the government for payment. This has the effect of insulating both the payor and the recipient of the kickback from FCA liability. This obstacle to a successful FCA action particularly limits Department’s ability to recover from pharmaceutical and device manufacturers, because in such instances the claims arising from the illegal kickbacks typically are not submitted by the physicians that received the kickbacks, but by pharmacies and hospitals that had no knowledge of the underlying unlawful conduct.

This section remedies the problem by amending the AKS to ensure that all claims resulting from illegal kickbacks are false, even when the claims are not submitted directly by the wrongdoers themselves. (Notably, in such circumstances, neither AKS nor FCA liability will lie against an innocent third party that submitted the claim but lacked the requisite intent required under those statutes.)

The full text of the bill is below:

Continue reading "New ‘‘Health Care Fraud Enforcement Act of 2009’’ Includes Health Care Whistleblower Provisions Aimed at Kickbacks" »

With the nation's health care costs growing, a DOJ and HHS initiative to combat health care fraud continues to show progress.

Building on past enforcement efforts, in May 2009 the government announced its Health Care Fraud Prevention and Enforcement Action Team (HEAT), as part of what is now a Cabinet-level battle against Medicare fraud. To date in FY 2009, the Department of Justice has recovered close to one billion dollars in health care fraud cases, and has obtained 300 convictions.

Last week, the government announced that its Medicare Fraud Strike Force has charged twenty California defendants with $26 million in Medicare fraud from the sale of durable medical equipment (DME). That same week, the government charged six Houston area residents with participating in a scheme to submit claims to Medicare for medically unnecessary DME.

DME fraud and abuse are frequently reported in the calls we receive in representing "whistleblowers" under the qui tam provisions of the False Claims Act. The nation's major whistleblower law, the False Claims Act allows private citizens who report fraud or false claims to share in the government's recovery of damages.

Significant changes to the False Claims Act made earlier this year will improve its effectiveness in stopping fraud against taxpayer funds.

Defrauding the government of taxpayer dollars has gotten tougher over the past five months.

Important changes to the nation's primary anti-fraud statute, the False Claims Act, took effect on May 20, 2009, when the Fraud Enforcement and Recovery Act of 2009 became law.

Among the most significant changes, Congress clarified and corrected the False Claims Act by legislatively overruling certain court decisions that sought to limit the scope of the Act, including Allison Engine Co. v. United States ex rel. Sanders, 128 S. Ct. 2123 (2008); United States ex rel. Totten v. Bombardier Corp., 380 F.3d 488 (D.C. Cir. 2004), cert. denied, 544 U.S. 1032 (2005); and United States ex rel. DRC, Inc. v. Custer Battles, LLC, 376 F. Supp. 2d 617 (E.D. Va. 2005), rev'd, 562 F.3d 295 (4th Cir. 2009).

These important 2009 changes to the False Claims Act include the following:

1. The amendments expand the definition of "claim," and fraud directed against government contractors, grantees and other recipients is now plainly covered by the law.

2. Funds administered by the United States government (such as in Iraq) are now protected.

3. Retaining overpayments of money from the government is now an explicit basis of liability, which will be a source of concern for health care providers, among others.

4. Liability for "conspiracy" to violate the Act is broader than before.

5. Protection of whistleblowers and others against "retaliation" now extends not only to "employees," but also to "contractors" and "agents"; and persons other than "employers" potentially may be liable for retaliation.

6. In investigating, the government now has authority to use "Civil Investigative Demands" more broadly, and to share information more with state and local authorities and with whistleblowers/relators.

7. A standard definition of what is "material" now applies in False Claims Act cases.

8. The statute of limitations has been clarified to allow the government to assert its own claims, after the whistleblower (or "relator") has filed a qui tam case under the False Claims Act.

Click here for a detailed discussion of the False Claims Act and the wave of new State False Claims Acts.

The amended False Claims Act is reprinted below, in its entirety:

Continue reading "New False Claims Act Amendments Strengthen Enforcement of Health Care Fraud and Procurement Fraud Laws " »

At the "Advanced Health Law" seminar on October 9, attorneys prosecuting and defending cases of alleged health care fraud will discuss the important new amendments to the False Claims Act. I am honored to be the panelist who will discuss these important new provisions from the perspective of representing whistleblowers (known as "relators") who bring qui tam whistleblower cases under the False Claims Act.

These significant changes to the False Claims Act took effect on May 20, 2009, when the Fraud Enforcement and Recovery Act of 2009 became law. Among the most important changes, Congress corrected and clarified the False Claims Act by legislatively overruling certain court decisions that sought to limit the scope of the Act, including Allison Engine Co. v. United States ex rel. Sanders, 128 S. Ct. 2123 (2008); United States ex rel. Totten v. Bombardier Corp., 380 F.3d 488 (D.C. Cir. 2004), cert. denied, 544 U.S. 1032 (2005); and United States ex rel. DRC, Inc. v. Custer Battles, LLC, 376 F. Supp. 2d 617 (E.D. Va. 2005), rev'd, 562 F.3d 295 (4th Cir. 2009).

The False Claims Act, as amended, now has these provisions:

1. The amendments expand the definition of "claim," and fraud directed against government contractors, grantees and other recipients is now covered by the law.

2. Funds administered by the United States government (such as in Iraq) are now protected.

3. Retaining overpayments of money from the government is now an explicit basis of liability, which will be a source of concern for health care providers, among others.

4. Liability for "conspiracy" to violate the Act is broader than before.

5. Protection of whistleblowers and others against "retaliation" now extends not only to "employees," but also to "contractors" and "agents"; and persons other than "employers" potentially may be held liable for retaliation.

6. In investigating, the government now has authority to use "Civil Investigative Demands" more broadly, and to share information more with state and local authorities and with whistleblowers/relators.

7. A standard definition of what is "material" now applies in False Claims Act cases.

8. The statute of limitations has been clarified to allow the government to assert its own claims.

Health care fraud lawyers on this October 9 panel include government counsel Christopher J. Huber (Assistant U.S. Attorney, Atlanta); defense counsel Richard L. ("Rick") Shackelford (King & Spalding LLP, Atlanta); and this whistleblower lawyer blog author Michael A. Sullivan (Finch McCranie, LLP, Atlanta). Our moderator will be Summer H. Martin (McKenna Long Aldridge LLP, Atlanta). The program will be chaired by Tracy M. Field, Chair, Health Law Section, State Bar of Georgia (Arnall Golden Gregory LLP, Atlanta). I look forward to working with this distinguished group.

These health care attorneys will discuss which aspects of the amendments to the False Claims Act will be most significant to hospitals, physicians, pharmaceutical companies, and others in the health care industry.

