Colorado Whistleblower Case Raises Red Flags

sam@whistleblowers.org (Sam Dratch) — Thu, 08 Jan 2009 13:53:11 GMT

On January 4th, the Denver Post published an editorial on Colorado Governor Bill Ritter's actions in the case of a Colorado Department of Healthcare Policy and Finance (HCPF) whistleblower. HCPF administers taxpayer funds to recipients of Medicare and low-income children. In December, the State Personnel Board found that HCPF accountant Annmarie Maynard was “wrongly fired” for blowing the whistle on the department’s attempt to hide $8 million it over-collected from the government. Governor Ritter is appealing the personnel board’s ruling that he should consider disciplining the executive and deputy directors of HCPF for violating the Whistleblower Act. The Governor is also appealing a state Department of Labor and Employment ruling that Maynard was wrongly fired.

The Governor’s attempt to defend the department instead of protecting the rights of state workers and taxpayers is extremely troubling. However, HCPF ‘s new policy could set a dangerous precedent for the rights of all American workers. This policy, implemented by executive director Julie Henner, prevents HCPF employees from making secret recordings in the office. In response to the policy, NWC president Stephen Kohn stated, “Many red flags go up here, any rule that restricts [taping] does great harm.” While Governor Ritter’s office argues the policy protects client confidentiality, the article correctly notes that only the posting of the tape outside the office, not simply making the recording, would jeopardize confidentiality. The case is currently being appealed. The Governor and his appointees have failed to protect Colorado’s employees. It’s time for Colorado’s judges to uphold the law and defend whistleblower protections.

To read the article please click here.

SCOTUS Blog Selects Several False Claims Act Cases in "Petitions to Watch"

zkitts@cookkitts.com (Zachary Kitts) — Wed, 07 Jan 2009 09:29:57 GMT

This week the renowned SCOTUS blog highlighted Petitions for Certiorari filed in several False Claims Act cases. This is important for many reasons, not the least of which is that the folks at the SCOTUS blog have an uncanny ability to predict which petitions will be granted by the United States Supreme Court.

SCOTUS, for those of you who may be wondering, is an acronym for Supreme Court of the United States. I confess to having no idea where this acronym comes from, but I assume it comes from the same source as the acronym "POTUS" for President of the United States. The SCOTUS blog was started by Supreme Court practitioner Tom Goldstein.

In federal courts, certiorari is the writ that an appellate court issues to a lower court in order to review its judgment when there is no right to an appeal. Any given petition faces incredible odds--of the more than 7,000 petitions that are filed in an average year, the Supreme Court will generally grant somewhere between 75 and 150.

The SCOTUS blog has correctly predicted certiorari grants in the last three FCA-related Supreme Court cases.

The two cases highlighted this week are:

Docket: 08-511
Title: U.S., ex rel. Feingold v. Palmetto Gov’t Benefits Adm’rs
Issue: Whether the Eleventh Circuit correctly decided that a provision granting immunity to Medicare carriers for any payment that is processed on behalf of the government barred a qui tam suit.

Docket: 08-660
Title: U.S. ex rel. Eisenstein v. City of New York
Issue: Whether the 30-day time limit in Federal Rule of Appellate Procedure 4(a)(1)(A) for filing a notice of appeal, or the 60-day time limit in Rule 4(a)(1)(B), applies to a qui tam action under the False Claims Act.

A New Year, A New President, and Lots of New Money--How We Can Prevent the Same Old Fraud?

zkitts@cookkitts.com (Zachary Kitts) — Mon, 05 Jan 2009 09:42:57 GMT

The year 2009 will bring a new President to the White House who has promised lots and lots of new federal money to fund various state and federal projects. Some have gone so far as to say that President-elect Obama will supervise the largest spending program since the Eisenhower Administration built the federal interstate system.

With great opportunity comes great risk, however. This blog has previously argued that the Federal False Claims Act and state false claims acts such as the Virginia Fraud Against Taxpayers Act have their own role to play in protecting this large expenditure of federal funds. Furthermore, because anyone with knowledge of fraud on the federal government or a state government can come forward under the qui tam provisions of such statutes, each individual has their own role to play.

