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

March 23, 2009
Michael Sullivan

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

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

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

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

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

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

In this age when fraud and abuse are depleting taxpayer funds, any whistleblower who steps forward to report fraud or other impropriety in the Iraq reconstruction is to be commended.
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The AIG Whistleblowers Begin to Speak About Its Credit Default Swaps?

March 18, 2009
Michael Sullivan

The facts about how the AIG Financial Products unit took down AIG begin to emerge more clearly, as AIG whistleblowers begin to speak.

Former AIG auditor Joseph St. Denis described his concerns about AIG’s Financial Products unit–and how AIGFP’s Joseph Cassano refused to let him investigate:

“Mr. Cassano shouted at me for several minutes, and then said, as previously noted: ‘I have deliberately excluded you from the valuation of the Super Seniors because I was concerned that you would pollute the process.”

More to
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Appreciating Harry Markopolis, the Madoff “Whistleblower” to the SEC

March 16, 2009
Michael Sullivan

I had the pleasure of seeing again and speaking last week with Harry Markopolis, the “whistleblower” now renowned for his excellent work in recognizing and reporting to the SEC that Bernie Madoff was running a huge Ponzi scheme. Harry was in Washington attending the “IRS Whistleblower Boot Camp” sponsored by Taxpayers Against Fraud.

Harry Markopolis exemplifies the whistleblower who works diligently to “do the right thing.” His appearance on 60 Minutes gave us a taste of his frustration over the years in attempting to
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IRS Whistleblower Attorneys Join IRS Whistleblower Office Director and Other IRS Officials for “IRS Whistleblower Boot Camp”

March 9, 2009
Michael Sullivan

I spent a very productive day today with IRS Whistleblower Office Director Steve Whitlock, former IRS Commissioner Margaret Richardson, IRS Special Counsel Tom Kane, and other senior IRS officials working with the IRS Whistleblower Office, in helping stage the most comprehensive legal education program yet about the new IRS Whistleblower Program–the “IRS Whistleblower Boot Camp.” The day-long event was sponsored by Taxpayers Against Fraud.

After sessions on various aspects of how the tax whistleblower program operates, I was honored to lead the panel discussion with Director Whitlock and others on some difficult and complex issues in representing whistleblowers. We discussed in depth claims by whistleblowers such as CPAs, lawyers, and fiduciaries who have had confidential relationships with the taxpayers in question; and claims by whistleblowers who were involved in misconduct. Joining our panel discussion were Special Counsel Tom Kane of the Office of Chief Counsel, and my friend and fellow whistleblower attorney Paul D. Scott of San Francisco.Whistleblower Lawyer Blog Co-Author Michael A. Sullivan (left) moderates the panel discussion with IRS Whistleblower Office Director Steve Whitlock (right).

Director Whitlock explained how the claims submitted to the two year-old IRS Whistleblower Office have grown from approximately 80 in the first year, to approximately 2000 at present.

The IRS officials reviewed offshore tax schemes, tax fraud and tax evasion, and many other types of tax noncompliance as potential bases of IRS Whistleblower claims.The IRS Whistleblower Boot Camp began with “IRS Whistleblower Office 101,” a panel discussion introducing the applicable regulations, providing an overview of the IRS Whistleblower Office, and providing an update on the progress of the program. It was moderated by TAF Member Margaret Finerty, and included as panelists Director Steve Whitlock, and IRS Whistleblower Office Analysts Robert Gardner, Dawn Applebaum, and Al Gibson. (Dawn Applebam had joined me last week in Atlanta to make an excellent presentation on the IRS Whistleblower Program at the annual “Whistleblower Law Symposium” that our firm sponsors.)

The main domestic and international tax fraud schemes, and the types of cases the IRS Whistleblower Office would like to receive, were the subject of a discussion by former IRS Commissioner Margaret Richardson. The panelists were IRS “Subject Matter Experts” Larry Brongel (Large and Mid-sized Business Division (LMSB), Retailers, Food, Pharmaceuticals and Healthcare Industry); Sheila Olander (Sr. Analyst Special Agent with the IRS Criminal Investigative Division, Office of Financial Crimes); Elizabeth Elfrey (Director, Fraud/Bank Secrecy Act in the IRS Small Business/Self Employed (SBSE)); and Al Gibson (Whistleblower Office Analyst).

