There is an obvious tension between the desire to encourage employees to come forward with information necessary to report and expose fraud and the recognition that certain company information is truly private and confidential and should remain so. A recent decision from the U.S. Department of Labor Administrative Review Board further complicates the issue.
Celanese Corporation, an international publicly traded corporation, hired Matthew Vannoy to catalog and reconcile employee expense reimbursement submissions. In 2007, Vannoy filed an internal compliant about employees misusing company credit cards; around the same time, he began talking to an attorney about Celanese’s business practices with respect to its employee credit card-use program. Vannoy then filed a claim with the IRS Whistleblower Rewards Program, and he provided documents to the IRS that included Celanese proprietary and confidential information. A few months later, Vannoy’s supervisor began conducting an investigation into his email communications with employee cardholders and found that he sent a document containing 1,600 social security numbers of Celanese employees to a personal e-mail account. Vannoy was suspended without pay and ultimately terminated.
On October 6, 2011, the Justice Department announced a significant settlement with Oracle to resolve False Claims Act allegations. In particular, Oracle Corp. and Oracle America Inc. have agreed to pay $199.5 million plus interest for allegedly failing to meet their contractual obligations to the General Services Administration (GSA).
According to the government, this settlement relates to a 1998 contract to sell software licenses and technical support through GSA’s Multiple Award Schedule (MAS) program. The government said, “The MAS program provides the government and other GSA-authorized purchasers with a streamlined process for procurement of commonly used commercial goods and services. To be awarded a MAS contract, and thereby gain access to the broad government marketplace and the ease of administration that comes from selling to hundreds of government purchasers under one central contract, contractors must agree to disclose commercial pricing policies and practices, and to abide by the contract terms.”
As we move into the final stretch of 2011, interesting developments appear to be on the horizon for tax whistleblowers in New York.
Now in his nine month as attorney general, New York’s Eric Schneiderman is showing no sign of slowing down in his pursuit of whistleblower cases alleging tax fraud. Similarly, on the federal side, all indications are that the IRS will finally begin paying awards to some of the hundreds of whistleblowers who have filed complaints of significant tax noncompliance by thousands of taxpayers since the program was strengthened in 2006 with the enactment of section 7623(b) of the Internal Revenue Code. Given these developments, it looks like we are on the precipice of some exciting times for tax whistleblowers and those who believe in tax compliance and fairness.
According to an August 24, 2011, U.S. Department of Justice press release, Minnesota Transit Constructors Inc. (MnTC), a joint venture comprised of Granite Construction, C.S. McCrossan Inc., and Parsons Transportation Group, as well as a number of subcontractors, have agreed to pay the United States to resolve allegations that the joint venture knowingly submitted false claims related to a federally funded transit construction project in Minneapolis. According to the press release, “the companies falsely claimed that they had used Disadvantaged Business Enterprises (DBEs) for part of the work on the project when they had not.” The joint venture had been the prime contractor on the project to design and build the Hiawatha Light Rail Transit System, a light-rail line linking downtown Minneapolis-St. Paul International Airport and the Mall of America. According to the government, “to obtain and maintain their contract, MnTC and its subcontractors were required to comply with the DBE regulations and to accurately report their DBE contracting. MnTC claimed that materials and services for the project were provided by DBEs, when in fact they were provided by non-DBE subcontractors, and the DBEs were merely extra participants used to make it appear as if a DBE had performed the work.”
False Claims Act liability has been based on defendants falsely certifying their compliance with laws and regulations. But in deciding which laws and regulations can be used as a basis of this type of liability, such that defendants deserve the huge fines and penalties of the False Claims Act, courts often have to make subjective decisions about what laws and regulations are “important” enough for this type of liability.
To take a recent example, in United States ex rel. Wilkins v. United Health Group, Inc., the U.S. Court of Appeals for the Third Circuit had to decide which laws and regulations among the hundreds of thousands imposed on Medicare participants were sufficiently seriously to merit False Claims Act liability through their violation.
Teleradiology is becoming more and more common. This technology involves transmitting images, such as x-rays, CT scans, MRIs, and ultrasounds, over the Internet to a radiologist at another location to read and interpret. In many cases, this allows radiologists to work from home or other remote locations. And in some cases, radiologists in non-local time zones can help out on urgent issues that develop overnight in distant locations.
So far so good. But what if the radiologist is in another country? In fact, radiology reads have been outsourced to many locations around the world in recent years. India, Australia, Brazil, Switzerland, and Israel are common sources. Many have referred to this practice as “nighthawk” teleradiology.
After much deliberation, the Securities and Exchange Commission (SEC) issued final rules implementing the whistleblower program mandated by the Dodd-Frank Act. Under the new rules, individuals (referred to as whistleblowers) may claim rewards if they voluntarily provide to the SEC original information about a violation of the federal securities laws, including violations of the Foreign Corrupt Practices Act that leads to a successful enforcement action resulting in monetary sanctions that total more than $1 million.
If an individual meets each of these requirements, the SEC will be required to award the whistleblower between 10 and 30 percent of the monetary penalties recovered, including penalties recovered in related actions by other regulatory agencies.
Make no mistake about it: paying big awards to whistleblowers who disclose illegal conduct, including tax offenses, has become a top government enforcement strategy. Why? Because rewarding whistleblowers works. State and federal False Claims Act cases, which permit whistleblowers to sue wrongdoers on behalf of the government as qui tam plaintiffs, have skyrocketed and have helped the government recover tens of billions of taxpayer dollars, a sizeable piece of which often goes to whistleblowers.
Since the IRS beefed up its tax whistleblower program in 2006 by increasing and making mandatory whistleblower awards for claims involving IRS tax obligations of $2 million or more, federal whistleblower claims have increased sharply in both number and quality. And whistleblowers are recovering millions for their efforts. In April 2010, for example, as reported in the Wall Street Journal and Accounting Today, an in-house CPA at a Fortune 500 financial firm earned $4.5 million for exposing a $20 million tax liability owed by his firm.
In what may be a sign of future whistleblower-driven litigation facing the mortgage industry, the federal government brought a False Claims Act suit on May 3 against Deutsche Bank and a subsidiary it acquired in 2007, MortgageIT, Inc., alleging that they “repeatedly lied to be included in a government program to select mortgages for insurance by the government. Once in that program, they recklessly selected mortgages that violated program rules in blatant disregard of whether borrowers could make mortgage payments.”
The government’s complaint alleges false certifications made to the Department of Housing and Urban Development (HUD) in connection with MortgageIT’s mortgage origination and sponsorship practices. The FHA has paid insurance claims on more than 3,100 mortgages, totaling $386 million, for mortgages endorsed by MortgageIT.
As cases become more complex and multiple allegations arise, it is more and more frequently the case that multiple relators will file complaints in different districts covering, at least for the most part, common subject matter. Rarely, however, in these types of cases, can one make a definitive judgment about whether the allegations overlap, either in whole or in part, are identical, or are distinctly separate. U.S. attorneys want to be able to consolidate cases and use all of the allegations in a single False Claims Act prosecution. So what to do about the relators?