As one example of the sort of mischief that follows large federal expenditures, today we will look at fraud in the E-rate Program. I selected this example because we have all heard a great deal recently about federal funding to extend broadband Internet access to remote areas of the United States.

E-Rate, a program authorized by Congress in the Telecommunications Act of 1996, was designed to ensure that all eligible schools and libraries have affordable access to modern telecommunications and information services. Up to $2.25 billion annually is available to provide eligible schools and libraries with discounts under the E-rate program for authorized services.

Under the E-Rate program, schools can receive money for cabling, Internet infrastructure items (i.e., servers, PBX switches and so forth), and the reimbursement of monthly Internet and telephone service fees. E-rate operates under the auspices of the Federal Communications Commission (FCC).

In a nutshell, eligible institutions can file a federal FCC Form 471 with the FCC listing the services and other items desired. Privater vendors can access these postings, and then directly contact the entity to bid on providing the work. E-rate is only available to institutions that have certain qualifying characteristics. If the entity seeking funding is a school, for example, a certain percentage of the school's students must qualify for the National School Lunch Program. There is also a preference for rural schools and libraries.

As we see in other contexts such as healthcare, a cottage industry has sprouted up around defrauding the E-rate Program. Such fraudfeasors normally call themselves "Education Consultants" or some such title, and they promise to obtain E-rate funding for anyone who hires them. One such individual is former "Education Consultant" Judy N. Green, who was sentenced to 7.5 years in prison for participating in E-rate fraud in Arkansas, California, Michigan, New York, Pennsylvania, South Carolina, and Wisconsin.

Green was convicted of orchestrating schemes to defraud the E-Rate Program of funds by inflating the cost of eligible equipment and services in order to pay for ineligible equipment and services, and by misrepresenting schools' ability and willingness to pay their portions of the projects' costs. She also conspired to rig bids in favor of companies and individuals that had business relationships with her.

Anyone with first-hand knowledge of fraud on the E-rate program has the ability to step forward and take action to stop it utilizing the qui tam provisions of the Federal False Claims Act. Last year, the United States recovered more than $1 billion as a result of whistleblowers who decided enough was enough. Those who come forward are eligible to receive an award of between 15 and 30 % of the recovered funds.

To learn more about becoming a whistleblower under either the Federal False Claims Act or the Virginia Fraud Against Taxpayers Act, please click here.

U.S. Businesses in Hungary want whistleblower law

rr@whistleblowers.org (Richard Renner) — Fri, 02 Jan 2009 23:52:23 GMT

"Whistle-blower legislation brings in a lot of money," proclaims the headline in Business Hungary magazine. The article in November's issue reports on a trip to Hungary by Stephen M. Kohn, President of the National Whistlelbower Center.

Stephen Kohn traveled to Hungary last Fall to urge Hungarian officials to adopt a whistleblower law similar to America's False Claims Act (FCA). Under the FCA, those whistleblowers who are the original source of information leading to the recovery of federal funds fraudulently obtained can recover between 15% and 30% of those funds. Since a 1987 amendment, FCA claims have helped taxpayers here reclaim $20 billion. To help us make these recoveries, the whistleblowers faced
discharge, financial ruin or worse. Even whistleblowers who are not the "original source" of information are still protected from retaliation.

More significant than the money recovered, the FCA compels business to stay honest with the government -- cleaning up entire industries. No wonder, then, that Hungary's Minister of Justice, Tibor Draskovics, announced plans for a similar law in Hungary. A recent Transparency International report also recommended whistleblower protection legislation as a way to deter corruption.

The Hungarian branch of the Chamber of Commerce recognizes how whistleblower remedies, and even cash awards, will encourage reports of wrongdoing and help honest businesses compete. I wonder, though, why honest American businesses are not promoting the FCA here in their homeland. The FCA routs out the the dishonest operators here too, and levels the playing field for honest businesspeople everywhere. It would be logical, then, if these same American businesses would support the False Claims Corrections Act when it is reintroduced in the new Congress.

Click here for an image of this Business Hungary article.