TAF member Frederick Morgan, and attorney and CPA Ralph Minto, then discussed expanding a False Claims Act practice to include IRS Whistleblower cases.

TAF President Neil Getnick led a panel discussion on issue-spotting and practice pointers when bringing IRS Whistleblower cases. The panelists were Director Steve Whitlock, Special Counsel Tom Kane, and TAF Member and fellow whistleblower attorney Brian Kenney.
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False Claims Act Amendments Approved by Senate Judiciary Committee As Part of FERA (Fraud Enforcement and Recovery Act) Today

March 5, 2009
Michael Sullivan

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

Where there are taxpayer funds being spent, there will be attempts to engage in fraud to cheat the public. As hundreds of billions of dollars are poured into federal and state programs through the “economic stimulus” package, the continuation of the Troubled Assets Relief Program
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Whistleblower Attorneys to Discuss Qui Tam Cases Under False Claims Act, IRS Whistleblower Program, and Sarbanes-Oxley Whistleblower Cases at Annual “Whistleblower Law Symposium”

March 1, 2009
Michael Sullivan

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

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

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

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

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

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

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

–Recent Developments in Qui Tam Cases Under the False Claims Act-The Relator’s Perspective
–Current Issues in Defending Qui Tam Claims
–Coordinating State and Federal Whistleblower Cases Under the State and Federal False Claims Acts-Current Priorities and Recent Results
–Federal Priorities and Procedures in Qui Tam Cases
–Plaintiffs’ & Defendants’ Approaches to Sarbanes-Oxley Claims
–Update on the IRS Whistleblower Program

We are fortunate to have such excellent faculty members from around the country join us. Our faculty members and their topics are listed below.
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UBS Agrees to Pay $780 Million & Identify Customers in IRS Tax Fraud Case

February 18, 2009
Michael Sullivan

Off-shore tax evasion and international tax avoidance schemes are priorities of the IRS and the IRS Whistleblower program, which rewards tax whistleblowers. Our whistleblower lawyer blog has followed the ongoing investigation of UBS for its activities, which took a major turn today.

Today, the government announced that UBS AG, Switzerland’s largest bank, has admitted to helping U.S. taxpayers hide accounts from the IRS. UBS has agreed to identify its customers and to pay $780 million, as part of a “deferred prosecution agreement” on charges of conspiring to defraud the United States by impeding the IRS.

Based on an order by the Swiss Financial Markets Supervisory Authority (FINMA), UBS agreed “to immediately provide the United States government with the identities of, and account information for, certain United States customers of UBS’s cross-border business.” UBS also agreed to stop providing banking services to U.S. clients with undeclared accounts.

In 2000, after UBS purchased the brokerage firm Paine Webber, UBS entered into an agreement with the IRS to report income and other identifying information for its U.S. clients who held United States securities in a UBS account, according to the government. The government alleged that UBS was required to withhold income taxes from U.S. clients.

To evade those new reporting requirements, the government alleged that employees and managers within the cross-border business, with the knowledge of certain UBS executives, helped U.S. taxpayers open new UBS accounts in the names of nominees and/or sham entities. Assets of the individual’s accounts were then moved to the new accounts, and the U.S. taxpayer would not be identified as a beneficiary, according to the government.

UBS managers and employees also reportedly used encrypted laptops and other counter-surveillance techniques to help prevent the detection of their marketing efforts and the identities and offshore assets of their U.S. clients. Clients of the cross-border business allegedly filed false tax returns omitting the income earned on their Swiss bank accounts, and failed to disclose the existence of those accounts to the IRS.
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Pharma Manufacturer in Medicaid Fraud Case Ordered to Pay Millions by Wisconsin Jury

February 18, 2009
Michael Sullivan

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

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

Pfizer was on the receiving end of the health care fraud verdict, which may result in more than $153
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Wall Street Financial Industry “Bailout” Whistleblowers Sought by–Michael Moore?

