Whistleblower Blog

News in Government Procurement Fraud and False Claims

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

“Last fall, the Justice Department launched a National Procurement Fraud Task Force to focus “resources at all levels of government to increase criminal enforcement” in areas of procurement fraud. The stepped-up attention to this area throughout the government may signal that the $3.1 billion record in federal fraud recoveries in 2006 could soon be broken. More than 50 inspectors general from across all
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IRS Names New Head of IRS Criminal Investigative Division

The IRS agents we have been meeting with since January to pursue whistleblower claims under the new IRS Whistleblower Rewards Program have a new boss, the IRS announced today.

The Criminal Investigative Division of the IRS will be led by Eileen Mayer, who was most recently head of the IRS’s Office of Fraud/Bank Secrecy Act.

We are encouraged by IRS Commissioner Mark W. Everson’s comments that “she will play a key role in IRS efforts to halt tax fraud.” Agents of the Criminal Investigative Division work tax fraud cases, some of which are now originating under the new IRS Whistleblower Rewards program.

As a result of the IRS’s efforts, the Department of Justice has brought many successful prosecutions.
The IRS’s press release is reprinted below:
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New Medicaid False Claims Act Proposed in Georgia

We were encouraged to see that Georgia has just joined the states that are considering a State “False Claims Act” with whistleblower provisions.

As we have discussed before on the Whistleblower Lawyer Blog, Congress has created great financial incentives for states that pass their own versions of the federal False Claims Act, with qui tam provisions that encourage whistleblowers. States can increase by 10% their share of Medicare fraud recoveries by passing their own False Claims Acts, but the state laws must pass muster with OIG and be at least as effective as the federal False Claims Act. Otherwise, as approximately seven other states were disappointed to find, the state does not receive an increase in its share of Medicare fraud recoveries.

Rep. Ed Lindsey is the sponsor of Georgia’s proposed “State False Medicaid Claims Act.” The new law would apply to Medicaid fraud and false claims, but not other fraud and false claims that cost the state taxpayers money.

The challenge will be to make sure that the new law is tough enough and broad enough to meet OIG’s criteria. As we reported before, OIG has disapproved the False Claims statutes of California, Florida, Louisiana, Indiana, Michigan, Nevada, and Texas, as not as effective as the federal False Claims Act. No approval by OIG, no extra money for the state.

We will be discussing this new whistleblower statute, as well as others. Those who wish to read it can do so here:
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Has Iraq Fraud Cost Taxpayers Even More Than Previously Believed?

Congressional Committee Explores Contractor Overcharges

Of great interest to whistleblower lawyers is how much suspected fraud and abuse has occurred in Iraq reconstruction contracts. Goverment auditors recently announced that they now believe that Iraq contractor fraud and abuse may be three times greater than the previous estimates–and may affect one out of every six dollars spent in the Iraq reconstruction effort.

The estimate has grown from $3.5 billion to more than $10 billion in “questioned and unsupported costs,” according to the Defense Contract Audit
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Comments–Whistleblower Lawyers, Other Attorneys, and Clients on the Whistleblower Lawyer Blog

Since we began the Whistleblower Lawyer Blog to discuss topics of interest to attorneys, potential whistleblowers and others about developments in the new IRS Whistleblower Rewards Program, in qui tam litigation under the False Claims Act, and other whistleblower developments that might be of interest to other lawyers or whistleblowers, we have received some very positive feedback.

We have discussed not only how the IRS Whistleblower Program and the False Claims Act work, but we have also tried to highlight specific
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New Whistleblower Protections Approved by House Committee

Recognizing how important whistleblowers are to stopping fraud, the U.S. House Oversight and Government Reform Committee today approved the Whistleblower Protection Enhancement Act (H.R. 985).

The new whistleblower protections would apply to federal employees and government contractors. The law would establish whistleblower protections for scientific, intelligence and transportation security employees. It would also apparently mean that officials would investigate whether security clearances are revoked as retribution for a whistleblower’s reporting allegations of waste, fraud or abuse.

Congressman Henry Waxman (D-Cal.) introduced the bill last week. Additional amendments would strengthen the effectiveness of the whistleblower provisions.

We find it very encouraging that Congress is taking such logical steps to protect the public’s money from waste, fraud and abuse.

