Source: https://taf.org/blog-archives/
Timestamp: 2019-04-20 22:13:15+00:00

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Fraudsters in Europe are quick to suggest that while it’s OK to incentivize sales and profits, it would somehow be morally reprehensible to incentivize integrity. A “good chap” should be willing to commit career suicide without recompense, even as companies actively set up programs to lie about vehicle emissions and medical device safety, price-gouge, or pay doctors kickbacks in order to increase market share or promote medically unnecessary medicines and services.
The end result is that despite over 30 years of unalloyed success incentivizing integrity here in the U.S. under the federal False Claims Act, European countries have yet to offer cash awards to help fight fraud.
Undeterred, American lawyers, who have seen dozens of European firms operationalize massive frauds inside the United States, are now taking their anti-fraud fight to corporate home offices in Europe. There they are actively seeking whistleblowers to illuminate chicanery going on here in the United States.
Unlike in Britain and the Continent, whistle-blower cases can net big money in the United States — both for the government and the individuals who expose wrongdoing.
In fiscal year 2016, the Justice Department recovered more than $4.7 billion — the third-highest amount recovered in a single year — for civil fraud and false claims cases. Whistle-blowers propel the majority of false claims cases.
The ability of British citizens to avail themselves of American whistle-blower laws “is a great example of how the global economy opens up opportunities for whistle-blowers from around the world to point out fraud against the U.S. government,” said Mary Inman, who arrived in London in July to start Constantine Cannon’s whistle-blower practice in Europe.
The U.S. Department of Justice is not the only federal agency interested in fighting fraud with whistleblower support. The U.S. Securities Exchange Commission, the U.S. Internal Revenue Service, the U.S. Commodity Futures Trading Commission, and the U.S. Department of Transportation all have programs that reward whistleblowers with as much as 30 percent of what is recovered in exchange for helping initiate and develop successful anti-fraud cases.
Christus Health and its Santa Fe, New Mexico hospital will pay $12.2 million to the federal government to settle awhistleblower-initiated case that alleges Christus and the hospital manipulated federal funding for an indigent care program to boost their revenues. The scheme involved New Mexico’s Sole Community Provider Fund and Sole Community Provider Supplemental Payments programs and “donations” made by St. Vincent Regional Medical Center to Santa Fe County. The suit alleges that illegal “donations” were made to cover the state’s share of funding needed to obtain federal matching funds from 2001 to 2009. In New Mexico,state or local government must provide about $1 for every $3 that the federal government pays. The “donations” from the hospital to cover County and State costs removed any incentive those entities had to keep their eye on costs. The citizen fraud-fighter in this case was Diana Stepan, who was the Indigent Health Care Administrator for Los Alamos County from 2002 to 2011. After investigating the allegations in her FCA complaint, the federal government joined her case, but Ms. Stepan died before the case was finally resolved. Her estate will receive her share of the whistleblower award.
Novo Nordisk will pay $60 million to settle seven whistleblower-initiated False Claims Act lawsuits involving “Risk Evaluation and Mitigation Strategy” (REMS) related to the marketing and sale of Victoza, a Type II diabetes medication that, when FDA-approved in 2010, required the company to mitigate the potential risk in humans of a rare form of cancer called Medullary Thyroid Carcinoma (MTC) that was associated with the drug. Instead of engaging in the proper warning and monitoring, Novartis sales staff gave information to physicians that created the false or misleading impression that the Victoza REMS-required message was erroneous, irrelevant, or unimportant. The resolution of these cases includes a payment of $46.5 million for False Claims Act claims from 2010 to 2014, a disgorgement of $12.15 million for violations of the Food, Drug, and Cosmetic Act from 2010 to 2012, andpayments of $1.1 million and $350,000 to California and Illinois under their state insurance laws that work to recover funds linked to losses of private insurers.
In October of 2016, Tenet Healthcare Corp. agreed to pay over $513 million, including $368 million to settle a whistleblower-initiated False Claims Act lawsuit. The FCA case alleged the hospital corporation and four of its hospitals in Georgia and South Carolina paid the owner of walk-in obstetric clinics serving primarily undocumented Hispanic women (called “Clinica de la Mama”) to identify and funnel pregnant women to Tenet hospitals for labor and delivery services that would be paid for by Medicaid’s Emergency Medicaid Program. These kickbacks and bribes allegedly helped Tenet obtain more than $145 million in Medicaid and Medicare funds based on the resulting patient referrals.
The lawsuit was filed in 2009 by whistleblower Bill Williams, a U.S. Army veteran and accountant with over thirty years of hospital finance experience. The case was joined by the State of Georgia, and later by the U.S. Department of Justice,after years of investigation and pre-trial work by the whistleblower and his legal team.