It has been interesting to discuss with our colleagues which of the changes are likely to have the greatest impact, not only in health care fraud cases, but in cases involving contractor fraud in the Iraq and Afghanistan wars and reconstruction, other military contracts, NASA programs, Hurricane Katrina and other disaster relief, the new TARP and "Stimulus" programs (the American Recovery and Reinvestment Act), and other federal contracts, which are among the cases clients have brought to our firm.

Outrage over misuse of public funds is a healthy reaction to those who cheat taxpayers. It can also create interesting bedfellows, as newly-introduced legislation in the House demonstrates.

HR 3571, aimed at "de-funding ACORN," would ban federal contracts and most federal funds to any organization that "has filed a fraudulent form with any Federal or State regulatory agency," among other things. (Complete bill is below.)

As. Rep. Alan Grayson (D-FL) observed correctly, fraud by those who receive government funds involves much "bigger fish" than ACORN--and bigger dollar amounts of alleged fraud.

"We can't have a situation where the laws of justice are applied to one organization and not to any of the others, particularly when there are organizations that are polluting water for our soldiers and electrocuting them." Grayson presumably was referring to allegations that KBR's performance of government contracts for our troops has caused soldiers to be electrocuted and otherwise endangered.

Rep. Grayson is on target. He saw these abuses as a lawyer vindicating the public's interest in fighting fraud in pursuing qui tam whistleblower cases under the False Claims Act, the nation's primary civil statute for combating fraud and false claims against the government.

On the other side of the aisle, Rep. Dan Issa (R-CA) appeared to agree with this principle--"abuse and fraud will not be tolerated," as his spokeperson told ABC News.

Battling fraud against taxpayers can and should be a universal concern of both parties. Let's see whether this bill is weakened by those who reap the most rewards from cheating the public. The full text of the proposed legislation is below:

Continue reading "Federal Contractor Fraud Laws To Get Tougher? ACORN Controversy Casts Spotlight on Larger Contractors That Violate False Claims Act" »

Since the Madoff and Stanford scandals, we have written about the calls for the Securities and Exchange Commission (SEC) to establish a meaningful whistleblower rewards program. Currently, no adequate incentives exist for whistleblowers to speak up when they might have a chance to stop large scale fraud and prevent the next Madoff or Stanford debacle. How much better off would so many Americans be if someone had exposed Madoff before he defrauded so many investors?

Forbes has run interesting column by Bill Singer, calling for a statute that apples "False Claims Act" whistleblower remedies to Wall Street. Why not protect investors from the massive losses that so many incurred? The current system obviously failed to do so. Harry Markopolis has described eloquently how the SEC could do so much better, and new SEC whistleblower rewards should make a huge difference.

We are already seeing the successes of another innovative law based on the same idea, the IRS Whistleblower Program. To stop those who would have you and I carry their share of the nation's tax burden, private citizens are stepping forward with better and better information to provide to the IRS about significant tax cheating. The quality of the information that our clients are presenting is compelling, and some of it will help stop major abuses of the tax laws.

Continue reading "Calls Continue for a "False Claims Act" for Wall Street Whistleblowers" »

In one of two prominent whistleblower cases in the news this week, whistleblower John Kopchinski will be awarded more than $50 million for his role in exposing improper "off-label marketing" of the drug Bextra by Pfizer. Other whistleblowers also will be rewarded because of this settlement. That settlement of $2.3 billion is the largest in history ($1 billion to settle False Claims Act allegations, and $1.3 billion in criminal fine and forfeiture).

As large as the Pfizer settlement is, the other whistleblower's actions seem likely to lead to recovery of dollars that could dwarf this $2.3 billion settlement. UBS whistleblower Bradley Birkenfeld has lifted the shroud of secrecy from thousands of American taxpayers' offshore accounts at UBS. He has given the IRS a foothold into recovering potentially many billions in unpaid taxes owed.

Yet Birkenfeld was recently sentenced to serve 40 months in federal prison for conspiracy to defraud the United States in a tax fraud scheme while at UBS. His conviction also calls into question his ability to receive a reward under the IRS Whistleblower Program from the billions to be collected by the IRS.

How could this happen?

There are tried and true steps lawyers representing whistleblowers must take to protect their clients from the risk of prosecution. This was one of the topics of the "IRS Whistleblower Boot Camp" panel discussion that I led this past March, with panelists including IRS Whistleblower Office Director Steve Whitlock--how to protect the whistleblower who has potential criminal liability, but who has valuable information.

If adequate protection cannot be obtained, often the whistleblower with real criminal exposure should choose not to go forward. If the information is important enough to the government, however, protection for the whistleblower often can be negotiated, so long as the whistleblower is truthful and forthcoming. As former federal prosecutors who have also defended clients in white collar criminal prosecutions, we have represented many clients in obtaining this type of protection.

Continue reading "Protecting Whistleblowers from Criminal Prosecution: The Mystery of the UBS Whistleblower's Prison Sentence" »

We have followed closely the trend of states enacting their own versions of the nation's chief whistleblower law the False Claims Act. North Carolina has become the newest state to enact its own False Claims Act, which is reprinted below.

We congratulate the State of North Carolina on a momentous accomplishment.

Continue reading "Latest State "False Claims Act" Is Enacted in North Carolina" »

For a "webinar" on August 11, 2009, I have been asked to discuss not only potential liability under the False Claims Act for false or fraudulent claims to the federal government, but also what has been called the "Mini-False Claims Act": the "Program Fraud Civil Remedies Act," 31 U.S.C. §§ 3801-12,

Because it is not feasible for the government to handle under the False Claims Act every conceivable case of a false claim in procurement, the PFCRA was enacted so that smaller claims could be handled in an administrative process.

A major provision of the PFCRA, section 3802, is reprinted below:

Chapter 38. Administrative Remedies for False Claims and Statements

shall be subject to, in addition to any other remedy that may be prescribed by law, a civil penalty of not more than $5,000 for each such claim. Except as provided in paragraph (3) of this subsection, such person shall also be subject to an assessment, in lieu of damages sustained by the United States because of such claim, of not more than twice the amount of such claim, or the portion of such claim, which is determined under this chapter to be in violation of the preceding sentence.

Continue reading "The "Program Fraud Civil Remedies Act"--A "Mini-False Claims Act" " »

At the 20th Annual Convention of NELA, the National Employment Lawyers Association, I recently had the pleasure of moderating a panel discussion of some of the country's top "whistleblower" lawyers. The topic was "The Most Pressing Issues in Representing Whistleblowers."

Joining me in this panel discussion were Richard Renner and David J. Marshall. Richard is an attorney with Kohn & Colapinto in Washington, DC. and also serves as Legal Director of the National Whistleblowers Center. David is a partner with Katz, Marshall & Banks, LLP in DC.

