Tuesday, July 21, 2015

Whistleblowers who are minor participants in fraud may be better off reporting fraud before the government finds out

Last week, in Schroeder v. United States, the Ninth Circuit joined several other courts in holding that a False Claims Act whistleblower must be dismissed from a suit if he or she is convicted of criminal conduct arising from the fraudulent conduct at issue in the FCA case, even if the whistleblower was only a minor participant. 

The Ninth Circuit held that the FCA’s provision requiring dismissal of whistleblowers convicted of related criminal conduct was unambiguous. The court brushed off the whistleblower’s argument that mandatory dismissal of minor participants in the fraud is illogical because the statute allows unconvicted whistleblowers who “planned and initiated” the fraud to receive a reward. 

The decision should send a signal that delay in coming forward to stop a fraud can hurt, or even negate, whistleblowers’ rights under the FCA. In our experience, the United States rarely, if ever, prosecutes minor wrongdoers who step forward voluntarily to tell the government about a fraud about which the government was unaware.

But if the government finds out about the fraud before the whistleblower comes forward, it may choose to make its case by charging minor offenders and then cutting deals with them to gain evidence against more senior wrongdoers. A person who fears criminal prosecution for her minor role in a fraud hatched by her bosses might be able to avoid that prosecution by voluntarily providing information about the fraud to the government.

That strategy won’t work, though, if the person waits too long to approach the government. The key to Schroeder was that the court found that the whistleblower only approached the government after he learned that Department of Energy agents were already investigating the fraud. If he had approached the government sooner, he might have avoided prosecution and might have been allowed to receive a reward for the government’s recovery.

The lesson is clear: If you are considering blowing the whistle on a fraud in which you participated in even a small way, get in touch with a lawyer immediately to review your options. You may find that it doesn’t pay to wait to blow the whistle. 

  • Schroeder v. United States v. CH2M Hill, ___ F.3d ___, 14 C.D.O.S. 7782 (9th Cir. Jul. 16, 2015)
  • 31 U.S.C. § 3730(d)(3)

Monday, July 20, 2015

Court decision in Tuomey case sheds light on the meaning of falsity

Earlier this month, a panel of three judges in the Fourth Circuit handed down the latest chapter in United States ex rel. Drakeford v. Tuomey Healthcare Sys., Inc., a False Claims Act case based on Stark Law violations that was filed in 2005. The decision touched on a number of important issues, including when an interpretation of a statute that is disputed can be “false” under the False Claims Act. This issue that has been a source of confusion.

The Fourth Circuit’s opinion in Tuomey, issued July 2, clarifies that evaluating whether representation of compliance with a statute is false is an objective inquiry — answerable by yes or no — whereas the defendant’s subjective belief about compliance is a question of scienter. The court’s treatment of falsity and scienter as two discrete inquiries resists previous constructions espoused by defendants both in Tuomey and other cases, which sought to collapse the two requirements into one subjective inquiry. 

To recap, in 2000 Tuomey Hospital began searching for a way to boost declining revenue that had been lost as gastroenterologists began performing more outpatient surgeries in their own offices instead of at Tuomey. To counteract this, Tuomey proposed part-time employment arrangements with the doctors in exchange for the doctors performing outpatient procedures at Tuomey.

When the relator, Dr. Drakeford, expressed concern that these arrangements violated the Stark Law, Tuomey and Drakeford jointly sought the advice of an attorney. The attorney warned Tuomey that the contracts raised “red flags” and presented a risk for prosecution under Stark. Unsatisfied with this advice, Tuomey sought other legal advice, eventually obtaining several more favorable opinions. The case eventually went to trial, and after an initial jury verdict was vacated and a second trial held, the jury found that Tuomey had submitted 21,730 false claims to Medicare, resulting in a judgment of $237,454,195.

On appeal Tuomey claimed that disputed legal questions — such as whether the contracts violated Stark — cannot meet the falsity element of the False Claims Act. In support, Tuomey cited United States ex rel. Wilson v. Kellogg Brown & Root, Inc., in which the Fourth Circuit had held that “[t]o satisfy [the falsity] element of an FCA claim, the statement or conduct alleged must represent an objective falsehood.” Tuomey argued that “imprecise statements or differences in interpretation growing out of a disputed legal question,” could not be considered objectively false.

