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This week, the United States Supreme Court agreed to hear a False Claims Act whistleblower case filed against the General Motors Corporation and its former division, Allison Engine Company. The alleged fraud concerns subcontracts for building parts for the U. S. Navy’s guided missile destroyers. Each of the 50 destroyers in question costs the taxpayers over $1 billion.

At issue in this case is an argument being made by the defendants that the whistleblower and the government cannot attack the alleged fraud scheme under the False Claims Act based on the failure of the subcontractor (Allison Engine Company) to personally present claims for payment to the United States government. (In short, even if fraud occurred, the subcontractor cannot be sued under the False Claims Act because the subcontractor did not itself present false claims to the federal government.) This rule, known as the “Totten” rule, was first articulated by the now Chief Justice of the Supreme Court John Roberts when he previously served on the U. S. Court of Appeals for the D. C. Circuit. The “Totten” rule allows subcontractors to escape liability under the False Claims Act if they were not the actual party who formally presented the claim to the government for payment.

In the case which the Supreme Court has agreed to review, the lower Appeals Court supported the whistleblower’s claims and explicitly rejected the “Totten” rule. The Court of Appeals reasoned that the subcontractor’s liability should not depend on a technical presentment of a claim to the government, but whether government money was used to pay a false and fraudulent claim for payment on the contract.

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From time to time on this whistleblower blog we report cases of significance involving successful whistleblower claims filed under the federal False Claims Act. We read about such a case today in the news involving a $28 million settlement with National Air Cargo. It appears that the government determined that National Air Cargo had billed the government $4.4 million for various military shipments delivered by that company between the calendar years 1999 and 2005. The false claim was that National Air Cargo had billed the government for higher air rates rather than the actual ground deliveries made. National Air Cargo also claimed that deliveries were made sooner than they actually were which served as a pretext for the higher shipment rates. The government’s investigation focused on shipments to military bases within the United States according to the government’s Press Release.

We read about such a case today in the news involving a $28 million settlement with National Air Cargo. It appears that the government determined that National Air Cargo had billed the government $4.4 million for various military shipments delivered by that company between the calendar years 1999 and 2005. The false claim was that National Air Cargo had billed the government for higher air rates rather than the actual ground deliveries made. National Air Cargo also claimed that deliveries were made sooner than they actually were which served as a pretext for the higher shipment rates. The government’s investigation focused on shipments to military bases within the United States according to the government’s Press Release.

As a result of the scheme which was reported to the government by a whistleblower, National Air Cargo agreed to pay $4.4 million in restitution, a fine double that amount, a civil forfeiture fine in the amount of $7.4 million and $7.3 million to settle a civil lawsuit brought by the whistleblower. The whistleblower’s identity was withheld by the Court apparently under a Confidentiality Agreement.

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On this whistleblower lawyer blog, we have written previously about abuse of stock options–and how the IRS has declared that tax fraud and evasion from back-dating of stock options is a “Tier I” priority. Now, stock option fraud and income tax evasion will send a former stock options administrator to prison for almost four years.

The Securities and Exchange Commission has announced that Vencent Donlan was sentenced in a California federal court to 46 months in prison after pleading guilty to wire fraud and tax evasion charges. He was alleged to have fraudulently obtained stock and stock options from Wireless Facilities Inc.

Between November 2002 and November 2003, Donlan allegedly received more than $7 million by abusing his position as WFI’s stock option grant administrator. The SEC alleged that Donlan issued and transferred more than 700,000 shares of the company’s stock and stock options to a brokerage account that Donlan held with his wife. Donlan was alleged to have made false entries in WFI’s stock options software to hide unauthorized stock option grants he made to his wife, as well as to have provided false information to the company’s brokerage firm and transfer agent.

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Our whistleblower lawyer blog attorneys have written extensively about Georgia’s enactment of the new State False Medicaid Claims Act, a new whistleblower law that an attorney with our law firm helped enact. This qui tam whistleblower law has applicability to anyone who files a false or fraudulent claim for reimbursement with the State’s Medicaid program.