The discussion included:

(1) the brand new Amendments to the False Claims Act that became law on May 20, 2009;

(2) "winning" cases and clients;

(3) what documents and other evidence may lawfully be gathered;

(4) protecting clients who may have been forced to participate in unlawful acts, and who therefore may face liability or prosecution themselves; and

(5) presenting cases most effectively to capture the government's interest.

In addition, we discussed the new IRS Whistleblower Program, in this second consecutive year that NELA invited me to participate in its national convention's panel discussion of whistleblower issues. Audience members had many excellent questions during and after the discussion.

After our session, my friend Mark Kleiman led a discussion of whistleblower issues entitled "The California False Claims Act & Other Whistleblower Cases." Joining Mark were J. Bernard Alexander III and Wilmer J. Harris.

Much thanks to NELA's fine Board and Executive Director Teri Chaw in arranging this terrific conference in Rancho Mirage, California.

Today was a monentous day for those who believe in integrity in how taxpayer funds are treated.

President Obama signed into law today the Fraud Enforcement and Recovery Act of 2009, which makes important amendments to the country's most important tool for fighting fraud, the False Claims Act.

Also important today, the Obama administration announced an expansion of DOJ's health-care strike forces, which are designed to combat fraud in Medicare and Medicaid programs. Attorney General Eric H. Holder Jr. and Health and Human Services Secretary Kathleen Sebelius announced the initiative.

The new Fraud Enforcement and Recovery Act of 2009 protects the hundreds of billions being spent on government programs, as we have written about previously.

We will discuss in future posts how the new amendments will affect anti-fraud efforts . We congratulate all taxpayers on having Congress and the President take their interests to heart through these amendments.

Today is an historic day--the House of Representatives has passed the Fraud Enforcement and Recovery Act of 2009 by a vote of 367-59. The Act includes long-needed amendments to the nation's primary anti-fraud law, the False Claims Act, about which we have written often.

The amendments are designed to protect the hundreds of billions in taxpayer funds now being spent from fraud affecting TARP, other "stimulus" measures, Medicare and Medicaid, national defense including the Iraq and Afghanistan wars and reconstruction efforts, and countless other government programs.

The Senate approved the Act by a vote of 92-4 on April 28th. A conference committee now will consider reconciling differences in the versions of the bill.

The new law closes a series of "loopholes" that allowed dishonest contractors to cheat the American public, and is intended to restore the False Claims Act to its original intent.

Our whistleblower lawyer blog has provided previously a detailed explanation of how the False Claims Act works by allowing private citizen "whistleblowers" (also known as qui tam "relators") to report fraud and share in the government's recovery. The False Claims Act also protects whistleblowers from retaliation.

Much will be written about the new amendments, which will greatly strengthen the Act's effectiveness in combating fraud. We congratulate those in Congress with the wisdom to pass the amendments, as well as all involved in this effort!

Continue reading "Major Whistleblower Law Development--False Claims Act Amendments Pass House of Representatives, As Part of the "Fraud Enforcement and Recovery Act of 2009" " »

We have written previously how the "bailout" measures such as TARP--the Troubled Assets Relief Program--and other "stimulus" measures must have effective oversight,disclosure, and anti-fraud provisions to protect those funds from those who look to commit fraud. The speed at which the government has acted to address the faltering economy will only increase the opportunities for fraud. Already, TARP whistleblowers have begun to come forward with reports of misuse of billions in TARP funds.

This week, Neal Barofsky, the Special Inspector General for the Troubled Assets Relief Program reiterated those points in his Quarterly Report to Congress. The IG described TARP as "inherently vulnerable to fraud, waste and abuse, including significant issues relating to conflicts of interest facing fund managers, collusion between participants and vulnerabilities to money laundering."

Barofsky's unit, known in government lingo as "SIGTARP," has opened twenty investigations that include suspected securities fraud, tax law violations, insider trading and mortgage modification fraud. We expect that his staff is working closely with the Internal Revenue Service Criminal Investigation division (“IRS-CI”), the Securities and Exchange Commission (“SEC”), and other government agencies.

The audits being conducted by Barofsky's unit address, among other things, how TARP funds are being used; compliance with executive compensation provisions; Treasury's decisions about funding the first TARP recipients and its decisions relating to Bank of America’s acquisition of Merrill Lynch; AIG and its bonuses; and the AIG counterparties that received TARP funds. These lists will only grow.

According to Barofsky, "You don't need an entirely corrupt institution to pull one of these schemes off," he said. "You only need a few corrupt managers whose compensation may be tied to the performance of these assets in order to effectively pull off collusion or a kickback scheme."

Just since last Fall, the TARP program has grown in "scope, scale, and complexity" from the original program intended to purchase up to $700 billion in “toxic” assets such as troubled mortgages and mortgage-backed securities (“MBS”). Now, TARP funds are going to twelve separate programs and could reach $3 trillion, according to this week's Report.

As a practical matter, we have found that TARP funds are at greater risk of abuse in the absence of clear restrictions on use of the funds. This glaring oversight in how TARP was originally established must be remedied immediately for anti-fraud measures such as the False Claims Act to be effective in protecting the funds. Clear restrictions and limitations on TARP funds would also allow the IRS Whistleblower Program to be used by whistleblowers who report TARP abuse and fraud.

Here is the link to the Quarterly Report to Congress by the Special Inspector General for the Troubled Assets Relief Program. The Executive Summary is reprinted below:

Continue reading "Fraud Against TARP Funds A Real Threat, Warns Special Inspector General for TARP" »

New legislation to combat financial institution fraud, securities fraud, mortgage fraud, and other fraud and abuse is gaining momentum, and brings closer long-needed amendments to restore to its intended strength the nation's major "whistleblower" law, the False Claims Act.

The Fraud Enforcement and Recovery Act of 2009 (S. 386) received support yesterday in a statement from the Administration:

The Administration strongly supports enactment of S. 386. Its provisions would provide Federal investigators and prosecutors with significant new criminal and civil tools and resources that would assist in holding accountable those who have committed financial fraud.

Specifically, the legislative enhancements would help the Department of Justice to combat mortgage fraud, securities and commodities fraud, money laundering and related offenses, and to protect taxpayer money that has been expended on recent economic stimulus and rescue packages. Further, the legislation would amend the False Claims Act (FCA) in several important respects so that the FCA remains a potent and useful weapon against the misuse of taxpayer funds. In general, this legislation would benefit U.S. taxpayers by both addressing existing fraud and deterring waste, fraud, and abuse of public funds. Moreover, S. 386 would provide needed resources to strained law enforcement agencies and prosecutors that would enable the Department and its partners to advance the pace and reach of the enforcement response to the current economic crisis. These additional resources will provide a return on investment through additional fines, penalties, restitution, damages, and forfeitures. With the tools and resources that S. 386 provides, the Department of Justice and others would be better equipped to address the challenges that face this Nation in difficult economic times and to do their part to help the Nation respond to this challenge.

