Articles Posted in Recent Developments

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Yesterday I enjoyed leading a panel discussion of the new State False Claims Acts, at the Southeastern Health Care Fraud Conference in Atlanta. Of particular interest to this audience was the new Georgia State False Medicaid Claims Act that became law in May 2007, which has qui tam whistleblower provisions similar to the federal False Claims Act.

Our audience of health care attorneys heard a detailed account of Florida’s successes with its State False Claims Act by Mark S. Thomas, the Chief of Staff and Special Counsel of the Florida Agency for Health Care Administration. We also learned how the Georgia Attorney General’s Office plans to implement the new State False Medicaid Claims Act in remarks by Charles M. Richards, Senior Assistant Attorney General of the Georgia State Health Care Fraud Control Unit.

Other excellent presentations were made in this seminar organized by my friends Steve Cowen of King & Spalding, LLP, and Joe Whitley of Alston & Bird, LLP. I am grateful to Joe and Steve for the opportunity to participate and explain the False Claims Act, the new Georgia State False Medicaid Claims Act and other state False Claims Acts, some of which have added interesting new wrinkles to health care compliance, by creating new theories of liability not found in the federal Act. (An article explaining some of the new thoeries of liability that these new State False Claims Acts introduce will appear in the October Georgia Bar Journal.)

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Our potential tax whistleblower clients–who call our attorneys about participating in the new IRS Whistleblower Rewards Program–regularly ask before they proceed if the IRS will keep their identities confidential.

Across the country, the IRS Special Agents we have been dealing with in representing our tax whistleblower clients (for example, in New York, Las Vegas, Dallas, and Atlanta, to name a few) have consistently answered the question the same way. Confidentiality is addressed by Treasury Regulations applicable to the IRS, which provide in part as follows: “No unauthorized person will be advised of the identity of an informant.” 26 C.F.R. § 301.7623-1(e).

We have found the IRS Agents we deal with to be quite professional. They appreciate whistleblowers coming forward. They recognize that, when the IRS receives information from persons in this position, their investigative work is far more focused–and effective.

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One of the many types of fraud and false claims that whistleblowers can report to whistleblower attorneys is unlawful “kickbacks” paid by companies that do business with the federal government.

The Justice Department has announced a settlement with IBM and PriceWaterhouseCoopers for more than $5.2 million, to resolve allegations that these firms violated the False Claims Act through business arrangements that allegedly constituted unlawful kickbacks. The announcement followed a whistleblower suit under the qui tam provisions of the False Claims Act, which we have explained on this whistleblower lawyer blog previously.

According to the government, it investigated IBM and PWC as part of an ongoing investigation of government technology vendors and consultants. Other complaints have been filed in April 2007 in Arkansas against Accenture, Hewlett-Packard, and Sun Microsystems, according to the Justice Department.

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The Minerals Management Service of the U. S. Department of Interior is responsible for the collection of royalties on federal and Indian leases. Companies who have such leases are required to report to the Department of Interior the value of natural gas produced (or minerals mined) from federal and Indian leases and to pay a percentage to the government as royalties. When the entity that has the duty to pay the royalties files a false report and misstates what the collected revenues were, this is a “reverse” false claim. It is “reversed” because the entity is not making a claim for payment but is instead paying less money than is owed to the government under false pretenses. This case, like any scheme to defraud the federal government, is actionable under the False Claims Act and fortunately, the Department of Justice is vigorously prosecuting cases where those who owe money to the government are willfully failing to pay it.

Yesterday, on August 15, the Department of Justice announced that Burlington Resources, Inc., a subsidiary of Conoco Phillips, had agreed to settle a False Claims Act case with the United States for $97.5 million. A whistleblower had filed a Complaint against Burlington alleging that it was systematically underpaying royalties due on their federal and Indian gas production. The Department of Justice intervened in the Qui Tam lawsuit, determined that the whistleblower’s allegations were true and correct and forced a settlement with Burlington Resources, Inc.

What this case shows is that the Federal False Claims Act continues to be the government’s best tool for obtaining restitution and penalties in cases where companies are failing to discharge their duties to the federal government. While schemes to defraud take a variety of forms, obviously, a company with a lease agreement with the United States has a fiduciary duty to properly account for royalties. By submitting false reports understating the amount of gas production, Burlington Resources, Inc. exposed itself to the whistleblower suit and presumably paid 2 to 3 times the amount of actual damages in penalties as provided for by the Federal False Claims Act.

