Whistleblower Protection Blog : Whistleblower Lawyer & Attorney : National Whistleblower Legal Defense and Education Fund : Whistleblower Protection, Fraud Claims : Washington DC

C.R. Bard Inc., a medical device company based in New Jersey, has agreed to pay the United States $48.26 million to resolve claims that it knowingly caused false claims to be submitted to the Medicare. The claim alleged that the company paid off doctors and hospitals to induce them to prescribe brachytherapy seeds. Giving such kickbacks is a violation of the False Claims Act.

The settlement requires that Bard pay $48.26 million and it resolves claims relating to Bard’s sale of brachytherapy seeds, a form of radiation therapy, to hospitals. The United States alleged that from 1998 to 2006, Bard provided illegal remuneration to customers and physicians to induce them to purchase Bard’s seeds, in violation of the Anti-Kickback Statute.   The illegal remuneration allegedly took the form of certain grants, guaranteed minimum rebates, conference fees, marketing assistance and/or free medical equipment that Bard paid to customers and/or physicians who used the seeds to perform treatment for prostate cancer.   Hospitals ultimately submitted bills to Medicare for these seeds, which the government alleged were rendered false by Bard’s illegal kickback activity. The government alleged that Bard was liable under the False Claims Act for causing the submission of those false claims. 

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Yesterday, District of Columbia Councilmember Mary Cheh introduced the "False Claims Act of 2013," which will amend the D.C. False Claims Act to permit whistleblowers to bring tax-related fraud claims. If enacted into law, the bill would permit whistleblowers to seek a qui tam or relator’s share when the amount of uncollected tax is worth $350,000 or more, and brought against taxpayers who have an income above $1 million. 

Councilmember Cheh stated in her press release:

Under current District law, the False Claims Act does not apply to violations of the tax code. Therefore, the District cannot obtain information from whistleblowers that may be relevant to the investigation and prosecution of tax evaders. This bill would allow the District to use the tools of the False Claims Act against the District’s biggest tax evaders in a manner already authorized for other applications of the Act.

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The Justice Department confirmed in a release issued on December 4 that it has been a record year for recoveries from the False Claims Act.  In fact 2012 garnered the DOJ the “largest annual recovery in Department history.” Most of the recoveries were from actions filed under the whistleblower/qui tam provisions of the FCA.  The DOJ release notes, “Of the $4.9 billion in fiscal year 2012 recoveries, a record $3.3 billion was recovered in whistleblower suits.”

“The whistleblowers who bring wrongdoing to the government’s attention are instrumental in preserving the integrity of government programs and protecting taxpayers from the costs of fraud,” said Principal Deputy Assistant Attorney General Stuart F. Delery.   “We are extremely grateful for the sacrifices they make to do the right thing.”

“The Justice Department’s official recognition of the importance of whistleblowers in fraud detection is an important step forward,” stated Stephen Kohn, Executive Director of the National Whistleblowers Center, in response to the DOJ release. Kohn continued, “Whistleblower reward laws are the single most effective mechanism to induce employees with knowledge of fraud to risk their careers in serving the public interest.

The DOJ’s release is linked here.

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Kathleen Sharp's book about pharmaceutical whistleblower Mark Duxbury will be released in paperback on September 1, 2012. It is Blood Medicine: Blowing the Whistle on One of the Deadliest Prescription Drugs Ever. I had the pleasure of interviewing journalist Kathleen Sharp on November 15, 2011.  You can listen to the archive of that interview here.

Mark Duxbury was a star salesman for a subsidiary of Johnson & Johnson. He was selling Procrit. Procrit is a type of erythropoietin, which is also called EPO. Following management direction, he convinced doctors that prescribing high doses would help cancer and dialysis patients. At the time, Johnson & Johnson was engaged in a bitter turf battle with competitor Amgen. Procrit became Johnson & Johnson's top selling drug. The U.S. government was paying more for EPO than it was for any other class of medications. Duxbury and a co-worker, Dean McClennan, became concerned about the reports of patients dying while taking Procrit. They insisted that their employer respond to this safety concern, and refrain from illegal marketing tactics. This issue cost him his job. By 2007, the dangers of Procrit became public, but not before too many Americans had died.

Duxbury and McClennan filed a whistleblower claim under the False Claims Act (FCA). Duxbury died before the litigation could be completed. Sharp (pictured) examines how a big pharmaceutical company can push its drugs through doctors and into patients' veins before any of them are aware of the true risks. Sharp explains how federal regulators facilitated the pharmaceutical companies and reacted slowly to the reports of adverse reactions. Even today, EPO is on the market, albeit with enhanced "black box" warnings.