Sightpath Medical, Inc. a Minnesota mobile ophthalmic company, and its former CEO, have agreed to pay $12 million to settle a whistleblower-initiated False Claims Act lawsuit alleging the company paid kickbacks to doctors for nearly a decade. The kickbacks took the form of luxury skiing vacations and high-end fishing, golfing and hunting trips, and resulted in payments in excess of fair market value.. The whistleblower in this case, Kipp Fesenmaier, a former Vice President of Operations for Sightpath’s predecessor entity, will receive a 19.5 percent share of the award for the work done in bringing, developing, and helping prosecute this case. Former Sightpath CEO James Tiffany was also named in the lawsuit, and the U.S. attorney’s office said he was “directly involved” in brokering several of the trips with doctors, and even attended the outings. In short, Tiffany personally profited from employment, bonuses, and raises while this fraud was going on. Yet his own attorney notes that “Jim Tiffany paid nothing for this settlement” and “his portion of the settlement was paid entirely by Sightpath”.
The case is not yet over. The United States is expected to file an intervention complaint against other named defendants — Precision Lens, Paul Ehlen, and Jitendra Swarup — within 90 days.
Virginia-based equipment supplier ADS Inc. will pay $16 million to settle awhistleblower-initiated False Claims Act lawsuit which charged the company with illegally qualifying for the Service-Disabled Veteran-Owned Small Business Contracting Program and the 8(a) Program for small businesses and businesses owned by minorities, women, and veterans. Under terms of the settlement, the whistleblower will receive approximately $2.9 million. This is one of the largest settlements ever obtained for small-business contract eligibility fraud. ADS supplies equipment and logistics to the U.S. Departments of Defense and Homeland Security.
PHH Mortgage Corporation (PHH) has agreed to settle a whistleblower-initiated False Claims Act case for over $74 million. PHH was the originator of loans insured by HUD’s Federal Housing Administration (FHA) and the U.S. Department of Veteran Affairs (VA) which failed to meet basic underwriting requirements. The FCA case was initiated by Mary Bozzelli, who worked for PHH from 1992 to 2011 as an underwriter and underwriting supervisor.
As part of the settlement agreements, the United States is awarding Ms. Bozzelli over $9 million, a portion of which will go to compensate her legal team, and a portion of which will go to the IRS.
The Medical Center, Navicent Health, in Macon, Georgia, has agreed to pay $2.5 million to settle a whistleblower-initiated False Claims Act case alleging the hospital billed ambulance trips to skilled nursing facilities as emergencies when, in fact, many trips were neither emergencies nor medically necessary.
Navicent Health owned and operated both the hospital and the ambulance service.
The settlement marks the end of a 27-month investigation initiated by relator Andre Valentine under the Georgia False Medicaid Claims Act.
“Ambulance billing has long been an area of potential fraud on the Medicare and Medicaid programs and this office will continue to vigorously investigate and pursue those who attempt to take advantage of the program” said U.S Attorney G.F. “Pete” Peterman.
Back in 2006, relators Victor Bibby and Brian Donnelly filed a massive eight-defendant FCA case against a number of banking entities alleging widespread fraud against veterans seeking VA mortgages.
DoJ did not join any of these cases.
Now, 12 years later, Wells Fargo is the 7th defendant to come to the table, and has agreed to pay $108 million to settle their portion of the case.
The fraud, in a nutshell, involved banks adding unallowed attorney fees to title examination costs on mortgage closing documents. Under VA rules, low-cost loans to veterans are not supposed to include attorney’s fees.
Is this case over yet? Nope! One more very big plaintiff — Mortgage Investors Corporation (“MIC”) — is still in the crosshairs.
The Chief Executive Officers of 70 of the largest U.S. health care companies cumulatively earned $9.8 billion in the seven years since the Affordable Care Act was passed, with health care CEOs taking home nearly 11% more money on average every year since 2010 — far outstripping the wage growth of nearly all Americans. The average annual salary of the top 70 CEO’s was $20 million a year.
Why does this matter in the context of fraud-fighting? Simple: The pay packages of health care CEOs incentivize billing and don’t incentive cost control or integrity.
Want to see what a specific corporate CEO earned in the last few years? Check out the interactive data set and chart at this link.
Celgene has agreed to pay $280 million to settle a whistleblower-initiated False Claims Act case over the off-label marketing of Thalomid and Revlimid, with $259.3 million going to settle federal civil claims, and $20.7 million going to 28 states and the District of Columbia.
Whistleblowing fraud-fighter Beverly Brown was a former sales representative at Celgene who, in her complaint, said that the company “flooded the country” with sales reps under heavy pressure to get oncologists to prescribe the drugs for off-label purposes.
