A False Claims Act case can be brought by a whistleblower (relator) to recover funds on behalf of the federal government. The government then has the option to “intervene” and proceed with the action. If the government does intervene, it has the primary role in prosecuting the action, although the relator remains entitled to a percentage of any recovery. Even if the government declines to intervene initially, it can later intervene upon a showing of “good cause.”
The Justice Department yesterday reported $4.9 billion in False Claims Act recoveries for fiscal year 2012, which is the largest single-year recovery in history.
The recoveries spanned several sectors of the economy. In the health care arena, the Justice Department reports that, “[e]nforcement actions involving the pharmaceutical and medical device industry were the source of some of the largest recoveries this year.” The department recovered nearly $2 billion in cases alleging false claims for drugs and medical devices under federally insured health programs and, in addition, returned $745 million to state Medicaid programs.” The recoveries from major pharmaceutical companies addressed several drugs allegedly marketed for off-label use. They also addressed cases involving the alleged payment of kickbacks to physicians to prescribe certain drugs. Some of the cases addressed alleged false and misleading statements concerning drug safety and the alleged underpayment of rebates owed under the Medicaid Drug Rebate Program, and they include cases alleging inaccurate, unsupported, or misleading statements about drug safety to increase sales.
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 included a whistleblower program allowing individuals who report original information to the SEC leading to a recovery exceeding $1 million to obtain between 10 percent and 30 percent of the recovery. It also included a prohibition on retaliation.
It has been about one year since the SEC established its Office of the Whistleblower, and according to Sean X. McKessy, the chief of that office, the SEC has received almost 3,000 securities law violation tips, or about eight tips per day.
After years of complaints from whistleblowers and other interested parties, the IRS whistleblower program—which was enhanced in 2006—has finally begun to show some signs of success. Consider:
- As my colleague John Sinatra reported, the IRS recently awarded a whopping $104 million to imprisoned UBS whistleblower Bradley Birkenfeld, the first award under the 2006 program
- Just last month, the IRS awarded $38 million to another whistleblower
Can it be, as Forbes recently reported, that “the days ahead look bright for whistleblowers and the IRS whistleblower program”? With a backlog of significant whistleblower cases filed after 2006 slowly churning through the IRS process, it is a safe bet that more cases are edging closer to completion and that the slow trickle of announcements from whistleblower attorneys about awards will begin to pick up. As more awards are announced, more whistleblowers will come forward.
The U.S. attorney for the Eastern District of New York yesterday announced that the United States will intervene in a False Claims Act case that began in April 2007, when a qui tam relator first filed the whistleblower lawsuit under seal. In this case, the federal government is joining in the whistleblower’s lawsuit against the City of New York, seeking $2 million in damages, penalties, and costs for overcharging Medicaid.
According to numerous media reports citing his attorneys, former UBS Banker Bradley Birkenfeld has received a $104 million tax whistleblower reward for his role in exposing alleged secret Swiss banking schemes designed to enable U.S. taxpayers to evade taxes. The whistleblower’s revelations led to a $780 million settlement from UBS as well as tens of thousands of taxpayer coming forward in exchange for amnesty. The IRS’s tax whistleblower program provides a bounty or reward of up to 30 percent of the government’s recovery. Experts on both sides of these cases believe that the size of the reward will ensure that future tax whistleblowers are encouraged and incentivized to come forward with details of other tax schemes.
More and more, we are seeing multiple and separate qui tam cases filed across various districts that, in part, contain overlapping claims, allege common sets of facts, or supplement each other in a way that, if combined, results in much stronger complaint. The problem is simple: absent consolidation and a sharing agreement, the government has a mess on its hands when trying to determine who is the “first” relator for purposes of the relators’ share.
With respect to relators, in a matter of first impression before the U.S. Court of Appeals for the Ninth Circuit, the court held that knowingly false underbidding can support False Claims Act liability.
In Hooper v. Lockheed Martin, No. 11-55278 (9th Cir. Aug. 2, 2012), the relator was an engineer working for Lockheed, and he claimed that Lockheed defrauded the Air Force under a government contract by knowingly underbidding the contract. Lockheed argued that the estimates in its bid could not predicate liability because an estimate is merely an opinion or prediction, as opposed to a false statement. The relator, however, produced evidence that Lockheed employees were told to lower their bids without regard to actual cost. This evidence, according to the Ninth Circuit, raised a genuine issue as to whether Lockheed had the requisite knowledge when it submitted its bid for the contract. Thus, the court held that summary judgment for Lockheed on this claim was inappropriately granted and, in light of this decision, relators should be on the lookout for bids based on lower-than-actual costs as a potential basis for liability.
People considering becoming whistleblowers to expose a government fraud often ask what the process will be like. They want to know what it is like to be a relator in a False Claims Act, or qui tam, case. While no one answer to that question fits all situations, there are some general answers that tend to hold true across the cases. I can think of three words to describe the experience – work, patience, and satisfaction.
The “work” phase of the case involves working with counsel and then government lawyers and investigators to explain, understand, and develop the facts of the case. The work in a False Claims Act case usually begins when the relator collaborates with his or her legal team to put together the complaint and the disclosure statement, which become the roadmap for government lawyers and investigators. The work continues when the whistleblower teaches the government about the fraud, the key facts, and the key players. And the work frequently recurs sporadically during the government’s investigation, as the relator and counsel respond to government questions about documents and interview statements.
While the federal False Claims Act gets the big headlines and the correspondingly big recoveries, it is important not to forget that a number of states have their own false claims acts under which relators can bring claims that also have the potential for significant monetary recoveries. States with these acts tend to fall into two categories: states with generally applicable false claims acts (like the federal law) and states that limit their acts to health care fraud.