Sharp also makes Duxbury's ordeal come to life. Much as attorney Steven Berk explained here, the recoveries of qui tam whistleblowers are rarely reported with the details of the suffering they endured for the public's benefit. In Blood Medicine, Sharp does report the details, in a flowing narrative that makes for an easy read of such a hard story.

Blood Medicine is an important story for whistleblowers, taxpayers and patients. We are indebted to Kathleen Sharp for her thorough research and insightful writing.

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Washington, DC, attorney Steven N. Berk wrote the following in his blog, The Corporate Observer. He has generously given permission for us to repost it here:

To many, whistleblowers are akin to lottery winners; just plain lucky. If you complain enough (like buying plenty of lottery tickets) you may eventually get lucky. To others, whistleblowers are disloyal, greedy and opportunistic. Fueling these characterizations is surely a public perception that whistleblowers obtain huge awards for little or no work.

I am here to argue that perception is wrong. If whistleblowers’ compensation is measured against their contribution to the common good and compared to let’s say, the Hollywood movie star du jour or the corporate executive that, after a losing year, convinces the Board of Directors (wink nod) to provide a pay package worth tens of millions, whistleblowers are a bargain. Yes a bargain. If anything they are under compensated.

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Today, a three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit ruled in favor of whistleblower Michael Davis and overturned the limitation of that Court's decision in United States ex rel. Findley v. FPC-Boron Employees’ Club, 105 F.3d 675 (D.C. Cir. 1997).  In Findley, the Court held that to be an "original source" for a qui tam claim under the False Claims Act (FCA), a whistleblower must make his or her disclosure to the government before there is any public disclosure of the same allegation.  Today, the Court recognizes that this holding is inconsistent with the Supreme Court's holding in Rockwell International Corp. v. United States, 549 U.S. 457 (2007). It also recognizes that the Findley holding "bars productive suits." Even where there has been some public disclosure of the alleged fraud against the government, a whistleblower could still come forward with original information that would help the government prove that fraud.  Accordingly, it is in the public interest to allow that whistleblower to recover the qui tam award so that other whistleblowers will be encouraged to come forward even after a public disclosure.

Michael Davis used to be an accountant for the District of Columbia.  While he was preparing the District's Medicaid claim for special education services rendered in 1998, the District changed accountants.  Davis nevertheless completed the claim. He had all the required supporting documentation.  However, the District actually submitted a claim prepared by the new accountant without the required documentation. The District collected $10.3 million on that claim.  In 2002, the District's Auditor reported that the District had to repay $15 million for three years of overpayments. In 2004, Davis informed the federal government of the District's lack of documentation. The Court recognized that Davis was an original source for the information he disclosed in 2004. However, the Court also held that since the District actually provided the special education services that the Medicaid program paid for, there were no actual damages to the government. Sill, Davis can recover statutory damages for the false certifications about the supporting documentation.

The case is United States ex rel. Davis v. District of Columbia, No. 11-7039 (D.C. Cir. 5-15-2012). Congratulations to Michael Davis and his attorneys Frederick A. Douglas, Curtis A. Boykin and Alex M. Chintella.

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Whistleblower Dr. Kenneth Jones and his wife Priscilla Jones won an appeal yesterday in the U.S. Court of Appeals for the First Circuit. In vacating a summary judgment, the Court held that Jones presented sufficient evidence of fraud to require a jury trial. Dr. Jones claims that Drs. Marilyn Albert and Ronald Killiany fudged brain scans in a project studying Alzheimer's Disease (AD) to support continued federal funding of their research. Their project was one of the largest Alzheimer's Disease research grants awarded by the National Institutes of Health (NIH). After the study failed to show positive results, Dr. Killiany re-traced certain areas of selected brain scans to get the positive results they were seeking. They further reported that their data exceeded reliability measures without disclosing that those measures applied to the negative results, not the positive results that came from the retracings. Finally, defendants made a false certification that they complied with the regulations governing investigations into scientific misconduct (42 C.F.R. § 50.103(c)(3)). The case is US ex rel. Jones v. Brigham and Women's Hospital and Harvard University.

Dr. Jones was the chief statistician for the NIH grant. He blew the whistle after realizing that measurements used to demonstrate the reliability of the study had been secretly altered. Without these alterations, Dr. Jones explained, there was no statistical significance to the major findings of the study. After Dr. Jones insisted that the altered measurements be subjected to a reliability study and that the results could not be presented as part of a $15 million federal grant extension application, he was terminated and his career came to an end.

