Justice Department Considering Using False Claims Act to Recover Losses in Deepwater Horizon Disaster

Posted on July 26, 2010 by Lindsey Williams

FCA Legal Actions Could Result in BP Paying Treble Damages To United States Taxpayers

 
Washington, D.C. July 26, 2010.  Assistant Attorney General Tony West confirmed that the U.S. Department of Justice was "considering all avenues of redress against the potentially responsible parties," according to a letter released today by the National Whistleblower Center. The letter specifically mentions the False Claims Act ("FCA").  The letter is in response to a letter from NWC urging the government to use the FCA to hold responsible parties accountable for losses suffered by the taxpayers as a result of the Deepwater Horizon disaster.
In a letter to the Executive Director of the National Whistleblower Center, Assistant Attorney General West praised the "important contributions" of whistleblowers (referred to as "relators under the FCA) "in assisting the United States" in recovering "taxpayer funds."  West stated:
 
This public-private partnership has proved a successful tool for the recovery of public funds and for rewarding relators who bring allegations of fraud to the government.  Indeed, since January 2009 more then $3.6 billion was obtained under the Act's qui tam provisions, and relators were awarded more than $497 million for their efforts in helping government pursue these recoveries.
 
The FCA was originally signed into law by President Abraham Lincoln, and was recently strengthened by Congress in 2009 and 2010.  The law covers corporations that obtain oil and gas leases from the United States, and provides for the payment of treble damages if a company violates the FCA.  Qualified whistleblowers that provide original information concerning such violations are entitled to mandatory monetary rewards between 15% and 30% of any monies recovered by the United States pursuant to an FCA case. 
 
Stephen M. Kohn, the Executive Director of the National Whistleblower Center praised Assistant Attorney General West's response: 
 
It is not enough to simply slap BP on the wrist by making them pay fine and clean up costs. BP owes U.S. taxpayers treble damages, and they must be made to pay up.
 
The FCA is powerful tool, protecting and rewarding employees who expose violations of environmental law and government lease agreements.  Under the FCA, every corporation involved in drilling under a federal government lease can be held accountable to the taxpayers for treble damages if they violate the terms of those leases or if they made false statements to obtain a lease.  This liability stretches beyond the Deepwater Horizon disaster. Workers, who risk their jobs and careers to expose violations of leasing obligations, including violations of safety and environmental standards, are entitled to significant monetary rewards if their claims are covered under the FCA. We are encouraged that the Justice Department is considering using the FCA as one of its legal tools for protecting Americans from economic and environmental disaster in the Gulf Coast.
 
 
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Congress Passes Major Whistleblower Reforms as Part of Wall Street Reform Bill

Posted on July 15, 2010 by Lindsey Williams

The Wall Street Reform and Consumer Protection Act (H.R. 4173) passed 60-39 by Congress today includes a number of provisions designed to protect employees who report fraud in the commodity and stock exchanges. This is one of the most important whistleblower laws ever passed.

The bill includes two qui tam provisions for Securities and Commodities whistleblowers, and three anti-retaliation provisions. It closes a major loophole in the Sarbanes-Oxley Act by covering subsidiaries of publicly traded companies. For the first time employees at "statistical rating organizations" such as Moody's and Standard & Poor's have whistleblower protection.

Although this bill is historic, it is important to note that these protections are for private employees. There is still work to be done to pass H.R. 1507, so that federal employees may also come forward to report waste, fraud and abuse without fear of retaliation.
 

The NWC has compiled the sections of this bill that pertain specifically to whistleblowers with a one-sentence summary of each (see below). Additionally, the NWC's upcoming seminar, scheduled for July 23, 2010, has been updated to include a presentation of the whistleblower provisions in the Wall Street Reform Act. To register, click here.

Section 748
23(A) - qui tam for whistleblowers under the Commodities Exchange Act

23 sub (H) - anti-retaliation provision, which permits whistleblowers to go to federal court if they are retaliated against for filing fraud claims under the Commodities Exchange Act

Section 922

21F(a) qui tam for securities fraud: new qui tam rewards and incentives for whistleblowers who blow the whistle on securities violations

21F sub (H)(1) anti-retaliation provision for employees who file qui tam claims under securities law

(H)(1)(A)(iii) anti-retaliation for employees who make disclosures under SOX, any violation of SEC art or who make protected disclosures under obstruction of justice act

Claims filed in federal court - employees entitled to double back pay

(B) statistical ratings organizations (Moody's & Standard & Poor's) now protected under SOX anti-retaliation provisions (C) SOX whistleblower protection act enhanced and amended to increase the statute of limitations, guarantee jury trials, and prohibit mandatory arbitration agreements

Section 923 - Conforming amendments

Section 924 - SEC regulations to establish special whistleblower office and impose regulations enforcing whistleblower rules. 