The specific sections of the proposed new whistleblower law are as follows:

H.R.985 Whistleblower Protection Enhancement Act of 2007 (Introduced in House)
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Medicare Fraud Indictments in Los Angeles

We find it staggering to read about how blatant Medicare fraud can be, which often provokes a whistleblower to step forward. Today’s L.A. Times reports on a shameless scheme to defraud Medicare:

Elderly and mentally ill patients allegedly were offered doughnuts, candy and other gifts to lure them into more than $12 million worth of unnecessary respiratory treatments that were fraudulently billed to Medicare, according to the Indictment. Doctors and administrators were charged, according to this report.

What can you say about such criminality,
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State Whistleblower Act Is a Powerful Tool in Texas–But Could Produce Even More Medicaid Fraud Recoveries

Whistleblower suits that reveal Medicaid fraud in Texas have grabbed the attention of the Texas Legislature–which apparently recognizes how powerful state False Claims Acts can be.

Today’s Houston Chronicle reports that Texas is working through a “backlog” of Medicaid fraud cases, the top 20 of which could bring another $700 million to the State (and presumably a significant amount to whistleblowers).

Whistleblower cases have been so effective that the legislators asked what more could be accomplished with more resources provided to pursue these fraud
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Watching the New IRS Whistleblower Procedures Take Shape

We are excited to see the new IRS Whistleblower Office’s procedures being developed. We obtained a copy of a recent letter from IRS Commissioner Mark W. Everson, describing how the new Whistleblower procedures are taking shape, to Senator Charles Grassley.

Senator Grassley has been instrumental in pushing for effective whistleblower laws, both in qui tam litigation under the False Claims Act, and now in the new IRS Whistleblower Program. Here is an excerpt of Commisioner Everson’s January 29, 2007 letter describing the implementation of the new IRS Whistleblower Program:

“The IRS has already taken steps to establish the new Whistleblower Office, which will report directly to the Deputy Commissioner for Services and Enforcement. This places the new office on par with other Operating divisions at the IRS. It will be headed by an IRS executive who has experience with IRS operations as well as with whistleblower operations in other government agencies. This executive should be assigned to the new position by February 4, 2007 [and our Whistleblower Lawyer Blog readers can learn about the new Director here] and will be available to attend your bipartisan roundtable discussion to obtain first-hand input from key stakeholders.

“The IRS Chief counsel and Assistant Secretary for Tax Policy are responsible for issuing the guidance required by the Tax Relief Act of 2006. Both offices are currently studying the legislation to identify areas and issues to be addressed in the guidance. They will obtain input from all interested parties, including the new executive in charge of the Whistleblower Office, to determine issues needing guidance. We are hopeful that the roundtable discussion will provide an opportunity to receive additional input. Chief Counsel and Tax Policy plan to issue this guidance within the one year timeframe required in the legislation.”
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Potential Whistleblowers: IRS Offers Program for Employers “Back-Dating” Stock Options

We are encouraged that the IRS is taking action in response to the fraudulent practice of “back-dating” of stock options. Potential whistleblowers may wish to see the IRS’ description of its program to deal with an aspect of this problem.

Here is an excerpt from the IRS’ announcement of how it is permitting employers to “step forward” and pay a penalty, and a related IRS Release can be read here:

(From IRS Release:)

IRS Offers Opportunity for Employers to Satisfy Tax Obligations of Rank-and-File Employees with ‘Backdated’ Stock Options

IR-2007-30, Feb. 8, 2006
WASHINGTON – Internal Revenue Service officials today announced an initiative aimed at providing relief for rank-and-file employees affected by their companies’ issuance of backdated and other mispriced stock options. While the program will be available to help these employees who may be unaware that they held backdated options, the opportunity will not be available for backdated options exercised by most corporate executives or other insiders.

If an employee exercised a ‘backdated’ stock option in 2006, the employee may owe an additional 20-percent tax, plus an interest tax, under the Federal tax laws governing deferred compensation. If the option had been properly priced, the employee normally would only have owed income tax on the difference between the value at the date of grant and exercise.
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New Health Care Law Arrives With Announcement of $12 Million Recovery in Qui Tam Whistleblower Case Under False Claims Act

The major new “health care” law that the President signed this week, the Patient Protection and Affordable Care Act (Public Law 111-148), includes increased efforts to combat health care fraud and abuse, especially fraud in the Medicare and Medicaid programs.