The First Circuit overturned a summary judgment.  The First Circuit found that the lower judge had abused his discretion in failing to consider substantial evidence of fraud. This evidence established that Harvard knew of the falsifications and failed to take action to correct or disavow the data. Dr. Jones presented testimony from three experts: a statistician who confirmed that the alterations were responsible for the statistical significance of the study results, a medical researcher who identified that the altered results could not be justified and were changed to establish a predetermined outcome, and a third expert who confirmed that NIH would not have funded the study had the falsity of the data been revealed during the application process and that Harvard failed to adequately investigate allegations of research fraud.  The published First Circuit opinion concludes:

the essential dispute is about whether Killiany falsified scientific data by intentionally exaggerating the re-measurements of the EC to cause proof of a particular scientific hypothesis to emerge from the data, and whether statements made in the Application about having used blinded, reliable methods to produce those results were true.

"This is a major breakthrough holding universities accountable for the integrity of reported research results," explained Michael D. Kohn, one of the lead attorneys for Dr. Jones. "Fraud committed to obtain NIH funding not only robs taxpayers, but also sets back long-term medical research goals. The facts of this case indicate that the report of false data misdirected research efforts at other institutions."

Kohn, who also serves as President of the National Whistleblowers Center, continued:

This is a potent example of how employees who risk their careers to do the right thing can hold even the most powerful and prestigious institutions accountable. Bullying and blacklisting scientists by the likes of Harvard to cover-up research fraud represents a terrible disservice to society as a whole.

Congratulations go to Dr. Jones' legal team, including Jeremy L. Friedman, William D. Hughes and Michael Kohn.

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The NWC is proud to announce the release of the second edition of The Whistleblower’s Handbook: A Step-by-Step Guide to Doing What’s Right and Protecting Yourself. This second edition includes a new 20–page checklist on the procedures for obtaining Dodd-Frank Act rewards from the Securities and Exchange Commission (SEC). The checklist covers the SEC's regulations that went into effect on August 11, 2011, and provides insights on how whistleblowers can use the new regulations to maximize their potential rewards. See pages 276-296.

The new edition also explains how whistleblowers can use the Dodd-Frank Act to blow the whistle on violations of the Foreign Corrupt Practices Act (FCPA). The FCPA prohibits companies traded in the United States from bribing officials in other countries. The SEC can require that companies caught violating the FCPA “disgorge” the monies received through the violation. As the SEC penalty can be much greater than the amount of the bribe itself, the whistleblower's reward of 10 to 30 percent of the SEC recovery can also be very large. Whistleblowers anywhere in the world can now submit anonymous reward claims for reporting corruption of local officials. See pages 30-32 and 294-295.

Other new features of the second edition include:

• How to navigate opportunities to report violations to internal channels and the SEC. Pages 280-281.

• Tips for employees of corporate compliance and internal audit departments. Page 282.

• Examples of the types of corporate misconduct that violate SEC rules and can become the basis for Dodd-Frank rewards. Pages 292-293.

• Managing retaliation claims under both the Dodd-Frank Act and the Sarbanes-Oxley Act (SOX). Page 290.

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The deadline for three organizations to file a petition for review with the U.S. Supreme Court has now passed. The Fourth Circuit's March 28, 2011, decision is now the final word in ACLU v. Holder. Today, the ACLU's chief counsel, Christopher Hansen, confirmed to me that they decided against appealing to the Supreme Court.

In ACLU v. Holder, three organizations asked a federal court to declare that the "seal" provision of the False Claims Act (FCA) was unconstitutional. These organizations were the American Civil Liberties Union (ACLU, and its Virginia affiliate), OMB Watch and the Government Accountability Project (GAP). The FCA's seal allows whistleblowers to file a lawsuit that will not be open for public inspection for an initial period of sixty (60) days. The seal allows the federal government to investigate the allegations to determine if it will intervene in the case to assert the government's right to remedy the alleged frauds. The government can ask the court to extend the seal, and the court must consider whether the government's request is in the public interest. If the seal were invalidated, then the perpetrators of the fraud could receive notice of the allegations, and they could take action to conceal or fabricate evidence before government investigators arrived.

After the Fourth Circuit issued its decision, the National Whistleblowers Center (NWC) issued an open letter to the three groups urging them not to pursue their claim. NWC's letter explained how the seal is an essential element of the FCA's strategy for redressing frauds against the public fisc. We urged the groups not to appeal because the FCA is the most effective whistleblower law in history and has recovered billions of taxpayer dollars. Other prior blog posts about this case are available here, here and here.

