Whistleblower Law Blog : Whistleblower Lawyer & Attorney : LaBovick Law Firm, Florida : Federal False Claims Act, Qui Tam

Thank you Senator Chuck Grassley.

Finally the grinding slow wheels of the IRS are moving on qui tam tax cases.  We have recently filed a large (not enormous) tax whistleblower (also called a qui Tam).  We expected a call and letter from an IRS intake attorney within about 6 months.  We got that call in 3 weeks!  That was a surprise.  I can tell you, unequivocally, that Marcie Dodson in our office prepared that case as if she were a top notch Forensic CPA instead of a Cornell University lawyer.  Initially that is what I thought caused the quick turnaround.  Sure the numbers are pretty large – but a super fast turnaround by the IRS - What gives?  

When we called the agent in charge we made an off-hand comment about the speed they reviewed the case.  We actually made a self laudatory statement which said something like:  “Boy you guys must have loved how organized our package was when it came in.  It took you literally no time to complete your review and call us!”.  In response to our comment we heard the words I spoke initially; “Say thank you to Senator Grassely.  He is pushing us to turn around our qui tam/whistleblower cases quicker.”  So, that is what I am doing publicly.  Thank you Senator Grassley.  It is about time someone with commonsense sees how important tax whistleblower cases are to the government.

If this is the first you have ever heard of the IRS Tax Whistleblower program here is your quick primer:  

The law provides many different ways you can “blow the whistle” on anyone who is ripping off the government.  That means, ripping off the government by submitting anything false to the government and getting them to pay you unnecessarily.  So, in a contract for selling them paper clips to the government, or a contract to fix or build roads, or even taking government subsidized tuition dollars and not providing the education.  In each of those examples there is a way to report the fraud and as the whistleblower you get a reward when the government gets paid!

The problem was that historically, prior to 2006, the IRS didn’t have a set law that fixed the amount the IRS would pay to the whistleblower.  The “award” was discretionary or rather, was based on whatever the IRS decided was equitable.  Obviously the IRS had a different feeling about what was equitable compared to the person who risked so much to report the tax fraud.   We have worked on these types of whistleblower cases (called qui tam cases) for a long time.  Prior to 2006 when a person called for a consultation regarding being a tax whistleblower we would have to explain that there was no right to enforce any award to them.  As soon as we explained that they would say ”No thanks” and hang up.  You know what?  I don’t blame them, without a reward why take the risk and get involved?

However, in 2006 the whistleblower office and the new Federal Tax Whistleblower statute were enacted.  Now the IRS has the obligation to pay the whistleblower an award when the government collects unpaid taxes after someone turns in a tax cheat.  However, the qualification is that the tax cheat must be a significant tax cheat not a small time tax cheat.  What is “substantial”?  Under the federal law a substantial tax cheat is anyone who underpaid $2 million or more.  They needed to limit it to big time tax cheats so the IRS isn’t crushed by everybody turning in their neighbors.  The IRS doesn’t have the man power to investigate anything unless the cases are large.

Since 2006 the IRS has recovered huge sums though whistleblower information.  But, they have been both slow and stingy in giving out the awards.  Last year the IRS broke the ice in a big way and awarded a $104,000,000 award (that is right, $104 Million!) to a tax whistleblower.  The tax cheating bank paid $780 million in that case in back in taxes to the government and the guy who reported the bank got $104 million of it!

Our office has designed a group just for large qui tam/whistleblower tax matters.  We have partnered with forensic CPAs and have attorney who have worked their whole career in financial fraud detection.  We can figure out your tax situation even with minimal paperwork.  Don’t let anyone get in the way of your tax qui tam matter.  Use attorneys who have experience dealing with the US government and make sure your whistleblower case comes to fruition.

 

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I’m sure you have heard about the whistleblower lawsuit initiated by Lance Armstrong’s former teammate, Floyd Landis, but if not, where have you been? In this suit Landis has targeted several others that were part of the U.S. Postal Service team for being a part of or knowing of teammates using banned substances for performance enhancement.