Section 929A - SOX anti-retaliation law is clarified to ensure subsidiaries of publicly traded companies are fully protected under the whistleblower protection law

Section 966 - Federal employees are losers under the Act and regulators obtain no protections except a glorified "suggestion box"

Section 1057 - New whistleblower protection for employees who make disclosures to the newly created consumer protection board

Section 1079B - Amends the False Claims Act anti-retaliation law to provide for universal national 3 year statute of limitations to file wrongful discharge claims under the False Claims Act.





*Meryl Grenadier (NWC Fellow) drafted this post.

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Sen. Grassley asks pharma about whistleblower policies

Posted on July 1, 2010 by Richard Renner

Sen. Charles Grassley today released copies of his letters to 16 big pharmaceutical companies about their whistleblower policies. Bloomberg news service is also reporting on these inquiries. The letters review Sen. Charles Grassley on Senate floorSen. Grassley's efforts to strengthen the False Claims Act (FCA), and ask what the companies are doing to inform employees about the FCA, and then to protect employees who come forward with information about frauds. Sen. Grassley notes that since the 1986 amendments, the government has recovered $22 billion that had been obtained by fraud. He notes that Section 6032 of the Deficit Reduction Act (DRA) required contractors receiving over $5 million a year to issue written policies to employees about their rights under the FCA. The Bush administration then determined that this Section 6032 did not apply to pharmaceutical companies.  Sen. Grassley disagrees, but still wants to know if the 16 biggest pharmaceutical companies nevertheless have the policies that would be required by Section 6032. Of the $22 billion recovered, Pfizer paid $2.3 billion in one settlement. Pfizer's Chris Lodertold Bloomberg that it is responding to the letter and “shares the senator’s desire to detect and report any false claims that may lead to unnecessary costs to our health-care system.” Pfizer, he said, has invested “substantial resources” to “create a compliance program that consists of mandatory training for every one of our employees, proactive monitoring and surveillance, and strict enforcement of all federal and state health-care laws.” I wonder if Pfizer is more highly motivated since it paid that $2.3 billion.  Sen. Grassley letters are available in the continuation of this blog entry

Below are links to the letters sent by Grassley to:

Abbott Laboratories
Amgen
AstraZeneca Pharmaceuticals
Boehringer
Bristol-Myers Squibb Company
Eisai Corporation of America
Eli Lilly and Company
Forest Laboratories
GlaxoSmithKline
Hoffman-La Roche Inc.
Johnson & Johnson
Merck & Co.
Novartis
Pfizer
Sanofi-Aventis
Takeda Pharmaceuticals
 
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Drilling for the Truth in the Gulf with the False Claims Act

Posted on May 7, 2010 by Tony Munter

The first person or group who drills and hits the truth in the Gulf of Mexico can win a huge payoff IF they use the False Claims Act. 

We want everyone who can to use this law and drill for the truth in the Gulf, not only to find out about the current disaster, but also to prevent future catastrophes.

 

The False Claims Act can be used to hold companies liable for the oil disaster in the Gulf. Most likely, liability for fraud against the government was established long before a drop of oil escaped a pipe. The minute anybody made a misrepresentation to the Department of the Interior and its Mineral Management Service to procure a lease to drill for oil they became liable for resulting damages. See, Section 3729(a)(1)(B) of the Act on creating a false record or statement material to a false claim.

 

The oil, you see, belongs to you and me. To get the oil, BP needed a lease from the government. If they made a misrepresentation about the safety of their procedures to get that lease, they are liable under the Act. If it was BP and a bunch of friends, for example the owner of the rig or subcontractors, they could be jointly and severally liable for conspiracy under Section 3729(c).

 

Yes, conspiracy. Young lawyers and prosecutors hear the word and dream of their own episode of Law and Order. They see tough cops questioning BP executives over stale coffee and donuts and then questioning a subcontractor in the next room.

 

Who will crack first? There are, after all, plenty of companies who may be liable for the current disaster.  These companies should think about who could talk first and point the finger at the other guy. Maybe if they work with the government now they won’t have to pay as much later.

Surely the General counsel for such a company has seen how this can work.

