False Claims Act/Qui Tam

Proposed legislation would gut SEC whistleblower program

2012-01-24T11:34:00.000-08:00

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

2012-01-03T14:41:00.000-08:00

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

2011-12-28T14:30:00.000-08:00

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

2011-12-13T12:52:00.000-08:00

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?

2011-11-28T14:38:00.000-08:00

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

2011-11-11T12:08:00.000-08:00

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

2011-11-08T08:12:00.000-08:00

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

2011-10-03T14:16:00.000-07:00

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?

2011-08-18T08:32:00.000-07:00

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.

CFTC approves whistleblower rules

2011-08-15T11:57:00.001-07:00

The Commodities Futures Trading Commission approved new rules for the whistleblower program by a vote of 4-1 on August 4. The vote was postponed from the July 19 meeting.

The CFTC announced that the final whistleblower rules will be substantially the same as the proposed rules. They will take effect no later than 60 days after their publication in the Federal Register, but they have not yet been published there.

New SEC whistleblower program opens today

2011-08-12T12:12:00.000-07:00

The SEC whistleblower program outlined by the Dodd-Frank Wall Street Reform and Consumer Protection Act has officially gone into effect today.

Whistleblowers who provide “new and timely” information on securities law violations can now receive a portion of any sanction over $1 million. The SEC Whistleblower office has also launched a new website to help potential whistleblowers understand the process of submitted a tip and applying for an award.

Since the Dodd-Frank rule went into effect on July 21, 2010, the SEC says that 170 actions have resulted in sanctions of more that $1 million. As the Whistleblower program was not effective at that time, persons who believe that they contributed valuable information to one of those actions are invited to apply for whistleblower awards.

The SEC claims that since the implementation of the Dodd-Frank rule, the quality of information that they have received from tipsters has improved. Before Dodd-Frank, the SEC was only authorized to pay whistleblowers for sanctions caused by insider trading. The new program also boasts improved “protections against retaliation” from employers.

CFTC omits whistleblower rules from public meeting

2011-07-19T15:26:00.000-07:00

Whistleblower rules were expected to be finalized at the Commodity Futures Trading Commission's July 19 hearing, at least according to the schedule published on July 12.

But although five rules were approved at the CFTC hearings, the whistleblower rules were not considered.

There were reports that the agency is waiting for a review from Government Accountability Office on Dodd-Frank determining how whistleblower funds collected can be spent. The rule will be introduced at the August 4 rule-making meeting.

Harvey Pitt no more prescient now than before

2011-07-14T13:12:00.000-07:00

Harvey Pitt -- who was Securities & Exchange Commission chair during a time when the SEC let Wall Street run wild, leading to the financial mess the U.S. is in, and who has spent most of career representing corporate interests – once again fails to get it right.

Testifying before the Senate Banking Committee on “Enhanced Investor Protection After the Financial Crisis”, Pitt criticized Dodd-Frank saying it would fail to protect investors. Not surprisingly, he echoed Wall Street’s criticism of the SEC whistleblower program with the usual dire predictions that it will ruin all internal compliance programs.

Such predictions are baseless. The False Claims Act has proved over decades that the threat of whistleblower actions has encouraged the creation and strengthening of internal compliance programs. And although the SEC whistleblower rules do not require internal reporting of fraud before going to the government, there is no need to choose between internal reporting and a reward. You can report internally and wait to see what happens. If the company does nothing, you can go to the SEC. If the company reports to the SEC, you still get a reward if you report to SEC within 120 days of reporting internally.

Whistleblowers generally only turn to outside options when their concerns have been ignored or they have been retaliated against for reporting problems. The SEC recognized when it finalized the rules for the SEC whistleblower program that whistleblowers need the option of going to the SEC directly.

Why prosecutors go easy on Wall St.

2011-07-13T16:43:00.000-07:00

The reports of wrongdoing by financial firms in the past few years have many people wondering why there haven't been more prosecutions.

According to New York Times reporters Gretchen Morgenson and Louise Story that's a result of new guidelines issued by the Justice Department in 2008. These guidelines allowed prosecutors to take a "softer approach" to corporate crimes and have permitted financial companies to avoid indictments if they agree to investigate and report their own crimes.

The story observes that outsourcing government investigations to the target company is a bad idea. But sometimes the government just doesn't have the resources to investigate important cases. One answer is that Congress needs to increase enforcement budgets so the investigators don't need to ask the criminals to investigate themselves. Another answer is that the investigators can enlist the help of whistleblowers and their attorneys, who have a strong incentive to make sure all of the fraud, not just what the company wants to reveal, is uncovered.

Global patterns of fraud

2011-06-21T11:53:00.000-07:00

A new report from KPMG, Who is the Typical Fraudster?, analyzes trends in corporate fraud around the globe.

Drawing on investigations conducted in 69 countries, the majority of them unpublicized, it provides both insight into broad patterns of fraud and suggestions for improvement tailored to particular countries.

Globally, the typical fraudster is a man between 36 and 45 holding a senior management position. He is more likely to be working in a finance function and least likely to be working in a legal function.

Although this profile is also true in the United States, the report makes some observations that are country-specific.

There has been a significant increase in the United States in the detection of fraud involving collusion with outside parties, partly attributable, KPMG says, to anti-bribery and corruption initiatives.

“More and more of these cases are coming to light because of increased enforcement capabilities. Corporate America is becoming very focused on this issue as companies build out their compliance programs and enhance their awareness of and responses to fraud and misconduct.”

Initiators of fraud are often a few steps ahead of corporate compliance programs and companies must be proactive in searching for red flags.

“Organizations need to recognize that fraud does happen. With a robust compliance program and protocols for prevention, detection, and response, they will be better able to deal with it and move on.”

SEC resists attempts to weaken new whistleblower program

2011-05-26T08:16:00.000-07:00

The final rules for the Securities and Exchange Commission's whistleblower reward program contain provisions that will protect and encourage those who report fraud.

Erika Kelton of Phillips and Cohen told the New York Times that employees almost always report their concerns about misconduct and fraud to managers and supervisors first. "It has only been after they have been retaliated against for doing so that they have come to us.”

Ms. Kelton noted that the SEC resisted intense pressure from corporate interest groups to weaken the rules. "By establishing incentives for people to report fraud concerns internally before going to the SEC -- but not making such reporting mandatory -- the SEC has struck a balance that still will encourage whistleblowers."

Whistleblower attorneys applaud SEC rules on whistleblower reward program

2011-05-25T14:49:00.000-07:00

The Securities and Exchange Commission took a big step today to establish a strong whistleblower program by endorsing final rules for the SEC whistleblower program that would reward – but not require – whistleblowers to report concerns of wrongdoing and fraud to internal compliance programs first.

The Chamber of Commerce and other corporate interests had barraged the SEC with complaints that internal compliance programs would be rendered worthless unless employees were required to report fraud to those internal programs before going to the SEC. Fortunately, the SEC seemed to realize that such a requirement would emasculate the program. Instead, the rules would make whistleblowers eligible for an increased reward if they report their concerns to internal compliance programs first.

The SEC also clarified that whistleblowers who bring information to the SEC are protected by anti-retaliation measures whether they get an award or not.

Whistleblower attorneys with Phillips & Cohen applauded the SEC’s decision about the whistleblower reward program. The SEC press release and fact sheet provide detailed info about the final rules.

Calif. Attorney General will use FCA to fight mortgage fraud

2011-05-24T14:36:00.000-07:00

California Attorney General Kamala Harris has vowed to use the state's False Claims Act to go after mortgage fraud scammers.

The new Mortgage Fraud Strike Force will have three teams. The corporate fraud team will target misconduct involving investments and securities tied to subprime mortgages, as well as false or fraudulent claims made to the state with respect to these securities.

A consumer enforcement team will focus on predatory lending, unfair business practices in originating loans, deceptive marketing, and loan modification and foreclosure consultant scams. The criminal enforcement team will prosecute criminal frauds, including fraudulent investment and money laundering schemes related to mortgage lending or foreclosure relief.

Harris said, “We are prepared to use it [the state's False Claims Act] in a way that will look at all those who have made false statements or misled investors of any nature – be they individuals, institutions or municipalities."

BAE settlement shows government is serious about international fraud

2011-05-19T09:35:00.000-07:00

The U.S. State Department’s settlement with BAE Systems PLC of the United Kingdom highlights the increasing focus on international fraud committed by multinational companies in the tax, securities, export and bribery (Foreign Corrupt Practices Act) areas.

BAE, Europe’s largest military contractor, paid a total civil penalty of $79 million for alleged violations of the Arms Export Control Act (AECA) and the International Traffic in Arms Regulations (ITAR). It is the largest civil penalty the State Department has ever levied.

In a related criminal case, BAE pleaded guilty last year to two criminal charges involving Arms Export Control Act (AECA) and International Traffic in Arms Regulations (ITAR) violations and payments made to win huge contracts in Saudi Arabia and other countries. BAE paid nearly $450 million in criminal penalties.

As Congress has put in place whistleblower reward laws that reach such violations (the False Claims Act, a stronger IRS whistleblower program and the Dodd-Frank SEC whistleblower program), we can expect to see more and larger cases brought by insiders who have lacked any incentive to come forward until now.