Cutting workload is not a materially adverse action

rr@whistleblowers.org (Richard Renner) — Fri, 02 Jan 2009 21:29:48 GMT

The U.S. Court of Appeals for the District of Columbia this week affirmed a decision to dismiss a federal whistleblower's case, primarily because the whistleblower suffered no "materially adverse" action. Baloch v. Kempthorne, No. 07-5330 (Dec. 30, 2008).

Since 1991, Mohammad Baloch has worked for the U.S. Department of Interior as a Water Rights Specialist in the Bureau of Indian Affairs. Baloch had filed an administrative complaint of employment discrimination. Thereafter, his managers decided to fill a long-vacant position and they transfered half of Baloch's work to the new co-worker. Baloch's supervisors also imposed new restrictions on his use of sick leave (although no such leave was actually denied), and his supervisor yelled at him four times in eight months.

The court held that hiring the co-worker was not a materially adverse action. The Court noted that in the past it has held that diminishing an employee's work responsibilities is an adverse action. Czekalski v. Peters, 475 F.3d 360, 364 (D.C. Cir. 2007). In this case, however, the quality of Baloch's responsibilities did not go down -- only the amount of work assigned to him. The Court did not want to engage in “judicial micromanagement of business practices” by second-guessing employers’ decisions about “which of several qualified employees will work on a particular assignment.”

The Court also held that since the added sick leave requirements did not result in any denial of sick leave, it was not "material." Similarly, the Court categorized the yelling as "sporadic" and declined to enforce any workplace civility code.

The Court of Appeals did disagree with the district court's consideration of how Baloch continued to make complaints even after these alleged adverse actions. The district court concluded that Baloch's continued protected activity showed that the adverse actions did not deter such activity. This is a frequent defense raised by employers who would obviously prefer that their employees not complain about any illegality they see. In Baloch's case, footnote 5 on page 12, the Court of Appeals noted that the Supreme Court requires courts to use an objective standard. Burlington N. & Santa Fe Ry. Co. v. White, 548 U.S. 53, 68 (2006). Therefore, whether Baloch was or was not deterred in raising his concerns is immaterial to the question of whether the employer's actions would deter other employees from coming forward. This is an important conclusion that should do away with employer claims based on the whistleblower's courageous continuation of protected activities in the face of alleged retaliation.

The Court also noted that the employer had a legitimate reason for making the new hire. The co-worker was a lawyer who could handle legal work for the Department and help with the Department's budgeting. The Court of Appeal said that Baloch did not present evidence tending to show that this reason was a pretext for discrimination.

The full decision is available at:

http://pacer.cadc.uscourts.gov/common/opinions/200812/07-5330-1156088.pdf

Treasury Department Announces TARP Investment in GMAC

Tue, 30 Dec 2008 15:06:58 GMT

The TARP bailout funding continues, as the Treasury Department announced today that it will buy $5 billion in senior preferred equity with an 8% dividend from GMAC LLC. Senator Charles Grassley has emphasized that TARP and other "bailout" funds must...

The TARP bailout funding continues, as the Treasury Department announced today that it will buy $5 billion in senior preferred equity with an 8% dividend from GMAC LLC.

Senator Charles Grassley has emphasized that TARP and other "bailout" funds must be protected through whistleblower protections and whistleblower laws such as the False Claims Act. The GMAC announcement today will present ample opportunities to test those premises on which Congress approved the bailout funding.

The Treasury announcement is reprinted below:

