Happy 25th Birthday, False Claims Act!

Although it attracted little fanfare when it was passed 25 years ago, the False Claims Act has proven to be a successful weapon in fighting fraud against the government.

The Dept. of Justice will host an event featuring key players in the law's passage, including Senators Charles Grassley and Patrick Leahy and Rep. Howard Berman, as well as attorney John R. Phillips, a founding partner of Phillips & Cohen.

"The False Claims Act is a unique statute that has become the go-to law to stop corporations and others from cheating Medicare and other government programs," said attorney Phillips, who worked closely with Congress to secure passage of the amended False Claims Act in 1986.

The passage of the law is also notable as an instance of bipartisan cooperation. As Eric R. Havian, a San Francisco attorney with Phillips & Cohen, noted, "Stopping fraud shouldn't be a partisan issue."

Proposed legislation would gut SEC whistleblower program

A recently introduced House bill has the potential to seriously undermine the effectiveness of the Security & Exchange Commission's new whistleblower program, according to attorneys at Phillips & Cohen LLP, a law firm that has represented whistleblowers for nearly 25 years.

According to the firm's Erika A. Kelton, the Whistleblower Improvement Act would actually discourage whistleblowers because it requires them to report violations to their employer, often the party committing the violation, before going to the SEC.

Eric R. Havian, a San Francisco attorney with Phillips & Cohen believes the current regulations strike the right balance. "To encourage internal reporting, the SEC will give a whistleblower a larger reward if the whistleblower reports the violations to the company's internal compliance program before going to the SEC. But the SEC wisely leaves the decision about internal reporting to the whistleblower, who would know better than anyone whether he or she would suffer retaliation."

The proposed legislation would also eliminate the requirement for a mandatory award and the mandatory minimum award to 10 percent.

The SEC whistleblower program, created in 2010 by Dodd-Frank has resulted in an increase in high-value fraud tips from two dozen a year to one or two a day.

HHS Inspector General posts training videos

As part of the Health Care Fraud Prevention and Enforcement Action Provider Compliance Training initiative, the Health & Human Services' Inspector General has posted explanatory videos. Videos on the False Claims Act, the Physician Self-Referral Law and the Anti-Kickback Statute are already available. Additional videos will be released over the next several months.

2012: Year of the Whistleblower

Top Five Predictions For Whistleblower Programs; Blockbuster Year Expected Despite Intense Corporate Opposition

WASHINGTON, DC, Dec. 28, 2011 -- The increased reach of U.S. whistleblower laws and a growing interest overseas in whistleblower programs will make 2012 the Year of the Whistleblower, predicts Phillips & Cohen LLP, a law firm that has specialized in representing whistleblowers for nearly 25 years.

A harbinger of the year to come can be seen in the flood of whistleblower submissions the Securities and Exchange Commission received in the first seven weeks after it adopted the final rules for its new program whistleblower reward program created by the Dodd-Frank Act. From August 12 to Sept. 30, the SEC received 334 whistleblower submissions.

As a result of Dodd-Frank, the U.S. now has four robust whistleblower programs that offer substantial rewards to private citizens who expose fraud against the government, investor fraud and foreign bribery by corporations: The SEC’s and the Commodity Futures Trading Commission’s programs created by Dodd-Frank; the Internal Revenue Service’s whistleblower reward program for claims exceeding $2 million; and one for Medicare fraud, defense contractor fraud and other types of fraud through the “qui tam” (whistleblower) provisions of the False Claims Act.

“The SEC and CFTC quickly recognized the value of whistleblowers and are very responsive to the information whistleblowers provide,” said Erika A. Kelton, a whistleblower attorney with Phillips & Cohen in Washington, DC. “These new programs, which are attracting high-quality information from insiders around the world, combined with the responsiveness of government agencies, will make 2012 a blockbuster year for securities and fraud enforcement. Early success also will make it difficult for Congressional opponents to dilute the highly effective SEC whistleblower program.”

Eric R. Havian, a whistleblower attorney with Phillips & Cohen in San Francisco, said he expects the five-year-old IRS program, which so far has yielded few results, to get back on track in 2012.

“The IRS has indicated that it expects to make a number of awards in 2012 and make its program more transparent so that it’s clearer whether the IRS is following up on whistleblower information,” Havian said. “Those developments, combined with the outstanding track record the IRS for protecting the identity of whistleblowers, will encourage more high-level executives to come forward with information about substantial tax law violations.”

Phillips & Cohen pioneered the use of “qui tam” whistleblower cases under the modern-day False Claims Act and is a leader in whistleblower cases brought under the False Claims Act as well as the IRS, SEC and CFTC whistleblower reward programs. Whistleblower cases brought by the firm have resulted in governments recovering more than $7 billion in civil settlements and criminal fines, making it the nation’s most successful whistleblower firm. (See www.phillipsandcohen.com.)

To read Phillips & Cohen’s Top Five predictions about whistleblower programs in 2012, see its website.

Government penalties don't slow Pfizer

The Wall St. Journal reports that Pfizer raised its divided by 10% and expanded its share repurchase plans by up to $10 billion, in an effort "to return some of its cash pile to shareholders."

This is the same company that settled off-label marketing claims in October for $14.5 million (following a $2.3 billion settlement of related suits). And it's the same company that agreed last month to pay $60 million to settle allegations of paying bribes to overseas officials.