Supreme Court rules FOIA request may bar whistleblower action

2011-05-19T09:18:00.000-07:00

Under the False Claims Act, prior public disclosure of the allegations or transactions in a federal “report, hearing, audit or investigation” may preclude filing a qui tam lawsuit. On May 16, 2011, in Schindler Elevator Corp. v. United States ex rel. Kirk, No. 10-181 (May 16, 2011), the United States Supreme Court issued an unprecedented opinion holding that a response to a Freedom of Information Act request, even one filed by a whistleblower looking for corroborative evidence of fraud to present to the United States, is a federal “report” potentially barring jurisdiction over the action.

Although the public disclosure/original source rules were further amended in 2009, the federal “report” language applies to both versions of the statute. Accordingly, under the Supreme Curt’s interpretation, any response to a FOIA request, even one obtained from someone other than the whistleblower could, potentially, bar the action unless the whistleblower can show she qualifies as an “original source.”

Relator Daniel Kirk had worked for Petitioner Schindler Elevator Corporation (Schindler) for twenty-five years and alleged that Schindler had falsely certified its compliance with the Vietnam Era Veterans' Readjustment Assistance Act of 1972 (VEVRAA), which requires contractors to report information concerning its employment of veterans to the U.S. Department of Labor (DOL). He also alleged that Schindler failed to file certain required VETS-100 reports and included false information in VETS-100 reports.

As part of his investigation, Kirk’s wife submitted three FOIA requests to DOL including all VETS-100 reports filed by Schindler for the years 1998-2006. DOL sent copies of ninety-nine VETS-100 reports that Schindler filed, and a FOIA response informing her it could not locate Schindler's VETS-100 reports for 1998, 1999, 2000, 2002, or 2003. Kirk used this information to support its allegations.

In holding that a response to a FOIA request is a governmental “report,” the Supreme Court held that such a response falls within the ordinary meaning of the word “report” because it is “something that gives information,” “a notification,” and an “official or formal statement of facts.” The Supreme Court also held that any records produced with the FOIA response are also part of the “report” and may be used to support a public disclosure defense.

The Supreme Court thus held that the three written FOIA responses in this case, along with the accompanying records produced to Mrs. Kirk, are reports within the meaning of the public disclosure bar. The Court remanded for a determination whether the Kirk’s suit is “based upon . . . allegations or transactions” disclosed in those reports. If so, Relator Kirk will need to demonstrate on remand that he is an original source to proceed with his claims.

For whistleblowers, this case means that one should likely not use FOIA before bringing one’s claims to an experienced qui tam lawyer to discuss and perhaps first bring to the government before looking for corroborating evidence.

Supreme Court rules in qui tam whistleblower case

2011-05-16T10:56:00.000-07:00

Today’s U.S. Supreme Court decision in Schindler Elevator v. United States ex rel Kirk has implications for whistleblowers and False Claims Act cases. The decision undermines fraud-fighting efforts by blocking whistleblowers who use the Freedom of Information Act to corroborate their evidence that their employers have defrauded the United States.

The vote was 5-3, with Justice Thomas writing for the majority and Justice Ginsburg writing the dissent. Justice Kagan was recused.

The Schindler opinion is posted on the Supreme Court website.

Foreign bribery conviction is a first

2011-05-12T10:59:00.000-07:00

The conviction of Lindsey Manufacturing Co., two of its executives and a Mexican sales agent marks the first time a company has been convicted at trial of violating the Foreign Corrupt Practices Act. The defendants were accused of paying bribes to officials at the Mexican state-owned utility Comisión Federal de Electricidad to obtain business from the utility. Lindsey Manufacturing makes emergency restoration systems and other equipment used by utility companies.

The FCPA is expected to an important enforcement tool under the new Dodd-Frank law and similar cases are likely to end up in court. Bribery is a routine practice in many foreign countries, but the U.S. Department of Justice doesn't view it as beningn.

Assistant Attorney General Lanny Breuer said, “Lindsey Manufacturing is the first company to be tried and convicted on FCPA violations, but it will not be the last. Foreign corruption undermines the rule of law, stifling competition and the health of international markets and American businesses. As this prosecution shows, we are fiercely committed to bringing to justice all the players in these bribery schemes – the executives who conceive of the criminal plans, the people they use to pay the bribes, and the companies that knowingly allow these schemes to flourish. Bribery has real consequences.”

Grassley urges SEC to reconsider proposed SEC whistleblower rules

2011-05-12T10:50:00.000-07:00

Sen. Charles Grassley has expressed “serious concerns” about the Securities and Exchange Commission’s proposed regulations for implementing its new whistleblower program, saying the proposed rules “threaten to limit the effectiveness of the program.”

In a May 10 letter to the SEC, Grassley said one of his concerns was an “over-emphasis” on internal compliance programs at the expense of whistleblowers. Corporate interests have been demanding the SEC require whistleblowers to report concerns about securities law violations to internal compliance programs before informing the SEC. The SEC didn’t go that far in its proposed regulations. But it did propose that whistleblowers would receive a larger reward if they report fraud to internal compliance programs before going to the SEC.

Grassley said such a requirement “would effectively render the whistleblower program null and void.” he said that would effectively chill good faith whistleblowers from coming forward for fear they would be terminated.

See Grassley’s website to read his entire letter to the SEC about the proposed whistleblower rules.

Duane Reade kiosks violate Anti-Kickback statutes

2011-05-02T14:17:00.000-07:00

Duane Reade has agreed to pay $370,000 to settle allegations that it defrauded the New York State Medicaid program. The original whistleblower lawsuit charged that company's Kiosk Program violated state and federal Anti-Kickback statutes.

Automated kiosks were installed in physicians' offices to allow and encourage patients to fill their prescriptions at Duane Reade. Patients could enter prescription information into the kiosks and pick up their prescriptions at a local Duane Reade. The company's monthly "rent" payments to participating physicians violated the Anti-Kickback statutes by paying higher "rents" to physicians who generated a high volume of prescriptions.

DOJ joins whistleblower suit alleging illegal recruitment practices by Education Management

2011-05-02T13:56:00.000-07:00

The U.S. Dept. of Justice joined an employee whistleblower suit against Education Management, the second largest operator of for-profit colleges. The suit alleges that the company compensated some employees based on the number of students they enrolled into the company's colleges

DOJ's intervention, the first in a qui tam suit alleging illegal student recruitment practices, follows investigations by Congress and the federal Education Department into sales practices, student-loan defaults and job placement claims at for-profit colleges.

The company's announcement said that several states are expected to join the action alleging violations of their respective state False Claims Acts.

Indian official seeks to create own False Claims Act

2011-04-28T14:52:00.000-07:00

Law minister of the Indian government Veerapa Moily has suggested a series of legal and administrative measures that can be taken immediately to improve governance and reduce corruption in India.

The most important of the 10 steps includes the establishment of whistleblower provisions modeled after the US False Claims Act. As in the US, citizens would be granted the right to bring actions against companies or individuals that are defrauding the government.

If such claims were proven in court, the guilty party would be required to pay up to 5 times the amount of injury sustained by the government or society, in some cases allowing for non-monetary losses to be quantified for the purposes of recovery.

Iraq development contractors to pay $8.7 million to resolve fraud allegations

2011-04-28T14:47:00.000-07:00

Two companies that contracted with the Department of State to provide civilian police training in Iraq have agreed to pay $8.7 million to the US to settle whistleblower allegations that they submitted or caused to be submitted false claims for payment.

DynCorp International LLC will pay $7.7 million, resulting from allegations that it submitted fraudulently inflated claims for the production of container camps in various locations. The Sandi Group, the subcontractor, will pay $1.01 to resolve allegations that it sought and received compensation for danger pay that was not provided to employees.

“The hard work of stabilizing Iraq is challenging enough without contractors and subcontractors inflating the cost of rebuilding by making false claims at taxpayers’ expense,” said Tony West, Assistant Attorney General for the Civil Division.

The qui tam lawsuit was filed by two former employees of the Sandi Group that became aware of the illegal activities. They will receive up to $481,710 from the government’s recovery.

SEC misses deadline for whistleblower rules

2011-04-28T11:49:00.000-07:00

The Securities and Exchange Commission has missed the April 21 deadline for finalizing its new whistleblower rules. The expected date is now between May and July, according to the SEC's calendar.

Earlier stories had reported delays in implementing an SEC whistleblower office because of budgetary concerns.

An SEC spokesman John Nester declined to comment on why the SEC has delayed the final rules but told the Wall Street Journal that the agency is working hard to meet all the Dodd-Frank law’s deadlines “with an emphasis on getting the rules right.”

Feds effort to target individuals responsible for fraud reaches Forest Labs CEO

2011-04-26T08:36:00.000-07:00

The Obama administration is pursuing individual executives who are responsible for wrongdoing, rather than simply imposing fines on their companies. This month the CEO of Forest Laboratories was notified by the Dept. of Health and Human Services that it intends to exclude him from doing business with the federal government.

Such an exclusion would prevent the company from selling its drugs to Medicare, Medicaid and the Veterans Administration. Rather than lose these lucrative customers, Forest Labs would most likely oust the CEO, Howard Solomon.

The head of HHS said in congressional testimony that the new use of exclusion is meant to alter the cost-benefit calculus of corporate executives. "As long as the profit from fraud outweighs those costs, abusive corporate behavior is likely to continue."

Solomon's exclusion has its origins in a federal investigation of Forest's marketing practices. The company entered a plea agreement with the government last September, paying $313 million in criminal and civil penalties for a variety of violations, including illegal marketing of its drugs Celexa and Lexapro.