The Department of Justice did not join this lawsuit, which was ready and prepped for trial.
The whistleblower in this case stands to receive between 25 and 30 percent of the total reward, a portion of which will go to pay her legal team as well as state and federal taxes.
Celgene made a massive amount of money off the two related drugs, with one estimate that 90 percent of the Thalomid sales made in 2000 were being used off-label to treat cancer. In 2016, Revlimid sales generated $6.97 billion in revenue for Celgene.
How Much Fraud in Medicare Advantage?
How much fraud is there in the Medicare Advantage program?
James Cosgrove, who is heads of health care review for the Government Accountability Office (GAO) told the House Ways and Means Oversight Subcommittee that 10 percent of the payments under Medicare Advantage were “improper,” a sum that would have come to $16.2 billion in 2016.
As bad as Medicare Advantage accounting is, regular Medicare is worse, with an “improper payment” rate of 11 percent, or $41 billion down the drain in 2016.
Those these big numbers are cause for pause, additional concern is raised when we look at the response.
In an April 2016 report, GAO said CMS has spent about $117 million auditing Medicare Advantage since 2010, but recouped just under $14 million in total. That sum includes the $3.4 million recovered after the agency found five Medicare Advantage plans ripping off taxpayers by some $128 million in 2007.
Record SEC Whistleblower Settlement on Horizon?
Two SEC whistle-blowers are set to share a record $61 million award for helping build a fraud case against JPMorgan Chase. The bank has agreed to pay $267 million to the SEC and $40 million to the CFTC for failing to disclose that the firm was putting the bank’s financial interest ahead of that of its wealthy clients. Two of six whistleblower applicants have received a letter notifying them of the preliminary decision to award them $48 million and $13 million respectively.
When the Dodd-Frank law was being debated, corporate lobbyists argued that fraud-fighters should be required to “blow the whistle” internally, before filing a case with the SEC. Whistleblower advocates suggested that requiring whistleblowers to report internally would put many whistleblowers in harm’s way and discourage whistleblowing. The SEC agreed.
Now a company, Digital Realty, has fired an internal whistleblower arguing he is not protected because he filed a complaint against a supervisor under the Sarbanes-Oxley Act, rather than the Dodd-Frank whistleblower provisions.
The whistleblower won the case in the Ninth Circuit, which joined the Second Circuit in holding that Dodd-Frank’s anti-retaliation provision “unambiguously and expressly protects” those who report to the SEC directly and those who report internally within an organization. But the Ninth Circuit decision creates a split with the Fifth Circuit, and Digital Realty has asked the Supreme Court to resolve the conflict, which the nation’s highest court has agreed to do.
Freedom Health Inc., a Tampa, Florida-based provider of managed care services, and its related corporate entities (collectively “Freedom Health”), will pay $31,695,593 to settle a whistleblower-initiated False Claims Act case alleging the company submitted unsupported diagnosis codes to CMS, which resulted in inflated reimbursements from 2008 to 2013 in connection with two of their Medicare Advantage plans operating in Florida. Former Freedom Health Chief Operating Officer Siddhartha Pagidipati has agreed to pay $750,000 to resolve his role in operationalizing part of the scheme in which the company made material misrepresentations to CMS about the scope of its network of providers.
The whistleblower in this case was Darren D. Sewell, a former employee of Freedom Health. The whistleblower’s share has not yet been determined.
eClinicalWorks (ECW), one of the largest electronic medical records software companies in the U.S., will pay $155 million to resolve a whistleblower-initiated False Claims Act lawsuit alleging the company misrepresented the capabilities of its software. ECW falsely received Electronic Health Records certification and incentives by “hardcoding” only the 16 drug codes required for testing. In addition, ECW’s software did not accurately record user actions in an audit log, did not reliably record diagnostic imaging orders, did not perform drug interaction checks, and did not satisfy basic data portability requirements so that the patient data could move from their software system to that of other vendors. The settlement agreement holds ECW and three of its founders (Chief Executive Officer Girish Navani, Chief Medical Officer Rajesh Dharampuriya, M.D., and Chief Operating Officer Mahesh Navani) jointly and severally liable, and the company entered into a five-year Corporate Integrity Agreement requiring the company to retain an Independent Software Quality Oversight Organization to assess ECW’s software quality control systems and provide written semi-annual reports to HHS OIG.
The whistleblower in this instance was Brendan Delaney, a software technician who was formerly employed by the New York City Division of Health Care Access and Improvement. As part of the settlement, Mr. Delaney will receive approximately $30 million.