December 29, 2008
hp1335
Treasury Announces TARP Investment in GMAC
Washington, DC –The Treasury Department today announced that it will purchase $5 billion in senior preferred equity with an 8% dividend from GMAC LLC as part of a broader program to assist the domestic automotive industry in becoming financially viable.
Under the agreement GMAC must be in compliance with the executive compensation and corporate governance requirements of Section 111 of the Emergency Economic Stabilization Act, as well as enhanced restrictions on executive compensation.
GMAC will issue warrants to Treasury in the form of additional preferred equity in an amount equal to 5% of the preferred stock purchase that will pay a 9% dividend if exercised.
Additionally, the Treasury has agreed to lend up to $1 billion to General Motors so that GM can participate in a rights offering at GMAC in support of GMAC's reorganization as a bank holding company. This commitment is in addition to the assistance previously announced for GM on Dec. 19. This loan will be exchangeable at any time, at Treasury's option, into the GMAC equity interests being acquired by GM in the rights offering. Furthermore, this loan will be secured and will have other terms and conditions as outlined in the attached term sheet. The ultimate level of funding under this facility will be dependent upon the level of current investor participation in the rights offering at GMAC.
Treasury exercised this funding authority under the Emergency Economic Stabilization Act's Troubled Asset Relief Program (TARP). The preferred stock purchase and the loan to support GMAC's rights offering are part of an auto industry-focused TARP program that will include the $17.4 billion in assistance for domestic automakers announced earlier this month.
As previously indicated, Treasury will work with Congress and the President-elect's transition team on the appropriate timing for release of the remainder of the TARP funds to support financial market stability.

-30-
REPORTS
• Term Sheet
• Commitment Letter

Vote for Whistleblower Protection on Change.org

lmw@whistleblowers.org (Lindsey Williams) — Tue, 30 Dec 2008 14:28:37 GMT

As you know, the recent financial meltdown and the Madoff scandal have highlighted the importance of protecting whistleblowers. Employees that have the courage to stand up for the protection of American taxpayers should be treated with the respect they deserve. As the new Administration and Congress prepare to revitalize the economy we must ensure that oversight and accountability are central part to any rescue plan. You can sign our petition calling for stronger whistleblower protection here.

Another way to make change for whistleblowers a priority for the new Administration is to visit the change.org website and vote for "Protect government whistleblowers from reprisals" by midnight tomorrow, December 31st.

**You need to sign-up as a member to the site in order to vote.**

Ideas for Change in America is a project of Change.org, an online community and media network for social issues. Ideas for Change in America is a non-profit citizen-driven project (not connected with the Obama Administration) that aims to identify and create momentum around the best ideas for how the Obama Administration and 111th Congress can turn the broad call for "change" across the country into specific policies.

The top 10 rated ideas will be presented to the Obama Administration on Inauguration Day, January 20, 2009 as the "Top 10 Ideas for America." Change.org will then launch a national campaign behind each idea and mobilize the collective energy of the millions of members of Change.org, MySpace, and partner organizations to ensure that each winning idea gets the full consideration of the Obama Administration and Members of Congress.

The "Top 10 Ideas for America" will be determined through two rounds of voting. In the first round, ideas will compete against other ideas in the same issue category. The first round will end on December 31, 2008, and the top 3 rated ideas from each category will make it into the second round.

Ohio Auditor Misses the Mark: Ohio's Plan to Reduce Medicaid Fraud Includes Everything BUT a State False Claims Act

zkitts@cookkitts.com (Zachary Kitts) — Tue, 30 Dec 2008 09:52:09 GMT

The state of Ohio--which, like every other state, is facing a record budget deficit--is searching for ways to cut costs and stretch its budget a little. Amazingly, in a new report released this week by Mary Taylor (who currently serves as the state's Auditor), the passage of a state false claims act is not one of the suggestions made to stretch the state's dollars further and eliminate fraud, waste, and abuse from the program.

To put things in perspective, Ohio spends over $13 billion each year on the Medicaid program. This amount represents nearly a quarter of the total state budget. Assuring that these funds are spent appropriately and that fraud, waste and abuse are identified and addressed is one of Ms. Taylor’s priorities.

You can view Auditor Mary Taylor's web page, as well as some of some of the blog discussion from Ohio and you will find no mention of a state false claims act. I suspect the reason is a simple failure to understand the concept of the false claims act.

As a member of the House of Representatives in 2005, Auditor Taylor worked with the Ohio General Assembly to include legislative language giving the Auditor of State the authority to undertake a performance audit of the Medicaid program, as well as the ability to audit Medicaid providers. According to her website, this legislation has resulted in a number of policy changes that address efficiencies that can be achieved in the Medicaid program and protect and saved significant taxpayer dollars.