Philly has an app for that

2011-04-20T09:47:00.000-07:00

Reporting fraud in Philadelphia has gone high tech. City Controller Alan Butkovitz has introduced an iPhone app that allows citizens to submit reports directly to the controller's fraud unit.

The Philly WatchDog app enables users to send messages anonymously, to record and upload video of fraudulent activities, and to pinpoint the location of an incident though the GPS feature.

"Like any investigative unit of government, we oftentimes rely on the public to help us identify waste and fraud in city government," said Butkovitz. "It is critically important for government to be on the same technological page as our citizens."

No word yet on when the Android version will be released.

Johnson and Johnson to pay $70 million for subsidiaries’ FCPA violations

2011-04-19T13:42:00.000-07:00

Johnson and Johnson has agreed to pay $70 million, following allegations that subsidiaries of the company used improper bribes in foreign countries, including payments to Saddam Hussein, in violation of the Foreign Corrupt Policies Act.

The deferred prosecution agreement with the Department of Justice also requires that the company take additional measures to prevent future transgressions. If the standards are met for 3 years, further criminal penalties may be avoided.

The company’s bribery scheme had involved illegal payments to government officials in Greece, Poland, and Romania, among other recipients. According to the SEC, the scheme netted more than $32 million in business.

Verizon agrees to pay $93.5 million to settle whistleblower allegations

2011-04-11T13:45:00.000-07:00

Verizon has agreed to pay $93.5 million to resolve allegations that it systematically overcharged the government for voice and data services beyond their fixed contracts. The whistleblower case had been under seal until the recent announcement of the government intervention and settlement.

"Verizon was not only charging the government for the costs associated with communication services, but it also was pumping up its revenues by charging the government for Verizon's own property taxes and other costs of doing business," said Colette Matzzie, a Washington, DC, attorney with Phillips & Cohen LLP, which represents the whistleblower. "Under federal law, Verizon was responsible for paying those costs, not the government.

“Corporations that contract to provide services to federal, state and local governments must play by the rules,” said Tony West, Assistant Attorney General for the Civil Division of the Department of Justice. “We will protect taxpayers against those who seek to charge more than they deserve.”

Under the False Claims Act, relators in successful whistleblower actions are entitled to 15 to 25% of funds recovered, if the government joins the case.

Appeals court upholds whistleblower secrecy law

2011-04-05T06:07:00.000-07:00

A divided court of appeals for the 4th circuit has upheld the unconditional sealing of False Claims Act cases. Dissenting parties felt that the automatic application of a seal violated the First Amendment and the public’s right to access court proceedings.

Under the current laws, all FCA cases are placed under seal for 60 days to allow the government to decide whether or not to intervene. Many cases remain under seal for several months, although judicial review is required at the end of the 60-day period.

The majority opinion in the 2-1 vote upholding the current law agreed “that ‘sunlight’ and ‘openness’ are important values,” but held that justice is better served by “protecting the integrity of ongoing fraud investigations”. Judge James Dever III, of the majority opinion, pointed out that all FCA cases are eventually unsealed. “Thus, in every FCA case, the people will be able to see how the Executive and the Judiciary have fulfilled their constitutional and statutory roles.”

Report identifies problem in wasteful price growth at Pentagon

2011-04-04T13:58:00.000-07:00

A report from the Government Accountability Office has identified $135 billion dollars in price growth from original spending estimates at the Pentagon in the past two years. The report indicates that much of the overspending is caused by mismanagement and projects that went to production before testing was complete.

The GAO says that the projected cost of the Pentagon’s largest projects has grown by 9 percent, or $135 billion in the past two years. While 65 billion of those dollars has resulted from the government’s decision to purchase more goods than initially estimated, the other $70 billion appeared “to be indicative of production problems and inefficiencies or flawed initial cost estimates.”

This report comes following efforts by the Obama administration and Congress to curb wasteful spending in the defense sector. While the GAO said that spending efficiency appears to be improving in new programs, many programs have not been “fully adhering” to regulations intended to prevent waste.

Anti-bribery laws: US v. UK

2011-04-04T12:43:00.000-07:00

Although both the United States and the United Kingdom are cracking down on corporate fraud and corruption, the U.K.’s Bribery Act of 2010 may be a game-changer.

The Bribery Act, which is broader in some respects than the U.S. Foreign Corrupt Practices Act, applies to any type of bribery, not just payments to foreign officials. A company is liable for the actions of employees or agents who act on its behalf, and is strictly liable for any failure to prevent the bribery.

The Bribery Act applies to any organization that “carries on a business” in Britain, meaning that it could have wide application, although the guidance on this point is not clear.

The Act gives the U.K. an opportunity to elevate anti-corruption and anti-fraud enforcement to new levels, creating expectations for business that could raise the bar globally.

CFTC Commissioner Chilton says rules must encourage whistleblowers

2011-04-04T10:01:00.000-07:00

Bart Chilton, Commodities Futures Trading Commissioner, says that the success of the whistleblower provisions of the False Claims Act should inform CFTC whistleblower proposals.

Chilton admits that whistleblower provisions were new to his agency and that their proposed rules "missed the mark Congress intended us to hit." After receiving responses from qui tam attorneys and others, he has some thoughts on what the new rules should include.

Chilton's list of what the final rule should contain definitely hits the mark. He says there must be a guaranteed, non-discretionary award if the proffered information results in a government recovery. He says that the CFTC mustn't impede whistleblowing by requiring compliance with all company internal procedures before filing a whistleblower claim. And Chilton recognizes that disqualifying any whistleblower who has compliance, supervisory or audit responsibilities is "such a vast restriction as to render the entire new authority ineffectual."

A CFTC commissioner who gets the value of whistleblowers and wants to implement a "robust and active whistleblower program" is encouraging news.

Debating a whistleblower reward program for Canada

2011-04-02T13:07:00.000-07:00

The unfounded fear that whistleblower programs hurt internal compliance and disclosure programs now is being raised in Canada following an announcement by the Ontario Securities Commission that it is considering implementing a whistleblower program.

Edward Waitzer, a partner at Stikeman Elliot LLP, raised this concern in a commentary, Should We Pay for Whistleblowing?, published in the Financial Post.

Dimitri Lascaris, a partner at Siskinds LLP, correctly observes in his response that it would be very instructive to consider the history of whistleblower awards in the U.S. in evaluating whether to adopt such a regime in Canada. During the 25 years that the modern False Claims Act -- which has no internal reporting requirement -- has been in existence, there has been no evidence that financial rewards for whistleblowers have had a negative effect on internal compliance programs. On the contrary, before the 1986 FCA amendments, few government contractors had internal compliance programs, much less effective ones. Since Congress enacted the FCA in 1986, compliance programs among government contractors have exploded, and many of them are excellent. Where companies have implemented good programs, employees have used them rather than going to court. Employees only circumvent the bad programs, ones where it is known that internal reporting is tantamount to career suicide.

Canada should rely on experience rather than rhetoric in deciding whether to adopt a similar set of incentives for its securities markets.

Do state false claims acts meet HHS OIG standards?

2011-03-31T13:41:00.000-07:00

Under the 2005 Deficit Reduction Act states were given a financial incentive to enact false claims acts that targeted Medicaid fraud. If a state false claims act meets certain requirements, the state is entitled to a greater percentage of any recovery of fraudulently obtained Medicaid funds. The state law must be at least as effective as the federal FCA.

Changes to the federal law made in 2009 and 2010 amended the bases for FCA liability and expanded the rights of qui tam relators and the state laws must reflect those changes.

The Health and Human Services Office of the Inspector General will be reviewing all of the state laws previously deemed compliant. This can have huge financial consequences as states with compliant laws get an additional 10 percent of the recovery. Luckily, there's a grace period and the states have until March 31, 2013 to amend and resubmit their laws.

Two companies pay for overcharging government for phone systems

2011-03-08T14:31:00.000-08:00

Two companies have paid over $16.5 million to resolve whistleblower allegations that they systematically overcharged the US government for desktop telephone services.

Avaya Inc. paid over $13 million to resolve the fraud allegations brought by two former managers of the company that became aware of the illegal scheme. The lawsuit alleges that beginning in the mid 1990s and until as recently as 2006, the company was charging state and federal offices for services that were dysfunctional or non-existent.

The second company, CIT Group, Inc., paid over $3 million to resolve allegation that, after purchasing a portion of Avaya’s customer base, CIT continued the fraudulent billing scheme.

The qui tam case was brought under the False Claims Act by two whistleblowers in 2004. The whistleblowers will receive approximately $3.3 million.

Pharma company receives additional fines for myriad violations of law

2011-03-08T14:02:00.000-08:00

Forest Pharmaceuticals has been ordered to pay a criminal fine of $150 million and forfeit assets of $14 million, resulting from their guilty plea last year.

In November of 2010, the drug company admitted to obstructing justice, distributing an unapproved new drug in interstate commerce, and distributing a misbranded drug in interstate commerce.

Additionally, Forest pleaded guilty to charges relating to obstruction of an FDA regulatory inspection, to the distribution of Levothroid – during a time which the drug was unapproved – and to the illegal promotion of the anti-depressant drug Celexa for use in treating children.

The most recent fines complete a global resolution totaling more than $313 million in penalties resulting from Forest and its parent company’s illegal marketing of the drugs Levothroid, Celexa and Lexapro.

Tony West, Assistant Attorney General for the Justice Department’s Civil Division, spoke on the necessity of penalizing companies such as Forest. “As the court’s stiff sentence demonstrates, not only is such conduct unacceptable, taxpayers should not foot the bill for practices that violate the law.”