February 11, 2009
Michael Sullivan

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

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

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

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

We anticipate that the “stimulus” package in Congress this week also will produce many opportunities for fraud and abuse of taxpayer funds, so that whistleblowers also will be important to deter those abuses through use of the False Claims Act and the IRS Whistleblower Program.
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TARP Apparently Overpaid for Bank Assets, According to Congressional Oversight Panel

February 6, 2009
Michael Sullivan

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

The report, “Valuing Treasury Acquisitions,” concludes that Treasury paid “substantially more for the assets it purchased under the TARP than the market value of those assets” at the time this deal was announced. The Panel revealed that, in the ten
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Justice Department’s New Focus on Individuals’ Liability in “Yates Memo” Should Impact Qui Tam Whistleblower Cases under False Claims Act

September 10, 2015
Michael Sullivan

Yesterday the Justice Department apparently responded to the frequent lament, “Why has almost no one gone to prison for the financial crisis?” DOJ signaled that it will now look to hold responsible both culpable individuals and their companies for corporate misdeeds–both criminally and civilly.

If DOJ means what it says, this policy change is profound. It should hit corporate officers whose business models are based on fraud and false claims. It should also snare high level executives who turn a blind eye to wrongdoing, and who typically get away with it.

Corporations can act only through the humans who run them. Sometimes those humans steer the business to corrupt methods.

Until yesterday’s change in DOJ policy, however, the few corporations brought to heel by DOJ for crimes, fraud, or false claims absorbed the consequences, while the individuals who directed the wrongdoing usually escaped responsibility. Those individuals were free to continue their corrupt practices at the same firm or a different one.

New U.S. Deputy Attorney General Sally Yates plans to change that result. As a federal prosecutor in Atlanta, Yates was not afraid of pursuing big cases against individuals and their companies, as I learned from representing clients in some of those cases.

Yesterday Yates issued a Memorandum titled, “Individual Accountability for Corporate Wrongdoing.” It is far-reaching, if implemented. Yates announced “six key steps to strengthen [DOJ’s] pursuit of individual corporate wrongdoing, some of which reflect policy shifts and each of which is described in greater detail below:
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SEC Whistleblower Office’s Stand Against “Silencing” Employees Through “Confidentiality” Agreements

May 28, 2015
Michael Sullivan

Sean McKessy of the SEC Whistleblower Program is right to continue his mission against muzzling whistleblowers through “confidentiality” agreements, for one simple reason:

Intimidating witnesses from reporting fraud is a form of obstruction of justice.

Although “confidentiality” agreements may appear innocent on their face, a company’s suggesting in any way that its employees refrain from reporting fraud or other violations of securities laws crosses the line. Too often, that is often the effect of these agreements–if not the intent as well.

The SEC took action last month in filing and settling charges against KBR Inc. It announced this “first enforcement action against a company for using improperly restrictive language in confidentiality agreements with the potential to stifle the whistleblowing process.”

The SEC said that, in internal investigations, KBR required witnesses to sign confidentiality statements warning that they could face discipline and be fired if they discussed the matters with outside parties without the prior approval of KBR’s legal department. The SEC found that KBR violated SEC Rule 21F-17, which bars firms from impeding whistleblowers from reporting possible securities violations to the SEC.

As Mr. McKessy observed, “KBR changed its agreements to make clear that its current and former employees will not have to fear termination or retribution or seek approval from company lawyers before contacting us.” He warned that “[o]ther employers should similarly review and amend existing and historical agreements that in word or effect stop their employees from reporting potential violations to the SEC.”