We have written previously about the amendments to restore the False Claims Act to full strength, by clarifying various provisions that led some courts to weaken this important anti-fraud law.

The abuses now being exposed in the financial industry join the list of many other types of fraud designed to steal taxpayer funds--health care fraud,defense procurement fraud (especially in Iraq and Afghanistan), Hurricane Katrina fraud, and many other species of fraud and false claims.

With hundreds on billions of new federal spending underway in the TARP program and other "bailout" and "stimulus" efforts, the need is urgent to protect these funds with the most effective anti-fraud measures. That protection begins with the amendments to the False Claims Act, and we applaud this bipartisan effort to restore that critical law to its original intent.

In a major victory today for whistleblowers reporting fraud in the Iraq reconstruction effort, the Fourth Circuit Court of Appeals reversed a trial court's decision that took away a jury verdict from the whistleblowers or relators in this qui tam case under the False Claims Act.

The Custer Battles case has been a hard-fought one, which until this decision had produced one of the odder results found.

With hundreds of billions of U.S. dollars spent on the Iraq War and Iraq reconstruction, and with the False Claims Act supposedly protecting U.S. taxpayer funds from fraud, the whistleblowers filed a qui tam case under the False Claims Act that alleged fraud in certain contracts that addressed, among other things, replacing Iraqi currency in the Iraq reconstruction effort.

After the jury awarded a verdict to the whistleblowers, the trial court overturned it. The trial court did not view claims presented to the Coalition Provisional Authority (“CPA”) that was created and funded by the United States as the same as claims presented to the U.S. Government, even though the CPA officials were U.S. Government employees, and U.S. dollars were lost. Today's decision by the Court of Appeals reversed the trial court's decision and corrected that odd result.

This is a very positive development for whistleblowers reporting fraud in Iraq and elsewhere, as it corrects a strained interpretation of the law that has allowed fraud to go unaddressed. We congratulate everyone associated with this effort.

The Court's conclusion from the decision today is quoted below:

Continue reading "Major False Claims Act Victory for Whistleblowers in Iraq Fraud Case: Fourth Circuit Reverses Custer Battles Decision " »

Whistleblowers reporting fraud by contractors in Iraq reconstruction are coming forward, reports Stuart Bowen, the Special Inspector General for Iraq Reconstruction. The relatively calmer conditions in Iraq apparently are a factor in more whistleblowers coming forward, he believes.

From the $21 billion Iraq Relief and Reconstruction Fund, billions have been lost, according to Bowen.

“Thirty-two billion dollars later, we don't know a whole lot about what's happened to that money,” Bowen said.

"The actual reconstruction money, I estimate 15 to 20 percent has been wasted. Roughly $3-$4 billion," he said. Many projects have been plagued by waste and poor design.

"Millions [have been] wasted at the Baghdad police college because of extremely shoddy construction," Bowen said.

Iraq reconstruction whistleblowers may receive rewards of 15-30% of the fraud or false claims reported by using the False Claims Act, the major whistleblower law that we have written about often. They may also potentially use the IRS Whistleblower Program to obtain rewards, since illegal activity often results in tax violations.

In this age when fraud and abuse are depleting taxpayer funds, any whistleblower who steps forward to report fraud or other impropriety in the Iraq reconstruction is to be commended.

Continue reading "Iraq Whistleblowers Coming Forward, as Special Inspector General for Iraq Reconstruction Estimates Billions in Fraud and Waste" »

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.

Today, we were excited to hear that the Senate Judiciary Committee has sent long-needed amendments to the False Claims Act to the full Senate, as part of the "bailout" and "stimulus" inspired "Fraud Enforcement and Recovery Act" (FERA).

Where there are taxpayer funds being spent, there will be attempts to engage in fraud to cheat the public. As hundreds of billions of dollars are poured into federal and state programs through the “economic stimulus” package, the continuation of the Troubled Assets Relief Program (“TARP”), the many federally funded health care programs such as Medicare and Medicaid, and the vast defense procurement industry that is servicing two wars, opportunities for fraud will only increase. The speed at which the "stimulus" funds will be spent will only increase the opportunities for fraud.

Senator Grassley has been steadfast in his efforts to ensure that these taxpayer funds receive the protection of the False Claims Act, which is the primary civil weapon to combat fraud and false claims. This bipartisan legislation would restore the False Claims Act to its original intent by "undoing" several attempts by judges to limit its reach. Among the goals of the Amendments are:

--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.

All taxpayers should support these Amendments to the False Claims Act, and we applaud the Senate Judiciary Committee for this bipartisan effort to protect taxpayer funds.

I am very excited about co-chairing the Annual "Whistleblower Law Symposium" once again this week.

From Atlanta, Boston, Chicago, New Orleans, San Antonio, and Washington, D.C., many of the country's leading attorneys in whistleblower cases under the "qui tam" statute, the False Claims Act, the Sarbanes-Oxley statute, and the IRS Whistleblower Program will gather in Atlanta on March 4 to discuss some of the more challenging aspects of representing whistleblowers (or defending against whistleblower claims) under these laws.

We are honored to have one of the officials of the IRS Whistleblower Office, Dawn Applebaum, join us in person to discuss the progress of the new IRS Whistleblower Rewards Program. The IRS Whistleblower Office has just celebrated its second anniversary.

We are also privileged to have the top state enforcement officials in health care fraud cases from Texas, Florida, and Georgia, to explain how they coordinate state and federal health care fraud whistleblower cases under the federal and state False Claims Acts.

Also joining us is Rep. Edward Lindsey, the Legislative Sponsor both of the Georgia State False Medicaid Claims Act, and recent legislation to solidify Georgia’s Office of State Inspector General.

Because of the wave of new whistleblower statutes that have been inspired by the successes of the False Claims Act, our firm instituted the Whistleblower Law Symposium. Once again, top-notch speakers will address a broad variety of issues that arise under these whistleblower laws, including:

--Whistleblowers in Health Care: Recent Cases and Strategies for Healthcare Providers and Counsel When a Whistleblower Calls

--Recent Developments in Qui Tam Cases Under the False Claims Act—The Relator’s Perspective

--Update on the IRS Whistleblower Program

We are fortunate to have such excellent faculty members from around the country join us. Our faculty members and their topics are listed below.

Continue reading "Whistleblower Attorneys to Discuss Qui Tam Cases Under False Claims Act, IRS Whistleblower Program, and Sarbanes-Oxley Whistleblower Cases at Annual "Whistleblower Law Symposium"" »

Hidden schemes to defraud Medicare and state Medicaid programs of scarce taxpayer dollars are at the heart of many whistleblower cases under the federal and state False Claims Acts.

This morning, Wisconsin Attorney General J. B. Van Hollen announced that a Dane County, Wisconsin jury has just declared that a pharmaceutical manufacturer defrauded the Wisconsin Medicaid program by reporting grossly inflated and fraudulent prices.

