April 2011Inside this Edition: Record Setting Whistleblower Recoveries in FY 2010 IRS Proposes Amendments to Its Informant Reward Program Whistleblower Secrecy Remains Safe ... For Now False Claims Act Includes Broad Protections Against Whistleblower Retaliation Ohio and Washington Introduce Bills to Enact State False Claims Acts Recent Whistleblower Events Record Setting Whistleblower Recoveries in FY 2010 Fiscal Year 2010 was a record-setting year for recoveries under the False Claims Act(FCA). The United States Department of Justice announced in November 2010 that it hadsecured $3 billion in civil settlements and judgments in cases involving fraud against the UnitedStates in FY 2010. This includes $2.5 billion in health care fraud recoveries-the largest inhistory-and represents the second largest annual recovery of civil fraud claims. Moreover,amounts recovered under the False Claims Act since January 2009 have eclipsed any previoustwo-year period with $5.4 billion in taxpayer dollars returned to federal programs and theTreasury. Recoveries since 1986, when Congress substantially strengthened the civil FalseClaims Act, now total more than $27 billion. Some of the noteworthy whistleblower settlements
in FY 2010 included: o Allergan: $225 Million (off-label marketing of drugs) o Astra Zeneca LP: $302 Million (off-label marketing of drugs) o Novartis Pharmaceutical: $237.5 Million (off-label marketing of drugs) o GlaxoSmithKline, PLC: $600 Million (sale of adulterated drugs) o EMC Corporation: $87.5 Million (Misrepresenting Commercial Prices) o Hewlett-Packard Co.: $50 Million (Kickbacks; Influencer fees) o Cisco Systems: $48 Million (Defective Pricing; Kickbacks) For more information, please visit www.falseclaimsact.com IRS Proposes Amendments to Its Informant Reward Program In 2006, Congress passed the Tax Relief and Health Care Act, which created the IRSWhistleblower office and made rewards to whistleblowers less discretionary than in the past.Under Internal Revenue Code 7623(a), the IRS shall pay awards to people who provide"specific and credible information" to the IRS if the information results in the collection of taxes,penalties, interest or other amounts from a noncompliant taxpayer. The IRS wants specificinformation about significant tax issues. "Significant" is defined by the IRS as taxes, penalties,and interest owed in excess of $2 million. This is not the venue to report speculative concerns,air personal disputes, drop a dime on a former spouse, or to report isolated events such as awaiter failing to declare his tips as income. There are two basic tracks currently in place for whistleblower complaints that are filed withthe IRS. On the first track, whistleblowers submit information concerning amounts in dispute(back taxes, interest, and penalties) in excess of $2 million. In these cases, the IRS is lookingfor non-compliant taxpayers with annual gross income of more than $200,000. If the IRSsuccessfully obtains a recovery from a non-compliant taxpayer, the IRS is required to pay thewhistleblower between 15 and 30% of the recovery. Whistleblowers on this track who are notsatisfied with the reward may appeal to the United States Tax Court located in Washington,D.C. The second track applies to cases involving less than $2 million in dispute. If the IRSobtains a recovery in these cases, payment of a reward to the whistleblower is discretionary,with a maximum of 15% of the recovery up to a maximum of $10 million. Whistleblowers on thistrack cannot appeal to the United States Tax Court. On January 18, 2011, the IRS published notice of proposed rulemaking that will redefinehow whistleblowers may be compensated by the government. The proposed amendmentsallow for rewards to be paid to whistleblowers if the information they provide results in the denialof a claim for a refund that the IRS would have otherwise paid or reduces an overpayment creditbalance. In other words, if the whistleblowers tip prevents the IRS from paying an improperrefund to the putative defendant, the amount of that refund will be included in the calculation ofthe recovery by the government. This represents a significant change from the law as itcurrently stands. It seeks to monetize prospective violations as opposed to recovering amountsthat previously were paid. Similarly, if the whistleblower provides the IRS with information that aputative defendant tried to claim a fraudulent loss as an offset to tax liability, the resultingamount of taxes owed will be included when calculating the whistleblowers reward.