The Fourth Circuit rejected Tuomey’s argument. While the Fourth Circuit did not reject its prior reasoning in Wilson, it distinguished Wilson on the grounds that the falsehood in Wilson —whether the defendant had fulfilled the terms of an imprecise contract — was a subjective inquiry, whereas the falsehood at issue in Tuomey — whether Tuomey had, as it certified it had, complied with Stark — was objective. The question of falsity in Tuomey represented an “either/or proposition”the defendant’s certifications of Stark Law compliance was either true or false. And, as the jury had found, Tuomey violated the Stark Law and therefore “Tuomey’s certification that it had complied with the Stark Law was false.”

The Tuomey Court’s decision on falsity is notable because it makes clear that disputes about interpretation of a statute is a question of scienter, not falsity. In previous decisions, such as United States ex rel. Lamers v. City of Green Bay, some courts interpreting the falsity requirement have conflated it with the scienter requirement. In Tuomey, however, the Court clearly differentiated between the two, stating that Tuomey’s awareness of whether the claims violated Stark “is covered under the knowledge element.”

For disputed legal questions, like whether the doctors’ contracts were permissible under Stark, the defendant’s uncertainty about legality did not bear on whether the arrangements actually violated the law or not, only on whether the defendant acted knowingly. A reasonable interpretation of a regulation may mean that a defendant did not know he violated the statute, but this does not change the fact that the statute was violated.
In demonstrating a greater willingness to separate falsity and scienter, the Fourth Circuit helped illuminate the comments in Wilson that the False Claims Act requires an “objective falsehood.” False Claims Act defendants have often attempted to capitalize on the commingling of the falsity and scienter elements by arguing that because they lacked knowledge of whether their actions violated the law, their claims could not be “objectively” false. By arguing ignorance, defendants hoped to foreclose further inquiry into falsity. The Fourth Circuit’s decision in Tuomey represents an unwillingness to accept defendants’ purported lack of knowledge that their actions violated the law means that their certifications of compliance with the law cannot be false.


·         United States ex rel. Drakeford v. Tuomey Healthcare Sys., Inc., No. 13-2219, 2015 WL 4036166 (4th Cir. July 2, 2015)

·         United States ex rel. Wilson v. Kellogg Brown & Root, Inc., 525 F.3d 370, 377 (4th Cir. 2008)

·         United States ex rel. Lamers v. City of Green Bay, 168 F.3d 1013, 1018 (7th Cir.1999)

Wednesday, May 20, 2015

Five banks plead guilty to Forex-manipulation charges and pay $2.5 billion

The guiding philosophy of a number of banks in the foreign currency exchange markets seems to have been, "If you ain’t cheating, you ain’t trying," as one Barclays executive wrote in a online chat.

At least five major banks – Citicorp, JPMorgan Chase, Barclays, The Royal Bank of Scotland and UBS – “tried” hard. The US Justice Department announced today that those banks have agreed to plead guilty to felony charges of conspiring to manipulate the foreign currency exchange market and pay a total of $2.5 billion in criminal fines.

Between 2007 and 2013, bank traders known as “The Cartel” used private chat rooms and coded language to manipulate US and euro exchange rates to increase their profits. The traders withheld bids and offers for the dollar and euro to manipulate the supply or demand for the currency, suppressing competition.

Barclays has agreed to an additional $60 million criminal penalty for violating a 2012 non-prosecution agreement that resolved the Department of Justice’s investigation into previous LIBOR and other interest rate manipulation. UBS has also agreed to a $203 million criminal penalty for violating the same non-prosecution agreement set by the DOJ.

All five banks have agreed to a three-year corporate probation where they will be required to report regularly to authorities and cease all other criminal activity.

It was an expensive day for Barclays. The bank also paid $400 million to settle charges brought by the Commodity Futures Trading Commission for attempted manipulation, false reporting and helping other banks manipulate global foreign exchange benchmark rates. 

Monday, May 11, 2015

Treatment Description On Medical Bills Could Help Deter Fraud

In the New York Times article, “The Medical Bill Mystery,” reporter Elisabeth Rosenthal overlooked one important point about the lack of information in medical bills: It enables unscrupulous healthcare providers to get away with fraud.

By listing only medical codes and not providing common-language descriptions of the services for which the patient has been billed, healthcare providers can make false claims – for instance, upcoding and unbundling treatments and services – and no one knows. Patients could be the best guardians against such fraud, because they know what services were provided.  However, in our experience as whistleblower lawyers, patients are rarely whistleblowers. The format of medical bills explains why.  Standardized medical bills with detailed descriptions would not only benefit patients but also would help reduce Medicare fraud and thereby benefit all taxpayers.