Mr. Hansen would not discuss the reasons for not pursuing an appeal to the Supreme Court, except to say that the decision was not made by the ACLU's board, but was made based on "the best interests of the client." Frankly, I am not so concerned now about the reasons for this last decision against a petition to the Supreme Court.  I am thankful that this ill-advised endeavor has come to an end with the FCA's seal intact.

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David Colapinto, Stephen Kohn, Sean McKessy and Michael Kohn. Photo by Lindsey Williams.

Yesterday, the National Whistleblowers Center (NWC) road trip of seminars came to Washington, DC, to spread the word about new opportunities for whistleblowers under the Dodd-Frank Wall Street Reform and Consumer Protection Act. "This was the best continuing legal education I've had in 17 years," attorney Don McKenna told me. In fairness, this is in part because the law has never been so good for whistleblowers. "Dodd-Frank's employee protections are the Cadillac of whistleblower protections," NWC Executive Director Stephen M. Kohn said. However, it was also because of the star-studded faculty. The seminar marks the first appearance of Sean X. McKessy to a "whistleblower-friendly" crowd since he became Director of the Security and Exchange Commission (SEC) Office of the Whistleblower. There was more than one joke about McKessy's background working for corporations. Answering corporate concerns about whether the SEC's rules would undercut internal compliance programs, McKessy said, "I would know if something we [the SEC] do would destroy internal compliance as we know it." McKessy explained how he read through 305 pages of comments to the SEC whistleblower rules. He did so with an eye toward the 40% of frauds that go undetected. McKessy announced that on August 12, 2011 (the day the SEC whistleblower rules go into effect), his office will launch a new web page. The page will have a form for on-line whistleblower submissions. He said his office would be looking for submissions that are "specific, timely and credible." His main message, "We are open for business, and whistleblowers are welcome at the SEC."

Donna Boehme made a presentation on corporate compliance and interface with the new rules. Boehme (rhymes with "Rome") is an internationally recognized authority in the field of organizational compliance and ethics. She is currently a Principal of Compliance Strategists LLC. She serves on the boards of the RAND Center of Corporate Ethics and Governance, the Rutgers Center for Government Compliance & Ethics, the Society of Corporate Compliance & Ethics, and South Texas College of Law - Corporate Compliance Center, and is Program Director for the Conference Board Council on Corporate Compliance and Ethics. She previously served as Group Compliance and Ethics Officer for BP plc (London). Boehme said that she felt the SEC found a good balance between internal compliance and SEC enforcement action and is giving employees a choice of whether to report internally first depending on how they feel about the company's internal compliance program. "Employees really know if a company's compliance program is serious." One good clue: to whom does the chief compliance officer report?  If the answer is the CEO, CFO, general counsel, or HR director, then the program does not have the independence required for the compliance mission. A company's senior people are the typical wrongdoers, she notes. The correct answer is the board. "Expectations for the board are changing, and real board training should be the next wave," she urges. "Not all internal compliance programs are equal," Boehme observed. The process of developing a program employees will trust "allows companies to do some soul searching." Boehme, and her colleague Michael Greenberg, wrote an op-ed for Bloomberg Government last month on the SEC whistleblower rules. "Compliance and internal audit people often get in trouble for doing their job too well," Boehme told us.

Dean Zerbe (pictured with David Colapinto) is special counsel to NWC, and a principal of The Alliant Group. He formerly worked for Sen. Charles Grassley as chief investigator, and as counsel to the Senate Finance Committee.  In that capacity, he wrote the law creating the IRS whistleblower reward program. "The SEC rules came out a lot better because of the National Whistleblowers Center," Zerbe said, noting that the SEC cited NWC's comments over 40 times. "Thank them for the rule being much better." Zerbe's main point, however, was that, "the people whose hands are dirty are the ones who have the specific, timely and credible information." He explained that the phrase "substantially directed, planned, or initiated the violation" is a term of art that refers to the leader of the law-breaking group. Anyone who was following the leader should not suffer a reduction in any reward because they are precisely the group that whistleblower rewards were meant for. Moreover, since becoming a whistleblower can mean a person's career is over, rewards should not be reduced. "To catch a big fish, you need to put a lot of bait in the water."

The NWC seminar tour makes its next stop in New York City on July 25, 2011, at 1:00 p.m. Stephen Kohn will be speaking at the Mid-Manhattan Library in New York City at 6:30 pm (EDT) that evening on his new book, The Whistleblower’s Handbook: A Step-by-Step Guide to Doing What’s Right and Protecting Yourself.

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