Top threats of government fraud and waste identified

2011-02-25T12:57:00.000-08:00

The Government Accountability Office has released its list of government agencies at the highest risk for fraud and other costly abuses. While some agencies have been removed from the list due to improvements, many more areas for potential taxpayer abuse have been identified.

A New York Times editorial on the recent update to the GAO’s High Risk Program says that “the latest high-risk list presents 30 areas ripe for Congress and President Obama to take action.” These include the Interior Department’s management of oil and gas leases and royalties and several aspects of Medicare and Medicaid.

The GAO says that improvements in the key areas of vulnerability identified in the report “could lead to billions of dollars in savings for the federal government, dramatically improve service to the public, and strengthen confidence in the performance and accountability of the U.S. government at home and abroad.”

First Senate Judiciary Committee hearing of 112th Congress to focus on fraud enforcement

2011-01-24T14:16:00.000-08:00

The chairman of the Senate Judiciary Committee, Patrick Leahy (D-Vt.), has announced his intention to focus on fraud enforcement in a hearing that will be held on January 26.

The hearing, entitled “Protecting American Taxpayers: Significant Accomplishments and Ongoing Challenges in the Fight Against Fraud,” will include testimony from two senior Department of Justice officials. The hearing will address recent successes in the struggle to prevent and prosecute fraud, as well as opportunities to improve the process.

Senator Leahy, who co-authored the Fraud Enforcement and Recovery Act with Senator Chuck Grassley (R-Iowa), has announced his intentions to make anti-fraud legislation a priority in the 112th Congress.

Whistleblower case alleges NYC overbilled Medicare by tens of millions of dollars

2011-01-19T14:31:00.000-08:00

In an unfolding whistleblower case, the federal government has accused New York City of overbilling Medicaid by “at least tens of millions of dollars.” The complaint alleges excessive and improper placement of Medicaid patients in a 24-hour home care program, often against the recommendation of medical professionals.

Home care services provide Medicaid patients with in-home support, ranging from cleaning and organization to administering medical care. The government alleges that New York City has been placing patients in home care that do not require such services, as well as placing patients in home care that require more intensive, institutional care – payment for which the City would have had to contribute.

Before 2006, the cost of home care was split among the federal government, state government and New York City. Since 2006, New York City is no longer billed for that service; the government alleges this change in billing as a potential motive for overuse of the service, although their information goes back a decade and the lawsuit does not specify a significant change after 2006.

The case was brought to the government by whistleblower Dr. Gabriel Feldman, who stands to earn 10-30% of any money recovered by the government.

Government contractor to pay $6.25 million to settle False Claims Act violation

2011-01-19T14:28:00.000-08:00

Fastenal Company, a national hardware distributor, has agreed to pay $6.25 million to settle allegations that it violated terms related to a contract with the US General Services Administration (GSA).

Fastenal was awarded a Multiple Award Schedule (MSA) contract, allowing it to participate in a streamlined marketplace of government purchasers. To be awarded an MSA contract, contractors must disclose to the government commercial pricing procedures and policies and comply with the terms of the contract in all related transactions.

The $6.25 million dollar payment resolves allegations that Fastenal knowingly overcharged government purchasers, as well as the allegation that Fastenal violated the Trade Agreements Act by selling to the US government products manufactured in countries that do not have trade agreements with the US.

The contract violations were discovered during a GSA post-award audit. "This case is another demonstration of the value of OIG audits in helping to uncover fraud on government programs," said Brian D. Miller, GSA Inspector General.

Medicare billing confidentiality allows huge fraud to persist

2010-12-23T13:39:00.000-08:00

A recent article in The Wall Street Journal suggests that the confidentiality of doctors’ Medicare billing practices has allowed for instances of enormous fraud and abuse to go unchecked. The article highlights a number of top billers of Medicare, many of whose opulent lifestyles have been substantially funded by fraudulently misallocated taxpayer dollars.

Among those profiled is Christopher G. Wayne, known as “Rock Doc” and seen posing with celebrities Paris Hilton and Steven Tyler on his Myspace page. Dr. Wayne received more than $2.6 million from Medicare between 2007 and 2009, largely from an unusual combination of physical therapies that he provided and billed for.

The Journal article provides a number of other examples of grossly above-average Medicare billers, some of whom have received figures in the tens of millions of dollars from the Medicare program. Tellingly, all of the names generated in the article resulted from just a small sample of Medicare billing information (only 5% from 2008) that was made available to the Journal and the Center for Public Integrity.

There are many who share the opinion that the extreme confidentiality doctors currently enjoy with regards to their Medicare billing creates an environment excessively conducive to fraud. Additionally, almost all claims are paid out within 30 days, making overpayments difficult to recover. However, the Centers for Medicare and Medicaid Services (CMS) is in position to make substantially more effective use its database to identify fraud. According to Peter Budetti, the head of CMS's new antifraud arm, “fraud prevention is our new emphasis.”

Dey is fourth drug maker to settle inflated price fraud this month

2010-12-21T10:08:00.000-08:00

Dey, a pharmaceutical manufacturer, has become the fourth drug maker this month to settle allegations involving reporting false and inflated drug prices.

Payment from the Medicare and Medicaid programs was based on the false inflated prices and, as a result, the government paid millions of claims for far greater amounts than it would have if Dey had reported truthful prices.

Dey will pay $280 million to settle the False Claims Act suit. On Dec.7, 2010, the Department announced settlements totaling $421.1 million involving similar allegations against three other manufacturers: Abbott Laboratories Inc., B. Braun Medical Inc. and Roxane Laboratories Inc.

The difference between the inflated amount the government paid and the actual price paid by health care providers for a drug is referred to as the “spread.” The larger the spread on a drug, the larger the profit for the health care provider or pharmacist who is reimbursed by the government.

Three drug companies pay $421 million to settle FCA suits

2010-12-20T14:34:00.000-08:00

December has been a significant month in terms of False Claims Act recoveries from pharmaceutical companies.

Three drug makers - Abbott Laboratories Inc., Roxane Laboratories Inc. and B. Braun Medical Inc. - agreed to pay $421 million to settle claims that they defrauded federal health care programs by inflating the price of their drugs.

Drug companies are required to report the Average Wholesale Price of their products to the government and that figure is used to set reimbursement by Medicare, Medicaid and other programs.

In the case of these companies the actual price was often a fraction of the reported price, the government alleged, allowing doctors and pharmacists to pocket the difference. The practice amounted to "a kickback scheme funded by taxpayer dollars," said Assistant Attorney General Tony West. The Justice Department said abuse of the Average Wholesale Price was rife within the industry.

But it's not the only drug industry practice that is costing taxpayers millions of dollars.

On the same day that the settlements with those three manufacturers was announced, the Justice Department also announced an unrelated $41 million settlement with Abbott subsidiary Kos Pharmaceuticals Inc. on charges that it paid kickbacks to doctors and other health professionals to encourage them to prescribe or recommend the cholesterol drugs Advicor and Niaspan.

And only a week later came news of another settlement: Irish pharmaceutical manufacturer Elan Corporation and its U.S. subsidiary Elan Pharmaceuticals Inc. agreed to pay more than $203 million to resolve criminal and civil charges that they illegally promoted the epilepsy drug Zonegran.

The drug had received FDA approval for the treatment of partial epileptic seizures in adults over the age of 16. Elan promoted the sale of Zonegran for a wide variety of improper off-label uses including mood stabilization for mania and bipolar disorder, migraine headaches, chronic daily headaches, eating disorders, obesity/weight loss and seizures in children under the age of 16.

"Off-label promotion of pharmaceutical products undermines the FDA’s important role in protecting the American public by determining whether a drug is safe and effective for a particular use before it is marketed," said Tony West, Assistant Attorney General for the Civil Division. "Such illegal conduct by pharmaceutical companies also costs the government billions of dollars, and these civil settlements and the criminal plea agreement by Elan demonstrate that such conduct will not be tolerated."

Report documents extent of drug companies' frauds

2010-12-16T16:04:00.001-08:00

Does it seem as though every day there's another report of a drug company paying millions to settle allegations of off-label promotion, poor manufacturing practices or overcharging the government? It may not be your imagination.

A report issued by Public Citizen's Health Resource Group documents the scope of payments by pharmaceutical companies to resolve such allegations. Among the report's main findings:

- During the past 20 years $19.8 billion in penalties has been collected, 75 percent of that in the past 5 years.

- Four large pharmaceutical companies (GlaxoSmithKline, Pfizer, Eli Lilly, and Schering-Plough) accounted for more than half (53 percent or $10.5 billion) of all financial penalties imposed over the past two decades.

- The pharmaceutical industry now tops not only the defense industry, but all other industries in the total amount of fraud payments for actions against the federal government under the False Claims Act.

- Illegal off-label promotion of pharmaceuticals accounts for the largest amount of financial penalties levied by the federal government over the past 20 years. It can also be prosecuted as a criminal offense because of the potential for serious harm to patients.

- Whistleblowers are responsible for bringing to light the most egregious violations and for initiating the largest number of federal settlements over the past 10 years. From 1991 through 2000, qui tam (whistleblower) cases made up only 9 percent of payouts to the government, but from 2001 through 2010, they comprised 67 percent of total payouts.