Pfizer was on the receiving end of the health care fraud verdict, which may result in more than $153 million in damages based on alleged practices by Pharmacia (which Pfizer had acquired). The AG reportedly cited a 1993 internal memo in which a pharma employee wrote that "three decades of gaming the present reimbursement scheme has provided a lucrative avenue of profit."

"We as taxpayers, we as consumers, are not going to put up with being 'gamed' by anyone - no matter how big, no matter how small," Van Hollen said.

The case continues the trend of "Average Wholesale Price" litigation (AWP), alleging that drug manufacturers are defrauding state Medicaid programs by publishing false average wholesale prices for their products, in order to grossly overcharge these public programs for drugs. At least 27 states have sued pharmaceutical manufacturers over alleged AWP violations. Alabama has already obtained jury verdicts against three companies of approximately $330 million.

As an example, Wisconsin reportedly argued that Pharmacia listed the wholesale price of its anti-breast cancer drug Adriamycin at $241.36, when in fact it sold the drug to providers wholesale for as little as $33.43. Pharmacia then reportedly "marketed the spread" of $207.93 to oncology providers--a large profit margin.

As Wisconsin argued, the wider the "spread," the more probable a doctor or pharmacy is to increase sales of the drug.

We congratulate the Wisconsin Attorney General's Office on recovering these taxpayer funds.

Taking a brief break from "substantive" writing on this whistleblower lawyer blog, I could not help but briefly note this story today:

Filmmaker Michael Moore is seeking whistleblowers in the financial industry for his next film. He concludes "if you work for a bank, a brokerage firm or an insurance company -- or if you have seen things or heard things that you believe the American people have a right to know -- please contact me" via the email address posted on his blog.

Perhaps those whistleblowers should follow Sen. Grassley's strong advice to use the qui tam whistleblower provisions of the False Claims Act to report fraud and abuse in TARP or other "bailout" measures. Persons in the financial services industry already have contacted us to do just that, and some also have potential claims in the IRS Whistleblower Program.

Both the False Claims Act and the IRS Whistleblower law allow the private citizen whistleblowers to share in the government's recovery of money wrongfully obtained, as we have written about extensively.

We anticipate that the "stimulus" package in Congress this week also will produce many opportunities for fraud and abuse of taxpayer funds, so that whistleblowers also will be important to deter those abuses through use of the False Claims Act and the IRS Whistleblower Program.

Continue reading "Wall Street Financial Industry "Bailout" Whistleblowers Sought by--Michael Moore?" »

Those potential whistleblowers watching for TARP waste, fraud and abuse should note today's report of the Congressional Oversight Panel. According to the report, the Treasury Department has received "far less value in stocks and warrants than the money it injected into financial institutions."

The report, "Valuing Treasury Acquisitions," concludes that Treasury paid "substantially more for the assets it purchased under the TARP than the market value of those assets" at the time this deal was announced. The Panel revealed that, in the ten largest transactions with TARP funds, for each $100 spent by Treasury, it received assets worth only approximately $66.

The full report can be found at COP.Senate.gov.

Sen. Charles Grassley has emphasized that whistleblowers must use the qui tam provisions False Claims Act to guard against misuse of TARP funds through fraud, waste and abuse.

The Congressional Oversight Panel oversees the TARP funds authorized by Congress in the Emergency Economic Stabilization Act of 2008 (EESA) and provides recommendations on regulatory reform. The Panel members are Congressman Jeb Hensarling (R-TX), Richard H. Neiman, Superintendent of Banks for the State of New York, Damon Silvers, Associate General Counsel of the AFL-CIO, former U.S. Senator John E. Sununu (R-NH), and Elizabeth Warren, Leo Gottlieb Professor of Law at Harvard Law School.

We hope the Panel protects these taxpayer funds with zeal, and stops the inevitable attempts at misuse of the funds.

When improprieties occur with hedge funds, the hedge funds' lack of transparency and dearth of disclosure obligations make violations of the law difficult to uncover. Sometimes, persons in the hedge fund industry report those abuses through the IRS Whistleblower Program, as some of our IRS Whistleblower clients have done.

Nonetheless, the hedge fund industry remains cloaked in secrecy, frustrating experts who now seek to gauge the impact of hedge funds on the current financial crisis.

A new bill just introduced in the Senate, the "Hedge Fund Transparency Act," would lift that cloak and create disclosure requirements for hedge funds and oversight of hedge funds by the SEC. This bipartisan bill sponsored by Senators Chuck Grassley and Carl Levin modifies a prior approach to hedge fund scrutiny pressed by Sen. Grassley, after a whistleblower complained that SEC supervisors were impeding an investigation into a major hedge fund.

According to Sen. Grassley, "The bill contains four basic requirements to make hedge funds subject to SEC regulation and oversight. It requires them to register with the SEC, to file an annual disclosure form with basic information that will be made publicly available, to maintain books and records required by the SEC, and to cooperate with any SEC information request or examination."

Until the Bear Stearns debacle, there seemed little political will for any serious oversight of hedge funds. The SEC in 2004 had issued a rule requiring hedge funds to register under the Investment Advisers Act, to comply with related regulations, and to provide basic information through a public disclosure form. In June 2006, however, the U.S. Court of Appeals for the District of Columbia Circuit declared the rule invalid as incompatible with the Investment Advisers Act.

In hindsight, that absence of scrutiny may be seen as a grave error, one which may have helped create the current financial meltdown.

Since 1998, when the Federal Reserve acted to rescue Long-Term Capital Management (LTCM), a hedge fund with more than $125 billion in assets under management and a total market position of approximately $1.3 trillion, investments in hedge funds have grown dramatically.

Continue reading "Hedge Funds Face Regulation & Oversight by SEC--Will There Be Another Compliance Tool in Addition to IRS Whistleblower Program?" »

When the Wall Street "bailout" grew with Congress' creation of the Troubled Asset Relief Program (TARP), Sen. Chuck Grassley emphasized the importance of "whistleblowers" and the False Claims Act to protecting these taxpayer funds from fraud and abuse.

Tonight, the House added to the bailout by passing the economic stimulus package, HR 1, and approved an amendment adding whistleblower protection for federal employees.

The stimulus bill reportedly provides for $523 billion in spending, and $275 billion in tax cuts. It originally lacked protection for federal employees who are whistleblowers. An amendment by Reps. Todd Platts, R-Pa., and Chris Van Hollen, D-Md. added those protections from last year's thwarted Whistleblower Protection Enhancement Act, which cleared the House but not the Senate.