 

Under the Act, the $75 million cap on damages extended to oil rigs by statute could be blown to bits like a cement pipe under 5000 feet of water. The cap can’t hold fraud. So the companies may want to think about being the first to confess and letting the next guy pay more.

 

Moreover, any lease to drill for oil issued by the government could become the subject of a lawsuit.  We know this is not the only lease out there. The False Claims Act allows for awards of three times the damages to the U.S. government. If companies lied to get a lease they may be liable even if there has been no leak of oil yet. After all, the company would have lied to get a lease (a government benefit) to drill for our oil by misrepresentation. Would they have to give back the lease? Would they have to return money earned from the lease obtained through fraud? They might. And they could be subject to a civil fine for each misrepresentation as well. See Section 3729(a)(1). That is liability even before the pipes break. Once a pipe breaks, of course, the damages grow. The investigations involved in such cases would bring real power to enforce safety regulations on other oil rigs.

 

We suppose BP or another guilty party could argue about which damages resulted from the misrepresentation, or they could make a technical argument about whether a lease is a claim against the government. We could respond with case law, but for today let’s just say we would not want to try that with a jury in Federal Court in Louisiana, Florida, or Mississippi.

 

BP is the group with the most to lose now, but they could also be the first to drill for the truth to avoid some losses.  Under the FCA, if BP or any other involved party discloses any and all misrepresentations made to get oil leases first, they can significantly limit damages.

 

Alas, for BP it may be too late. The law says BP or any potential defendant had to disclose within 30 days after the date it first obtained the information, and there is not a case filed under the False Claims Act and there is no FCA investigation launched which BP knows about. See Sections 3729(a)(2)A-C.

 

We have no experience advising potential defendants in these matters. So they probably won’t listen to us. We doubt they will be sufficiently enthused by the idea that their damages could be limited to double polluting the entire Gulf of Mexico rather than triple if they do the right thing and tell the Government what really happened in the Gulf. Only lawyers could even ask what is the value in monetary terms of one Gulf of Mexico? However, that is what is at stake here.

 

So we still need someone who can drill for the truth.

 

How about the U.S. Department of Justice?

 

Attorney General Eric Holder does not have to wait for orders. He can issue them. Under the False Claims Act the Department of Justice could move today to investigate the BP lease. The Attorney General has the power to sue with or with out anyone else under the Act Section 3730(a). Maybe Mr. Holder can’t close Gitmo by himself, but if he wants to fight environmental disasters now and for all time this he can do.

 

The minute the Attorney General sues under the Act the Department does not have to share any of the money with those pesky relators who want a share of the reward. So the Attorney General has an incentive to act now.

 

See Section 3730(e)(3):

 

In no event may a person bring an action under subsection (b) which is based upon allegations or transactions which are the subject of a civil suit or an administrative civil money penalty proceeding in which the Government is already a party.

 

What the United States does with the money is hard to control, but Mr. Holder could make some suggestions to Congress about increasing his budget to fight fraud. He would be in a pretty strong position if he acts quickly to secure the American public’s interest in retaining money from the industry.

 

We do not know if the Attorney General will move quickly. He’s busy to be sure and there are other government investigations being run by Congress, for example.  So the Justice Department may want to leave it to others. Those other investigations may get some information or they may not.  They may do something about legislation or not, but can they sue for three times the Gulf of Mexico? We hope the Attorney General will drill for the truth now.

 

If he does not we have to make a painful mixture of metaphors and ask for help from the one group of people that always drills for the truth.

 

Whistleblowers. We are blowing our whistle as loudly as we can for you. Brave individuals can act and become plaintiffs under the False Claims Act.

 

In this case a plaintiff will need to be a real insider, someone who knows what really happened. They have to know something we do not know. Workers who know about the safety procedures required, but not followed. Workers who know about misrepresentations made to the government.

 

To file a case with this much known in public the so called qui tam plaintiff really has to know something specific not yet known. They will most likely have to be an “Original Source” of the information. See Section 3730(e)(4)(B).

 

We know that there are people out there who have this inside information. The False Claims Act gives them real power to be qui tam plaintiffs who can file cases and possibly obtain a share of the money recovered if they act fast.

 

The first to file establishes a claim over the allegations in a complaint. The second may be too late. If the Attorney General Acts to sue before a whitleblower, the individual would get nothing. The race has already begun.

 

We hope the Attorney General Acts, but we are betting on whistleblowers. We hope they file a case under the qui tam provisions of the False Claims Act. See Section 3730(b)

 

We know they are out there and we have only one message for them.