Among the reasons for the huge figures are the increase in U.S. healthcare spending (over $2 trillion a year) and, much more troubling, the fact that drug companies and their sales staffs can make more money by bending or breaking the rules on off-label marketing. The report notes that although financial penalties are increasing, they "remain a very small fraction of company net profits and therefore do not provide a sufficient deterrent against further violations. Increased punishments may be needed, such as significantly larger financial penalties and, if appropriate, felony prosecution—including jail—for company executives engaging in criminal behavior."

Will Wall St. undermine SEC whistle-blower program?

2010-12-16T09:51:00.000-08:00

Business lobbyists are working overtime to kill the new Securities and Exchange Commission whistle-blower program in a tried-and-true Washington way: Convince the agency to issue regulations that render the program ineffective. This warning comes in an article by attorneys Erika Kelton and Eric Havian, published in the Washington Post.

Comments on the proposed rules are due by December 17th but even before they were released, defense firms were issuing dire warnings and meeting with SEC officials to try to eviscerate the whistle-blower provisions of the Dodd-Frank financial reform law.

In a separate article posted on Truth-Out, Mr. Havian details the history of the False Claims Act whistle-blower program, which has achieved enormous success by promoting a partnership between qui tam whistle-blowers, their attorneys and government lawyers. He contrasts this with the IRS tax whistle-blower program, which does not promote (or allow) collaboration. The tax whistle-blower program is awash in a backlog of cases and has yet to pay a single whistle-blower award, despite the filing of thousands of submissions in the past four years. These two models provide a stark choice for the SEC as it sets up its program.

Don't Let Wall Street Get Away With It: Protect and Reward SEC Whistleblowers notes that corporate lobbyists and bureaucrats have predicted woeful consequences for whistle-blower programs in the past. The proven success of whistle-blower cases under the FCA is more persuasive than their doomsday rhetoric.

Will GOP slow CFTC's efforts to transform derivatives market?

2010-12-14T10:21:00.000-08:00

The Commodities Futures Trading Commission is facing a lot of hurdles, including a lack of resources. But it has been moving quickly to draft rules mandated by the Dodd-Frank law.

That law gave the CFTC the bulk of authority for dealing with over-the-counter derivatives and expanded the agency's jurisdiction from the $40 trillion futures market to include the nearly $300 trillion swaps market.

The CFTC is required to complete the rules mandated by the financial overhaul within one year of the law's passage. But Congressional Republicans are considering delaying the July 2011 deadline. They say the Commission is moving too quickly.

A former CFTC division director, Michael Greenberger, says that the complaints are an effort by Wall Street to delay implementation of rules that could have prevented the financial meltdown. He noted the irony of the complaints: "People are always making fun of bureaucracy as being slow-moving," he said. "This one isn't."

WikiLeaks cable shows surprising new lows in big pharma behavior

2010-12-13T14:19:00.000-08:00

If you thought the depths of pharma corruption bottomed out at marketing fraud, pricing fraud or scientific fraud, you'll be interested in this stunning revelation: Pfizer hired investigators to dig up dirt on Nigeria's then-attorney general in an effort to pressure him to drop a $6 billion lawsuit against the company for experimenting on Nigerian children, according to secret U.S. diplomatic cables that WikiLeaks recently made public.

The lawsuit that Pfizer sought to have dropped stems from an experiment conducted on 200 children in a Nigerian epidemic hospital without the consent of the parents or guardians. Eleven children died during the experimental trail of an antibiotic drug called Triovan. It was later revealed that a key ethics approval document had been fabricated and backdated, allowing the illicit and allegedly lethal experiment to occur.

The lawsuit was settled in July 2009 for $75 million. Pfizer has insisted in a written statement last week that the confidential settlement with the Nigerian federal government was reached “in good faith” and that the government’s “conduct in reaching that agreement was proper.”

SEC whistleblower office put on hold

2010-12-04T19:07:00.000-08:00

A delay in funding for the Securities & Exchange Commission whistleblower program means that investors will continue to lose millions through undetected ponzi schemes and other securities fraud.

Citing "budget uncertainty" the agency said that the functions the whistleblower office would have assumed will be temporarily assigned to existing staff within the Division of Enforcement.

The new Dodd-Frank financial overhaul law requires the SEC to write more than 100 new rules and gives the agency new authority to police hedge funds and derivatives dealers. The SEC is also expecting a flood of tips about alleged corporate fraud from whistleblowers, both because of the expansion of fraudulent activities now covered and the increase in possible awards. The new whistleblower office will be responsible for deciding which claims have merit.

Dodd-Frank mandates an increase in the SEC's budget but that money must be appropriated by Congress. Most Republicans opposed the law and may not be inclined to allocate the funds.

Whistleblower program produces record recoveries in health care fraud

2010-11-23T14:57:00.000-08:00

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.

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

2010-11-22T09:01:00.000-08:00

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.

The SEC and CFTC to vastly expand whistleblower program

2010-11-17T07:24:00.000-08:00

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

2010-11-17T07:20:00.000-08:00

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.”

Goldman managing director fired for internal violations

2010-11-10T11:42:00.000-08:00

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.

SEC fund for whistleblowers totals over $450 million

2010-11-09T08:10:00.000-08:00

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

2010-11-09T07:48:00.000-08:00

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.

International Traffic in Arms Regulation whistleblower suit settles

2010-11-08T10:41:00.000-08:00

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.

Record recovery in Iraq/Afghanistan reconstruction fraud

2010-11-06T12:50:00.000-07:00

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.

Commodities regulator poised to get tougher

2010-11-05T12:10:00.000-07:00

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.

Medicare claims database remains potential treasure trove for fraud investigators

2010-10-27T11:24:00.000-07:00

Although the Medicare claims database is currently regarded as a “gold mine” for medical fraud investigators, most of the data remains unavailable to the public. The database contains electronic records of bills paid by Medicare for medical procedures, and is one of the most telling sources of information regarding health care spending in America.

The Wall Street Journal, in conjunction with the nonprofit Center for Public Inquiry, was able to obtain information on 5% of all Medicare beneficiaries over an eight-year period, at a cost to the government “substantially reduced” from the requested $100,000. Additionally, WSJ was required not to publish the names of any particular doctors or Medicare providers. That information has remained confidential from the public since the American Medical Association sued the government to keep secret payments made by Medicare to individual doctors over three decades ago.

Although the information obtained by WSJ represents only a small sample of Medicare beneficiaries, they were still able to identify doctors whose administration of tests and procedures stands out as a statistical aberration, indicating high earning for those doctors and a high likelihood of fraud. Efforts to make the Medicare claims database available for public scrutiny have so far been unsuccessful.

Health care providers must report and return overpayments, NY Medicaid IG says

2010-10-25T10:42:00.000-07:00

Reporting and returning overpayments from government health care programs will be the most important Medicaid program integrity issue in 2011, according to New York State Medicaid Inspector General Jim Sheehan

Sheehan told attendees at the Health Care Compliance Association's Physician Practice Compliance Conference that the Patient Protection and Affordable Care Act (PPACA) gives providers a maximum of 60 days after an overpayment is identified to report it, return it, and explain in writing the reason for the overpayment. If the overpayment is retained past that 60 day window, it is a false claim under PPACA. This brings it within the purview of the False Claims Act, and that act's penalties and whistleblower provisions come into play.

Sheehan said that government auditors will also be looking more carefully at orders signed by doctors for durable medical equipment, home health care, and other supplies and services. They will be looking "behind the order" to determine if the service or supply was medically necessary.

Sheehan was quoted in BNA's Health Law Reporter (subscription required).

Kentucky hires independent watchdog to prevent and recoup Medicaid abuse

2010-10-19T21:20:00.000-07:00

The state of Kentucky has entered into a 3-year contract with Ingenix, a company that will use algorithms and other mathematical formulas to detect fraud and abuse in medical claims from Kentucky Medicaid providers.

A press release from Kentucky Governor Steve Beshear’s office reports that in addition to “the latest computer technology available,” Ingenix will be “conducting onsite audits, desk audits and pre-payment review,” and will additionally be charged with identifying areas for improvement in systems and process and suggesting measures to be taken.

Ingenix will be paid at the rate of 12.5% of the payments recouped using their fraud and abuse detection processes. “In a program the size of Kentucky’s Medicaid program, which continues to grow both in costs and people served, having the most vigilant waste, fraud and abuse detection system in place is critical,” Governor Beshear stated.

Compensation and compliance – a novel combination

2010-10-19T14:30:00.000-07:00

Companies are finally starting to use compensation as a reward for compliance – rather than as a reward for improving the bottom line at any cost. BP just announced that it will base fourth quarter bonuses this year on employee performance in terms of safety and risk management, according to the Financial Times.

And GlaxoSmithKline shocked its sales force with news this past summer that it will decide bonuses on “customer feedback, and by a sales professional's adherence to the company values of transparency, integrity, respect and patient-focus” – not success in reaching sales targets, the company said in a statement. While cynics point out that this change in the bonus plan fits with GSK’s efforts to reduce its sales force, if other pharma companies were to take a similar step, perhaps this would reduce the number of outrageous off-label marketing cases in the future.

More medical schools providing fraud and abuse instruction, OIG reports

2010-10-19T10:14:00.000-07:00

A new report from the Dept. of Health & Human Service's Inspector General says that forty-four percent of medical schools are providing instruction to students on Medicare and Medicaid fraud and abuse laws.

Current law doesn't require medical schools or hospitals offering physician residency or fellowship programs to provide instruction on compliance with Medicare and Medicaid laws aimed at preventing fraud and abuse, even though such fraud and abuse costs U.S. taxpayers billions of dollars each year and puts the programs’ beneficiaries’ health and welfare at risk.