It was significant that, on the very same day that this law took effect, an outstanding group of government prosecutors and investigators brought to an efficient conclusion a $12 million recovery of funds in a qui tam whistleblower case alleging health care fraud in violation of the False Claims Act. The case was brought by our firm, Finch McCranie, LLP, the Simpson Firm, LLC, and James G. Gustino, P.A..

The next day, after a meeting in Washington with the Department of Justice on another False Claims Act case, I sat in on the Senate debate of amendments to the new health care law. Whatever differing views may exist about many of the new law’s provisions, all taxpayers agree that stopping fraud in health care is an essential step to preserving scarce health care dollars.

We are proud to have been able to work with an excellent government team of lawyers and investigators in helping recover this $12 million for the American taxpayers. They are Renee Brooker and Eva Gunasekera of the Department of Justice, Ralph Hopkins of the U.S. Attorney’s Office for the Middle District of Florida, and Special Agent Robert Murphy of HHS-OIG.

A description of the case is below:

Melbourne Internal Medicine Associates (MIMA) of Brevard County, Florida, will pay $12 million to resolve a whistleblower lawsuit alleging hidden schemes to defraud Medicare and other federal programs in connection with radiation cancer treatment. This whistleblower case was successfully pursued by Finch McCranie, LLP and Simpson Law Firm, LLC, both of Atlanta.

After investigating the whistleblower’s claims, the U.S. Department of Justice joined the lawsuit and filed its own complaint alleging a sustained fraudulent course of conduct by the MIMA Cancer Center and its former Medical Director, Todd Scarbrough, MD. The government’s complaint contended that MIMA submitted millions of dollars of claims for radiation oncology services that were provided without required physician supervision, were never provided at all or were otherwise improper, and sought to hide the fraud through “sham” practices. The complaint also alleged that executives at MIMA were aware of a substantial number of the fraudulent billing practices.

“Health care fraud is incompatible with patient safety,” said Michael A. Sullivan, attorney with Finch McCranie, LLP, and author of the leading whistleblower blog https://www.whistleblowerlawyerblog.com. “These doctors were paid for personally supervising radiation treatments for cancer patients, but did not provide the supervision that they gave the appearance of providing. How would patients feel to learn that their doctor’s ‘supervision’ of a potentially dangerous radiation treatment was to set up an ‘autoreply’ to emailed images of the patients, which the doctor would not review at all, or would review too late to make adjustments before patients are irradiated? With growing concerns over how cancer patients can be overexposed to radiation even when physicians are supervising the procedures, how much harm can be caused when physicians fail to provide the personal supervision that they are paid to provide?”
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Greatest Impact of 2009 False Claims Act Amendments–“Civil Investigative Demands”

Among the many 2009 changes to strengthen the False Claims Act is one whose impact is about to be experienced: greater use of “civil investigative demands” to gather evidence.

Civil investigative demands allow to government to require any person believed to have documents or information relevant to a False Claims Act investigation to do the following:

(A) to produce such documentary material for inspection and copying,

(B) to answer in writing written interrogatories with respect to such documentary material or information,

(C) to give
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Bank CEO’s Alleged TARP Fraud Results in First Reported Criminal Charges For Misuse of TARP Funds

We have written previously about how the “Troubled Asset Relief Program” (TARP) that began with the financial meltdown in 2008 would undoubtedly beget fraud that may be actionable under the False Claims Act. The qui tam provisions of the False Claims Act, the country’s major whistleblower law, allow whistleblowers (“relators”) who report fraud or false claims to share in the government’s recovery of damages.

Yesterday, the first TARP fraud criminal charges appeared. Federal prosecutors in New York’s Southern District announced the arrest of Charles J. Antonucci, Sr., former President and Chief Executive Officer of The Park Avenue Bank.

The criminal complaint filed on March 13, as summarized by prosecutors, alleges “self-dealing, bank bribery, embezzlement of bank funds, and fraud, among others. ANTONUCCI also was alleged to have attempted to fraudulently obtain more than $11 million worth of taxpayer rescue funds from the Troubled Asset Relief Program, or TARP. ANTONUCCI is the first defendant ever charged with attempting to defraud TARP. Additionally, ANTONUCCI was alleged to have used The Park Avenue Bank in a scheme to defraud two pastors of a Florida congregation out of more than $100,000 set aside to build a new church.”

