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

Here is an update to our earlier posting on S. 386.

The Office of Management and Budget issued a Statement of Administration Policy to the Senate on Monday, April 20th stating that the Obama Administration “strongly supports enactment of S. 386.”  The statement explained that the Fraud Enforcement and Recovery Act of 2009 (S. 386) would “benefit U.S. taxpayers by both addressing existing fraud and deterring waste, fraud, and abuse of public funds.”  It also pointed out that the bill would “amend the False Claims Act (FCA) in several important respects so that the FCA remains a potent and useful weapon against the misuse of taxpayer funds.”

Notably, the statement supporting the Fraud Enforcement and Recovery Act is the only statement the Office of Management and Budget has sent to the Senate since the beginning of the Obama Administration.

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On Monday, Senator Grassley (R-IA) expressed his support for the Fraud Enforcement and Recovery Act of 2009 (S. 386) saying “we simply cannot allow unscrupulous individuals to defraud the government and rip off taxpayers.” The bill provides new tools for the federal government to fight fraud and makes much needed amendments to the Federal False Claims Act.

Under the False Claims Act, whistleblowers bring lawsuits against companies who defraud the federal government. As a reward for their courageous actions, whistleblower receive a portion of the amount the federal government recovers.  As Senator Grassley correctly pointed out in his floor statement,  “we would not have the case or the money returned if it wasn’t for the information of the whistleblower.”  This law has been used to recover more than $22 billion since 1986 and has deterred an incalculable amount of fraud.  

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.

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The U.S. Supreme Court has granted a writ of certiorari in the case of Eisenstein v. New York. Eisenstein is a qui tam action brought by municipal employees in New York City. The complaint makes a rather unique argument, alleging that NYC is depriving the federal government of tax revenue by requiring city employees who are non-city residents to pay "a fee equivalent to the municipal income taxes paid by resident city employees." The non-resident employees then are permitted to take a federal tax deduction in the amount of the fee, which lowers their amount of taxable income, therefore lowering the amount of tax revenue going to the IRS.

The Supreme Court, however, is not looking at the substantive facts of the case. The Justices will be ruling only on the following issue: Whether a qui tam plaintiff has 30 or 60 days to file an appeal in a False Claims Act case in which the government has not intervened.

The Federal Rules of Civil Procedure Rule 4(a)(1)(A) requires all civil appeals to be filed in 30 days unless the United States is a party to the lawsuit, in which case Rule 4(a)(1)(B) extends the appeals deadline to 60 days. The plaintiffs in the Eisenstein case reason that, since the US government always stands to benefit from a qui tam action, then they are a "party" to the case even if they have not chosen to enter into the suit. However, the Second Circuit Court of Appeals threw out the Eisenstein case, holding that: 

"...where the United States has declined to intervene in a False Claims action, the United States is not a party to the action...therefore a notice of appeal must be filed in 30 days."

This is an interesting case. We will keep you updated on it's progress and outcome. Briefs are due to be filed by the end of March. See the links below for more information.

 

 

• Second Circuit Opinion
• Petition for Certiorari
• Opposition Brief
  
• Petitioner's Reply Brief

 

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"Whistle-blower legislation brings in a lot of money," proclaims the headline in Business Hungary magazine. The article in November's issue reports on a trip to Hungary by Stephen M. Kohn, President of the National Whistlelbower Center. 

Stephen Kohn traveled to Hungary last Fall to urge Hungarian officials to adopt a whistleblower law similar to America's False Claims Act (FCA).  Under the FCA, those whistleblowers who are the original source of information leading to the recovery of federal funds fraudulently obtained can recover between 15% and 30%  of those funds. Since a 1987 amendment, FCA claims have helped taxpayers here  reclaim $20 billion. To help us make these recoveries, the whistleblowers faced
discharge, financial ruin or worse. Even whistleblowers who are not the "original source" of information are still protected from retaliation.

More significant than the money recovered, the FCA compels business to stay honest with the government -- cleaning up entire industries.  No wonder, then, that Hungary's Minister of Justice, Tibor Draskovics, announced plans for a similar law in Hungary. A recent Transparency International report also recommended whistleblower protection legislation as a way to deter corruption.

