The Justice Department yesterday reported $4.9 billion in False Claims Act recoveries for fiscal year 2012, which is the largest single-year recovery in history.
The recoveries spanned several sectors of the economy. In the health care arena, the Justice Department reports that, “[e]nforcement actions involving the pharmaceutical and medical device industry were the source of some of the largest recoveries this year.” The department recovered nearly $2 billion in cases alleging false claims for drugs and medical devices under federally insured health programs and, in addition, returned $745 million to state Medicaid programs.” The recoveries from major pharmaceutical companies addressed several drugs allegedly marketed for off-label use. They also addressed cases involving the alleged payment of kickbacks to physicians to prescribe certain drugs. Some of the cases addressed alleged false and misleading statements concerning drug safety and the alleged underpayment of rebates owed under the Medicaid Drug Rebate Program, and they include cases alleging inaccurate, unsupported, or misleading statements about drug safety to increase sales.
The Justice Department also reported successes in its “aggressive pursuit of financial fraud, including fraud in the housing and mortgage industries that came to light in the wake of the financial crisis.”
With respect to procurement fraud, “the department recovered $427 million in false claims for goods and services purchased by the government.” Noteworthy is its recovery from a software manufacturer that allegedly overcharged the government “by failing to disclose substantially lower prices offered to its commercial customers.”
Fiscal 2012 was also a very good year for whistleblowers. Of the $4.9 billion in recoveries this year, “a record $3.3 billion was recovered in whistleblower suits,” and the department reported “$439 million in [whistleblower] awards in fiscal year 2012.”
In appreciation of whistleblowers’ assistance, Principal Deputy Assistant Attorney General noted, “[t]he whistleblowers who bring wrongdoing to the government’s attention are instrumental in preserving the integrity of government programs and protecting taxpayers from the costs of fraud. We are extremely grateful for the sacrifices they make to do the right thing.”
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 included a whistleblower program allowing individuals who report original information to the SEC leading to a recovery exceeding $1 million to obtain between 10 percent and 30 percent of the recovery. It also included a prohibition on retaliation.
It has been about one year since the SEC established its Office of the Whistleblower, and according to Sean X. McKessy, the chief of that office, the SEC has received almost 3,000 securities law violation tips, or about eight tips per day. .
But the most hotly litigated issue with Dodd-Frank whistleblowers isn’t the bounty they receive or the tips they provide, but the scope of protection they have against retaliation. Specifically, the Dodd-Frank Act defines a whistleblower as “any individual who provides . . . information relating to a violation of the securities laws to the [SEC]. . . .” [15 U.S.C. § 78u-6(a)(6)]. But the anti-retaliation provision prohibits adverse action against a whistleblower arising out of disclosures protected under Sarbanes-Oxley; the Securities Exchange Act of 1934; and any other law, rule, or regulation subject to the jurisdiction of the SEC. Id. at § 78u-6(h)(1)(A).
There is therefore a tension between these provisions. Specifically, the statute defines whistleblowers as those who report violations to the SEC, while the anti-retaliation section protects whistleblowers against retaliation for much broader conduct, including internal reporting. Continue Reading
After years of complaints from whistleblowers and other interested parties, the IRS whistleblower program—which was enhanced in 2006—has finally begun to show some signs of success. Consider:
- As my colleague John Sinatra reported, the IRS recently awarded a whopping $104 million to imprisoned UBS whistleblower Bradley Birkenfeld, the first award under the 2006 program
- Just last month, the IRS awarded $38 million to another whistleblower
Can it be, as Forbes recently reported, that “the days ahead look bright for whistleblowers and the IRS whistleblower program”? With a backlog of significant whistleblower cases filed after 2006 slowly churning through the IRS process, it is a safe bet that more cases are edging closer to completion and that the slow trickle of announcements from whistleblower attorneys about awards will begin to pick up. As more awards are announced, more whistleblowers will come forward.
And there is little doubt whistleblowers will be emboldened by the $38 million dollar awarded in October. The whistleblower’s attorney said that his client exposed a corporate tax avoidance scheme involving “aggressive tax planning” by one of the nation’s largest corporations. Based on the size of the award, it is conservatively estimated that the IRS collected more than $126 million in federal corporate taxes from the company. Significantly, the whistleblower’s identity was never revealed nor was the identity of the public corporation. In fact, the target corporation did not even know that the IRS’s interest in its “aggressive” position was sparked by a tip from a whistleblower. Continue Reading
The U.S. attorney for the Eastern District of New York yesterday announced that the United States will intervene in a False Claims Act case that began in April 2007, when a qui tam relator first filed the whistleblower lawsuit under seal. In this case, the federal government is joining in the whistleblower’s lawsuit against the City of New York, seeking $2 million in damages, penalties, and costs for overcharging Medicaid.