Bloomberg BNA contacted me recently to comment on the prevalence of such misuse of confidentiality agreements, in a piece reprinted here in part:

“More and more we see firms attempt to conceal fraud by using ‘confidentiality agreements’ to intimidate witnesses from reporting wrongdoing to authorities,” said Michael Sullivan, a partner at Finch McCranie LLP, Atlanta, who represents SEC whistle-blowers.
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Qui Tam, IRS, CFTC, and SEC Whistleblower Claims Update: Today’s Whistleblower Law Symposium A Success

March 18, 2015
Michael Sullivan

Since 2007, top officials from federal and state agencies and many of the country’s experts in whistleblower cases have gathered in Atlanta to discuss and debate anti-fraud efforts at the Whistleblower Law Symposium.

Today I was excited to chair our Whistleblower Law Symposium once again, as these experts explored the latest developments in qui tam cases under the False Claims Act, and SEC whistleblower, CFTC whistleblower and IRS whistleblower claims. The breadth of expertise of today’s speakers was unusual.

First, top enforcement officials from California, Georgia and Texas shared their approaches and priorities under their state False Claims Acts. We were honored to hear from Britt Grant, Solicitor General of Georgia, about Georgia Attorney General Sam Olens’ impressive new efforts to stop the theft of taxpayer funds.

Joining Britt Grant were California’s Nicholas Paul, Texas’ Ray Winter, and Georgia’s Van Pearlberg, who described how their offices battle Medicaid fraud that is brought to light in state False Claims Act cases. A special thanks goes to Jim Breen for moderating this discussion and sharing his own experiences in working with the states in pursuing large health care fraud cases.At today’s Whistleblower Law Symposium, Jim Breen joined me in presenting former Rep. Edward Lindsey with the “Integrity in State Government Award” from the Taxpayers Against Fraud Education Fund.

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Today’s SEC Whistleblower Award to Former Officer of Company Shows Flexibility of SEC Whistleblower Rules

March 2, 2015
Michael Sullivan

The SEC announced today its first SEC Whistleblower award to a former company officer. The award of a half-million dollars was for “original, high-quality information about a securities fraud,” which resulted in an SEC enforcement action with sanctions of more than $1 million.

Typically, corporate officers, directors and other corporate fiduciaries are not eligible for SEC Whistleblower awards when they learn of fraud through employee reports. The SEC built in flexibility in its rules, however, when the officer waits “more than 120 days after other
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SEC Welcomes SEC Whistleblowers Who Are Foreign Citizens Living Abroad

September 23, 2014
Michael Sullivan

Yesterday’s record award to an SEC whistleblower has far-reaching consequences because the SEC made clear it will reward foreign citizens living abroad who meet its criteria for a whistleblower award.

This decision rejects any suggestion that the SEC Whistleblower Program’s reach ends at the nation’s borders. The SEC recognized that a leading federal appeals court imposed such a limitation on the anti-retaliation provisions of the Dodd-Frank law, which authorized the SEC Whistleblower Program, but announced it is taking a different approach to whistleblower awards:
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SEC Whistleblower Receives Record Award of $30 Million

September 22, 2014
Michael Sullivan

Today the SEC Office of the Whistleblower announced the largest-ever award to an SEC whistleblower: $30 million to a whistleblower living abroad.

The size of the award reflects the SEC’s seriousness about utilizing whistleblowers’ information to expose major securities violations. The SEC described this as “ongoing fraud that would have been very difficult to detect” without the whistleblower, according to the Director of the SEC’s Division of Enforcement, Andrew Ceresney.

Sean McKessy, Chief of the SEC’s Office of the Whistleblower, added that this award demonstrates
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FATCA – Foreign Bank Account Headaches

May 18, 2014
Michael Sullivan

FATCA is being implemented in a number of countries outside the U.S., with the result that U.S. individuals who hold foreign bank or financial accounts and have not disclosed these accounts in the U.S., are about to be reported to the IRS.

(This post is by our colleague Richard Rubin of Rubin Law (www.rubinlaw.us), a tax attorney with significant experience in U.S. cross-border matters, including FATCA and U.S. international compliance.)

Bank accounts in countries outside the U.S. can cause headaches when owned by U.S. taxpayers. While owning foreign accounts has always entailed a reporting headache for U.S. taxpayers, the problem has recently heightened as a result of the FATCA legislation that is being implemented in a number of countries outside the U.S.