The Hungarian branch of the Chamber of Commerce recognizes how whistleblower remedies, and even cash awards, will encourage reports of wrongdoing and help honest businesses compete. I wonder, though, why honest American businesses are not promoting the FCA here in their homeland. The FCA routs out the the dishonest operators here too, and levels the playing field for honest businesspeople everywhere. It would be logical, then, if these same American businesses would support the False Claims Corrections Act when it is reintroduced in the new Congress.

Click here for an image of this Business Hungary article.

 

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The Boston Globe is reporting that the Supreme Court is considering taking up a case that "might set new limits on whistle-blower lawsuits against drugmakers, biotechnology companies, and other businesses." The court has requested advice from the Department of Justice regarding the suit.

The case in question deals with the False Claims Act and specifically whether FCA cases can be based on allegations which have previously been made public in state government documents. Limitations have currently only been applied when the whistleblowers' allegations have previously seen light in Federal Government documents.

Industry groups support the new limitations, which is no surprise considering the FCA has been the most effective fraud-fighting law in history, netting over $1 Billion in fraud recoveries for American taxpayers last year alone. 

FCA-type laws are also helping uncover massive government contractor fraud schemes in countries like South Korea

Click here to DIGG this story

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Last week the Congressional Budget Office released this report on the revenue-creating potential of current proposed legislation in the to amend the False Claims Act. Similar bills are now pending in the Senate (S. 2041) and the House of Representatives (H.R. 4854). This marks a turnaround in opinion for the CBO on this issue. In April, the CBO released a report stating that the Senate version of the bill would not significantly increase government revenues, but this most recent report (which officially only deals with the House version of the bill) indicates that they have improved their assessment with regard to both bills.

This 2-page document offers a concise description of the legislation (H.R. 4854), and states that: 

"[The] CBO originally estimated that S. 2041 would not significantly increase revenues and collections. However, based on additional information, CBO now expects that either H.R. 4854 or S. 2041 could increase revenues and collections."

 

This is another promising sign for this much-needed legislation. For more blog posts about the False Claims Act, click here.

 

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Did you know that whistleblowers reporting under the False Claims Act have accounted for over $1 Billion in recovered federal and state taxpayer dollars this (fiscal) year alone?  This Marketwatch.com article details the biggest fraud recoveries in '08, including hundreds of millions of dollars from companies such as Amerigroup, Merck, Bechtel, CVS, and Pratt & Whitney. 

Despite these results, the False Claims Act (a civil war-era law that was last amended in 1986) is in need of some retooling. Senators Grassley and Leahy are pushing an amendment package (Bill # S. 2041) that would close the loopholes created by destructive Supreme Court decisions, such as Allison Engine Co. v. U.S. . this legislation should be enacted immediately. Further, because we know that the DOJ is letting hundreds of FCA cases languish without investigation, the DOJ needs to hire more civil fraud attorneys and focus more resources on ferreting out government contractor fraud.

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The National Whistleblower Center issued the following public service announcement today:

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National Whistleblower Center Releases Update to
Federal Whistleblower Laws and Regulations Book

 

August 26, 2008. Washington, D.C. The National Whistleblower Center announced today that it has released an updated version of its publication, Federal Whistleblower Laws and Regulations. This publication was first made available as a free download in May 2007 and is the only legal treatise encompassing all federal laws protecting whistleblowers. Federal Whistleblower Laws and Regulations contains the text of over 100 federal statutes and regulations, including the Sarbanes-Oxley corporate whistleblower law, the False Claims Act, the Whistleblower Protection Act and the newly passed Consumer Product Safety Reform Act.
 

This update publication is available immediately as a free PDF download from the National Whistleblower Center website. To download, please click this link: Federal Whistleblower Laws and Regulations.
 

For more information about the National Whistleblower Center visit www.whistleblowers.org

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If you do the math on a Washington Post story yesterday it turns out the paper reported on what amounts to 225 scandals.

The Justice Department told the Post there is a backlog of approximately 900 False Claims Act cases, and that the backlog could take years to unclog. Obviously the time involved can damage the ability to pursue even the most meritorious cases. Justice also told the Post that they reject about 75% of all filed FCA cases, and most of those have little merit. I would bet that quite a few of the cases rejected have some merit but why quibble over that? If there are 900 cases in the system and a quarter represent cases that should be pursued, that means there are 225 good cases of fraud stuck in a black hole. That means we have not one scandal but as many as 225 scandals, because each such case deserves priority treatment the Justice Department simply does not have the resources to handle. These 225 cases have to be relatively big and they likely involve major contractors who can continue to commit fraud against the United States. Of the remaining 675 in which the Justice Department may investigate and see no merit, the inability to kick them back to private attorneys quickly does not help.