These proposed changes, if adopted, will open the whistleblower program up to a wholenew population of citizens with credible information. Claims for rewards that would havepreviously been denied may now be granted. For more information on the IRS WhistleblowerProgram, visit http://www.falseclaimsact.com/irs_whistleblowers_law_overview.php Whistleblower Secrecy Remains Safe ... For Now In a split 2-1 decision on March 28, 2011, the 4th Circuit U.S. Court of Appeals upheld theautomatic 60 day sealing provision of the False Claims Act. The suit, brought by the AmericanCivil Liberties Union, the Government Accountability Project and OMB Watch, alleges thesecrecy unlawfully blocks the publics access to judicial proceedings and violates thewhistleblowers right to freedom of speech by forbidding them to discuss the misconduct. Theyalso argue it violates the separation of powers doctrine by not allowing judges to decide on caseby case basis whether the matter should be sealed. The ACLU alleged specifically that thesealing of Qui Tam lawsuits was hiding Iraq war costs as well as the possibility of warprofiteering. Judge James Dever, III states in the majority decision that the sealing provisionprotects the integrity of ongoing fraud investigations. In response to the plaintiffs claim thatsealing Qui Tam complaints violates the separation of powers doctrine, Dever wrote that thecomplaints are subject to judicial review after 60 days and ultimately, all cases will be unsealedfor public review. Additionally, the majority opinion states that whistleblowers are not forbiddenfrom discussing the underlying misconduct that caused them to bring the complaint, rather theyare only prohibited from discussing the existence of the complaint. They also ruled the plaintiffshad no standing to make the argument, since they could not produce a whistleblower whowanted to talk about the fraud and abuse but was prohibited from doing so. In a dissentingopinion, Judge Roger Gregory stated transparency was key to the fight against fraud andabuse. Additionally, he stated the seal provision should be decided by judges on a case by casebasis, allowing for more public review. Additionally, he stated whistleblowers should be morefree to discuss their allegations of abuse and fraud in public, thereby reducing the risk that thegovernment will under-enforce the FCA for "political reasons. False Claims Act Includes Broad Protections Against Whistleblower Retaliation Recent amendments to the federal False Claims Act strengthened the broad protectionsagainst retaliation of qui tam whistleblowers. 31 U.S.C. Section 3730(h) was amended in 2009and 2010 to expand the protections for those who try to stop false claims for payment to thefederal government. No longer is the protection limited to retaliation against employees by theiremployers for lawful acts done in furtherance of a false claims act lawsuit. The FCA nowprotects against retaliation against employees, contractors, and agents by anyone for lawfulacts in furtherance of efforts to stop 1 or more violations of the FCA. These amendments addimportant new protections for whistleblowers because they: (1) expand those protected by thelaw; (2) remove the employer as the only potential defendant (and potentially add supervisorsand others); and (3) expand the protection to acts in furtherance of efforts to stop 1 or moreviolations - as opposed to acts done in furtherance of an FCA lawsuit. For more informationabout qui tam lawsuits, visit www.falselcaimsact.com
Ohio and Washington Introduce Bills to Enact State False Claims Acts Bills recently introduced in Ohio and Washington would enact State False Claims Acts toencourage whistleblowers (known as qui tam "relators") to step forward and file a lawsuitagainst those who submit false claims for payment to the state government. The Ohio FalseClaims Act (Senate Bill 143) would, similar to the federal FCA, cover all State spending; whilethe Washington False Claims Act (Senate Bill 5458) would cover claims to the WashingtonState Medicaid Program. Currently, 28 States have enacted State False Claims Acts, most ofwhich are modeled on the federal False Claims Act (which has been used to recover more than$27 Billion since 1986). For copies of all 28 State False Claims Acts visithttp://www.falseclaimsact.com/sfca_overview.php RECENT WHISTLEBLOWER EVENTS On June 27, 2011, Marc Raspanti will speak at the American Health Lawyers Association Annual Meeting in Boston, Massachusetts, on the topic of "Everything You Need to Know About Handling a Whistleblower" On June 8, 2011, Michael Morse will speak at the Pennsylvania Institute of Certified Public Accountants Health Care Conference on the topic of "Health Care Fraud and the False Claims Act" On April 14, 2011, Marc Raspanti spoke at the American Bar Association 2011 Spring Meeting- Joint Criminal Justice / Litigation Section CLE Program, on the topic of "A New Day has Dawned: Federal and State False Claims Acts at the Forefront of Litigation" On April 9, 2011, Michael Morse spoke at the Health Care Compliance Associations Compliance Institute in Orlando, Florida on the topic of "False Claims Act Developments" On April 5, 2011, Marc Raspanti spoke at the Offshore Alert Conference in Miami, Florida of the topic of "Avoiding the Mistakes of the UBS/Birkenfeld Case: Protecting Whistleblowers from Criminal and Civil Liability" For more information about whistleblower lawsuits, visit: www.falseclaimsact.com or www.fraudwhistleblowersblog.com