False Claims Act

Major False Claims Act Victory for Whistleblowers in Iraq Fraud Case: Fourth Circuit Reverses Custer Battles Decision

Published on: April 10, 2009 | by Michael Sullivan

In a major victory today for whistleblowers reporting fraud in the Iraq reconstruction effort, the Fourth Circuit Court of Appeals reversed a trial court’s decision that took away a jury verdict from the whistleblowers or relators in this qui tam case under the False Claims Act.

The Custer Battles case has been a hard-fought one, which until this decision had produced one of the odder results found.

With hundreds of billions of U.S. dollars spent on the Iraq War and Iraq reconstruction, and with the False Claims Act supposedly protecting U.S. taxpayer funds from fraud, the whistleblowers filed a qui tam case under the False Claims Act that alleged fraud in certain contracts that addressed, among other things, replacing Iraqi currency in the Iraq reconstruction effort.

After the jury awarded a verdict to the whistleblowers, the trial court overturned it. The trial court did not view claims presented to the Coalition Provisional Authority (“CPA”) that was created and funded by the United States as the same as claims presented to the U.S. Government, even though the CPA officials were U.S. Government employees, and U.S. dollars were lost. Today’s decision by the Court of Appeals reversed the trial court’s decision and corrected that odd result.

This is a very positive development for whistleblowers reporting fraud in Iraq and elsewhere, as it corrects a strained interpretation of the law that has allowed fraud to go unaddressed. We congratulate everyone associated with this effort.

The Court’s conclusion from the decision today is quoted below:
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Iraq Whistleblowers Coming Forward, as Special Inspector General for Iraq Reconstruction Estimates Billions in Fraud and Waste

Published on: March 23, 2009 | by 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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Appreciating Harry Markopolis, the Madoff “Whistleblower” to the SEC

Published on: March 16, 2009 | by 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 cause the SEC to take action about Madoff.

We commend Harry for wearing the “white hat” so well–and we take our hats off to him. Let’s hope the SEC creates a meaningful whistleblower program and listens to Harry about how it should operate.

False Claims Act Amendments Approved by Senate Judiciary Committee As Part of FERA (Fraud Enforcement and Recovery Act) Today

Published on: March 5, 2009 | by 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 (“TARP”), the many federally funded health care programs such as Medicare and Medicaid, and the vast defense procurement industry that is servicing two wars, opportunities for fraud will only increase. The speed at which the “stimulus” funds will be spent will only increase the opportunities for fraud.

Senator Grassley has been steadfast in his efforts to ensure that these taxpayer funds receive the protection of the False Claims Act, which is the primary civil weapon to combat fraud and false claims. This bipartisan legislation would restore the False Claims Act to its original intent by “undoing” several attempts by judges to limit its reach. Among the goals of the Amendments are:

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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”

Published on: March 1, 2009 | by 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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Pharma Manufacturer in Medicaid Fraud Case Ordered to Pay Millions by Wisconsin Jury

Published on: February 18, 2009 | by 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 million in damages based on alleged practices by Pharmacia (which Pfizer had acquired). The AG reportedly cited a 1993 internal memo in which a pharma employee wrote that “three decades of gaming the present reimbursement scheme has provided a lucrative avenue of profit.”

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Wall Street Financial Industry “Bailout” Whistleblowers Sought by–Michael Moore?

Published on: February 11, 2009 | by 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

Published on: February 6, 2009 | by 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 largest transactions with TARP funds, for each $100 spent by Treasury, it received assets worth only approximately $66.

The full report can be found at COP.Senate.gov.

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Hedge Funds Face Regulation & Oversight by SEC–Will There Be Another Compliance Tool in Addition to IRS Whistleblower Program?

Published on: February 1, 2009 | by Michael Sullivan

When improprieties occur with hedge funds, the hedge funds’ lack of transparency and dearth of disclosure obligations make violations of the law difficult to uncover. Sometimes, persons in the hedge fund industry report those abuses through the IRS Whistleblower Program, as some of our IRS Whistleblower clients have done.

Nonetheless, the hedge fund industry remains cloaked in secrecy, frustrating experts who now seek to gauge the impact of hedge funds on the current financial crisis.

A new bill just introduced in the Senate, the “Hedge Fund Transparency Act,” would lift that cloak and create disclosure requirements for hedge funds and oversight of hedge funds by the SEC. This bipartisan bill sponsored by Senators Chuck Grassley and Carl Levin modifies a prior approach to hedge fund scrutiny pressed by Sen. Grassley, after a whistleblower complained that SEC supervisors were impeding an investigation into a major hedge fund.

According to Sen. Grassley, “The bill contains four basic requirements to make hedge funds subject to SEC regulation and oversight. It requires them to register with the SEC, to file an annual disclosure form with basic information that will be made publicly available, to maintain books and records required by the SEC, and to cooperate with any SEC information request or examination.”

Until the Bear Stearns debacle, there seemed little political will for any serious oversight of hedge funds. The SEC in 2004 had issued a rule requiring hedge funds to register under the Investment Advisers Act, to comply with related regulations, and to provide basic information through a public disclosure form. In June 2006, however, the U.S. Court of Appeals for the District of Columbia Circuit declared the rule invalid as incompatible with the Investment Advisers Act.

In hindsight, that absence of scrutiny may be seen as a grave error, one which may have helped create the current financial meltdown.

Since 1998, when the Federal Reserve acted to rescue Long-Term Capital Management (LTCM), a hedge fund with more than $125 billion in assets under management and a total market position of approximately $1.3 trillion, investments in hedge funds have grown dramatically.
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Whistleblower Protections Added to Economic Stimulus Bill Passed by House

Published on: January 28, 2009 | by Michael Sullivan

When the Wall Street “bailout” grew with Congress’ creation of the Troubled Asset Relief Program (TARP), Sen. Chuck Grassley emphasized the importance of “whistleblowers” and the False Claims Act to protecting these taxpayer funds from fraud and abuse.

Tonight, the House added to the bailout by passing the economic stimulus package, HR 1, and approved an amendment adding whistleblower protection for federal employees.

The stimulus bill reportedly provides for $523 billion in spending, and $275 billion in tax cuts. It originally lacked protection for federal employees who are whistleblowers. An amendment by Reps. Todd Platts, R-Pa., and Chris Van Hollen, D-Md. added those protections from last year’s thwarted Whistleblower Protection Enhancement Act, which cleared the House but not the Senate.

The history of government spending programs proves beyond doubt that the vast majority of fraud and abuse can only be revealed by whistleblowers. Protecting taxpayer dollars means protecting and rewarding whistleblowers. As Sen. Grassley observed in a November 17, 2008 letter about TARP:

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.

Both the False Claims Act and the IRS Whistleblower Program will be important in stopping fraud and misuse of taxpayer funds. When there is fraud, there is often an IRS violation as well.
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