Friday, May 08, 2015

Treasury Dept. holds virtual currency exchanger to same standards as banks

In recent years, traditional financial institutions such as HSBC and BNP Paribas have been subject to multi-billion dollar fines for allegedly violating money-laundering standards. Now the US Treasury Department has turned its sights on the virtual currency exchangers holding them to the same standards of transparency and accountability – which is the right approach.

Treasury announced this week a $700,000 penalty against Ripple Labs Inc., a virtual currency exchanger, and subsidiary XRP II for alleged violations of the Bank Secrecy Act. Ripple Labs is the developer of a convertible virtual currency known as XRP, as well as systems for exchanging virtual currency payments. 

The government alleged that Ripple Labs was operating a money services business and selling a virtual currency without following federal law governing financial institutions, such as implementing an anti-money laundering program or registering with the Treasury Department’s Financial Crimes Enforcement Network. 

As virtual currencies continue to grow, it will become increasingly important that virtual currency exchangers and administrators operate with transparency and accountability. Regardless of whether the financial system is traditional or virtual, sunshine remains the best disinfectant for financial abuses and fraud.

Wednesday, May 06, 2015

SEC Chair White strongly endorses whistleblower program

Securities and Exchange Commission Chair Mary Jo White gave an important speech about whistleblowers last week, saying the SEC whistleblower program has “proven to be a game changer.”

The SEC whistleblower program has brought more and higher-quality tips since it was implemented four years ago, according to White. This has led to “significant enforcement actions on a much faster timetable than [the SEC] would be able to achieve without the information and assistance from the whistleblower,” says White. In fiscal year 2014 the SEC received more than 3,600 tips, a 20 percent increase from the previous year.

White discussed the issue of company confidentiality agreements that discourage employees from reporting concerns about potential wrongdoing to the SEC. Those agreements need to be clear that employees are always allowed to contact the SEC about possible securities law violations, she said.

This past year the SEC took its first enforcement action against a company that attempted to use confidentiality agreements to prevent a whistleblower from communicating with Office of the Whistleblower staff. Responsible companies should embrace – not fear – potential whistleblowers. More than 80 percent of SEC whistleblowers first raised their concerns internally before reporting to the SEC, White says, whistleblowers need to know they won’t face job retaliation. The SEC has paid out more than $50 million to whistleblowers since 2011, with the biggest SEC reward – more than $30 million – going to a Phillips & Cohen client last September.

Wednesday, April 22, 2015

Texas hospital's $21M settlement shows government's commitment to anti-kickback enforcement

Citizens Medical Center's $21.75 million settlement with the government this week provides further evidence that the government’s stepped-up enforcement of the Stark Law and Anti-Kickback Statute is producing results with the help of whistleblowers.

Three physicians alleged in a "qui tam" lawsuit that Citizens, a hospital in Victoria, Texas, paid doctors in a variety of specialties to send their patients to Citizens’ facilities for care. For example, they alleged that Citizens induced its emergency room physicians to send patients needing cardiac care to Citizen’s “Chest Pain Center” by paying these ER physicians bonuses based on the revenue of the Chest Pain Center.

Similarly, the whistleblowers alleged that Citizens improperly incentivized its cardiologists to send their patients to Citizen’s facilities, particularly the medical center’s exclusive cardiac surgeon, by providing them with financial benefits such as above fair-market-value compensation and below-market rental space.

The Anti-Kickback Statute and Stark Law make it illegal for a medical provider, such as a hospital, to pay physicians in order to obtain referrals of their business. When a medical provider knowingly submits bills to Medicare and Medicaid for services obtained in violation of these laws, the provider is liable for fraud against the federal government under the federal False Claims Act. The whistleblowers in this case will receive a total of $5.9 million as a reward under the qui tam provisions of the False Claims Act.