This case has been in judicial seal for more than 2 ½ years now. The U.S. Justice Department had a deadline of Thursday January 17, 2013 to decide whether or not to be a part of Landis’s case. Yet, sources were led to believe they had asked for an extension to decide. After many years of speculation, in a 2013 interview, Armstrong finally admitted to Oprah Winfrey that he used banned substances throughout his entire cycling career.

Landis was on the US Postal Service Team with Armstrong from 2002 through 2004. In his lawsuit, he explains in detail how he and the others used (or were at least aware of the use of) banned substances and were blood doping from their hotel rooms, on team buses and in private apartments.

If all goes according to Landis’s plan and the case settles, he would receive 15-25 percent of the settlement if the U.S. Justice Department decides to participate. Or, he would get 25-30 percent of the settlement if the plaintiff goes through with the lawsuit privately, as per the whistleblower law. The insider or whistleblower, the person that comes forward to the authorities on illegal activity, can benefit financially, even if he/she was party to the fraud, as long as he/she was not the mastermind.

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A long time employee of Amgen, Jill Osiecki, wore a recording device, hidden under her shirt to catch Amgen in their misbranding of the blockbuster drug Aranesp.  With all the alleged federal oversight, it is still the whistleblowers who are the best resource for catching “big pharma” in their schemes to defraud the public.  Amgen bragged about giving a $10,000 “unrestricted grant” to a special doctor who was an advisor to the local Medicare contact.  He used the funds for his own project. 

For the money the doctor helped convince the Medicare contact to provide reimbursement for prescribing Aranesp for unapproved uses.  Aranesp is an anemia drug and cannot be prescribed for other uses.  This was an open and shut illegal Medicare reimbursement scheme based on false claims, and the Federal False Claims Act allowed New York Attorney General Eric Schneiderman to leverage Amgen to pay a $612 million national settlement for marketing these drugs for kidney disease and cancer over the past decade. 

Amgen pleaded guilty to a criminal misdemeanor in Federal Court that will require an additional $150 million fine.  This outcome concluded a five-year investigation into Amgen’s marketing practices, and will settle the claims in all 50 states and the District of Columbia.  How much money did Amgen actually make on Aranesp?  I can’t imagine.  It appears the drug companies make more than enough to continue to take liberties with illegal marketing schemes and other illicit practices.  This is just one in a long series of huge settlements which are helping to refund the prosecution’s coffers.

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Just this past year Bradley C. Birkenfeld, a former banker for UBS, completed his two and a half years in prison for conspiring with a wealthy California developer. They tried to cheat their United States taxes and got caught.
The Internal Revenue Service (IRS) has acknowledged that the information Birkenfeld provided was very helpful. Birkenfeld has been awarded $104 million for whistleblowing and revealing the secrets of the Swiss banking system.  With the revelation of these secrets, the IRS has uncovered more than 4,500 American clients the UBS had. In addition, the bank paid $780 million in 2009 to avoid criminal prosecution. Yet, this program of rewarding whistleblowers hasn’t always been applauded and still has its group of people that don’t agree with it.
There was also a lot of buzz that said if they discontinued giving whistleblowers a reward, it would scare off other potential informants. Despite all that, the law strengthened in 2006, and there have been hundreds of claims alleging tens of billions of dollars in tax evasion. 
Michelle Eldridge, spokeswoman for the tax department, said the whistleblower statute is a very valuable tool to fight noncompliance. 
Senator Charles E. Grassley, of Iowa, who helped write the whistleblower law says the award is an important step and urged the IRS to  issue these awards in a timely manner to continue receiving the help of those whistleblowers and keep the law breaking to a minimum.
 

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On July 14, 2012, the New York Times issued an article that uncovered a U.S. government secret spying program that targeted a group of whistleblowers working for the Food and Drug Administration (FDA).

The government program that the story uncovered is illegal. It shows how high government officials used a spy program that intended to undermine federal employees’ rights to lawfully report significant health threats and concerns to Congress, law enforcement officials and the American people.

Stephen M. Kohn, the Executive Director of the National Whistleblower Center and the head attorney for the FDA whistleblowers stressed that these employees do not give up their First or Fourth Amendment rights while holding government positions. Kohn stated that it is in fact more important for government workers to make note of wrongdoing in order to expose crimes, misconduct, corruption and wasted taxpayer dollars. 

