Whistleblower Blog

Lincoln’s Law and Whistleblower Claims

Taxpayers every day lose money because of fraud against their government. Current examples include government contracting fraud in Iraq, procurement fraud regarding the efforts of the Federal Emergency Management Agency and Hurricane Katrina and numerous false claim schemes under both the Medicare and Medicaid programs. Those who are bent of fraud are usually clever and devious. This is the very reason why President Abraham Lincoln enacted the False Claims Act during the American Civil War in 1863.

During the Civil War, as today, there were
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Iraq Indictments:TheTip of the Iceberg

As former federal prosecutors, it is always of interest to us to read about grand jury indictments involving fraud schemes. We have presented many such indictments to grand juries ourselves and know how the system works. On Tuesday of this week, a grand jury in Washington, D.C., returned an indictment against three Army Reserve Officers and two civilians based on allegations that they steered more than $8.6 million dollars in Iraqi reconstruction funds to a contractor in exchange for a variety of kickbacks and other
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New IRS Whistleblower Office Has First Director

We saw more good news when the IRS announced the first director of the new IRS Whistleblower Office–Stephen A. Whitlock. Mr. Whitlock was formerly in charge of the Office of Professional Responsibility. He also had led anti-fraud and abuse programs at the Defense Department.

The IRS’s press release is reprinted here:

IRS Begins Work on Whistleblower Office; Whitlock Named First Director

IR-2007-25, Feb. 2, 2007
WASHINGTON – The Internal Revenue Service today named Stephen A. Whitlock as director of its new Whistleblower Office, where he will be responsible for administering the program designed to receive information that helps uncover tax cheating and to provide appropriate rewards to whistleblowers.

“This is an important new office at the IRS, and Steve brings a strong background in ethics and tax issues to help get this program off to a good start,” said IRS Commissioner Mark W. Everson. “Under Steve’s leadership, we will meet expectations from Sen. Grassley and other supporters to run a robust program.”
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State Enforcement Efforts Disappointing In Combatting Medicaid Fraud

According to a recent report issued by the Inspector General of the Department of Health and Human Services, State enforcement results regarding Medicaid fraud cases have been disappointing. Virtually every state in the country has a State Medicaid Fraud Control Unit whose principle job is to uncover and detect fraud and to prosecute the offenders. Such units are also tasked with the responsibility of attempting to recover monies fraudulently obtained from the Medicaid program. Because Medicaid is approximately twenty (20%) percent of the total federal
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Latest IRAQ FRAUD Report by Special Inspector General for Iraq Reconstruction

We saw yesterday’s quarterly audit report on Iraq fraud, published by the Special Inspector General for Iraq Reconstruction (SIGIR), Stuart Bowen Jr. The message is sobering:

“The security situation in Iraq continues to deteriorate, hindering progress in all reconstruction sectors and threatening the overall reconstruction effort,” in the words of the Inspector General.

We all have already seen reports of how the United States is being exploited by dishonest and incompetent contractors in Iraq. This IG Report discusses not only poor security, but also
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Government Joins Whistleblower Case Against Pharmaceutical Firm for Overcharging on Generic Drugs

We saw another significant whistleblower case against a drug company hit the news wire this week.

The government announced that it was joining a qui tam lawsuit under the False Claims Act against the company Boehringer Ingelheim Roxane, Inc. The Complaint alleges overcharging on pharmaceutical products.

In joining this lawsuit, the United States has alleged that the drug company engaged in a “scheme to report fraudulent and inflated prices for several pharmaceutical products, knowing that federal health care programs established reimbursement rates based on those reported prices.”

We have reprinted the government’s announcement of why it is joining this qui tam whistleblower lawsuit below (from the U.S. Department of Justice press release):

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Progress with the New IRS Rewards Program for Tax Whistleblower Cases

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

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

The “watchdogs” of the federal government agencies–the various Inspectors General of the many agencies involved in Katrina relief–have combined their efforts and sent hundreds of auditors to the Gulf region to examine fraud and mismanagement of Katrina

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New IRS Whistleblower Rewards Statute

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

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

26 U.S.C. § 7623.

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

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

in cases where such expenses are not otherwise provided for by law. Any amount payable under the preceding sentence shall be paid from the proceeds of amounts collected by reason of the information provided, and any amount so collected shall be available for such payments.
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Why States Are Passing Their Own Qui Tam Whistleblower Laws

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

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

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

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

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

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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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