A classic example of this would be filing false claims for reimbursement for unnecessary and/or unauthorized laboratory tests. If a health care provider submits false or fraudulent claims for reimbursement under the State Medicaid program for performing lab tests which are not properly authorized by a medical physician, or do not otherwise meet Medicaid standards for reimbursement, such a submission could constitute a false claim against the Medicaid program, thus entitling any whistleblower reporting that claim to a reward for reporting Medicaid fraud. One such case, recently filed by the State of Massachusetts, indicates just how expensive such claims may be for the taxpayer.

Last week, in Boston, Boston Clinical Laboratories, Inc. was alleged to have submitted 66,000 false Medicaid claims for urine drug screens in circumstances where they were not ordered by an authorized prescriber or were ordered for non-medical purposes. According to allegations made by the Massachusetts Attorney General, many of these laboratory urine screens were to monitor sobriety tests for the individuals and were not approved for medical reasons. Under state regulations, eligible Medicaid claims are limited to laboratory services prescribed by a physician and must serve a medically necessary purpose. Court ordered and Social Service Agency drug testing, as well as testing for resident sobriety in out-patient treatment facilities, are not covered under the Medicaid program.

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Accounting fraud can create liability for violating the securities laws and IRS tax rules and regulations. This whistleblower lawyer blog regularly comments on cases of interest, as whistleblowers often play an important role in bringing the violations to light.

The U.S. Securities and Exchange Commission has announced civil fraud charges against Nortel Networks Corp. and Nortel Networks Ltd., alleging improper revenue recognition by Nortel between 2000 and 2003, designed to make the company look appear more profitable. Nortel agreed to pay $35 million to resolve these accounting fraud allegations.

Previously, the SEC reportedly announced civil fraud charges against Nortel’s former CEO Frank Dunn, former CFO Douglas Beatty, former Controller Michael Gollogly, and former Assistant Controller Mary Anne Pahapill for their roles in the alleged accounting fraud. The SEC also later alleged involvement in the fraudulent scheme by four former vice presidents of finance of Nortel’s business units.

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Our whistleblower lawyer blog attorneys have written about how abusive and fraudulent tax shelters promoted by accounting firms are priorities on the list of conduct that the IRS (and IRS tax whistleblowers) seek to stop. We have followed the KPMG tax shelter prosecution, which was set for opening statements to begin on October 23.

Just before the trial, Judge Lewis A. Kaplan responded to a late motion by the government pointing out potential conflicts of interest by counsel for former KPMG partner John Larson, by disqualifying his attorney. A new trial date will be set in November, once new counsel is obtained.

The 2005 KPMG indictment concerning alleged abusive and illegal tax shelters has been clear evidence that the government is prepared to hold accountable the accountants, financial advisers, lawyers and bankers who participate in illegal tax schemes.

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Individuals who have knowledge of the fraudulent write-off of bogus business losses are in a position to reap the rewards from such illegal conduct should they report it under the IRS Whistleblower Program. If a business writes off bogus business losses from a transaction and claims a tax refund, for example, such a transaction could constitute fraud and thereby expose the company to a whistleblower action by an insider with knowledge of such fraud. An apparent example of this was reported this week in an article in Information Week describing a federal investigation into the computer services firm, Oracle. According to the article, federal investigators are looking into whether Oracle improperly wrote off a quarter of a billion dollars in losses in the calendar year 2003 for the express purpose of obtaining a massive tax refund. Allegedly, Oracle claimed that it lost $223 million on stock transactions in the calendar year 2003 and applied for a $78 million tax refund. The government’s contention seems to be that the tax write-offs were completely fraudulent because no business losses actually incurred. Allegedly, the stock losses were fraudulently manufactured to support the refund application. If the IRS is correct, Oracle might have to repay to the government $78 million plus penalties and interest on the money.