In reference to the news article, Stephen M. Kohn also stated: “We hope that the revelations in today's New York Times will mark a turning point in the battle to stop the retaliatory surveillance of whistleblowers who risk their careers to report misconduct.”

Mr. Kohn hopes that the individuals responsible for attempting to prevent FDA agents from uncovering serious health and safety violations will be punished.

Find the New York Times article that started it all here: http://www.nytimes.com/2012/07/15/us/fda-surveillance-of-scientists-spread-to-outside-critics.html?_r=1&pagewanted=all

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In Washington, D.C., on June 22, 2012, the Privacy Act case of former U.S. prosecutor Richard Convertino was reinstated by the U.S. Court of Appeals for the District of Columbia. This Privacy Act case accused the Bush Administration of deliberately leaking illegal information that was used to attack and tarnish the reputation of Mr. Convertino. The Court of Appeals’ decision now allows Richard Convertino to continue his research in order to figure out which current and/or former Justice Department employees went against the Privacy Act and attacked Mr. Convertino.

Richard Convertino blew the whistle on former Attorney General Ashcroft due to his poor handling of terrorist prosecutions in 2003. Despite being a former award-winning prosecutor who led many terrorism cases at the Department of Justice, Department of Justice officials sought revenge and leaked untrue and damaging information about Mr. Convertino to The Detroit Free Press. Mr. Convertino subsequently made a Privacy Act complaint in an attempt to oust the individual(s) who leaked the false information about him. 

Stephen M. Kohn, Executive Director of the National Whistleblowers Center, spoke about Richard Convertino’s case:

“The Justice Department’s policy of criminally investigating whistleblowers who ‘leak’ information, while at the same time aggressively defending its own ‘leakers,’ is hypocritical. In Mr. Convertino’s case, the Justice Department intentionally leaked information to destroy the reputation of the distinguished prosecutor who had the courage to challenge the Attorney General’s conduct in the ‘War on Terror.’ Moreover, the Justice Department has, for years, aggressively stood in the way of Mr. Convertino’s attempts to discover which official(s) retaliated against him.”

This case reversal is seen as a significant blow to the U.S. Department of Justice’s “War on Whistleblowers” and will hopefully result in reform regarding the double standard in the treatment of government “leakers.”

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Doesn't it just astound you how drug companies can continue to get busted on breaking the law and then pay mind-boggling, incredibly large fines and STILL have the capacity to break the law again?

Pretend you actually owned a drug company.  Even if it wasn't your drug company that was previously caught manipulating doctors, selling off label, and generally breaking any rule or regulation you wish, simply to drive sales - wouldn't another drug company's punishment be enough to scare you away from doing those same actions? Obviously the answer is a resounding NO. I continue to ask myself, how can this be?  This GSK $3 billion settlement proves to me that drug sales over time are so incredibly profitable that breaking the law and paying huge fines is of no consequence to the drug companies!   As a shareholder in large companies it would bother me tremendously to learn that our company is either acting illegally or unethically within the medical community.  

However, we see no shake-out in major shareholders from those drug companies. It will be interesting to see if any large shareholders pull out of GSK now that this settlement has been announced. Institutional shareholders make their decision as to whether to retain the stock of any investment solely based on the level of profit and return on investment over time. They will not consider the moral legal or ethical obligations they have to their shareholders to invest in only those stocks that play by the rules. 

So here is the lesson that we, the public, must learn about corporate behavior:  when thinking about corporate behavior, the only consideration is the bottom line!  There is no room in a corporation's behavior or in an institutional investment strategy for legal, moral or ethical obligations to be upheld unless those decisions negatively impact the profit.  Otherwise, if paying $3 billion makes you $27.5 billion then everyone is happy, right?

As the powerless muddled masses who look at the world around us, we need to support the only social system that protects us (normal, working class people) from them (powerful corporations who can pay $3 billion fines with a smile on their face).  The only weapon the average US Citizen has against the large corporate entity is the power of the jury trial. That is it! No other system keeps law breaking corporate entities in check. Obviously billion dollar fines don't scare them.  If we lose our right to go to court to redress our grievances we will lose our ability to protect ourselves and our loved ones from the profit-motivated amoral decisions of the large corporation. 