Genesis Healthcare has agreed to pay the Federal Government $53.6 million to settle four whistleblower-initiated False Claims Act cases charging the company’s subsidiaries, with providing medically unnecessary rehabilitationtherapy and hospice services.
The cases involve: Skilled Healthcare Group Inc. Skilled Healthcare LLC, Skilled LLC, Creekside Hospice,Hallmark Rehabilitation Group, Sun Healthcare Group Inc., SunDance Rehabilitation Agency Inc., the SunDance Rehabilitation Corp.
The settlement was based on the company’s ability to pay, and resolves allegations originally brought in qui tam lawsuits by Joanne Cretney-Tsosie, Jennifer Deaton, Kimberley Green, Camaren Hampton, Teresa McAree, Terri West, and Brian Wilson, all former employees of companies acquired by Genesis.
The whistleblowers will receive a combined $9.67 million as their share of the recovery in this case.
Nursing home pharmacy giant Omnicare, now part of CVS-Caremark, will pay $8 million to resolve allegations that its dispensing practices put patient safety at risk.
Omnicare is a Fortune 500 company that owns and operates pharmacies servicing 1.4 million residents in nursing homes and long term care facilities in 47 states.
The company, which has settled numerous False Claims Act cases in the past, has been operating under a Corporate Integrity Agreement that, in theory, requires it to clean up its act and be subject to stiffer penalties if it does not.
What’s the conduct at issue in this most recent case?
Medicare bases its payment for drugs on the NDC (National Drug Code) number of the drug dispensed, and certification that the company is using the correct NDC is an explicit condition of payment under Medicare and Medicaid. It seems the company invented 10-digit codes in order to speed up a robotic drug dispensing system that it created to send prescriptions to client nursing homes and long term care facilities. In many cases the Omnicare codes did not accurately identify the drugs actually dispensed, and its system would have prevented Medicare from tracing and recalling adulterated or toxic drugs.
Elizabeth Corsi and Christopher Ezzie, the relators who brought this conduct to the attention of the government, are licensed pharmacists who worked for Omnicare and witnessed the implementation of this scheme first hand. They brought their suit because they believed Omnicare’s conduct put the health and safety of elderly patients at risk.
Their case was brought to the United States Attorney’s Office for the District of New Jersey by the law office of Charles Goetsch. The Department of Justice intervened in the case and settled it for $8 million, with a little over $1.47 million of this sum going to the whistleblower for developing the case on the government’s behalf.
Past Omnicare fraud settlements with the federal and state governments include False Claim Act cases settled in 2009 for$112 million, in 2014 for $124 million, in 2014 for $4.19 million, and in 2016 for $28 million.
Since 2007 the IRS Whistleblower Program has helped recover $3.7 billion back to the U.S. Treasury, but there is still plenty of room for improvement.
Legislation introduced by Senator Grassley and Senator Wyden (S.762, The IRS Whistleblower Improvements Act of 2017,would help improve communication between the IRS and whistleblowers, while protecting taxpayer privacy, and providing employer retaliation protection similar to what is extended to whistleblowers in other programs, such as the False Claims Act.
Communication between the IRS and whistleblowers has long been a problem. The Grassley-Wyden bill would streamline communication between the Service and whistleblowers by allowing the IRS to communicate with whistleblowers where doing so would be helpful to an investigation. In addition, the bill would require the IRS to provide status updates to whistleblowers at significant points in the review process, while ensuring confidentiality of information is maintained.
Whistleblower cases take, on average, about 7 years to resolve. During this time, individuals may be putting their livelihoods on the line.
According to the IRS Whistleblower Program’s 2016 Annual Report, 1,739 IRS whistleblower submissions of $2 million or more are currently winding their way through review, investigation, evaluation, and litigation. Of these, 520 submissions are past the “appeals” process and are in the Preliminary Award Evaluation, Interim Award Assessment, Award/Suspense, Final Review or Ligation phase of the Whistleblower Office’s program process.
In 2005, Senator Charles Grassley single-handedly created the modern compliance industry by including a False Claims Act (FCA) education amendment as part of the Deficit Reduction Act. That amendment requires companies doing more than $5 million in business with Medicare and Medicaid to explain to their employees how the False Claims Act works.
Since passage of the Deficit Reduction Act, the number of health care qui tam False Claims Act cases has dramatically increased, and so too has the amount of money recovered to the U.S. Treasury.
The Calgary Chamber of Commerce in Canada gets it: the False Claims Act is good for business.
Like the United States government, the government of Canada is spending massive sums on healthcare, defense, education, and transportation infrastructure.
How can the government of Canada hope to ferret out fraudsters and hold them accountable?