That is all fine and well--however, if Ms. Taylor really wants to save the good people of Ohio some money, she will simply request that a state false claims act that complies with the Deficit Reduction Act of 2005 be enacted. Simply by having such a law in place, the state will receive an additional 10% of all monies recovered--even without taking any further actions. In other words, there is no need to hire additional prosecutors, or do anything else, in order to start reaping the benefits.

This model statute prepared by Taxpayers Against Fraud would meet the requirements of the Deficit Reduction Act, Ms. Taylor. If you have any questions, please feel free to write me.

Zachary Kitts
Cook & Kitts, PLLC

Eighth Circuit says not so fast on STAA amendments

rr@whistleblowers.org (Richard Renner) — Fri, 19 Dec 2008 16:48:24 GMT

Today the Eighth Circuit U.S. Court of Appeals held that 2007 amendments to the whistleblower protection for truck drivers is not retroactive. In Elbert v. True Value Company, Case No. 08-1222 (8th Cir. 2008-12-19), the Court said that Timothy Elbert did not have a right in 2007 to file in federal district court a claim against his 2005 discharge. The August 3, 2007, amendment to the Surface Transportation Assistance Act (STAA) is not retroactive.

On January 11, 2005, Timothy Elbert told his bosses at True Value that the brakes on a trailer were broken and he would not drive it. Two days later, they fired him. Elbert had worked for the company for 16 years.

Since 1983, the Surface Transportation Assistance Act (STAA), 49 U.S.C. § 31105, has protected the employees of motor carriers from retaliation for refusing to drive unsafe equipment, refusing to violate the hours of service rule or other safety laws, or for raising safety concerns. Under STAA, truck drivers have 180 days to file a written complaint with OSHA to seek relief for retaliation. Unfortunately, OSHA's record on ruling for truck drivers has been slow and disappointing. When truck drivers appeal to the Office of Administrative Law Judges (ALJs), it can take months or longer to get a hearing, and then again to get a decision, and the decisions can still be disappointing. The required review by the Administrative Review Board (ARB) can take years.

As part of the Implementing Recommendations of the 9/11 Commission Act in 2007, Congress updated the STAA whistleblower protection (and created new protections for public transportation and railway workers). The updates include a right to file a civil action in federal district court if the Department of Labor (DOL) takes more than 210 days to issue a final order, and a right seek punitive damages up to $250,000.

When Elbert filed his complaint with OSHA, True Value claimed that it fired him for becoming argumentative with a dispatcher about signing a new policy on tracking fuel and miles, and also for making up the claim that the brakes were bad. OSHA accepted this claim and determined that Elbert's complaint had no merit. Elbert appealed to an ALJ who also accepted the managers' claim that they fired Elbert for his abrasiveness, and not because of his protected activity. The ALJ even held that it was okay to fire Elbert for believing that Elbert made up the brake problem as the managers did not learn about Elbert's corroboration for the problem until after they decided to fire him.

Elbert's case was pending at the ARB when the 2007 STAA amendments passed. Elbert's attorney, Paul Taylor of the Truckers Justice Center, promptly filed a new civil action in U.S. District Court. That court dismissed the case saying that the new procedure would apply only to violations that happened after the amendments became effective. On appeal, Taylor argued that as the amendments are procedure and not substantive (except for the new provision for punitive damages), they should apply to cases that were pending at the time they were enacted. Taylor noted that the district court action did not seek punitive damages, so that provision should not affect this case. The Eighth Circuit disagreed. The court was concerned about the "additional costs to True Value" from relitigating Elbert's claims. Even though Elbert was not seeking punitive damages, the court said that applying the law retroactively deprived True Value of how the new remedy could impact employee relations. The court did not address how punitive damages are meant to deter others from the unlawful conduct, and this purpose is served by applying such damages now for conduct that was already unlawful before the remedy was enacted. The court affirmed the lower court's dismissal.

Elbert's case still awaits a final decision from the ARB. Meanwhile, this case shows the practical benefits that can flow from careful drafting of new legislation. If Congress had just said that it wanted the amendments to apply to pending cases, then Elbert would have his day before a jury. Perhaps Congress will be so attentive when it considers new whistleblower protection bills next year. Perhaps the next administration will manage whistleblower cases more promptly, and with a spirit that gives life to the protection Congress originally intended. See the National Whistleblowers Center (NWC) Roadmap for Change. We can continue to hope.