OIG surveyed all accredited allopathic and osteopathic medical schools and institutions offering residency and fellowship programs to determine whther they provided instruction on compliance with three Federal anti-fraud statutes: the civil False Claims Act, the anti-kickback statute, and the physician self-referral statute.

Government pursues more foreign bribery cases

2010-10-17T18:26:00.000-07:00

The government's prosecution of cases under the Foreign Corrupt Practices Act has resulted in record-shattering fines and criminal convictions of executives. And it seems as though its use will be increasing.

Thus far in 2010 the Dept. of Justice has carried out a dozen prosecutions, after 19 prosecutions in 2009. In addition, the Securities & Exchange Commission has brought civil cases under the law.

Though the FCPA was passed shortly after Watergate, it wasn't used much. With the growing awareness of the damage corruption can do to economies, federal officials have extended its geographic scope and used it to penetrate entire industries, such as investigating whether drug makers are paying overseas bribes to boost sales.

The FCPA prohibits U.S. companies from paying, or offering to pay, foreign government officials or employees of state-owned companies to gain a business advantage. It applies to any company that trades on a U.S. exchange, not just U.S.-based companies.

Dodd-Frank whistleblower provisions not popular with corporate directors

2010-10-17T17:59:00.000-07:00

A survey by Corporate Board Member of more than 400 board members reveals that they are not huge fans of the whistleblower provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

One wonders whether the board members who participated in the survey are familiar with the False Claims Act. Since the whistleblower provisions were enhanced in 1986, the FCA has done much to improve enforcement and has increased compliance. The FCA has proven to be an effective deterrent against fraud.

But directors don't seem to believe that many of Dood-Frank's most important provisions will improve governance. Only 1% thought that financial incentives to whistleblowers would be effective. 18% thought executive compensation clawback provisions would help, while 11% chose mandatory say-on-pay and another 11% chose proxy access requirements as potentially effective. 59% thought none of these provisions would improve governance.

67% responded that they thought the SEC whistleblower provisions would be detrimental to corporate governance.

The success of the False Claims Act would seem to contradict the beliefs of the directors.

FDA threatens pharma executives with individual penalties for off-label marketing

2010-10-14T12:43:00.000-07:00

A round of applause for Food and Drug Administration Deputy Chief for Litigation Eric Blumberg. He said yesterday at a conference in Washington that executives of pharma companies that promote off-label marketing of drugs could be prosecuted for misdemeanors under what’s known as the “Park Doctrine,” Bloomberg reported.

“It’s clear we’re not getting the job done with large, monetary settlements,” Blumberg said. “Unless the government shows more resolve to criminally charge individuals at all levels in the company, we cannot expect to make progress in deterring off-label promotion.”

The Park Doctrine, named after a 1975 Supreme Court case, allows the government to prosecute chief executive officers and other executives for violations of the federal Food, Drug and Cosmetic Act. They could be fined up to $100,000 and sentenced to one year in jail, with the possibility of being barred from working in the pharma industry.

CHRISTUS Health will pay nearly $1 million to settle whistleblower suit

2010-10-12T10:53:00.000-07:00

CHRISTUS Health, a Texas-based hospital chain, has agreed to pay almost $1 million to settle allegations that it committed Medicare fraud by falsely billing for unapproved medical costs and failing to disclose overpayments.

Whistleblower Mark Razin was a Healthcare Financial Advisors employee who worked with CHRISTUS on cost reports to maximize Medicare reimbursement. The allegations against CHRISTUS include wrongful billing to Medicare for advertising, marketing and administrative costs. CHRISTUS also allegedly failed to disclose errors made by a fiscal intermediary that reviewed Medicare cost reports which caused the overpayments. Hospitals are required to report overpayments caused by reimbursement errors to Medicare.

Other former clients of Healthcare Financial Advisors have settled FCA suits, including Loma Linda Behavioral Medicine Center, Lovelace Health System, Jackson Memorial Hospital, Eisenhower Medical Center, St. Elizabeth Regional Medical Center, and St. Joseph's Hospital in Houston.

Razin was represented by Phillips & Cohen LLP attorney Mary A. Inman.

Phillips & Cohen picked for 2010 “Plaintiffs’ Hot List;” recognized for whistleblower work

2010-10-10T19:54:00.000-07:00

Phillips & Cohen LLP, the nation’s most successful law firm representing whistleblowers, has been selected for the National Law Journal’s “Hot List” of the Top 12 plaintiffs’ law firms in the U.S. for 2010.

It is the fourth time in seven years that Phillips & Cohen has been named to the National Law Journal’s highly selective “Hot List” for its work on whistleblower cases.

Phillips & Cohen was the only law firm on the list singled out for its work on whistleblower cases, which includes the “qui tam” lawsuit that resulted in Pfizer paying $1.8 billion last year to settle the case and a related criminal fine.

Phillips & Cohen’s whistleblower cases have recovered more than $6.89 billion in civil settlements and related criminal fines and earned its whistleblower clients more than $730 million in rewards under federal and state government whistleblower reward programs.

Securities fraud whistleblower exposed Ponzi scheme

2010-10-10T15:11:00.000-07:00

The story of a stock trader who went undercover to help the FBI expose a Ponzi scheme shows some of the problems that have confronted the government even when it knows that a fraud is occurring.

Ty Schlobohm brought his concerns about investments promoted by Trevor Cook to the attention of the Justice Department, the Securities & Exchange Commission and the Commodities Futures Trading Commission. But the agencies involved sometimes questioned whether they had jurisdiction and collecting evidence for a criminal case took a long time.

As the New York Times article notes, "That the authorities brought Mr. Cook to justice is undoubtedly a positive outcome. But Mr. Schlobohm’s journey as a whistle-blower, and some of the financial losses that still occurred even though authorities were closely monitoring Mr. Cook, also underscore the limitations of the system."

Joseph T. Dixon III, the criminal prosecutor in the case, acknowledged the importance of private individuals assisting the government. “We need citizens in the business community to come forward with information so we can move forward.” He also noted that for some there may be no financial incentive and sometimes may even entail a financial risk.

Revisions to the SEC and CFTC whistleblower programs are intended to increase the rewards given to those who come forward with information about investment fraud. They may have come too late for Ty Schlobohm, but he voices no qualms about his desision.

Mr. Schlobohm is represented by Phillips & Cohen LLP.

Drug companies under investigation for bribing officials overseas

2010-10-05T21:22:00.000-07:00

Several large drug companies - including Merck & Co., AstraZeneca, Bristol-Myers Squibb, and GlaxoSmithKline - have said that they are being investigated for bribing government officials overseas to gain a larger share of business, the Wall Street Journal reports. This would violate a 1977 law that prevents companies whose stock is traded in the U.S. from incentivizing the sale of drugs overseas with financial inducements.

Lanny Breuer, the head of the Justice Department's Criminal Division, told drug company executives last year that he would prioritize investigation into foreign bribery in the industry over the next several years. The Wall Street Journal reports that overseas sales have grown to become a significant portion of drug companies’ income, and that these companies may encounter more risk of bribery, given their high level of contact with officials overseas, where the government is more involved in drug purchasing and regulation.

Currently, no companies have been accused, and it is possible that investigations will not result in charges filed. However, given the breadth of the types of violations that are being investigated, some experts believe that some punitive response will likely follow from illegal activities that companies may currently consider “a cost of doing business.”

Novartis Pharmaceuticals agrees to pay $422.5 million for off-label marketing

2010-09-30T20:43:00.000-07:00

Novartis Pharmaceuticals Corporation has agreed to pay $422.5 million in two separate settlements resulting from their alleged off-label drug marketing. According to the accusation, Novartis profited by “hundreds of millions of dollars” through their off-label promotion of Trileptal. Trileptal is a drug FDA approved for treatment of epilepsy patients, although Novartis has been accused of promoting its use for a number of other ailments and conditions.

The allegations, which Novartis has agreed to plea guilty to, contend that Novartis actively used kick-backs and other financial and gift inducements to encourage doctors to prescribe Trileptal, as well as other Novartis drugs. “Unlawful off-label promotion and providing illegal inducements to health care professionals undermine the integrity of our health care system and we will continue to pursue these types of violations,” stated Tony West Assistant Attorney General for the Civil Division of the Department of Justice.

If Novartis’s guilty plea and sentence are accepted by the court, Novartis will pay a criminal fine and forfeiture of $185 million. Additionally, it will pay $237.5 million to resolve allegations that it caused Medicare and other Federal programs to pay for Novartis drugs under fraudulent circumstance. This will additionally settle four whistleblower cases filed by former Novartis employees, who will share $25,675,035 of the Federal recovery.

Supreme Court accepts "state secrets" cases for review

2010-09-28T19:50:00.000-07:00

The Supreme Court has added two cases to its docket that will examine the possible limitations of the “sate secrets” doctrine. These cases involve Navy and military contractors whose contracts have been terminated. The contractors have refused the requested return of $1.35 billion to the Navy. The government now seeks about $3 billion.

The cases, now consolidated into one, arise from a 1988 fixed-price contract to produce “an aircraft carrier-based version of the ‘stealth’ fighter plane.” While the contractors claim they were denied access to critical secret technology preventing them from successfully manufacturing the plane, the Navy claims that General Dynamics and Boeing simply failed to produce.

In the leading state secrets case, the Supreme Court ruled for the government in a case in which the government was the defendant, citing state secrets. However “the court said things might be different if the government were pressing a claim rather than defending against one.” In the current case of contractors versus the government, there is disagreement as to which party is the plaintiff and which is the defendant.