SEC's Citigroup settlement blocked by judge - is this the future?

Judge Jed Rakoff has rejected a settlement between the Securities & Exchange Commission and Citigroup, saying that it "is neither fair, nor reasonable, nor adequate, nor in the public interest."

In a ruling that shows his frustration with SEC consent agreements, Judge Rakoff said defendants view the payment of modest penalties without admitting or denying the underlying allegations as simply the cost of doing business. The agreement is a good deal for Citigroup because investors can't rely on the consent agreement in seeking return of their losses.

Judge Rakoff found it harder to discern what the SEC is getting from the settlement "other than a quick headline". He noted that by the SEC's own account, Citigroup is a recidivist; the penalty ($285 million) is "pocket change" for a company like Citi, and the consent judgment does not require the return of money to defrauded investors. The SEC had alleged that Citigroup sold investors mortgage-backed securities that the bank knew would lose value. Citigroup made $160 million in profits while investors lost more than $700 million.

The case has been consolidated with another action and is set for trial on July 16, 2012.

Judge Rakoff, of the US District Court for the Southern District of New York, has questioned other SEC settlements. The New York Times says the key question is whether this decision could help bring to an end the SEC's policy of settling cases without an admission of liability by the defendant.

Whistleblower should be applauded for case against for-profit college company

Former Congresswoman-turned-Washington lobbyist Melissa Hart (R-PA) has a misguided opinion piece in today’s Washington Times (“Justice gets lost in the revolving door -- Current and former public officials team up to plunder for-profit schools"). Among her ludicrous claims is that a qui tam case against Education Management Corp. is “a shocking example of the judicial revolving door” because a former U.S. attorney in Pennsylvania -- who now is of counsel to Phillips & Cohen LLP -- is representing the whistleblower, and the current U.S. attorney in that same office has decided to pursue the case.

Phillips & Cohen is not involved in the case. But Colette G. Matzzie, a Phillips & Cohen partner, posted this comment on the Washington Times website:

“The for-profit schools are the ones who have plundered the United States Treasury to the tune of many billions and left many students with crippling student loan debt and little prospects of gainful employment. One expose after another has revealed the coercive tactics used by many of the for profit schools to get ‘butts in seats’ including compensating admissions recruiters through bonuses and incentives. Quality educational institutions do not need to coerce students to enroll or convince them to stay long enough for their financial aid obligations to kick in. The EDMC lawsuit is one step toward addressing these fraudulent abuses and who better than former prosecutors to lead the way.”

We only wish Hart were correct that “the Justice Department brings with it endless resources to pursue such a case.” Clearly Hart knows nothing about qui tam cases. The Justice Department, unfortunately, has limited resources for qui tam cases, which is why a whistleblower’s choice of an attorney – one with a track record and who has the resources to pursue a case – is extremely important.

Firms commit securities fraud again and again, despite penalties and promises

As part of their settlements of securities fraud suits, many large Wall Street firms have signed agreements to never again violate antifraud laws. It may strike some as surprising that a promise not to break the law was required, but a New York Times article makes it clear that neither the promise nor the penalties extracted kept these firms from repeat offenses.

The Times analyzed SEC enforcement actions over the last 15 years and found at least 51 cases in which 19 Wall Street firms broke antifraud laws they had agreed never to violate.


The article points out how small the price of settlement is for many of these firms. The only real deterrent for executives of companies that earn massive illegal profits is to target them personally: through criminal prosecution where called for and through the aggressive use of clawbacks.

Wall Street pays lip service to "compliance" but it's time to put that into action. Bonuses should reflect a reward for legal behavior, not simply an employee's contribution to the bottom line even if that was the result of illegal activities.

Senate Finance Committee says home health agencies game system

The Senate Finance Committee has issued a report that shows three home health companies are engaging in top-down strategies to game Medicare. Internal documents from Amedisys, LHC Group and Gentiva show that therapists were encouraged to target the most profitable number of therapy visits, even when patient need may not have required such visits. The visit records also showed concentrated numbers of therapy visits at or just above the point which triggered a Medicare bonus payment.

The Committee said that the alleged practices, at best, "represent abuses" of the Medicare program. "At worst," it said, "they may be examples of for-profit companies defrauding" the program at taxpayers' expense.

The three companies cited get most of their revenues from Medicare. Home-health care, intended to save money be keeping patients out of hospitals, is one of the fastest-growing areas of Medicare spending.

Industry groups to challenge SEC whistleblower rules?

The New York Times reports that financial trade groups are considering suits challenging the Securities & Exchange Commission's new whistleblower program.

A July ruling by a federal appeals court striking down a new proxy-access rule has emboldened industry groups that want to undermine the regulations that have been issued pursuant to Dodd-Frank.

Rather than relying on lobbying, which might occasionally gain them a loophole, the financial industry hopes that judicial rulings will halt rules altogether.

The whistleblower program is not the only aspect of Dodd-Frank regulations being eyed by banks and corporations. Rules governing oil and gas extraction in foreign countries are also under attack.

The SEC is reportedly considering an appeal of the proxy ruling. And according to the article, the Commodity Futures Trading Commission is evaluating whether to adjust its "proposed regulations." The CFTC itself presents these rules as final but has not yet published them in the Federal Register. That publication is required before the rules can go into effect.