In particular, according to the U.S. attorney’s press release, the United States has intervened in Ohlmeyer ex rel. United States of America v. City of New York, where the United States alleges that “the City of New York Department of Education (DOE) submitted false claims to Medicaid for psychological counseling services to special education students in the New York City public schools.” According to the release, “Medicaid pays DOE a flat fee of $223 for each student to whom DOE provides at least two psychological counseling sessions in a month. Medicaid pays nothing if an individual student receives fewer than two counseling sessions in a month.” Thus, the government alleges that, “between 2001 and 2004, DOE knowingly billed Medicaid for counseling services to students even though it provided fewer than two counseling sessions per month to individual students.”
Of course, these are just allegations at this stage, and the city can be expected to defend itself. This case is noteworthy, however, because it highlights that long-quiet qui tam cases sometimes take many years to mature into a government intervention decision. The lesson here is that a relator and relator’s counsel must be patient and plan for an initial time horizon of a few years to as many as five or six years.
According to numerous media reports citing his attorneys, former UBS Banker Bradley Birkenfeld has received a $104 million tax whistleblower reward for his role in exposing alleged secret Swiss banking schemes designed to enable U.S. taxpayers to evade taxes. The whistleblower’s revelations led to a $780 million settlement from UBS as well as tens of thousands of taxpayer coming forward in exchange for amnesty. The IRS’s tax whistleblower program provides a bounty or reward of up to 30 percent of the government’s recovery. Experts on both sides of these cases believe that the size of the reward will ensure that future tax whistleblowers are encouraged and incentivized to come forward with details of other tax schemes.
More and more, we are seeing multiple and separate qui tam cases filed across various districts that, in part, contain overlapping claims, allege common sets of facts, or supplement each other in a way that, if combined, results in much stronger complaint. The problem is simple: absent consolidation and a sharing agreement, the government has a mess on its hands when trying to determine who is the “first” relator for purposes of the relators’ share.
As a result, especially in large and complex cases, the government has informally encouraged relators to combine their efforts, enter into a sharing agreement, and transfer their cases to a single district where the allegations can be consolidated in a single amended or omnibus complaint. The advantages to the government (and to the relators) are apparent. First, the complaint is broader, deeper, and more robust, and there is no need to determine who the first relator is—all desirable factors. Second, the government has access to sets of relators with subsets of information that bolster allegations and support claims, and access to relators’ counsel who may have done extensive investigation and who have an excellent handle and understanding of the facts, allegations, and legal nuances at issue.
Moreover, in the case of a parallel criminal investigation, the government has equal access to these witnesses, information, and attorneys. Relators’ counsel are not covered by Federal Rule of Criminal Procedure 6(e), nor are the relators, as witnesses. They are a tremendous source of information for the criminal investigation. Continue Reading
With respect to relators, in a matter of first impression before the U.S. Court of Appeals for the Ninth Circuit, the court held that knowingly false underbidding can support False Claims Act liability.
In Hooper v. Lockheed Martin, No. 11-55278 (9th Cir. Aug. 2, 2012), the relator was an engineer working for Lockheed, and he claimed that Lockheed defrauded the Air Force under a government contract by knowingly underbidding the contract. Lockheed argued that the estimates in its bid could not predicate liability because an estimate is merely an opinion or prediction, as opposed to a false statement. The relator, however, produced evidence that Lockheed employees were told to lower their bids without regard to actual cost. This evidence, according to the Ninth Circuit, raised a genuine issue as to whether Lockheed had the requisite knowledge when it submitted its bid for the contract. Thus, the court held that summary judgment for Lockheed on this claim was inappropriately granted and, in light of this decision, relators should be on the lookout for bids based on lower-than-actual costs as a potential basis for liability.
As to defendants, this decision includes a discussion of the “government knowledge” defense. This defense—often used by defendants—is based on the theory that, if the government is aware of the allegedly wrongful conduct, the conduct is not a basis for False Claims Act liability. Specifically, in addition to the false-bidding claim discussed above, the relator in this case also alleged that Lockheed improperly used “freeware” software and improperly conducted required testing under the contract. Lockheed, however, produced evidence that it fully disclosed the fact that it was using the freeware to the government contracting officer, and the contracting officer herself stated that the use of such freeware was not prohibited under the contract and, in fact, she approved its use. The Ninth Circuit affirmed the district court’s grant of summary judgment to Lockheed on this claim because “Lockheed submitted overwhelming evidence that it shared with the Air Force…the use of [the freeware] and also disclosed…its testing procedures.” This holding provides support for the viability of the government knowledge defense and should encourage defendants to avert False Claims Act liability by fully disclosing their acts to government officials and obtaining their approval.
