Whistleblower Blog Archives - Page 19 of 35

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Offshore Tax Evasion and Cayman Islands Hearing Prompts Grassley’s Call to Follow IRS Whistleblower Program with Additional IRS Tools

July 29, 2008
Michael Sullivan

At the Senate Finance Committee’s hearing on the Cayman Islands and offshore tax evasion last week, Senator Charles Grassley reiterated the importance of the new IRS Whistleblower program to combat tax evasion, but also stressed the need for Congress to provide the IRS greater tools to address offshore tax evasion.

The July 24 hearing focused on GAO’s investigation into the Ugland House, a law firm’s office building in the Cayman Islands that is the registered address of thousands of corporations. The hearing also examined
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IRS Predicts Whistleblowers Will Be Important to Efforts to Combat Offshore Tax Evasion After UBS

July 28, 2008
Michael Sullivan

This past week the IRS Commissioner of the Large and Midsized Business Division summarized the IRS’s efforts to combat offshore tax evasion. He predicted that whistleblowers will become increasingly important to the IRS’ efforts, given the existence of the new IRS Whistleblower rewards.

IRS Commissioner Frank Ng described to Congress the “critical importance to tax administration in this country — the practice of sheltering U.S. earned income in foreign jurisdictions as a means of avoiding U.S. taxation.”

He identified as “Tier I” issues the following transactions::

Transfer of intangibles/cost sharing
Abusive foreign tax credit transactions
Abusive hybrid instrument transactions
Transfer pricing
Foreign earnings repatriation
The IRS Commissioner described some of what has been revealed through ongoing investigations:

Ongoing IRS Investigations

In the area of ongoing investigations, let me start by laying out some of the facts about one case that I am able to discuss, because the case that I am about to describe is a matter of public record. It involves a major Swiss bank.
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Nursing Home Operators Plead Guilty to Medicaid Fraud and Abuse of Patients

July 27, 2008
Michael Sullivan

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
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Hospital System Settles Medicare Fraud False Claims Act Allegations for $60 Million

July 26, 2008
Michael Sullivan

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
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Whistleblower Awards Work To Protect The Government From Fraud

July 24, 2008
Michael Sullivan

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
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Acknowledging the Integrity That Whistleblowers Stand For in Bringing Qui Tam Whistleblower Cases Under the False Claims Act

July 18, 2008
Michael Sullivan

“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
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Major “Qui Tam” Whistleblower Law Amendments Clear House Judiciary Committee, Which Approves “False Claims Act Correction Act of 2007”

July 16, 2008
Michael Sullivan

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
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Whistleblower Attorneys at NELA Conference Address “Strategic Thinking in Whistleblower Cases”

July 1, 2008
Michael Sullivan

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,
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New IRS Whistleblower Rules Are Issued by U.S. Tax Court

June 5, 2008
Michael Sullivan

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

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

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

Excerpts of the Tax Court’s announcement of the new proposed Rules for IRS Whistleblower claims are below:
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Whistleblower Lawyer Blog Update: New State False Claims Acts Reward Employees and Other Persons Who Report Fraud

May 23, 2008
Michael Sullivan

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.
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With Treasury Reporting TARP Funds to More Than 200 Financial Institutions, Who–Besides Whistleblowers–Can Guard Against Fraud and Abuse?

January 6, 2009
Michael Sullivan

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

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

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

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

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

December 29, 2008
Michael Sullivan

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:
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KPMG Tax Shelter Fraud Trial Ends With Three Tax Evasion Convictions for Accountants and Lawyer

December 18, 2008
Michael Sullivan

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.
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Qui Tam Whistleblower Recoveries under False Claims Acts (Federal and State) in 2008

December 16, 2008
Michael Sullivan

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.)
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Pharmaceutical Industry Hit by Layoffs

December 8, 2008
Michael Sullivan

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).

Whistleblowers, TARP, and Other Wall Street “Bailout” Measures–Why the False Claims Act and IRS Whistleblower Program Are More Essential Than Ever

December 8, 2008
Michael Sullivan

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.

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Offshore Tax Evasion Investigations by IRS and Justice Department Expand, As IRS Whistleblowers Continue to Come Forward

December 3, 2008
Michael Sullivan

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

DOJ and IRS continue to investigate UBS, Switzerland’s largest bank. Last month saw the unsealing of the an indictment of Raoul Weil, a UBS senior
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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

November 11, 2008
Michael Sullivan

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.
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Tax Court Prepares for IRS Whistleblower Cases by Adopting New Proposed Amendments to Rules of Practice and Procedure

October 24, 2008
Michael Sullivan

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

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

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

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

The full text is as follows:
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IRS Addresses Deductibility of Payments by Defendants to Settle False Claims Act Cases

October 23, 2008
Michael Sullivan

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:
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