The Calgary Chamber of Commerce looked about and found the answer: A Canadian False Claims Act, modeled after the U.S. law which has worked well for 30 years.
The policy proposal from the Calgary Chamber of Congress is entitled Incentivizing Integrity: Adoption of A Canadian False Claims Act, and it has a familiar ring to it.
[F]raud schemes are complex, and the government concludes thousands of contracts each year to purchase goods and services. It does not always have the information it needs to detect collusion and corruption in the allocation and management of these contracts. Moreover, the state does not always have the resources to act on the information it receives, given the volume of cases and the complexity of the schemes. By providing an incentive for whistleblowers to come forward, as well as a pathway for relators to pursue cases unilaterally, the False Claims Act helps to solve both of these problems in an effective and efficient way, and can bolster the enforcement capacity of the federal government without necessarily expanding the federal workforce or devoting additional financial resources for that purpose.
By incentivizing whistleblowers to report fraud, the Calgary Chamber of Commerce believes Canada can protect taxpayer money from liars, cheats, and thieves while recovering billions of stolen dollars. When that happens, Canadian taxpayers will benefit from lower taxes and better services, Canadian government will benefit from increased support for public spending, and Canadian businesses will benefit from honest competition on a level playing field where honest companies can compete head to head based on the price and quality of goods and services. What’s not to love about that?
The TAF Education Fund has filed an amicus curiae brief in support of the Respondents in Universal Health Services, Inc. v. United States and Commonwealth of Massachusetts ex rel. Julio Escobar and Carmen Correa.
TAFEF had filed an earlier amicus, in support of the whistleblowers, in the First Circuit.
U.S. ex rel Escobar is slated for oral arguments on April 19th. All briefsavailable here.
In Escobar, the relators’ daughter, a teenage recipient of state medical benefits, consulted with mental health counselors at Arbour Counseling Services, which is owned and operated by Universal Health Services, to seek treatment for behavioral problems. After the daughter died of a seizure, it was discovered the counselors who treated her were not licensed by the state to provide mental health therapy, as required by Massachusetts regulations. The relators filed suit, under the False Claims Act, in the District Court for Massachusetts.
Petitioner inappropriately urges an extrastatutory limitation to curb relator-driven cases.
The TAF Education Fund has filed an amicus curiae brief(31-page PDF) in the case of U.S. ex rel. Kurt Bunk & Ray Ammons v. Birkart Globalistics, which is under appeal in the Fourth Circuit. The defendant’s arguments in this appeal included the assertion that relators do not have standing under Article III to seek or obtain only civil penalties and that the suit violates Article II of the Constitution. The TAFEF amicus brief addresses those assertions.
TAFEF submitted amicus curiae brief in US ex rel., Paul J. Solomon, v. Lockheed Martin Corp. and Northrop Grumman Systems Corp. This brief was authored by TAFEF’s Director of Legal Education Jacklyn DeMar, and David Chizewer and Frederick R. Klein, both of Goldberg Kohn.
However, the U.S. District Court for the Northern District of Texas ruled that Solomon’s case was precluded by the “public disclosure bar” of the False Claims Act, and that Solomon did not qualify as an original source of his claims. The court found that Solomon did not disclose his allegations to the government voluntarily as required by the FCA, because his employer’s contract with the government required it to disclose evidence of fraud under the contract.
The brief emphasized that the district court’s ruling would have a wide-ranging negative impact on the ability of employees of government contractors to bring qui tam actions, and that the rule barring government employees from bringing such actions did not extend to private employees of government contractors.
The full brief can be read here, as well as on TAF’s amicus page.
The TAF Education Fund has filed an amicus brief in the Aseracare case (akaUSA ex rel. Paradies, et al., v GGNSC Administrative Services, et al.). This brief was written by Amy Easton, Colette Matzzie, and Claire Sylvia of Phillips & Cohen, along with TAFEF Attorney Jacklyn DeMar, and it challenges some of the odd rulings made in this case by the district court trial judge.
The judge bifurcated this False Claim Act case — the first time that has been done in 150 years of the Act.
Despite the fact that the presentation of both the facts and the scheme were somewhat hamstrung, the jury came back with a verdict that said 104 of 121 claims submitted were fraudulent.
The judge then threw out the verdict based on her own, alleged, procedural error.
Finally, before there could be a retrial, the judge decided to dismiss the case on her own, and after the fact, citing a quote from Pascal, a dead French mathematician, as authority. The judge’s rational: that when two experts differed in opinion, then no claim can be deemed false based on opinion alone. It should be noted that DoJ and the whistleblower had, of course, submitted much more than opinion!
Needless to say, the U.S. Department of Justice is appealing all three of the judge’s rulings in this case.