People considering becoming whistleblowers to expose a government fraud often ask what the process will be like. They want to know what it is like to be a relator in a False Claims Act, or qui tam, case. While no one answer to that question fits all situations, there are some general answers that tend to hold true across the cases. I can think of three words to describe the experience – work, patience, and satisfaction.
The “work” phase of the case involves working with counsel and then government lawyers and investigators to explain, understand, and develop the facts of the case. The work in a False Claims Act case usually begins when the relator collaborates with his or her legal team to put together the complaint and the disclosure statement, which become the roadmap for government lawyers and investigators. The work continues when the whistleblower teaches the government about the fraud, the key facts, and the key players. And the work frequently recurs sporadically during the government’s investigation, as the relator and counsel respond to government questions about documents and interview statements.
The “patience” concept reflects the reality that these cases typically take several years to reach resolution. Relators must be patient and able to cope well with periods of silence from the government – months when government feedback becomes limited, or the government’s investigation proceeds outside of the view of the relator. For the most part, relators who are counseled in advance about the typical lifespan of a False Claims Act case fare well on the patience front.
Finally, relators often feel great “satisfaction” from their work in exposing a government fraud and helping the government investigate it. This satisfaction occurs throughout the process, as the relator’s input often becomes a vital part of the investigation. The satisfaction can continue, of course, in the event that a favorable resolution produces a relator’s share of the government’s recovery. Most of all, relators are happy to be doing the right thing.
A “good” relator will have a better experience in this process. What makes a good relator? Several things. First, a good relator has accurate information that can be corroborated by documents or other witnesses. A good relator has credibility and has confidence in the facts he or she is alleging. A good relator enjoys the opportunity to sit with government lawyers and investigators to explain the fraud, the details, and the actors involved. A good relator is able to set aside irrelevant gripes he or she may have against the target company and has the ability to focus on the fraud at issue. Lastly, a good relator responds well to the work required, has a reasonable amount of patience, and is happy to do the right thing by exposing the government fraud.
While the federal False Claims Act gets the big headlines and the correspondingly big recoveries, it is important not to forget that a number of states have their own false claims acts under which relators can bring claims that also have the potential for significant monetary recoveries. States with these acts tend to fall into two categories: states with generally applicable false claims acts (like the federal law) and states that limit their acts to health care fraud.
There is also significant legislative activity taking place at the state level regarding false claims acts. For example, Georgia, which had a Medicaid-only false claims act, just expanded their act to encompass all false claims. Washington, which had no false claims act, just passed a Medicaid-only false claims act that became effective in June 2012.
Below is a list of states and their corresponding false claims act statutes. States with an asterisk have false claims acts without qui tam provisions (meaning that only the government can enforce those statutes). This list is intended to be a general guide only, and it is important to carefully check each statute to determine whether it is applicable to your claim. Continue Reading
St. Jude Medical Inc. has settled, for $3.65 million, federal False Claim Act allegations arising from a qui tam case in which the relators alleged that the company inflated the cost of replacement pacemakers and defibrillators purchased by the Departments of Defense and Veterans Affairs, the U.S. Department of Justice announced recently.
According to the press release, St. Jude Medical makes and sells cardiovascular and implantable neurostimulation medical devices. The settlement resolves whistleblower allegations that St. Jude “actively marketed its pacemakers and defibrillators by touting the generous credits available should a device need to be replaced while covered under warranty.” At the same time, St. Jude “allegedly knew that it failed to grant appropriate credits to the purchasers of devices in a large number of cases where a product was replaced while still under warranty.” As a result, the United States contended that St. Jude submitted invoices to Department of Veterans Affairs hospitals and Department of Defense military treatment facilities that overstated the cost for replacement pacemakers or defibrillators.
This settlement resolves allegations initially brought by two whistleblowers in federal court in the District of Massachusetts under the qui tam, or whistleblower, provisions of the False Claims Act. The whistleblower portion of the settlement will be $730,000, or 20 percent. As stated in the press release, “[t]he claims settled by this agreement are allegations only, and there has been no determination of liability.”