Something to think about!

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Qui tam is a very interesting niche practice in the law. It has a long history in the United States and today is widely used by the Government.

The qui tam provisions started in the 1800’s during the United States Civil War. President Abraham Lincoln was getting his army requisitions ripped off and he was buying things that were not coming through once he bought them. For instance, the Union army would pay for rifles and instead of getting a thousand rifles they would get 100 rifles and they wouldn’t work.

So, they wanted to figure out a way of making sure that what they were purchasing was what in fact what they were trying to buy. They created a reward system called qui tam, which is short for a Latin phrase which means “he who sues on behalf of the king sues for himself as well.” In other words, if you as someone who knows that a deal is going through, and also knows that the person doing business with the government is going to rip off the government, and you turn them in, commonly called a whistleblower, that you will be included in part of the savings, reward, or recovery that the government gains in that transaction.

In today’s environment fraud schemes are incredibly complex. But here’s a very simple example.

Corporation A makes a deal with the government to sell them a million paperclips a month and that works for a couple of months, but that corporation realizes that nobody on the governments end is trying to count the paperclips or do anything to make sure that they are getting their million paperclips. Instead they decide “you know what, we are going to send them 900,000 paperclips a month.” Since nobody is counting, they are getting away with 10% of the deal. Then they decide to send 800,000. This goes on for five years. Five years go by of ripping off the government 20% on that contract until someone in the company finds out, and when they do and look back and realize that millions of dollars of purchased paperclips have never been sent to the government, they can tell the government about that. When the government recovers, they can recover a reward with the government.

Unfortunately, it doesn’t happen easily. First off, the schemes are very complex, so one needs the paperwork, documentation, etc. Second, the government is very apt to listen to you, and then in the end if you are not properly secured in your claim, the government may not allow you to keep that claim and not give 15-30% of that money.

That’s why it’s necessary to have an qui tam attorney to represent them in going to the government. The people that they should hire for that job should be attorneys with governmental prosecutorial experience. You would want somebody who understands how the government works and to bring the case to them in a format they understand, in a significant organized fashion. In doing so, the person who gives them the claim, the professional name for that is "relator", the "relator" secures their claim so that they can then recover in the end.

It’s a long and arduous process. It can be risky for the "relator" They have to be willing to go out and do these things. But usually, if they have a really valid claim, it can be extremely lucrative.

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Mike McQueary, The Penn State assistant football coach who testified seeing Jerry Sandusky acting inappropriately with a young boy in a Penn State locker room shower, has given notice that he is going to be suing Penn State University. The four page document, filed today by McQueary’s attorney, calls it a whistleblower case and McQueary is seeking damages outside normal arbitration limits.

Whistleblower means that the person you have made the charges against, or someone you have gotten in trouble, is in a position of power and has taken advantage of you, instead of praising you for doing the right thing, they fire you. This is what McQueary is saying. His claim is that Penn State fired him because he blew the whistle on the bad things they were doing.

It’s an interesting whistleblower case, to say the least. There is a federal whistleblower protection law, but that is mainly used by Federal employees. Chances are he will be filing under the Pennsylvania whistleblower protection law. You only have six months to file it and he is right up next to the deadline.

What Does He Need to Prove to Be Successful?

McQueary starts off with a pretty strong case. He blew the whistle, and his allegation is that he went ahead and told about Jerry Sandusky and subsequently got fired. Did he get fired because he blew the whistle or was he fired for other reasons?

It’s obvious that Penn State will claim that they didn’t fire him because he was a whistleblower. They are going to claim that they fired him because he didn’t do what he was supposed to do. Only time will tell as this case unfolds.

What’s The Next Step in This Process?

Probably what will happen first is that both sides will come together and see if they can settle this case before it gets filed. What McQueary’s whistleblower attorney has done is put the University on notice and probably has some kind of effect at stopping the statute of limitations.