You can read the TAF Education Fund’s brief, in its entirety, here, or from the link on our amicus page.
The TAF Education Fund has filed an amicus curiae brief with the U.S. Supreme Court in the case of State Farm Fire and Casualty Company v. United States el rel. Cori Rigsby, et al.
The case comes to the Supreme Court from the Fifth Circuit, which affirmed a lower court judgment in support of the whistleblower and the government in a case where a seal was, allegedly, broken.
TAFEF’s brief notes that the seal in a False Claims Act case does not prevent a relator, or her lawyers, from discussing the facts of a defendant’s fraud, or even saying that they have been interviewed by the U.S. Department of Justice. The seal in a False Claims Act case only protects the existence of a pending qui tam case filed under the False Claims Act. It serves no corporate interest.
In support of a case-by-case evaluation of seal violations in FCA cases, the TAF Education Fund cites United States ex rel. Lujan v. Hughes Aircraft Co., 67 F.3d 242 (9th Cir. 1995), in which the Fifth Circuit said that any allegation of a qui tam seal breach must be evaluated by imposing a balancing test. That balancing test asks three simple questions: 1) Did the breach actually harm the investigative interests of the government? 2) Was the seal breach serious? 3) Did the seal breach occur in bad faith?
In this instance, the Fifth Circuit said the seal breach did not harm the investigative interests of the government – a point affirmed by the U.S. Department of Justice itself.
In its amicus curiae brief, TAFEF argues that minor seal violations need not result in the dismissal of a qui tam relator’s case. The purpose of the seal, after all, is to allow the Government an adequate opportunity to evaluate a case and decide if wants to intervene. The seal is not there to serve the defendant’s interests. The only logical authority on the degree of harm done to the government’s case by a seal violation is the government — not a False Claim Act defendant’s legal counsel.
TAFEF goes on to note that the sealing of qui tam cases is not a simple “on and off” switch. In most cases where the government intervenes, there is a “partial unsealing” of the case. These partial unsealings are an extra-statutory device created by the U.S. Department of Justice for purposes of advising defendants of fraud allegations against them, negotiation with these same defendants, fact-finding, and to address the management of related cases.
TAFEF notes that a breach of a seal on day 30, before the government has really begun to investigate, is very different from a violation on day 300, or 600, or 900, when the defendant is aware of the investigation and has already been producing documents in response to a Civil Investigative Demand.
TAFEF’s amicus also notes that the False Claims Act itself does not say a word about what should happen when a seal is breached. Penalties and consequences are wisely left up to the courts because the issue is mostly contempt of court, and it is not jurisdictional.
Finally, the TAFEF brief notes that it is not just the whistleblower or his or her lawyer that can breach a seal, which is why a balancing test in such matters is so important.
What happens when a party other than the relator breaches the seal? Papers mistakenly get filed on the public record, or left on a table in a prosecutor’s or clerk’s office. An investigator interviewing a witness accidently tells the witness that there is a lawsuit pending. Defendants provided with copies of a complaint following a partial unsealing may put too much information in an SEC filing or say something at an industry conference. A lawyer may make a mistake.
are they on punishing and discouraging relators in any way possible: Absent an answer to these possibilities, Petitioner’s proposed rule, positing as it does that only relators breach the seal, is mere gamesmanship.
TAFEF’s amicus was written by Rick Morgan of Morgan Verkamp, and Jacklyn DeMarr, TAFEF’s in-house lawyer. This is not the first time that Morgan Verkamp and Jacklyn have teamed up this year; Jennifer Verkamp was the primary author of TAFEF’s amicus brief in Escobar, which was decided 8-0 in favor of the whistleblowers.
An amicus curiae brief has been filed, in US ex. Rel Anthony Spay v. CVS Caremark Corp et al, by Senator Chuck Grassley and TAF Members: Jeffrey F. Keller and Kathleen R. Scanlan (Keller Grover), Joy P. Clairmont (Berger & Montague) and, Gordon Schnell (Constantine Cannon). The brief argues against the earlier dismissal by the Eastern Pennsylvania District Court.
TAFEF has also filed an amicus curiae brief in this case with Emily Stabile and Claire M. Sylvia (Phillips and Cohen) taking the lead, with crucial input from Jennifer Verkamp (Morgan Verkamp), David Chizewer (Goldberg Kohn), Colette Matzzie (Phillips and Cohen), Mark Kleiman (NYU), and TAFEF’s Acting Director of Legal Education, Jacklyn DeMar.
The TAF Education Fund has filed an amicus curiae brief in the case of Kellogg Brown & Root Servs., Inc. v. U.S. ex rel. Carter. The brief supports the Respondent, relator Benjamin Carter, and argues for affirmance of the Fourth Circuit’s ruling that qui tam actions are only barred under the first-to-file rule while a prior, related qui tam suit is still pending.