The history of government spending programs proves beyond doubt that the vast majority of fraud and abuse can only be revealed by whistleblowers. Protecting taxpayer dollars means protecting and rewarding whistleblowers. As Sen. Grassley observed in a November 17, 2008 letter about TARP:

As a longtime supporter of whistleblowers, I can attest to the fact that whistleblowers are often the key to uncovering schemes to defraud the government. With their inside knowledge of how businesses, corporations, or government agencies operate they are often privy to information that is often the necessary component to piece together how a fraud is perpetrated.

Both the False Claims Act and the IRS Whistleblower Program will be important in stopping fraud and misuse of taxpayer funds. When there is fraud, there is often an IRS violation as well.

Continue reading "Whistleblower Protections Added to Economic Stimulus Bill Passed by House" »

Financial fraud is a frequent topic of whistleblower cases and of this whistleblower lawyer blog, especially with TARP and the Wall Street "bailout" dominating headlines.

Senators Chuck Shumer and Richard Shelby have proposed a bipartisan bill to bolster federal resources to combat securities fraud and accounting fraud, the Supplemental Anti-Fraud Enforcement (“SAFE”) Markets Act.

Here are excerpts from the Senators' announcement:

“Our white collar crime divisions are under-staffed, under-funded, and overwhelmed,” Schumer said. “When a wave of violent crime sweeps through a city, the immediate response is to beef up the police forces, putting more cops on the beat, extending overtime, and making sure the city returns to safety. Our reaction to the financial crisis and the massive and complex financial fraud investigations that loom should be no different.”

The senators said Thursday that the investment in enforcement is a small price to pay to protect U.S. markets, and it could pay for itself. An increase in fines levied by the SEC and collection of orders of restitution in criminal cases could be far greater than the $110 million cost of increasing enforcement personnel.

As our government hemorrhages its taxpayers' funds to "bail out" firms that made poor decisions--such as American International Group (AIG), Bank of America, Citigroup, Goldman Sachs, and American Express--a just-issued report from the Government Accountability Office (GAO) raises a disturbing question: have many of the same firms already been avoiding paying their "fair share" of U.S. taxes by using offshore tax "havens"?

If so, whistleblowers will be performing a civic duty by reporting any tax evasion and noncompliance through the IRS Whistleblower Program.

"This report shows that some of our country's largest companies and federal contractors, many of which are household names, continue to use offshore tax havens to avoid paying their fair share of taxes to the U.S. And some of those companies have even received emergency economic funds from the government," said Sen. Byron Dorgan. "I think we should take action to shut down these tax dodgers and we will be introducing legislation to do just that."

GAO's findings included that:

Eighty-three of the 100 largest publicly traded U.S. corporations in terms of 2007 revenue reported having subsidiaries in jurisdictions listed as tax havens or financial privacy jurisdictions and 74 of the 83 had federal contracts in fiscal year 2007. For the 74 corporations, the amount of the federal contract obligations ranged from $12,000 to over $23 billion.

Several insurance companies, including American International Group Inc., Hartford Financial Services Group, Travelers Cos. Inc., Allstate Corp. and Berkshire Hathaway Inc. reportedly have subsidiaries in tax havens or financial privacy jurisdictions such as Bermuda and Switzerland.

With a "tax gap" of more than $350 billion each year--the amount owed but not paid in federal taxes--it is galling to most taxpayers to see any company that avoids paying its fair share now receive billions more in a "bailout" through the TARP program.

The GAO report did not state that any of the listed firms utilizing tax "havens" were necessarily violating current law. Sen. Dorgan did say that he planned to introduce legislation to "shut down these tax dodgers."

Continue reading "Will Wall Street Bailout Help Firms That Are "Tax Dodgers" and Hide Income in Offshore Tax "Havens"? And Will the IRS Whistleblower Program Provide a Remedy?" »

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" »

As hundreds of billions in taxpayer funds flow to TARP bailout recipients, the government must make doubly sure to stop or minimize fraud and abuse in every federal program.

One area that cries out for attention is the underpayment of royalties owed to the government under oil and gas leases. The qui tam whistleblower provisions of the False Claims Act provide a basis for taxpayers to recover damages--and the whistleblower to receive a share of the recovery--when obligations to the government are underpaid. Separately, the IRS Whistleblower Program provides rewards to whistleblowers who report tax violations and tax noncompliance.

GAO reported last September that the government may be losing billions of dollars in royalties that it should receive under oil and gas leases. House Natural Resources Committee Chairman Nick Rahall described the approach of the Interior Department's Minerals Management Service as "faith in Big Oil to pay royalties on the honor system."

According to GAO,

Companies that develop and produce oil and gas resources from federal lands and waters do so under leases obtained from and administered by agencies of Interior—the Bureau of Land Management (BLM) for onshore leases and MMS’s Offshore Energy and Minerals Management (OEMM) for offshore leases. Together, these agencies are responsible for overseeing oil and gas operations on more than 28,000 producing leases to help ensure that oil and gas companies comply with applicable laws, regulations, and agency policies. Companies, or lessees, compensate the government for producing oil and gas resources on federal lands either “in value” (royalty payments made in cash) or “in kind” (royalty payments made in oil or gas). In fiscal year 2006, about 58 percent of the $9.74 billion in oil and gas royalty payments were made in value or in cash, while about 42 percent were made in kind.

GAO criticized MMS for failing to conduct sufficient inspections to ensure that oil companies that drill under federal leases accurately report production volumes on which royalties should be paid. GAO also pointed out that the government may have been denied "billions of dollars in forgone revenue" because royalty rates were established when the oil industry's profits were much less.

Adding to the chaos, the Inspector General of the Interior Department reported last fall that various government personnel in the MMS "Royalty-in-Kind" program received not only trips and gifts, but also engaged in sex and drug use, with industry representatives.

This system is broken. Those who contract with the government must not abuse that relationship by underpaying royalties. With a new Administration set to take over, the abuses in the royalties unpaid should be addressed. Whistleblowers with knowledge of these underpayments can help the government by using the qui tam statute, the False Claims Act, to recover damages for the government--and share in that recovery.

Much criticism has flowed from how the first $350 billion in TARP "bailout" funds are being used. Thus far, the need for additional restrictions to prevent and penalize fraud and abuse of TARP money remains unmet.

In response, yesterday House Financial Services Committee Chairman Barney Frank proposed legislation establishing greater limits on use of TARP funds, among other things.

The "TARP Reform and Accountability Act of 2009" (HR 384) would require quarterly reports from recipients on their use of TARP funds, restrict the use of TARP funds for acquisitions, and impose further limits on executive compensation. Among its other terms are that it would increase the authority of the Financial Stability Oversight Board.

A potentially very significant point is that the Act empowers Treasury to apply the new limits on bonuses and other executive compensation to past recipients of TARP funds.

The new restrictions should further Sen. Grassley's call for use of the False Claims Act, the very successful qui tam whistleblower statute, to protect TARP funds.