Corporate execs can run but can’t hide from Medicare fraud penalty under House-passed bill

2010-09-23T14:10:00.000-07:00

The House of Representatives has passed a bill that would ban corporate executives from doing business with Medicare if their companies engaged in Medicare fraud – even if they left the companies before the conviction. This would mean they could run, but there would be nowhere to hide.

Right now, executives can move from company to company, leaving behind a trail of Medicare fraud without any consequences to them personally. The Strengthening Medicare Anti-Fraud Measures Act, proposed by Rep. Pete Stark (D-CA) and Rep. Wally Herger (R-CA), would allow the Office of Inspector General for the U.S. Department of Health and Human Services to track down the former executives wherever they work and ban them from doing business with Medicare. This certainly would put a crimp on those executives’ employment prospects.

The bill (H.R. 6130) also would smash through shell subsidiaries that corporations often set up in criminal Medicare fraud cases to take a meaningless Medicare ban, which allows the parent corporation to continue to receive Medicare funds despite the fraud conviction. In those circumstances, the bill would give OIG the authority to exclude the parent companies from Medicare.

Whistleblowers still SEC's best weapon against fraud

2010-09-14T10:53:00.000-07:00

While the exchanges bicker over the cost of implementing real-time market tracking systems (“Charges Bring SEC Hope for New Weapon,” Wall Street Journal, Aug. 30), on-the-ground whistleblowers remain the Securities and Exchange Commission's best "weapon" in both enforcement and deterrence. Congress recognized this when it created new whistleblower programs for the SEC and the Commodity Futures Trading Commission as part of the Dodd-Frank financial overhaul legislation.

Report suggests Pentagon watchdog is ignoring fraud

2010-09-08T21:57:00.000-07:00

In a 73-page report released today, Senator Charles Grassley (R-Iowa) has accused the Pentagon’s official watchdog of complete failure in their responsibility to audit defense contracts to prevent fraud. Grassley wrote in his report that “the OIG Audit junkyard dog has been de-fanged and rendered harmless."

Grassley’s own staff launched an investigation after receiving anonymous tip-offs that the agency was ineffective and engaging in misconduct. The report indicates that Inspector General Gordon Heddell found the Pentagon’s accounting to be so “broken” that an a genuine audit was impossible.

Heddell has not denied the accusations; he admitted that Grassley’s report was “relevant” and “important,” but claimed that it was “only one piece of a much bigger transformation” that began a year ago after his Senate confirmation.

Cisco and Westcon to pay $48 million in False Claims Act settlement

2010-09-07T17:55:00.000-07:00

Cisco and Westcon Group North America have agreed to pay $48 million to settle allegations that they violated the False Claims Act through misrepresentations made to the General Services Administration (GSA) and other federal agencies.

Tony West, Assistant Attorney General for the Civil Division of the Department of Justice, said that "when contractors provide incomplete and untruthful information to the government, we will take action to restore the integrity of the procurement process and protect taxpayer dollars."

The claims stated that Cisco and Westcom provided fraudulent information to GSA contract officers, resulting in improper pricing of Cisco products. As Brian D. Miller, GSA Inspector General stated, "overcharging the government results in waste of taxpayer dollars."

A toothless watchdog? Federal courts speak up when the SEC refuses

2010-09-07T10:39:00.000-07:00

There’s a remarkable new trend in federal courts: Judges are refusing to rubber stamp deals federal agencies have worked out with financial industry defendants. Is this a sign of things to come?

The New York Times recently wrote about several judges who looked at proposed settlements and questioned whether they were in the public interest. One judge wanted to know why prosecutors weren’t getting tough with banks. Another questioned whether a settlement with Citigroup was fair and reasonable. And a third accused the Securities & Exchange Commission of going easy on Bank of America. Finally – someone is watching the watchdog.

But why is the SEC so timid? Is there pressure to get quick settlements? Are they reluctant to litigate? Or is it the result of years of entrenched complacency?

One thing is certain: Some judges are looking at settlements that they do not believe serve the public interest and demanding more accountability from regulators. Hopefully we can expect more from the SEC now that the courts are demanding more.

Botox makers to plea guilty and pay for “off-label” marketing

2010-09-01T19:38:00.000-07:00

Allergen, Inc., the maker of Botox Therapeutic, has agreed to plead guilty and pay $600 million, following the criminal and civil accusations that it was actively promoting Botox for “off-label” uses between 2001 and 2008.

The criminal information filed indicates that Allergen substantially increased its efforts to market the Botox for off-label purposes, helping doctors to bill Medicaid and other health providers for the injections not covered by Botox’s limited FDA approval. Allergen also “conducted detailed audits of doctors’ billing records to demonstrate how they could make money by injecting Botox, and operated the Botox Reimbursement Hotline, which provided a wide array of free on-demand services to doctors for off-label uses,” among other illegal activities.

“The Food, Drug and Cosmetic Act protects the public from drugs and biologic products that are not proven to be safe and effective. When drug companies make unsubstantiated and misleading statements about their products, they undermine the Act’s protection of public health,” said Tony West, Assistant Attorney General for the Civil Division of the Department of Justice.

As a result of the three qui tam civil lawsuits filed against Allergen under the False Claims Act, the five whistleblowers involved will receive $37.8 million from the federal portion of the settlement.

New York Times comments on amended False Claims Act

2010-08-23T22:54:00.000-07:00

This month's New York False Claims Act amendment has received attention from the New York Times blogger Nicholas Confessore, who notes that that the new law could “sharply expand investigations of wealthy tax cheats by empowering whistle-blowers to file law suits against them.”

Confessore points out that this expansion on the Act, which previously focused on Medicaid fraud or fraud committed by government contractors, will allow the Act to be used in the recovery of monies withheld from the government through fraudulent tax statements. The bill states that this will apply “only when the net income or sales of the defendant total $1 million or more and the damages pleaded in the action exceed $350,000.”

The amended Act continues to allot a portion of any awarded damages to the whistleblower, who is afforded new protections under the Act. As with all types of fraud covered under the Act, damages are calculated at three times the amount of the fraud.

Florida hits benchmark for fraud control, obtains permission for pilot fraud control program

2010-08-20T22:01:00.000-07:00

Florida Attorney General Bill McCollum announced today that his Medicaid Fraud Control unit has recovered over $400 since 2007, following numerous investigations into the activities of various individuals, companies, and hospitals suspected of intentionally defrauding the state’s Medicaid program.

Attorney General McCollum has also recently obtained approval for a pilot program that will allow the state to prevent Medicaid fraud more proactively. Although federal law typically prohibits states from routinely mining data from Medicaid providers, the pilot program gives the state permission to actively review the billing practices of such entities, allowing for fraud to be more easily identified.

“Medicaid fraud is a heartless crime that drains away resources intended for our citizens who need medical assistance,” said Attorney General McCollum. “Every single dollar we recover benefits not only those citizens, but also the Florida taxpayers who have funded the Medicaid program.”

Energy companies to pay $6.9 million in settlement of whistleblower case

2010-08-20T17:07:00.000-07:00

A case filed under the False Claims Act has resulted in the payment of $6.9 million to the United States by energy companies Dominion Oklahoma Texas Exploration & Production Inc. and Marathon Oil Company, for their failure to pay in full royalties on natural gas produced on federal and Indian leases.

Tony West, Assistant Attorney General for the Civil Division of the Department of Justice, clarified his department’s commitment to “protecting public and Indian lands and to ensuring that companies with leases to take natural gas from those lands pay their fair share of royalties."

The qui tam law suit was filed by whistleblower Harold Wright under the False Claims Act. As he is deceased, his heirs will receive his share of the settlement, $1.822 million.

Indiana Attorney General urges potential whistleblowers to come forward

2010-08-19T19:36:00.000-07:00

Indiana Attorney General Greg Zoeller is encouraging those with knowledge of fraud in the health care and pharmaceutical industries to come forward and act as whistleblowers, by reminding workers in those fields that they can collect a portion of the damages and simultaneously prevent further waste of tax dollars.

Zoeller cited as an example an ongoing case, which the State of Indiana joined in June of 2010, against the South Bend mental health services facility Madison Center. The State is alleging $10 million in overbilling to Medicaid through fraudulent claims. Zoeller points to the words of Jean Marie Thompson, a whistleblower in that case, who said, “Filing a case pursuant to the False Claims Act was a lifesaver. It is a path to take when all else fails.”

Phillips and Cohen attorney for the Madison case Colette Matzzie stated of Indiana’s decision to join the case that “The Attorney General is to be commended for his efforts to recoup the millions of dollars in Medicaid funds that Madison Center collected through a cynical scheme to warehouse Medicaid eligible children in full-day hospitalization programs by falsifying the medical necessity of such treatment then failing to provide it.”

New York strengthens its False Claims Act

2010-08-13T20:56:00.000-07:00

New York Governor David Paterson signed into law today a bill that amends the New York False Claims Act, strengthening the act so as to be “at least as effective as the federal Act.”

In addition to other changes, the bill adds new protections for whistleblowers and broadens the scope of damages of which a portion is to be allotted to the whistleblower. Further protection and increased financial motivation for whistleblowers may help to motivate persons with knowledge of funds fraudulently acquired from the state to come forward.

The bill’s memo clarifies that the intent of the amendments is, in addition to strengthening the deterrence of further fraud against the government, to “help increase the amount of fraudulently-paid funds recovered by state and local governments under the False Claims Act.”