Private Attorneys would at least like to clear their own backlog but they would also like the chance to pursue some of those cases. Justice may have legitimate reasons not to pursue a case a private attorney might take a chance on, but if the case waited three years for an initial determination very few whistleblowers will still have the resources, time and ability to continue the fight even if they are right.

But the fact is, according to Justice there must be at least 225 cases that have merit. How can we let this continue? We know. We know by Justice's own procedures that there must be some 225 cases of major fraud and nobody can even get to deal with them. That's a pandemic of fraud and we are not fighting the disease. Within those 225 cases that means, important safety concerns and governmental functions are being undermined by unscrupulous contractors. The contractors who profit from fraud gain a competitive advantage and push out honest contractors who want to do good work. Fraud is very profitable and if you can get away with it provides a great competitive advantage. Right now you can get away with it.

These aren't small cases. Nobody takes the trouble to file a False Claims Act case these days if they can't find at least millions in damages because by the time the Relator gets their share, it does not leave much for what now appears to be years and years of legal work. Billions of dollars of fraud are lost this way. The whole point of the FCA is to punish and deter fraud. How do you deter fraudulent activity when it is clear to everybody that the Justice Department does not have the people power to stop it?

At least some of the fraud must compromise vital government activity. More and more contracts are being used to do what we used to think of as inherently governmental functions. The very mail room in the Justice Department where these cases arrive is run by a private contractor now. Its scary to think about how dependent national security is on private contractors who can commit fraud in this environment. It is also hard to think of anything that corrodes our basic faith in government more readily than the extensive nature of this fraudulent activity.

The Post story blew the whistle (if you will pardon the expression) on the problem, but who are we to blame? Certainly not the career Justice lawyers who are overworked beyond reason. Assistant United States Attorneys working on False Claims Cases have dockets of 60 cases. Open the file on each case and look at it and a whole week is gone. Main Justice has only 75 lawyers they can assign to these cases. The people trying to deal with these cases want to investigate the cases responsibly and they want to win even in a judicial environment hostile to whistleblowers. There are simply not enough attorneys and investigators to go around.

Justice has approximately the same number of attorneys working on these cases that they did in the early 1990s when far fewer cases were brought, far less government functions were handled by private contractors and when the kinds of cases were not generally as complicated or big. How do you investigate a fraud, which may have occurred in Afghanistan or Iraq? How does the same lawyer become an expert on Medicare regulations AND Defense contract procedures overnight?

Here's a starting suggestion. Hire all the lawyers. There has never been a better time. The only area of law experiencing growth right now besides fraud is bankruptcy, so there should be plenty of attorneys looking for work. I don't care if the Justice Department has to appoint special attorneys general to investigate one case or if they want to just take the first 750 resumes that come across the door, we have to do something. There are private law firms that have that many attorneys. Why is it so outrageous for the federal government to hire enough attorneys and investigators to deal with a serious issue of national importance, which would, if they did it save as opposed to cost tax money? We hear lots of talk about cutting waste fraud and abuse in an election year.

We don't hear much talk of a bill to specifically expand Justice by enough lawyers and more investigators to fight fraud. What else could the government spend money on which would certainly return money to the taxpayer directly and also improve the quality of work done for the government? Here is a law that actually gives investigators and lawyers at least some chance of fighting fraud in a courtroom. Now if we could only get enough people involved in bringing the cases there we might be able to find out what is going on in those 225 scandals sitting on a shelf in a Government office.

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UPDATE: THE COMMITTEE VOTE ON S.2041 HAS BEEN POSTPONED. AS OF TODAY (3/13/08) AT 2PM IT HAS NOT BEEN RESCHEDULED. MORE INFO WILL BE POSTED AS WE RECEIVE IT...


The Senate Judiciary Committee is scheduled to vote on S.2041, The False Claims Act Correction Act, in a meeting this Thursday. The bill is designed to reverse key federal court decisions which have undermined the intent of the FCA. This legislation has been championed by committee member Sen. Charles Grassley, and was the subject of a hearing on Feb 27, which I attended and blogged here.

• Click here for the official announcement on the Committee's website
• Click here to read Stephen Kohn's testimony, submitted at the 2/27/08 hearing

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