Antonucci likely will not be the last former bank executive to have to surrender his passport and post bond. If it were not for the dearth of restrictions on permissible uses of TARP funds–which has provoked outrage as TARP recipients paid large bonuses–more TARP cases for “misuse” of TARP funds would have appeared by now. (We received many calls from potential TARP whistleblowers interested in bringing cases under the False Claims Act).

Nonetheless, Antonucci’s case alleges some of the more traditional types of fraud that will be prosecuted as they undoubtedly surface in the TARP program, especially as more TARP whistleblowers come forward.

With the billions used to fund TARP, those TARP whistleblowers may be motivated by the prospect of receiving 15-25% of money that the government recovers when the whistleblowers use the qui tam provisions of the False Claims Act to pursue TARP fraud.

The government’s full announcement is reprinted below.
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Iraq Reconstruction Fraud Continues to Fuel Investigations by Office of the Special Inspector General for Iraq Reconstruction

As if the nation’s expenditures to rebuild Iraq were not enough, fraud that steals taxpayer dollars continues to infect the Iraq reconstruction program. This fraud often results in qui tam whistleblower cases under the False Claims Act, which allows those reporting the fraud to receive a a share of the government’s recovery of money.

Today’s New York Times piece by James Glanz reports on the more than 50 new fraud investigations in the past six months alone in the Iraq reconstruction effort.

The Office of the Special Inspector General for Iraq Reconstruction is responsible for these investigations. “Chaos, weak oversight and wide use of cash payments in the reconstruction program in Iraq allowed many more Americans who took bribes or stole money to get off scot-free,” in Mr. Glanz’s words.

Fortunately, 2009 changes to strengthen the False Claims Act, the country’s primary whistleblower law, will allow whistleblowers reporting fraud to do so more effectively so that they may share in the dollars recovered.
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IRS Whistleblower Program and Confidentiality of IRS Investigations of Whistleblower Claims

One of the most interesting and challenging issues in representing IRS whistleblowers is how this promising new IRS Whistleblower Program can co-exist with the limits Congress has imposed on disclosure of taxpayer information–which includes what the IRS does in pursuing claims brought by whistleblowers.

I wanted to pass along that Michelle M. Kwon, Assistant Professor of Law at Texas Tech Law School, has written a law review article about this subject. It discusses recommendations for allowing information to be shared more with whistleblowers
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Next IRS Whistleblower Boot Camp Is Planned for April 2010

We have written about the highly successful 2009 IRS Whistleblower Boot Camp in Washington, D.C. The IRS Whistleblower Office gathered with attorneys representing whistleblowers for this conference to discuss in detail many of the issues that arise in representing IRS whistleblowers, persons who report tax fraud or tax noncompliance. This conference is sponsored by Taxpayers Against Fraud.

Planning for the 2010 IRS Whistleblower Boot Camp on April 27, 2010 in Washington is underway, and it should be at least as successful and
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Georgia Psychiatric Hospitals: Justice Department Suit for Immediate Relief to Protect Patients

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:
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IRS Whistleblower Office Prepares to Make Awards to IRS Whistleblowers Under New Program

Since Congress authorized new awards to IRS whistleblowers in December 2006, we have followed closely the progress of the new IRS Whistleblower Office led by Director Stephen Whitlock.

IRS Whistleblower Office Director Stephen Whitlock has just announced that the IRS Whistleblower Office is preparing to make award determinations on whistleblower claims submitted under the “new” rewards program.

The IRS Whistleblower Office (and no doubt the IRS Chief Counsel’s Office) have been working on “guidance” for determining the amount of awards within the range authorized by law.

We have written extensively on many of the issues that have arisen and will arise in handling IRS Whistleblower claims. Recent multi-million dollar payments apparently relate to claims under the “old” program. Those payments are encouraging signs of the success of the new program, which authorizes a higher range of awards of 15-30% of the recovery by the IRS.

Tax Analysts reported on Director Whitlock’s comments at the recent ABA meeting.

We are encouraged that the steady progress of the IRS Whistleblower Office continues, as this promises to be an extremely successful program to discourage tax cheats. Only meaningful rewards to whistleblowers will accomplish that goal.
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Taxation of Qui Tam Whistleblower Awards by IRS Addressed by Tax Court

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:
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Health Care Fraud Lawyers Gather to Discuss Amendments to False Claims Act and Other Whistleblower Developments

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:
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