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Medicaid Fraud Recovery Announced by Missouri Attorney General

False and fraudulent billings were uncovered in a Missouri Medicaid fraud investigation that has produced a recovery by the Missouri Attorney General’s Office’s Medicaid Fraud Control Unit. Billings like this typically violate the False Claims Act or the various state False Claims Acts.

Prescriptions that had not been authorized by physicians were submitted and paid for by the Medicaid program. Once the suspicious activity was reported, the Attorney General’s Office’s investigation followed and produced a recovery of $462,926 from apparently a single pharmacy in DeKalb County, Missouri, the Randolph Drug Store in Maysville.

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This past week produced examples of why whistleblowers and their attorneys must continue to insist that false claims and health care fraud not be tolerated. The indictments of Texas medical equipment suppliers–who are alleged to have overbilled Medicare and Medicaid for expensive scooters and chairs while providing cheaper ones –show how prevalent false claims are.

The indictment of a physician in West Virginia for allegedly falsifying the time spent in patient visits shows another common type of health care fraud and false claims.

A Virginia home health care provider’s indictment for allegedly using unqualified nurses and nurses aides is yet another example of health care fraud that whistleblowers can help stop.

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IRS Seeks Documents from Citigroup and Lehman Brothers Holdings on Derivatives

Now that Congress has created a meaningful IRS Whistleblower Rewards Program, tax whistleblower attorneys took note of yesterday’s report that the IRS is looking into whether derivatives trades for hedge funds and other investors are being used to avoid tax withholding obligations, according to the Wall Street Journal yesterday. The IRS reportedly has issued “Information Document Requests” to Citigroup and Lehman Brothers Holdings to find out.

As Reuters reports, the derivatives trades in question are when securities firms buy stocks from offshore hedge-fund clients; the banks then pay their clients any principal return and dividends that these stocks generate. Because the fund technically does not hold the stock, the funds escape paying up to 30 percent in taxes on the dividend, according to sources discussed by Reuters.

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Most Defendants in KPMG Case Escape Prosecution–At Least For Now

As we have written about previously, abusive and fraudulent tax shelters promoted by accounting firms are high on the list of conduct that the IRS (and IRS tax whistleblowers) seek to stop. Today, the government’s prosecution of 13 former KPMG partners and other executives was derailed–at least for now–when the trial judge dismissed charges against them, while allowing the charges to remain against other defendants.

Judge Lewis Kaplan had already ruled that these defendants’ constitutional rights had been violated when the government pressured KPMG not to advance the legal fees and expenses of the defendants.

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IRS Tax Whistleblowers with Knowledge of Stock Option Backdating Should Take Note

Now that the IRS has an effective IRS Whistleblower Rewards Program for whistleblowers who report tax fraud, tax evasion, or other violations of the Internal Revenue laws, the IRS’ recent announcement of focusing on back-dating of stock options should be interesting. In continuing our past discussions of claims under the IRS Whistleblower Rewards Program, we point out the tax fraud that the IRS has decided to target involving back-dated stock options.

The IRS recently announced that backdating of stock options is a “Tier I Compliance Issue and therefore is a mandatory examination item for taxpayers with backdated stock option grant and/or exercise prices.”

This unlawful practice can produce adverse tax consequences for the corporation issuing the option. As the IRS announcement explains, corporations are subject to a $1 million annual limit on the deduction for compensation to the CEO and four other highest compensated officers in a publicly traded corporation.

Under Treasury Regulations section 1.162-27(e)(2)(vi), there is a “qualified performance based compensation” exception to the $1 million deduction limit for compensation attributable to option exercises if the option exercise price equals or exceeds the per share value on the grant date and certain other requirements are met. A failure to satisfy this requirement may cause compensation attributable to the option exercise to be subject to the $1 million deduction limit.
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Fraud and False Claims by Government Contractor in Dallas Leads to $2.6 Million Settlement with Justice Department

The statute most used by whistleblowers and whistleblower attorneys has resulted in yet another recovery of money for false claims. The Justice Department has announced that Affiliated Computer Services, Inc. (ACS) has agreed to pay more than $2.6 million to settle a False Claims Act case.

The government alleged that ACS, from 2002-2005, inflated its claims for payment of government funds for recruiting and enrolling individuals in various government programs funded by the U.S. Department of Agriculture (USDA), the U.S. Department of Labor (DOL), and the Administration for Children and Families of the U.S. Department of Health and Human Services (ACF).

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