The entire TARP Reform and Accountability Act of 2009 may be found at http://www.rules.house.gov/111/LegText/111_HR384txt.pdf.

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" »

Fraudulent tax shelters continue to be a target not only of IRS Whistleblower claims, but also of enforcement actions.

We have followed closely the KPMG tax shelter fraud case in this whistleblower lawyer blog. The trial of four defendants ended this week, with two former KPMG partners and one attorney convicted of multiple counts of tax evasion for their roles in the bogus tax shelters. Another lawyer defendant was acquitted.

Prosecutors alleged that KPMG officials offered wealthy clients illegal offshore tax shelters, and paid outside attorneys to give the bogus shelters the appearance of legitimacy. According to the government, the investments had no real risk, and generated "paper losses that allowed the accounting firm's clients to offset income.

Through tax shelters with names such as BLIPS, FLIP and OPUS, the clients were able to claim falsely that they had taken sizeable loans to buy stock, according to the government. Clients allegedly paid fees equal to 7 percent of the amount of losses sought.

After a two month trial, former KPMG tax partner Robert Pfaff, former KPMG senior tax manager John Larson, and attorney Raymond J. Ruble were found guilty on multiple counts of tax evasion. Another former KPMG tax partner was acquitted on the five counts of tax evasion.

The accounting firm agreed two years ago to pay $456 million to resolve the allegations against the firm itself. Guilty pleas previously were entered by the government’s chief witness, David Amir Makov, former KPMG partner David Rivkin, and former HVB Group accountant Domenick DeGiorgio.

Continue reading "KPMG Tax Shelter Fraud Trial Ends With Three Tax Evasion Convictions for Accountants and Lawyer" »

Some recent significant recoveries under the False Claims Act--the nation's primary tool for fighting fraud and false claims--are summarized below. This summary is part of a paper I submitted in connection with serving on the faculty (with some excellent attorneys) of the "Southeastern Health Care Fraud Institute" on December 18, 2008.

Health care attorneys will gather at the Institute to discuss developments under the qui tam provisions of the nation's major whistleblower statute, the False Claims Act, as well as other issues relating to fraud in the health care industry.

Recent Significant False Claims Act Recoveries
(as reported by www.taf.org)

Merck ($650 million settlement in February 2008, arising from allegations of nominal pricing fraud, and kickback and best price violations for the arthritis drug Vioxx, the cholesterol drug Zocor, the acid-reflux drug Pepcid, the hypertensive medication Cozaar, the bone loss drug Fosamax, the migraine medication Maxalt, and the asthma medication Singulair.)

Cephalon ($375 million settlement in November 2007 arising from alleged off-label marketing of narcotic lollipop Actiq (Afentanyl citrate@) as well as Gabitril (an epilepsy medication) and Provigil (a narcolepsy medication.)

Amerigroup ($225 million settlement in July 2008, which was the final settlement after jury trial over allegations that the defendant was Acherry-picking@ the healthiest patients to reduce Medicaid HMO liability/spending.)

Staten Island University Hospital ($88 million settlement in September 2008, based on allegations that the hospital fraudulently billed Medicaid and Medicare for inpatient alcohol and substance abuse detoxification treatment beds for which it did not have verification, fraudulently inflated its patient count, and fraudulently billed Medicare for stereotactic body radiosurgery treatment that was provided on an out-patient basis to cancer patients.)

Continue reading "Qui Tam Whistleblower Recoveries under False Claims Acts (Federal and State) in 2008" »

The country's ongoing economic distress has produced layoffs in many industries, and pharma appears to be feeling the pain as well.

Recent layoffs reported in the drug industry include Sanofi (650 sales reps);Novartis (550 U.S. salespersons);Merck (8,000); Wyeth (2,440); GSK (1,000); Schering-Plough (5,500);and Boehringer Ingelheim (200).

On the same grey November day when President Bush visited Wall Street's Federal Hall to address the ever-morphing "bailout," I was in lower Manhattan meeting with IRS officials about an IRS Whistleblower matter. The tax evasion scheme we discussed was yet another that has cost taxpayers dearly.

As NYPD officers scurried about to help protect the President that day, I wondered who and what would protect our taxpayer funds--the hundreds of billions the government was now about to dole out--from fraud and abuse.

Fraud is rampant, as proven by the evidence brought to light by so many of our whistleblower clients under the qui tam statute, the False Claims Act, and now under the new IRS Whistleblower Program.

A few days later, Sen. Chuck Grassley hammered the same point in a November 17, 2008 letter to Treasury Secretary Paulson and Attorney General Mukasey. Grassley has insisted on effective oversight of the Troubled Asset Recovery Program (TARP) and the Capital Purchase Program (CPP), as well as on encouraging "whistleblowers" to come forward:

In the meantime, taxpayer dollars are at risk and I believe it is important to discuss alternative procedures and measures that can be taken to ensure taxpayers aren’t taken to the cleaners by unscrupulous individuals. One proven and effective method of overseeing taxpayer funds has been to support courageous whistleblowers who risk their jobs and livelihoods to bring forth allegations of fraud, waste, and abuse of taxpayer monies. As a longtime supporter of whistleblowers, I can attest to the fact that whistleblowers are often the key to uncovering schemes to defraud the government. With their inside knowledge of how businesses, corporations, or government agencies operate they are often privy to information that is often the necessary component to piece together how a fraud is perpetrated. As such, I believe you should both work to ensure that all entities participating in the TARP and CPP are made aware that any allegations of fraud, waste, or abuse will be treated seriously and properly referred to the Treasury Inspector General or the Attorney General for review until a Special Inspector General for the TARP is appointed.

Grassley also emphasized the importance of the False Claims Act, the nation's primary civil weapon for combating fraud against taxpayer funds, in preventing and penalizing fraud in the bailout:

[E]ntities who receive federal funds under the TARP and CPP are subject to the provisions of the FCA should they use false or fraudulent submissions in order to obtain federal funds. For instance, any entity that submits false or fraudulent information in an application to Treasury in order to obtain federal funds available through the CPP would be liable to the Government under the FCA. Further, while it has been reported that the Treasury does not currently plan to utilize authority under the Act to use the TARP to purchase distressed assets either directly or indirectly, should Treasury exercise its authority to do so, any fraudulent statements or submissions made to induce the Government to purchase those assets would also subject the fraudfeasors to liability. As a result, these individuals and corporations could be subject to civil penalties and treble damages for committing fraud against the Government.

Continue reading "Whistleblowers, TARP, and Other Wall Street "Bailout" Measures--Why the False Claims Act and IRS Whistleblower Program Are More Essential Than Ever" »

Will Wall Street Bailout Produce the Next Round of Whistleblowers Reporting Fraud?