Friday, April 03, 2015

Whistleblower and fraud news summary for week of March 30

The Securities and Exchange Commission took enforcement action against KBR Inc. for requiring employees to sign a confidentiality agreement that threatened termination if an employee disclosed company wrongdoing to outside officials. This is the first instance where the SEC has taken a stand against “pre-taliation.” Phillips & Cohen partner Erika Kelton writes in a Forbes.com article that she expects the KBR case to “be the first of many” brought by the SEC against companies for trying to intimidate employees to prevent them from blowing the whistle. (SEC Hits Back at KBR and Other Corporate Bullies Who Threaten Whistleblowers)

Medtronic Inc. has agreed to pay the government $4.41 million to settle a whistleblower lawsuit that alleged that the medical device company falsely certified where certain products it sold to the Veterans Administration and Department of Defense were made. The Trade Agreements Act of 1979 requires companies to sell to the US only products that were made in the US or other designated countries. The Justice Department alleged that Medtronic’s products were manufactured in China and Malaysia, which are prohibited countries under the trade law. (Medtronic to Pay $4.41 Million to Resolve Allegations that it Unlawfully Sold Medical Devices Manufactured Overseas)

Twenty-three people in the New York metro area, including nine doctors, have been charged with running a $7 million Medicare and Medicaid fraud scheme. These individuals picked up Medicaid cardholders at local homeless shelters, promising free sneakers and shoes, and instead brought them to clinics to perform unnecessary medical tests, which were then billed to Medicaid and Medicare programs. Let’s hope, at least, that the shoes fit. (23 People Charged in ‘Sneaker Case’)

Robinson Health System Inc., based in Portage County, Ohio, has agreed to pay $10 million to the government to settle allegations that the health care company violated the Anti-Kickback Statute and the Stark Statute with payments Robinson made to two physicians groups. The Justice Department said the physician groups failed to provide sufficient bona fide management services to justify the payments made under management agreements. (Ohio-Based Health System Pays United States $10 Million to Settle False Claims Act Allegations)

Friday, March 27, 2015

Whistleblower and fraud news summary for week of March 23

The Department of Justice and Health and Human Services announced that over $27.8 billion has been returned to the Medicare Trust Fund since the inception of the Health Care Fraud and Abuse Control Program in 1997. In 2014 $2.3 billion of the settlements were brought under the False Claims Act, many of which were initiated by invaluable whistleblowers. For every dollar spent on health care-related fraud and abuse investigations in the last three years, the administration recovered $7.70. (Department of Justice and Health and Human Services Announce Over $27.8 Billion in Returns from Joint Efforts to Combat Health Care Fraud)

Bank of New York Mellon Corp. has agreed to pay the government $714 million to settle allegations that the bank fraudulently overcharged customers on currency trades for more than a decade. The case began in 2009 after a financial specialist turned whistleblower, responsible for alerting authorities about the Bernie Madoff scheme, filed a complaint. (Mellon Settles Suits on Currency Transactions for $714 Million)

A New York-based pharmacist has been sentenced to 36 months in prison and ordered to pay $7 million in restitution for defrauding Medicare, Medicaid and the state-funded AIDS Drug Assistance Program. Purna Chandra Aramalla received more than $10 million in reimbursements for prescription medication he purchased from patients who sold the drugs rather than using them to treat their illnesses. (Pharmacist Sentenced to Manhattan Federal Court to 36 Months in Prison for Multimillion-Dollar Medicare/Medicaid Fraud Scheme)

Friday, March 06, 2015

Whistleblower and fraud news summary for week of March 2

In a case that seems to be a major violation of public trust, a California patient safety consultant has agreed to pay the government $1 million to settle allegations that he secretly solicited and accepted kickbacks to recommend and promote use of a certain company’s product while serving on the Safe Practices Committee of the National Quality Forum. Dr. Charles Denham allegedly received monthly kickbacks from CareFusion Corporation in exchange for recommending and promoting CareFusion's product, ChloraPrep, an antiseptic, and didn’t disclose the payments. (United States Settles False Claims Act Allegations Against Safety Consultant and His Companies)

The owner and operator of Massachusetts-based At Home VNA, a home healthcare company, has been sentenced to over seven years in prison and $7 million in restitution after being found guilty of fraudulently billing and laundering $20 million from Medicare. Michael Galatis convinced seniors to enroll with his company even if the seniors did not qualify for the Medicare benefit and also charged Medicare for services without a doctor examining any of the patients. (Natick man convicted of Medicare fraud sentenced to 7.5 years)

Baptist Health Medical Center-North Little Rock, located in Arkansas, has agreed to pay the government $2.7 million to settle allegations that the medical center improperly charged Medicare for more expensive inpatient stays that were originally scheduled as outpatient stays. (Ark. medical center agrees to $2.7M settlement for Medicare false claims)