What the article did not say is whether the source of the information about Oracle came from a whistleblower. The stock transactions at issue allegedly occurred in 2003. There does not appear to be a statute of limitations issue. If a whistleblower is the source of the information that started the government’s investigation, under the New IRS Whistleblower Program, the informant could receive up to 30% of the $78 million tax refund plus the same percentage of collected penalties and interest. In short, if the government was unaware of the scheme and learned of the scheme through an informant/whistleblower, then, in that event, if the IRS is successful in its efforts to get the refund back, the whistleblower would then be entitled to a reward because otherwise the government could not have recovered money.

While, of course, we do not know whether the allegations against Oracle are true and correct, what is noteworthy is that the Internal Revenue Service is clearly interested in investigating cases where businesses have written off large business losses which may be inappropriate. In this case, the appearance is that the write-off was inappropriate because the stock transactions at issue appear to have been manufactured to create a tax loss. Again, whether the allegations are true or not with respect to Oracle, the fact remains that the Internal Revenue Service will investigate such cases and obviously would appreciate assistance from insiders and whistleblowers who are willing to come forward to report possible violations of the tax code.

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The new IRS Whistleblower Rewards Program–and observations by one of the whistleblower lawyer blog attorneys–were featured in an October 15, 2007 article by Nicholas Rummell in Financial Week. Financial Week is a publication geared toward the CFO and other professionals in finance and accounting, with coverage of economics and business markets, regulatory and legislative actions, financing, banking, insurance, real estate, cash management, investment management, benefits and retirement finance, investor relations, accounting and technology.

This article discusses the fast start of the new IRS Whistleblower Program authorized by Congress in December 2007, which our whistleblower attorneys have written about extensively. I had the pleasure of speaking at length with writer Nicolas Rummell about the new IRS program, which is most promising. (The Financial Week article is at http://www.financialweek.com/apps/pbcs.dll/article?AID=/20071015/REG/71012026.)

Of particular interest was how those in the financial services industry, including hedge funds, have utilized the new IRS Whistleblower Program.

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The just released October 2007 edition of the Georgia Bar Journal, the primary bar magazine for lawyers practicing in Georgia, includes a key Whistleblower article written by one of the co-authors of this blog, Michael A. Sullivan. The article is entitled A “False Claims Act” is Finally Enacted in Georgia: What Georgia Lawyers Should Know About The State False Medicaid Claims Act. Obviously, Finch McCranie, LLP is proud that one of its partners had this article published by the State Bar’s leading journal and is particularly pleased that the Bar Journal decided to disseminate information to all lawyers in Georgia about the enactment of the new False Medicaid Claims Act.

It is noteworthy that the State Bar recognizes that the enactment of this new law is an important event in Georgia. The federal False Claims Act over the last six years has brought in over $12 billion in recoveries for the federal government. With Medicaid fraud becoming an ever-growing problem in Georgia, and nationally, obviously, the Georgia Legislature intended that this new law should duplicate some of the success of the False Claims Act in generating recoveries for the State when Medicaid fraud has occurred. By offering financial rewards to induce Whistleblowers with knowledge of Medicaid fraud to come forward, we believe this new law will undoubtedly produce significant financial recoveries for the State.

As former federal prosecutors, it is always a pleasure representing individuals who are willing to help root out fraud against their government. Georgia’s False Medicaid Claims Act is an important tool in combating Medicaid fraud. It is particularly gratifying to us that the Georgia Bar Journal has decided to educate its members about this new law through our partner’s article.

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Your whistleblower lawyer blog attorneys are proud to announce that a retired judge has joined their firm, Finch McCranie, LLP, to assist in representing their clients.

Stephen E. Boswell, former Chief Judge of Clayton County Superior Court in the metro Atlanta, Georgia area, has joined the firm as “counsel.”

Judge Boswell recently retired from the Superior Court bench after serving 13 years as a Superior Court Judge, over two periods of service since 1982. Previously, he was in private practice in the Atlanta area for 16 years, with a variety of experience in civil and criminal jury trials.

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