Under the first-to-file bar, prior qui tam suits that are dismissed for non-meritorious reasons do not preclude subsequent relators from coming forward and pursuing FCA claims on behalf of the Government.
Oral argument in this case is scheduled for early- to mid-January. Stay tuned!
For quick summary of the case, and the issues, see this previous post.
The Securities and Exchange Commission (SEC) recently filed an amicusbrief with the Sixth Circuit, defending whistleblowers and advocating that the court apply the Commission’s rulemaking while rendering its decision in an employer retaliation lawsuit. The Commission’s rule resolved an ambiguity in the Dodd-Frank Act’s anti-retaliation provisions and expanded its whistleblower protections to employees who engage in any whistleblowing activities described in Section 21F(h)(1)(A) of the Securities Exchange Act, thereby recognizing congressional intent to protect broader forms of whistleblowing activity.
The lawsuit in question, Verble v. Morgan Stanley Smith Barney LLC, was filed by a former employee of Morgan Stanley who claimed he was harassed and then fired by his employer after his co-workers began to suspect he was working with the FBI. Though Mr. Verble did not provide information to the SEC, he reported his concerns internally and collaborated with the FBI to gather evidence that Morgan Stanley was involved in insider trading.
The SEC argues in its amicus brief that while the Dodd-Frank Act defines a “whistleblower” as one who reports securities and exchange violations to the SEC, internal reporting is included by Section 21F(h)(1)(A) as protected whistleblowing activity. Thus, there is an ambiguity between the statue’s narrow definition of “whistleblower” and the broader range of whistleblowing activity it also protects. The SEC further argues that if Congress had truly intended to protect only whistleblowers who reported to the Commission, then it would have been more explicit.
Therefore, the SEC continues, it is in the interest of the court to apply the broader definition included in the agency’s rule because to do so otherwise “could arbitrarily and irrationally deny the employment retaliation protections afforded by Dodd-Frank to individuals who… first report potential securities law violations to the U.S. Department of Justice or Self-Regulatory Organizations such as FINRA.” Dodd-Frank instructs the SEC to pay informant awards based on monetary sanctions in “related actions” initially brought by whistleblowers to the DOJ and SROs. Thus, since the anti-retaliation and award provisions are coextensive, there is no indication that Congress intended to treat claims disparately that were brought to different agencies.
The amicus brief further highlights the importance of internal reporting to preventing securities and exchange violations and protecting investors. The SEC demonstrates how its award provisions were calibrated not to disincentivize internal reporting and argues that adopting the narrow whistleblower definition would inhibit the Commission’s ability to protect whistleblowers who report internally first, thereby discouraging the practice.
Ultimately, the Sixth Circuit decided in favor of Morgan Stanley, stating that the Dodd-Frank anti-retaliation provisions were unambiguous and that Mr. Verble did not qualify as a whistleblower. The court cited Asadi v. G.E. Energy (USA), L.L.C., a Fifth Circuit decision from 2013, which held that the anti-retaliation provision applied only to those who provided information to the SEC.
Though the case was not decided in favor of the SEC rule, the Commission’s persistence in fighting for the implementation of its rule may inevitably lead to a Supreme Court decision on broader SEC whistleblower protections.
If you are thinking about filing a False Claims Act case, one of the most important decisions you will make is your choice of attorney. Choose your attorney carefully and consider whether he or she has experience in qui tam lawsuits. Qui tam litigation is a specialized area of the law, and most attorneys do not have experience in this narrow field of law.
When choosing an attorney, don’t base your decision on advertisements or web site appearances, and avoid attorneys who are quick to sign you up in order to collect a referral fee from a lawyer in another firm who will actually be doing the work on your case.
You should meet and talk with the lawyer who will be doing most of the work on your case. If an attorney says they have had success in bringing FCA cases, ask for specific examples of success.
A lawyer who misrepresents the experience of others as their own is best avoided right from the start. Many False Claims Act cases are national in scope.
Geographic proximity to an attorney should not be your primary concern when your case is national in scope. Ask about the attorney’s record of working with government lawyers and investigators in prosecuting qui tam lawsuits, and whether they have the resources to pursue a case if it is declined by the government. What contingency plans do they have to retain additional lawyers if that becomes necessary?
Develop a basic understanding of the False Claims Act before you begin reaching out to contact an attorney. The more you know, the better prepared you will be in evaluating any possible legal representation offered. Organize your thoughts and information before you begin reaching out to possible False Claims Act attorneys.