FATCA is a set of U.S. tax reporting rules that impact U.S. citizens, Green Card holders and other U.S. tax resident individuals who have accounts with non-U.S. banks or financial institutions.

An acronym for the Foreign Account Transactions Compliance Act, FATCA requires banks and financial institutions in countries outside the U.S.to provide the IRS with details of accounts that are owned by U.S. taxpayers. Although the mechanism varies slightly by country, in most countries where FATCA has been implemented banks and financial institutions are required to report these details to the Revenue Authority of that country, and the Revenue Authority is required to pass this information along to the IRS.
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What the Just-Released 2013 IRS Whistleblower Office Annual Report Means for Future Tax Whistleblowers

April 6, 2014
Michael Sullivan

The just-released FY 2013 IRS Whistleblower Office Annual Report reveals clues to what the future holds for tax whistleblowers.

Steve Whitlock, Director of the IRS Whistleblower Office, gave a preview last Fall. Listening to an audience react enthusiastically to his SEC counterpart Sean McKessy discuss awarding more than $14 million to a whistleblower, Whitlock wryly observed that the IRS had “only” awarded $50 million to whistleblowers in FY 2013.

To those who follow the IRS Whistleblower Program closely, Whitlock’s comment was a rare moment to
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New York False Claims Act Case Against Sprint Nextel Takes Giant Step Forward

February 27, 2014
Michael Sullivan

In a momentous decision that will impact many future cases, New York Attorney General Eric Schneiderman has just won a major victory in his pioneering tax fraud case against Sprint Nextel Corp.

The Appellate Division unanimously affirmed the trial court’s 2013 ruling (background discussed here) to allow Schneiderman’s first tax enforcement case under the New York False Claims Act to proceed.

The Complaint alleges that Sprint unlawfully failed to collect and pay $130 million in New York sales taxes on a portion of its revenue from fixed monthly access charges. Like the federal False Claims Act, the New York False Claims Act provides for recovery of three times the amount of damages incurred–“treble damages.”

A major aspect of Schneiderman’s victory was that it makes Sprint potentially liable under the New York False Claims Act for tax fraud that preceded the Act’s 2010 amendments to include tax violations. In fact, the court affirmed the trial court’s decision allowing the case to proceed in all respects:

The court properly denied the motion to dismiss the complaint in its entirety. Plaintiffs’ complaint adequately alleges that defendants violated New York’s False Claims Act (State Finance Law § 189[1][g]), Executive Law § 63(12) and Article 28 of the Tax Law by knowingly making false statements material to an obligation to pay sales tax pursuant to Tax Law § 1105(b)(2). Contrary to defendants’ interpretation, the Tax Law provision is not preempted by the Federal Mobile Telecommunications Sourcing Act (4 USC 116 et seq.).

The court also properly rejected defendants’ argument that the New York False Claims Act with respect to statements made under the Tax Law should not be given its stated retroactive [*2]effect. Defendants fail to show that the Act’s sanction of civil penalties, including treble damages, is so punitive in nature and effect as to have its retroactive effect barred by the Ex Post Facto Clause (US Const, art I, § 10).

We once again applaud the efforts of Attorney General Schneiderman and his office to protect the public’s purse though the New York False Claims Act. The case shows the value that tax whistleblowers can bring to stop those who refuse to pay their fair share of the tax burden.

The Attorney General’s announcement is linked here.
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First Large SEC Whistleblower Award Is Encouraging, As SEC’s “Loss” in Mark Cuban Case May Be

October 21, 2013
Michael Sullivan

“Government shutdown” month (October 2013) has brought encouraging news from the SEC–including some good news you might not realize.

On October 1, the SEC announced its first SEC whistleblower award of more than $1 million. The Commission’s Office of the Whistleblowerer led by Sean McKessy awarded more than $14 million to a whistleblower who remains confidential. According to the SEC, the whistleblower’s information “led to an SEC enforcement action that recovered substantial investor funds.”

Two weeks later, a Texas jury found against the SEC
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