Tuesday, November 23, 2010

Whistleblower program produces record recoveries in health care fraud

The Department of Justice has recovered a record $2.5 billion dollars this year in health fraud, largely resulting from the whistleblower program, which incentivizes employees with inside information on fraud to come forward to the government; in applicable cases, whistleblowers will receive a substantial reward.

This year’s recovery is up 25% from last year, totaling about $4.6 billion recovered in health fraud in the past two years. “That's more money recovered in a two-year period than at any other time in history,” stated Tony West, assistant attorney general for the department's civil division

NPR reports that the health fraud program has been so successful that the government has been looking to expand the incentives into other sectors, such as the developing SEC whistleblower program.

Among the cases that have contributed significantly to the year’s record recovery was a settlement with Pfizer in which the company paid $2.3 billion to resolve allegations of health care fraud. This case resulted from a whistleblower action and yielded $669 million in repayment to the federal government. The remainder was paid to states involved in the action and the whistleblower, who received at least $51.5 million.

Monday, November 22, 2010

Federal investigation confirms what already is clear: Markets aren’t transparent

A Wall Street Journal story about a major federal investigation into inside trading provides additional confirmation of what we have seen based on evidence provided by Wall Street insiders whom we represent in SEC whistleblower cases: The markets are not transparent, and those with access to non-public information often use that information for personal gain.

According to The Wall Street Journal’s story on Nov. 20, the feds have been conducting a three-year investigation into multiple insider trading rings that has uncovered “new ways non-public information is passed to traders through experts tied to specific industries or companies.”

The investigation has touched a number of companies, the Journal said, including: Primary Global Research LLC, Goldman Sachs Group Inc., Broadband Research LLC, First New York Securities LLC, Ziff Brothers, Jana Partners LLC, TPG-Axon Capital Management, Prudential Financial Inc.'s Jennison Associates asset-management unit, UBS AG's UBS Financial Services Inc. unit, and Deutsche Bank AG.

Insider-trading charges are expected against consultants, investment bankers, hedge-fund and mutual-fund traders and analysts across the nation, the Journal says.

This looks like another instance where many of the very people who tell the layperson that the markets are rational and transparent are playing by completely different rules. They succeed – not because they are smarter, more quantitative or just plain lucky, but because they are cheating.

Wednesday, November 17, 2010

The SEC and CFTC to vastly expand whistleblower program

The Securities and Exchange Commission and the Commodity Futures Trading Commission are working to administer a new whistleblower rule that could provide lottery-sized payouts to informants that provide valuable information in a successful case of securities law violation. A fund of $451 million has already been established for such awards.

While business executives and trade groups have expressed concerns that such substantial payouts could pit employees against their companies and circumvent otherwise-effective internal compliance measures, there are a number of specifications in the current rules to prevent such problems from occurring.

Proponents of the expanded whistleblower program say that the reward encourages people with strong information about illegal activity to come forward, “particularly in the financial services industry, where people are well compensated and there is more of a culture of silence,” said Erika A. Kelton, a lawyer at Phillips & Cohen, a D.C. firm that specializes in whistleblower law.

The current formulation of the whistleblower rules mandate a payout of 10-30% of any successful action in which penalties exceed $1 million, excluding whistleblowers who were directly involved in the illegal actions or whose job it was within the company to root out fraud, among other restrictions. These rules have not been finalized, and the SEC is currently accepting public comments.

British traders and investment bankers to have cell phones recorded

Effective next November, investment bankers and traders in Britain will have their cell phone conversations recorded by their employers, in a move by the Financial Services Authority to prevent and prosecute insider trading.

Britain will be the first country in Europe to require the recording of conversations on business cell phones, although other countries have required that all conversations relevant to business be recorded. Companies in Britain will also be required to implement measures to ensure that no business is conducted on private cell phones, which cannot be recorded.

According to The New York Times, a spokesperson for the FSA, Britain’s financial watchdog agency, said that “the rule will affect about 16,000 cell phones issued by financial services firms, which will be required to keep the recorded conversations for six months.”

Wednesday, November 10, 2010

Goldman managing director fired for internal violations

If all companies took such decisive action as Goldman Sachs did when it fired a top official for violating internal policies and procedures, they would have less to fear from whistleblowers.

The Financial Times reported Nov. 10 that Goldman Sacks fired London-based Alexandre Harfouche, head of European block trading, for "failing to make proper disclosures to the bank’s compliance department," citing sources with familiarity to the matter.