One suggestion is to take two pieces of paper. On the first page tell a story that includes the “who, what, where, when, and how much” of the fraud. Detail what agency was defrauded, the basics of how the fraud works, the size of the fraud, and how you came to know about the fraud, but carefully omit the name of the company and any company-identifying information. On the second page, snap a line across the middle of the page, and above this line detail the evidence you have in hand to support the story on the first page: emails, spread sheets, contracts, billing records, training materials, PowerPoint presentations, copies of canceled checks, voice mails, audio or video tape, etc. Below this line, list the titles of the people inside the company and outside the company who should be contacted and questioned if an investigation is initiated. Now you have a simple organized story, an inventory of evidence in hand, and a list of potential interviewees for government investigators to talk to should they decide to further explore this case.
The study surveyed more than 3,500 adults and used Open Payments to link patients with their physician.
One shocking aspect of the study was only 5% of the patients were aware that their doctors received payments from drug companies.
Information about payments to doctors from drug companies are publicly available because of the Physician Payment Sunshine Act. ProPublica hosts an intuitive database of pharma payments on their website Dollars For Docs.
Genentech, who settled a major FCA case in 2016, leads the industry in payments with $727 million.
If someone knocks on a whistleblower’s door offering money to “invest” in a case, one of the first questions to ask is whether that individual is a “venture capitalist” or a “vulture capitalist”?
Both venture capitalists and vulture capitalists are investors that charge extraordinarily high interest rates to cover the cost of potential failure.
The difference is that a venture capitalist is putting up money to grow something that is likely to expand. An example might be providing the “seed money” for the first 50 acres of corn to be grown, with the expectation that 5,000 more acres might be put under production in a few years’ time.
Vulture capitalists, however, are looking to buy a distressed asset from a distressed person for a song, and to carve it up for a big profit at the end.
The vulture capitalist is not expanding a business – he is looking to break it up, or to drain cash from it at usury rates of interest.
Vulture capitalists are attracted to a whistleblower’s door by the distress that accompanies the government declining to join a case.
Because False Claims Act cases must first be filed under seal, simply disclosing to a potential investor, or anyone else, that a case has been filed against a company is a violation of the seal until the court has lifted the seal.
What about cases that come out from under seal because the government has joined the case or declined it?
If the government has joined a case, a whistleblower should probably not be looking to financiers at all.
When the U.S. Department of Justice joins a case, there is a better than 95% chance that the case will resolve with a favorable settlement or judgement. Instead of talking to litigation vultures who will “buy” a portion of the case at what is likely to be usury rates of interest, whistleblowers should cut back on expenses, get a job, and borrow from family, friends, a retirement account, or a bank.
If the government has declined a case, the probability of success drops significantly, and so too does the likelihood that the case will be resolved for a very large sum of money. What that means is that the risk-to-reward ratio for lending or borrowing on such a case shifts dramatically for whistleblower and lender alike.
Let’s walk through the numbers to understand the math.
If an investor makes a series of $2 million “non-recourse” loans on False Claims Act cases, and these cases collapse just 25% of the time (an extraordinary level of success), the interest rate that has to be charged on the successful cases, in order for the lender to make any profit at all, has to be astonishingly high.
Even when a loan is “small” and a case is “big,” the math can go south very fast.
Suppose a whistleblower has a case they believe is worth $75 million in single damages. This would be a phenomenally large FCA case – potentially a top-ten case in any given year. The inexperienced optimist will assume the case will be settled for treble damages, and that a $225 million recovery will eventually be in the offering. If a whistleblower borrows just $1 million dollars with that idea in mind, and gives up $3 million in future compensation in exchange, misery may follow.
Simple: when the government finally settles the case, it may not be for $75 million in single damages, but for $50 million. Instead of settling the case for treble damages, the government may settle the case for double damages. And what if there is more than one whistleblower, as is quite common in large cases? There may very well be three other whistleblowers that neither your lender, nor your lawyer, will know about when “the deal” is inked.
Assuming a 17% relator share, the total whistleblower award in the case, described above, may total $17 million, a sum that will be divided by four, resulting in just $4.25 million per whistleblower.
After the lawyers take their contingency fee (assume 40%), and the state and federal governments take out taxes (assume 40%), the whistleblower will be lucky to walk away with $1.5 million – and that’s before the “investor” is paid a dime.
The bottom line: after as much as a decade of litigation, the whistleblower may walk away with nothing, which is a very bad story, not only for the whistleblower, but for the False Claims Act itself.
Obviously, the numbers offered here can be quibbled with, but the main thrust of this post cannot: “Vulture” lenders are NOT there to help whistleblowers find justice, but to make a very large profit off of their immediate financial distress.

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