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

Along with creating better financial regulations to prevent problems on Wall Street that have affected the nation, the bill also includes better whistleblower protections and increases the statute of limitations for retaliation claims under the False Claims Act to 3 years. The bill has created two new qui tam provisions for commodities and securities exchanges, thus providing employees who witness fraud the ability to report it and sue on behalf of the government. The bill also closes a loophole in the Sarbanes-Oxley Act, assuring coverage for whistleblowers employed by subsidiary companies. Mr. Kohn stated that this bill might possibly be the single most important whistleblower protection law in the United States, aside from the First Amendment and the False Claims Act. 

After the presentation on the Dodd-Frank bill, Michael Kohn, NWC President, David Colapinto, NWC General Counsel, and Tony Munter, an NWC Attorney, gave a presentation on the False Claims Act and how to integrate it into one’s law practice. They gave a run-down of the steps involved in screening clients with potential False Claims Act cases and the steps involved in filing and litigating such a case.

If you are an attorney and would like to be added to the NWC's list for notification on upcoming events, please contact Lindsey M. Williams at lmw@whistleblowers.org. The full agenda and written materials from the seminar are available here.   

*Phil Shank (NWC intern) drafted this post.

Nobody has filed many purely State False Claims cases. Sure there are a lot of State qui tam laws now. Most of the laws aren’t even five years old.  Even in the states with older laws most of the cases are filed as part of, or the result of a big federal case. Even when  the cases are not Medicare or Medicaid related, most purely state cases look like the same thing as a federal case. The state gets ripped off so somebody files a qui tam action. States are defrauded just like the federal government.
 
We thought the only big difference in filing such a case under state law as opposed to the federal law is the agency you work with to conduct the initial investigation under seal –instead of working with the Federal Department of Justice, you work with the state Attorney General.  We figured there were some technical differences with State qui tam laws, but nothing experienced qui tam attorneys could not handle.

Indeed, in the first part of the seminar the state officials on the dais played to our smugness. Both state officials said, “You may have to work with the local Attorney General’s office to explain how their state qui tam law can work.” Sure we can do that, we thought. We can lecture the highest law enforcement officials of a state as to how their own law can work for them.

In truth, a lack of information is a problem because State False Claims Acts are new. State prosecutors have a lot of experience going after consumer protection cases, but do not yet know much about how to apply the qui tam procedures even to similar facts. Those procedures can be very tricky at every level. We know the procedure. We know the law and we know what can make a good claim in a False Claims case.

So, one lawyer a veteran of many conferences, asked what we all wanted to know, but few figured would elicit such a surprising answer. He asked “What kind of cases do you see being filed in State Court in the future?” When the state official answered “securities fraud” we were a little stunned.

We looked at each other. Maybe this guy is thinking of Sarbanes Oxley or class action cases? Then the penny dropped and we started to see dollar signs. Big dollar signs with lots of zeroes.

Pension funds. States have pension funds. The Federal Government has a printing press--not investments.  

In the federal context the Securities and Exchange Commission handles fraud issues. The federal government does not usually own stocks or bonds.

Some states, like Illinois or California, allow us to sue on behalf of any political subdivision. So, if the city of Santa Monica has a pension fund and there is a securities fraud violation we can sue under the California False Claims Act.

When there is securities fraud usually a state pension fund will have bought the security. The City of New York supposedly has 80 billion dollars in assets in its pension fund alone. The damages for fraud have the potential to be huge and this is a new area of qui tam action.

Three days later a colleague sent me a story on the State of California suing for $200 million in securities violations.  

So, if you have heard of any major securities scam, do what any smart whistleblower should do. Hire a lawyer who knows about qui tam and run to your nearest state court house.

If your state does not have a qui tam provision, maybe they should. After all, why should the pension funds covering workers in Columbus, Ohio not get the same protection as the pension funds for those who work in Richmond, Virginia?

You can see if your state has a qui tam law by clicking here.
 

Favorable decision in a False Claims Act retaliation case
by Jason Zuckerman -  Sep 17, 2009

D.C. District Court Rejects Employer’s Attempt to Carve New Loopholes Into Whistleblower Protection Statutes

Affirming a jury’s finding that Mohammed Kakeh, a Controller for the United Planning Organization (“UPO”) was terminated for his refusal to engage in fraudulent billing and for providing information to the Office of Inspector General, Judge Kessler rejected several arguments by UPO that would undermine the statutory whistleblower protections under which Kakeh brought his claim, the D.C. Whistleblower Protection Act (“WPA”) and the retaliation provisions of the False Claims Act (“FCA”) and the D.C. False Claims Act (“DCFCA”). The opinion is attached.