Companies that take proactive measures internally to root out improper behavior are less likely to face whistleblower charges, which are often substantially more costly than personnel changes or the loss of illegal income from fraudulent behavior.

Tuesday, November 09, 2010

SEC fund for whistleblowers totals over $450 million

The Securities and Exchange Commission has established a fund of over $450 million to pay whistleblowers whose information leads to the successful penalization or conviction of companies or individuals found guilty of securities fraud.

The fund has been established in accordance with the Dodd-Frank financial overhaul bill enacted in July, which will also establish a new whistleblower office at the SEC.

The fund is required to have a minimum of $300 million; a recent report from the SEC indicates that $451.9 million has been put in the fund.

Freight forwarding and oil service companies settle FCPA allegations for $236 million

Five oil and gas service companies and subsidiaries and a global freight forwarding company have agreed to settlement penalties totaling $236 million.

These payments will resolve alleged violations of the Foreign Corrupt Practices Act. Allegations included the bribing of customs officials in more than 10 countries for such purposes as circumventing rules or illegally expediting or extending drilling contracts.

The companies, which include Panalpina and a subsidiary of Shell, agreed to over $156 million in criminal penalties and approximately $80 million in disgorgement, interest, and other penalties. If these settlements had resulted from a False Claims Act submission, the whistleblower would have earned at least $23.6 million.

Monday, November 08, 2010

International Traffic in Arms Regulation whistleblower suit settles

The first False Claims Act suit alleging violations of the International Traffic in Arms Regulation (ITAR) has settled for $1 million.

The FCA whistleblower suit alleged that Rocky Mountain Instrument caused defense contractor customers to illegally export technical data used to manufacture parts employed in military equipment that the contractors then sold to the Pentagon.

RMI's civil settlement follows a June 2010 guilty plea to criminal charges brought by the Department of Justice under the Arms Control Export Act. Specifically, those charges covered exports of prisms and technical data related to optics used in military applications.

The whistleblower in the suit was represented by Claire Sylvia, an attorney with Phillips & Cohen.

Saturday, November 06, 2010

Record recovery in Iraq/Afghanistan reconstruction fraud

Louis Berger Group Inc., a New Jersey engineering consulting firm, will pay $69.3 million to resolve criminal and civil probes related to overbilling for reconstruction contracts in Iraq and Afghanistan and other work.

It is the largest recovery in a case involving war-zone contractors in Afghanistan and Iraq and was the result of a qui tam whistleblower lawsuit brought by Harold Salomon. Salomon, formerly a senior financial analyst/auditor for Louis Berger, exposed the company's practice of billing the government for indirect and overhead costs that were unrelated to its government contracts. Louis Berger has some of the biggest U.S. contracts for rebuilding projects in Afghanistan.

The firm also agreed to a "deferred prosecution," under which the government's case will be dropped if the company complies with the terms of the agreement.

Salomon was represented by Peter Chatfield and Tim McCormack of Phillips & Cohen LLP.

Friday, November 05, 2010

Commodities regulator poised to get tougher

The Commodities Futures Trading Commission (CFTC) has been dismissed as a lackadaisical regulator in the past, but it's getting more aggressive.

Although the CFTC is smaller than the Securities & Exchange Commission (SEC), both in terms of the number of attorneys in its enforcement division (200 to the SEC's 1200+) and in the size of its targets, chairman Gary Gensler is flexing the agency's muscle. He is seeking to increase the C.F.T.C.’s power now that the agency is poised to take on a new role in overseeing the vast market for derivatives that were traded off formal exchanges in the so-called over-the-counter market. He recently hired a former United States prosecutor as his new head of enforcement.

Rules have recently been proposed to implement provisions in the Dodd-Frank financial law, which greatly expands the CFTC's authority and allows it to police the $615 trillion over-the-counter derivatives market.

The proposed rules would eliminate holes in the derivatives laws and give the agency new fraud-based manipulation powers. These last would not change the agency's current powers to police manipulation using a price-based standard, which remain intact. But the new fraud-based manipulation powers would lower the CFTC's burden of proof.

The Dodd-Frank law also added incentives and protections for CFTC whistleblowers. Whistleblowers can receive between 10 and 30 percent of the monies the CFTC collects based on the whistleblower's information, provided the agency's recovery is more than $1 million.