Student lender agrees to pay $55 million settlement in whistleblower case

2010-08-13T17:13:00.000-07:00

Student lender Netlet said today that it has agreed to pay a $55 million settlement, resulting from a whistleblower case that was set to begin trial on Tuesday, but was delayed by the judge so as to facilitate settlement talks.

Whistleblower Jon Oberg helped discover in 2006 that several student lenders had been receiving an erroneously high return on loans through a program that was supposed to have been phased out in 1993, according to the Omaha World Herald. As the whistleblower for the case, he will earn portion of the damages.

The Netlet case is part of a larger lawsuit that alleges over $1 billion in overpaid returns by the federal government to nine lending companies. Netlet allegedly received $407 million in overpayments. Had they lost in trial, those damages could have been substantially increased. Another defendant in this case is Sallie Mae.

Illinois whistleblowers to receive improved protection, reward

2010-07-28T19:42:00.000-07:00

The Illinois False Claims Act has been strengthened by a bill passed today that will provide increased protection and reward for whistleblowers, as well improve the State’s ability to recover the high costs involved with litigation.

Illinois Attorney General Lisa Madigan, who drafted the bill, said that “the new provisions in this law will help to deter fraud and make the recovery of taxpayer dollars easier.” The amended law will give the State new powers of investigation in cases of fraudulent action by companies contracting with State and local governments.

Senator John Noland, one of the bill’s sponsors, applauded the bill’s provisions supporting whistleblowers, saying, “By protecting whistleblowers, we defend the people against corruption and safeguard taxpayer dollars.”

EMC Corp. settles False Claims Act suit

2010-06-01T10:43:00.000-07:00

EMC Corp., a maker of data storage machines, has agreed to pay the federal goverment $87.5 million to settle allegations that it violated the False Claims Act and the Anti-kickback Act.

The suit alleged that EMC represented during contract negotiations that it would conduct price comparisons to ensure that the government received the lowest price although it knew it was not capable of doing such a comparison. The U.S. also alleged that EMC paid kickbacks to consulting companies each time the companies recommended that a government agency purchase an EMC product.

The suit began as a qui tam compaint.

AstraZeneca will pay $520 million in off-label marketing settlement

2010-04-27T15:36:00.000-07:00

The U.S. Dept. of Justice announced that pharmaceutical company AstraZeneca will pay $520 million to settle allegations of off-label marketing.

Charges that the company illegally marketed the anti-psychotic drug Seroquel were originally raised in a lawsuit brought under the qui tam provisions of the False Claims Act.

The civil settlement resolves allegations that by marketing Seroquel for uses that had not been approved by the FDA, the company caused false claims for payment to be submitted to federal insurance programs. The federal government will receive $301,907,007 from the settlement, and the state Medicaid programs and the District of Columbia will share up to $218,092,993.

HHS OIG adds state Medicaid Fraud Control Unit information

2010-04-26T12:51:00.000-07:00

The Inspector General for the Dept. of Health and Human Services has created a page on its website that collects information about state Medicaid Fraud Control Units (MFCUs).

State MFCUs investigate and prosecute fraud by Medicaid providers as well as patient abuse and neglect in "board and care" facilities that do not receive Medicaid funding. In certain circumstances they may also investigate program fraud involving Medicare or other Federal programs.

The OIG page provides links to a directory of MFCU contacts, annual reports, and state enforcement actions, as well as regulatory and policy information.

Former whistleblower special counsel will plead guilty to withholding evidence

2010-04-26T11:46:00.000-07:00

The Washington Post reports that Scott J. Bloch, the Bush-era director of a federal office in charge of protecting government whistleblowers from unfair treatment, will plead guilty to withholding information from congressional investigators.

The United States Attorney's Office for the District of Columbia filed papers accusing Bloch of failing to truthfully answer questions about whether he arranged for private computer technicians to "scrub" his office computer and that of other political appointees. The Project on Government Oversight has posted a copy of that filing.

NY AG says Medicaid fraud unit recovered $283 million in 2009

2010-04-19T11:39:00.000-07:00

New York Attorney General Andrew Cuomo announced that the state's Medicaid Fraud Control Unit (MFCU) recovered more that $283 million in 2009.

The unit also obtained 148 criminal convictions related to Medicaid fraud.

Cuomo's office submitted an annual report to the Secretary of the U.S. Department of Health and Human Services. It details the activities and successes of NY's MFCU.

The report highlights Operation Home Alone, an investigation of corruption in the home care industry; settlements with several pharmaceutical companies, including Eli Lilly, Pfizer, Mylan Pharmaceuticals, Astra Zeneca, and Aventis for off-label marketing, kickbacks, misreporting prices, and other fraud; nursing home fraud investigations; and other types of program fraud.

Maryland Governor signs False Claims Act

2010-04-13T11:52:00.000-07:00

Governor Martin O’Malley has signed the Maryland False Health Claims Act, introduced as Senate Bill 279.

The Governor's press release says that the new legislation will allow Maryland to recover damages and penalties from individuals who defraud the state by filing false claims against state health plans and programs, including Medicaid. It is expected to recover millions of dollars by cracking down on waste, fraud and abuse in these public health programs.

The bill has an effective date of October 1, 2010.

SEC Inspector General recommends improvements to its whistleblower program

2010-04-06T11:11:00.000-07:00

The Securities & Exchange Commission has had a bounty program for whistleblowers in place since 1989, but has made only five payments for a total of $159,537.

A report from the SEC's Inspector General says that "the current SEC bounty program is not fundamentally well-designed to be successful."

The report, Assessment of the SEC’s Bounty Program, recommends that the agency engage in outreach to publicize the program; develop criteria for the awarding of bounties; institute procedures for tracking whistleblower tips; and incorporate best practices from the Dept. of Justice and Internal Revenue Service whistleblower programs.

The bounty program is limited to insider trading cases. The SEC recently sent to Congress proposed legislation to expand the authority of the program to permit bounties for any judicial or
administrative action brought by the Commission under the securities laws that result in monetary sanctions exceeding $1,000,000.

Judge orders Fresenius to pay $19.3 million in qui tam suit

2010-03-25T15:57:00.000-07:00

A federal judge in Nashville has found that Fresenius, the parent company of Renal Care Group, violated the False Claims Act, the Nashville Business Journal and the Tennessean reported.

The judge ordered the dialysis supplier to pay $19.3 million for improper claims submitted to Medicare for home dialysis supplies.

Medicare has two rates of payment to dialysis companies. Companies that operate dialysis facilities are supposed to bill Medicare using “Method I.” Renal Care Group was such a company. Companies that don’t operate facilities, but supply patients with at-home supplies, bill Medicare under “Method II,” which pays 30 percent more.

The judge held that the company showed “reckless disregard” for the law by creating Renal Care Group Co., an at-home dialysis supply company that operated as an extension of RCG. The law requires requires suppliers to be independent of the dialysis facilities where patients are treated.

The suit arose from a whistleblower complaint filed under the qui tam provisions of the False Claims Act.

Amendments to public disclosure provision in new health care law

2010-03-25T13:51:00.000-07:00

The Patient Protection and Affordable Care Act (Public Law 111-148) includes a provision that clarifies the False Claims Act's definition of "public disclosure."

In section 10104 of the new law is the following provision:

"Section 3730(e) of title 31, United States Code, is amended by striking paragraph (4) and inserting the following:

'(4) (A) The court shall dismiss an action or claim under this section, unless opposed by the Government, if substantially the same allegations or transactions as alleged in the action or claim were publicly disclosed—

'(i) in a Federal criminal, civil, or administrative hearing in which the Government or its agent is a party;

'(ii) in a congressional, Government Accountability Office, or other Federal report, hearing, audit, or investigation; or

'(iii) from the news media,

unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.

'(B) For purposes of this paragraph, “original source” means an individual who either (i) prior to a public disclosure under subsection (e)(4)(a), has voluntarily disclosed to the Government the information on which allegations or transactions in a claim are based, or (2) who has knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions, and who has voluntarily provided the information to the Government before filing an action under this section.'"

New Jersey hospital settles qui tam suits involving Medicare outlier payments

2010-03-22T14:28:00.000-07:00

Robert Wood Johnson University Hospital Hamilton will pay $6.35 million to settle allegations of Medicare fraud raised in two whistleblower suits, the Dept. of Justice reported. The suits had alleged that the New Jersey hospital fraudulently inflated its charges to Medicare patients to obtain larger reimbursements from the federal health care program.

These charges involved Medicare's "outlier payments." This supplemental reimbursement is paid to health care providers in cases where the cost of care is unusually high. The two lawsuits charged that the hospital inflated its charges to obtain supplemental outlier payments for cases that were not extraordinarily costly and for which outlier payments should not have been paid.

Alpharma resolves FCA suit involving Kadian

2010-03-16T15:03:00.000-07:00

Alpharma, a subsidiary of King Pharmaceuticals, will pay $42.5 million to resolve allegations that
it improperly marketed the morphine-based drug Kadian.

The Justice Department's press release outlined the alleged violations: paying health care providers to promote or prescribe the drug, and making misrepresentations about its safety and efficacy.

The suit began as a whistleblower action brought under the qui tam provisions of the False Claims Act. The whistleblower, Debra Parks, was represented by Mary Louise Cohen and Tim McCormack of Phillips & Cohen LLP.

The proceeds from the settlement will be split between the federal government and various states.