If an agreement is not reached, then the lawsuit will be filed, detailing much more information than is currently available. Penn State will then have a chance to answer the lawsuit and give the reasons why they went ahead and fired him. It is highly probable that Penn State will claim that it had nothing to do with McQueary being a whistleblower.

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Politics is the only thing that will save the drug companies from their own illegal schemes. Unless they can gather the forces of the pro-business political wing of America, and change the law, I believe the Federal False Claims Act is working literal magic on the US budget by actually prosecuting drug companies for their illegal marketing of drugs for off-label use.

Today, the Department of Justice Announced a staggering $1,600,000,000 settlement with Abbott Labs. According to the Chicago Tribune (http://www.chicagotribune.com/business/breaking/chi-abbott-to-pay-16b-to-settle-depakote-claims-20120507,0,7263674.story), of the total award, $800,000,000 will resolve the civil case and $700,000,000 will resolve the criminal penalties and $100,000,000 will resolve the state consumer protection actions, which sprung out of the investigation.

How much money did Abbott Lab make to be able to buy themselves out of criminal and civil penalties? What was the giant settlement about? It was about Abbott Labs being accused of illegal marketing practices for its blockbuster drug Depakote. Depakote is an anti-seizure medication, and this settlement has generated a lot of negative press for Abbott. Recently ABC World News reported that the drug was being illegally prescribed in nursing homes nationwide. Abbott was allegedly convincing the nursing homes to use the drugs to treat aggression in dementia patients. In fact, they admitted they trained a special marketing force to teach the nursing homes that the drug was not regulated by the federal laws designed to stop the use of medications for unnecessary purposes in nursing homes. They did this even though they had no credible evidence or testing to show Depakote helped the condition.

There is a definite increase in the Justice Department's desire to prosecute illegal marketing schemes in which drug companies engage. This is especially true when the drug company markets their drug for an "off-label" use. Due to the number of calls we are now receiving to investigate this type of practice, it is almost worth specializing in just off-label drug cases as a law firm. Even in the Abbott settlement the Wall Street Journal is saying Abbott will still plead guilty to some criminal charges as well as to stay on probation for five years, during which time it must self report any probable violations of the law to their probation officer. That is amazing! To pay a staggering fine and then plead guilty to a crime is a harsh penalty.

According to the Washington Post (http://www.washingtonpost.com/national/health-science/abbott-laboratories-agrees-to-16-billion-settlement-over-marketing-of-depakote/2012/05/07/gIQAh5098T_story.html) this settlement is the "second-largest" enforcement action that is the result of the increased enforcement efforts by the Justice Department criminal division concentrating on drug makers off-label or misbranding their drugs in the market.

If you have a question regarding the marketing practices of any drug company, please call the LaBovick Law Group. We have staff trained to understand this type of claim and answer your questions.

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Tax whistleblower cases, often referred to as Qui Tam, have become increasingly important since their inception in 2006. The program has allowed the United States Government to recover a huge amount of money from those trying to defraud the Federal Government. In fact, The Obama Administration recently announced that Qui Tam is responsible for the recovery of over twenty billion dollars, but in addition, even more money has been generated from the fines attached to such cases.

The United States Congress thought the IRS would enjoy this program as well. They envisioned Qui Tam as being a very successful way of getting people to report those that were breaking tax laws by using a cash reward incentive based upon a percentage of the recovery. But in the five years since the law went into effect, the Internal Revenue Service has issued only one, yes one reward under the Qui Tam program.

One does have to scratch their head in wonder as to why the Internal Revenue Service is not taking full advantage of this lucrative program. One would think that the IRS would be jumping at the chance to recover billions of dollars from IRS fraud and other tax violations. It’s not for a lack of Qui Tam claims being filed. Many cases have been filed under the Qui Tam, and there is not a lack of validity in several of these cases. It is reported by the IRS itself that thousands of whistleblower filings have been issued. So why has only one payment been made to a whistleblower?

Why Is The IRS Not Qui Tam Friendly?