The U.S. Department of Justice this week announced its FY 2008 recoveries in fraud and False Claims Act cases, with more than $1 billion in health care fraud recoveries alone, and a total of more than $1.3 billion. (As explained below, we believe the $1.3 billion figure is low and understates the actual fraud recoveries this year.)

Cases brought by "relators" or whistleblowers under the nation's primary whistleblower statute, the False Claims Act, accounted for 78% of the money recovered. Since the False Claims Act took its current form in 1986, this law has recovered more than $21 billion of taxpayer funds from those who defraud the government.

As health care costs have grown as a percentage of the federal budget, so have recoveries for health care fraud. Recoveries of federal dollars were made because of fraud not only in Medicare and Medicaid, but also other federal programs such as Tricare and the Federal Employees Health Benefits Program.

The largest recoveries were from pharmaceutical companies--Cephalon Inc., Merck & Co. and CVS Caremark Corp. paid more than $640 million. Pharmaceutical fraud cases also repaid $430 million to state Medicaid programs.

DOJ also cited recoveries in cases of fraud affecting defense procurement contracts, disaster assistance loans and agricultural subsidies.

The actual recoveries were greater if you compare DOJ's announcements of its settlements, as well as include dollars recovered under the various State False Claims Acts. (We have written extensively about why states are enacting their own State False Claims Acts to mirror the federal False Claims Act, given the federal law's successes.)

With whistleblowers reporting fraud infecting in the Wall Street bailout funds (because no federal program is immune), it will be interesting to see how these billions of federal dollars show up in future statistics of fraud recoveries.

We have reprinted below DOJ's "fact sheet" about its FY 2008 significant recoveries. We congratulate Justice on another very successful year in fighting fraud and false claims.

Continue reading "Justice Department Announces 2008 Fraud & "Qui Tam" False Claims Act Recoveries, with Medicare, Medicaid, and Other Health Care Fraud Alone Topping $1 Billion in Recoveries of Taxpayer Funds" »

In our former life as lawyers defending False Claims Act cases, our defendant clients had to consider whether the payments made to settle qui tam cases under the False Claims Act were deductible for tax purposes, and to what extent.

The IRS recently issued a paper on the subject: whether a defendant's payment to the Department of Justice to resolve False Claims Act allegations is "deductible in its entirety as a section 162(a) ordinary and necessary business expense, or includes non-deductible penalty amounts under section 162(f)."

This paper, LMSB-4-0908-045, is reproduced below:

Continue reading "IRS Addresses Deductibility of Payments by Defendants to Settle False Claims Act Cases" »

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.

The Medicare program depends on the integrity of "trusted contractors" to process and pay Medicare claims. This past week, one of those "trusted contractors" operating in New Jersey, BlueCross BlueShield of Tennessee, agreed to pay the federal government $2.1 million to resolve allegations that it violated the False Claims Act.

BlueCross BlueShield of Tennessee operated as the primary Medicare Part A Fiscal Intermediary for New Jersey, under the name "Riverbend Government Benefit Administrators."

The government had alleged that BlueCross BlueShield of Tennessee "failed to adjust the cost-to-charge ratios for many New Jersey hospitals in a timely manner between 2000 and 2002 that resulted in the payment of excessive 'outlier payments' by Medicare program to those medical facilities." The "outlier payments" are supplemental reimbursements to hospitals in situations when the cost of care is unusually high, which are paid "to ensure that hospitals possess the incentive to treat inpatients whose care requires unusually high costs," as described in the government's announcement.

The Justice Department's announcement took aim at "contractors that falsely bill for crucial tasks that they do not perform,” in the words of Gregory G. Katsas, Assistant Attorney General of the Civil Division.

We congratulate the coordinated efforts of the various agencies that brought about this result: the Justice Department’s Civil Division’s Commercial Litigation Branch; the U.S. Attorney’s Office for the District of New Jersey, Affirmative Civil Enforcement Unit; the Department of Health and Human Services, Office of Inspector General and Office of Counsel to the Inspector General; the Centers for Medicare and Medicaid Services; and the FBI.

The wave of new State False Claims Acts has generated a flurry of letters from the Office of Inspector General of HHS this past week. OIG has now "approved" the new State False Claims Acts of California, Georgia, Indiana, and Rhode Island, but has "disapproved" those of six other states: Florida, Louisiana, Michigan, New Hampshire, New Mexico, and Oklahoma.

As this whistleblower lawyer blog has written about extensively, Congress has created financial incentives for states to enact their own versions of the highly successful qui tam whistleblower law, the False Claims Act, which is the government's primary tool for combating fraud directed at taxpayer funds.

Under the Deficit Reduction Act of 2005, each state that has a False Claims Act that is at least as effective in facilitating and rewarding qui tam actions as the Federal False Claims Act in protecting state Medicaid funds is entitled to a greater share of fraud recoveries from those actions.

OIG must "approve" the state's whistleblower law for the state to be eligible for the additional funds. In effect, states may enact laws with stronger or more effective provisions than the federal False Claims Act, but cannot enact a "weaker" or less effective version of the False Claims Act and still receive the increased funds.

You can read here OIG's analysis of the problems it found with the False Claims Acts of Florida, Louisiana, Michigan, New Hampshire, New Mexico, and Oklahoma.

Fortunately, these problems are easily corrected. OIG has now informed these states precisely how their statutes should be amended to entitle them to receive the additional share of fraud recoveries.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

--to provide strengthened employment protection for whistleblowers.

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

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

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

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

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

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

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

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

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

A wave of new “whistleblower” laws continues, inspired by the successes of the federal False Claims Act. These new laws include (1) state versions of the federal False Claims Act, and (2) the new IRS Whistleblower Rewards Program. At the same time, in 2008 Congress is considering legislation to strengthen the False Claims Act.

This article focuses on the new state False Claims Acts, which mirror the federal False Claims Act in important respects, but can differ in some significant ways. For employees who report fraud against the government and who face adverse employment actions, these new whistleblower laws may provide substantial relief.

One of the new state whistleblower laws, the 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.

These new state False Claims Acts and the federal False Claims Act create civil liability for treble damages and potentially huge penalties for fraud and false claims submitted to the government. They authorize “qui tam” or “whistleblower” lawsuits by employees or other persons, who may share in the government’s recovery, as well as allow employees to recover damages for retaliation. These state False Claims Acts, like the federal Act, have unique procedural requirements that are foreign to most lawyers.

This article explains how the state False Claims Acts work, which itself requires an explanation of the unique and sometimes perplexing federal False Claims Act on which these 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 state False Claims Acts and the federal False Claims Act by focusing especially on one example, the new Georgia State False Medicaid Claims Act. Finally, this article also compares other states’ False Claims Acts, their retaliation provisions, and some of the recoveries that states have obtained to date.

Continue reading "Whistleblower Lawyer Blog Update: New State False Claims Acts Reward Employees and Other Persons Who Report Fraud " »

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 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