Gross Does Not Apply to FCA Retaliation Claims

UPO argued that the Supreme Court’s recent holding in Gross v. FBL Fin. Svcs., Inc., 129 S. Ct. 2343 (2009) requires courts to apply a “but for” causation standard to the retaliation provisions in the Federal and D.C. False Claims Acts. Judge Kessler held that Gross does not apply to FCA retaliation claims, distinguishing Gross in part on the ground that it is an ADEA case. The “because of” causation standard in the text of the FCA’s retaliation provision has been construed as a “motivating factor” causation standard, i.e., plaintiff can prevail by demonstrating that the adverse action was motivated, at least in part, by the employee having engaging in protected activity.

The “Duty Speech” Doctrine Does Not Apply to FCA Retaliation Claims

UPO argued that Kakeh’s disclosures were not protected because they were made pursuant to his “regular job duties.” Relying on U.S. ex rel. Yesudian v. Howard Univ., 153 F.3d 731, 736 (D.C. Cir. 1998), which sets forth a favorable standard of protected conduct under the FCA’s retaliation provision, Judge Kessler held that “an employee engages in protected activity when he discloses fraud and corruption, as opposed to making a ‘complaint about mere regulatory compliance’. . . Plaintiff repeatedly stated that he believed that Defendant’s billing practices were fraudulent and . . . . consistently framed these differences as matters of fraud and ethics, rather than routine disagreements about regulatory compliance. Therefore there was sufficient evidence for a reasonable juror to conclude that Plaintiff was engaging in protected activity.”

Plaintiff Need Not Use “Magic Words” to Engage in Protected Conduct

Defendant argued that to be covered by the WPA, Plaintiff’s disclosures must use “the language or terminology of fraud, waste, or misuse.” Judge Kessler concluded: “As Plaintiff correctly states, however, Plaintiff was not obligated to use “magic words” to trigger the protections of the WPA. As the WPA indicates, a disclosure is protected if the employee “reasonably believes” that he is revealing a gross misuse of public funds or a violation of a law, rule, regulation, or contract term. D.C. Code 2-223.01(7).”

Disclosure of Public Information Can Constitute Protected Conduct

UPO asserted that plaintiff did not disclose to his supervisor any information that “was not already known as [sic] result of the prior year-end audit reports, Mr. Eboda’s preliminary report, the Head Start monitoring review and/or The Washington Post articles.” Judge Kessler held that “[e]ven if this information was already public and even if Jones already had knowledge of it, Plaintiff was the one responsible for disclosing it in the first instance.”

“Billions and billions of dollars in new government spending has been authorized,” the article quotes Stephen M. Kohn, president of the National Whistleblowers Center. “The taxpayers need the strongest possible anti-fraud laws in order to prevent financial recovery monies from being looted.”

The article notes that over 20 state and local jurisdictions now have their own "Little FCAs" offering rewards and protection for those who report fraud against those jurisdictions. The National Whistleblowers Center (NWC) has a map showing these jurisdictions.

The article reports that since 1986, the FCA has recovered $14 billion, and whistleblowers got to keep over $2 billion of that.  “You have to compensate people for taking on that burden,” said Michael Sullivan in the article.  Sullivan is a partner at Atlanta-based Finch McCranie, specializing in whistleblower suits. “Being ostracized. Attacked. Sometimes they get sued by companies doing the wrong.”

The article reports on a similar new program for those who report tax fraud costing the Internal Revenue Service over $2 million. Passed in December, 2006, the IRS Whistleblower Rewards Program, offers whistleblowers 15 percent to 30 percent of such recoveries - along with anonymity. FCA whistleblowers will not be anonymous once their suit is "unsealed" (after the government makes its decision whether or not to intervene in the case).

The amendments to the False Claims Act correct loopholes created by recent court decisions, including the Allison Engine case, which allow companies to avoid liability for fraud.  These amendments are absolutely necessary to protect taxpayer dollars – especially in light of the billions of dollars spent in the economic stimulus and TARP legislation.  However, Senator Grassley reminds us “you’re going to find those same special interests that have been around for the last 20 years, trying to gut the legislation. Why? Because it’s one of the most effective tools against fraud.”  We will be following this legislation and will keep you updated on its progress.  

In addition to the amendments to the False Claims Act, the bill authorizes funding for law enforcement and prosecutors, makes changes to federal criminal laws, redefines “financial institution” to include mortgage lending businesses, and adds commodities futures to the securities fraud statute.  The bill also makes it illegal to make false statements on mortgage applications and appraisals and ensures that economic relief funds and TARP funds are included in criminal law prohibiting fraud against the government.