 

Drill, baby drill, for the truth.

 
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Upcoming Seminar: Integrating the False Claims Act Into Your Law Practice

Posted on May 7, 2010 by Lindsey Williams

The False Claims Act is the most powerful federal whistleblower law. Unfortunately, attorneys and their clients often miss the opportunity to file a claim, because they lack knowledge of the law's unique requirements and procedures. This seminar will provide an introduction to the law to help an attorney determine both how and whether to file a claim. This seminar will take place on Friday, June 11, 2010 from 12:00 pm - 3:00pm EST. Attorneys can participate in-person at the National Whistleblowers Center office, located in Washington, D.C., or via teleconference.  

To view the seminar faculty and bios, click here. For seminar agenda, click here.   

Register now online, or mail a check payable to the National Whistleblowers Center to 3238 P Street NW, Washington, DC 20007. 

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Health Care Bill Enhances Whistleblower Protections

Posted on March 22, 2010 by Lindsey Williams

As part of the anti-fraud provisions of the health care legislation passed yesterday, Congress strengthened the False Claims Act - one of the most effective whistleblower laws in the United States - in order to ensure that whistleblowers can expose fraud under the Patient Protection and Affordable Care Act.
 

Lindsey Williams, Advocacy Director at the National Whistleblowers Center, explained the whistleblower provisions incorporated into the health care law:  "The bill directly addresses the right of whistleblowers to obtain protection under the False Claims Act. A number of courts had significantly narrowed the interpretation of 'whistleblower' under the law, resulting in a chilling effect on employees' willingness to risk their careers to expose fraud against the taxpayers. The health care legislation passed by Congress contains a much-needed provision correcting these narrow, anti-whistleblower rulings."
 
The legislation also ensures that the False Claims Act anti-fraud provisions will apply to the "exchanges" established under the Patient Protection and Affordable Care Act if they use federal funds. Additionally, the False Claims Act is strengthened regarding failure to return overpayments and includes greater anti-kickback provisions. 
 
"Regardless of where you stood on the health care debate, this is a major step forward for fraud prevention and ensures that whistleblowers, who risk their careers to expose fraud in the new health care system and by large pharmaceutical companies, won't have their cases maliciously thrown out of court," added Ms. Williams.


 
 
 
*Meryl Grenadier (NWC Fellow) contributed to this post.
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Whistleblower faces tax penalty for misreporting qui tam reward

Posted on February 15, 2010 by Richard Renner

Albert D. Campbell worked for Lockheed Martin from 1981 to 1995. He worked as a financial analyst, and was promoted in 1989 to chief of cost control for the $3.5 billion LANTIRN project. The LANTIRN project built navigation and targeting pods for fighter jets. Between 1993 and 1995, Campbell used sophisticated analytic exercises to show that LANTIRN was wasting millions of dollars in non-productive costs.  Company management warned him that it would be career suicide to raise these concerns. In 1995, Campbell filed two qui tam whistleblower suits under the False Claims Act (FCA) against Lockheed Martin, alleging that the company had defrauded the federal government. The government intervened in one case, and in 2003, Lockheed Martin entered into a settlement of both claims. Campbell received a reward of $8.75 million from the government.  This reward was paid to his attorneys who deducted their fee of $3.5 million and then paid $5.25 million to Campbell. Instead of reporting this income and paying taxes on it, Campbell filed a "disclosure" of the reward, but paid no tax. Campbell did not consult with a tax attorney, but prepared and filed his own tax return. When the IRS disagreed with this tax position, Campbell claimed that his reward was not taxable income, but rather an assignment of the government's non-taxable fraud recovery.  The Tax Court has disagreed. While the government had no duty to pay tax on its recovery, the reward to Campbell was income to him, and taxable.  The Tax Court did allow Campbell to deduct the $3.5 million paid to his attorneys. For the other $5.25 million, Campbell now has to pay taxes, and also a penalty for asserting a position that had no reasonable basis. The case is Albert D. Campbell v. Commissioner, 134 T.C. No. 3 (January 21, 2010). Campell testified to a House Committee about his support for FCA amendments. It is too bad that the government could not be content with collecting the taxes and interest due. Imposing a penalty on the whistleblower works a disservice to the goal of encouraging knowledgeable officials to come forward with information that will actually save the taxpayers money. Given that this decision now requires whistleblowers to pay taxes on qui tam rewards, it would be wise for whistleblowers getting such a reward to hire a good tax attorney to prepare their return.

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