Starting today, Federal Contractors Must Focus on Ethics and Disclose "Credible Evidence" of False Claims Act Violations

zkitts@cookkitts.com (Zachary Kitts) — Fri, 19 Dec 2008 16:37:58 GMT

Effective today, federal contractors are required by the Federal Acquisition Regulations ("FAR") to take certain proactive steps regarding the Federal False Claims Act.

The Federal Register's publication, which includes the comments made by the industry, and the responses to such comments, can be seen here. Notice how many times the word "ethics" appears--more on that in a moment.

The protests of the industry are largely without merit, as the government was quick to point out. The new regulations merely create the same or similar requirements for defense contracts that we see in the healthcare context and in other contexts.

I am not surprised that the defense industry is surprised, however. In general, it is fair to say that the new regulations are a drastic change. Among other requirements, contractors covered by the changes are now required to have a training program and to display a poster explaining the False Claims Act, as well as the anti-retaliation provisions of the FCA, and providing the phone number for the Office of the Inspector General.

The poster requirement should be quite effective in preventing fraud and waste. As any qui tam lawyer knows, many people encounter fraud during their employment and are afraid to say anything about it--many others are not sure of the requirements of the law.

In the context of other remedial statutes, the display of posters in an area where it will be seen by employees is an old and effective technique. For example, the minimum wage and overtime requirements of the Fair Labor Standards Act must be displayed in workplaces in the United States--largely as a result of this, the overtime pay requirements of the statute are among the best-known federal laws in the country.

There is a mandatory disclosure requirement in the new regs--which has caused a great deal of ink to be spilled--requiring any contractor with "credible evidence" of a False Claims Act violation to disclose such information when it comes to their attention.

Perhaps most interesting is the focus on contractor ethics--the word appears again and again throughout the rule--and the requirement that contractors establish certain minimum standards of conduct for themselves. Many of the comments made question the emphasis on "ethics" and "ethical practices."

Most of the negative comments on the new FAR provisions assert that the word ethics is vague, and too open to interpretation to be of any use in controlling fraud by government contractors. In my humble opinion, it is high time that government contractors were required to develop a little judgment and rely less on rules.

The reasons are simple. First, business activity--like any human activity--can never be completely defined and governed by a set of rules.  Second, the creation of a set of rules gives rise to methods to get around the rules. Ethics, however, are not quite so easy to get around.

Breaking News: Amendments to the Michigan False Claims Act

zkitts@cookkitts.com (Zachary Kitts) — Fri, 19 Dec 2008 11:19:02 GMT

Yesterday, the Michigan False Claims Act was amended to add two important--but optional--elements of a state false claims act. Previously, this blog has not addressed elements of a state false claims act over and above compliance with Deficit Reduction Act of 2005, so this seems like as good a time as any.

You can read the Michigan changes here. Michigan's statute has complied with the DRA since September of 2006, I believe, which means essentially that it was similar enough to the Federal False Claims Act that it was approved by the Office of the Inspector General of the Department of Health and Human Services. After its approval, Michigan began to receive an additional 10% of all monies recovered by Medicaid fraud prosecutions.

However, just because a state false claims act complies with the wishes of the federal government does not mean it is doing all that such a statute can do for the state. One drastic error that some states make is passing a state false claims act that applies only to Medicaid fraud, which is exactly what Michigan had until yesterday.

In other words, Michigan's previous statute was not a general false claims act that outlawed any false claim made to the state of Michigan for payment, or to avoid payment to the state of Michigan.

As a result, the state was leaving tens of millions or hundreds of millions of dollars on the table--or more accurately, in the pockets of fraudfeasors--every year by only penalizing Medicaid fraud. With the exception of Medicaid fraud, until yesterday it was open season on the Michigan treasury by unethical actors of all stripes.  As just one example, banks and federal credit unions were free to not escheat unclaimed money to Michigan, without fear of substantial penalties.