The hang-up is the reluctance of the IRS to be on board with the program. It was reflected in a recent interview with the former Internal Revenue Service Chief Counsel, "I believe it is unseemly in this country to encourage people to turn in their neighbors and employees to the IRS." This was a shocking comment to hear from a person whose sole responsibility was to implement the laws, such as Qui Tam.

Many road blocks have been initiated by segments of the IRS, specifically the IRS office of Chief Counsel, which discourages Qui Tam whistleblowers. They have set forth several rules that narrow the sources of recovery and imposed withholding requirements on Qui Tam rewards, to name a few.

It’s a frustrating matter, especially with our current economic condition. The Qui Tam program could potentially recover several billions of dollars which could be utilized for the gap in government funding, but instead, has been road blocked with bureaucratic red tape.

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New York Attorney General Eric Schneiderman announced last week that New York state joined a whistleblower/qui tam case against Sprint-Nextel Corp. "for deliberately under-collecting and underpaying millions of dollars in New York state and local sales taxes on flat-rate access charges for wireless calling plans."

According to a Forbes Investing article*, the attorney general is proactive and engaged in this matter, as he should be, compared to the nonchalant Internal Revenue Service (IRS).

IRS whistleblower cases are complex, but by joining this case against Sprint and pushing the matter into the public eye, Schneiderman is accomplishing a lot for New York taxpayers, in addition to the potential collection of $300 million from the cell phone service provider. This announcement will hopefully encourage others to come forward about significant criminal tax acts and should encourage better New York tax law compliance.

These claims are taken seriously, and all parties need to realize that.

"Clearly, Schneiderman gets the value of whistleblowers," Erika Kelton wrote for Forebes. "The IRS, however, apparently still doesn't."

And we couldn't agree more!

Information to whistleblowers about their cases has been cut off completely by the IRS, and in the five years since the IRS tax whistleblower program was created, only one known award has been made to a whistleblower.

Whistleblower claims can be effectively managed and pursued, and the IRS should take heed from Schneiderman's actions. It's not only in New York that these issues can occur. And hopefully this case against Sprint will help collect owed taxes and narrow the state's budget gap for the greater good of New York taxpayers.

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Cindy Wade, a former employee at the St. Lucie Humane Society, has filed a wrongful termination suit against the rescue shelter, only weeks after the St. Lucie Humane Society had been cleared of allegations of animal abuse.

Wade, a former veterinarian technician at the shelter, said she had witnessed many occurrences of animal cruelty by some of the employees at the shelter. The sheriff’s office has since conducted a full investigation and found no evidence supporting her claims.

She filed the wrongful termination law suit on Monday. The claim is that she was fired in December as a result of being a whistleblower. She had first reported the allegations to police in November, a month before her termination.

The director of shelter operations said he suspended Wade because of work-related issues and for making false allegations against the shelter — not for being " a whistle blower."

Wade is seeking more than $15,000 in damages and is also seeking reinstatement of her position at the shelter. The whistleblower lawyer is also seeking a court order that would stop the St. Lucie Humane Society from firing her in the future for a related cause.

Wade is quoted as saying "(The suit is) going to get them more exposure, "It's going to bring more attention to their needs. What I want most is the best quality of care they can get."

We will keep you informed as this case develops and further information becomes available.

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There is no doubt that whistleblowers are changing America for the better. Just last week a new Act was signed to help homeowners who were the victim of malicious bank persecution trying to steal them of their home. Further, the US Attorney’s office recently announced a multi-state government settlement with five of the largest banking institutions to make up for their foreclosure abuses which caused the financial meltdown in the American Economy over the last three years.

The key to these settlements was not the victims. Due to the culture of our society the victims here are portrayed as wrongdoers, so we needed industry insider’s to gather the information necessary to take down these huge financial institutions. Without the insider’s information we would have never had proof of how the giant banking industry scammed the system and stole from homeowners and all taxpayers.

Thankfully, a few employees did the right thing. Most of them lost their jobs and will be shunned in the industry for many years to come. However, what was happening was almost criminal. We are still fighting with one of these institutions that foreclosed on a couple when they never missed a payment. After 18 months of litigation and going through hell, the bank still will not admit to wrongdoing. We will see what becomes of our suit in the near future after this settlement.

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