No longer. Now, Michigan has a statute penalizing the same conduct as the Federal False Claims Act. Just to bring things full circle, our own Virginia Fraud Against Taxpayers Act has been, since it became law on January 1, 2003, a general false claims act that provided remedies for any false claim made to the Commonwealth.

The second major change made yesterday is one that our Virginia statute does not have. I am referring to a "retroactive clause" which would make false claims made prior to the enactment of the statute subject to suit. Now that our statute is almost six years old, retroactivity is not such a problem.

At any rate, I should mention that Michigan qui tam lawyer Dave Haron is largely responsible for moving the changes thought the Michigan legislature--congratulations Dave!

KPMG Tax Shelter Fraud Trial Ends With Three Tax Evasion Convictions for Accountants and Lawyer

Fri, 19 Dec 2008 00:37:45 GMT

Fraudulent tax shelters continue to be a target not only of IRS Whistleblower claims, but also of enforcement actions. We have followed closely the KPMG tax shelter fraud case in this whistleblower lawyer blog. The trial of four defendants...

Fraudulent tax shelters continue to be a target not only of IRS Whistleblower claims, but also of enforcement actions.

We have followed closely the KPMG tax shelter fraud case in this whistleblower lawyer blog. The trial of four defendants ended this week, with two former KPMG partners and one attorney convicted of multiple counts of tax evasion for their roles in the bogus tax shelters. Another lawyer defendant was acquitted.

Prosecutors alleged that KPMG officials offered wealthy clients illegal offshore tax shelters, and paid outside attorneys to give the bogus shelters the appearance of legitimacy. According to the government, the investments had no real risk, and generated "paper losses that allowed the accounting firm's clients to offset income.

Through tax shelters with names such as BLIPS, FLIP and OPUS, the clients were able to claim falsely that they had taken sizeable loans to buy stock, according to the government. Clients allegedly paid fees equal to 7 percent of the amount of losses sought.

After a two month trial, former KPMG tax partner Robert Pfaff, former KPMG senior tax manager John Larson, and attorney Raymond J. Ruble were found guilty on multiple counts of tax evasion. Another former KPMG tax partner was acquitted on the five counts of tax evasion.

The accounting firm agreed two years ago to pay $456 million to resolve the allegations against the firm itself. Guilty pleas previously were entered by the government’s chief witness, David Amir Makov, former KPMG partner David Rivkin, and former HVB Group accountant Domenick DeGiorgio.

The case attracted great attention previously for Judge Lewis Kaplan's 2007 decision to dismiss charges against 13 of the defendants. The judge ruled that the government violated these defendants' constitutional rights when it pressured KPMG not to advance their legal fees and expenses.

As we have written about previously, accountants and lawyers elsewhere continue to face charges for their roles in promoting illegal tax shelters. Last month an Illinois CPA was charged in New York with selling an illegal tax shelter that reportedly has cost the U.S. government over $103 million. Also pending is a tax shelter case against four Ernst & Young LLP partners.

Brief: It's not "absurd" to follow SOX law.

rr@whistleblowers.org (Richard Renner) — Thu, 18 Dec 2008 15:30:21 GMT

A few federal judges have been reluctant to follow a provision in the 2002 Sarbanes-Oxley (SOX) law that allows corporate fraud whistleblowers to have a de novo trial in federal court. One judge in Maryland ordered a SOX case back to the Department of Labor's Administrative Review Board (ARB) saying that the de novo provision was "absurd." Yesterday, I filed an amicus brief with the Fourth Circuit Court of Appeals explaining why this is the law, and why it is not "absurd" to follow the law.

The amicus brief was filed on behalf of the National Whistleblowers Center (NWC) and the Government Accountability Project (GAP). GAP attorneys Kasey Dunton-Dermont and Tom Devine assisted with the brief.

The SOX provision at issue is 18 U.S.C. §1514A(b)(1)(B). It provides that if the Department of Labor (DOL) does not issue a final order within 180 days, then the complainant can file a de novo civil action in U.S. district court.

Between 1999 and 2005, David Stone became a quick climber of the corporate ladder at Instrumentation Laboratory Company (IL). Promoted twice, we went from a Sales Representative to Director of National Accounts. In this national management position, Stone learned that IL had not been paying required administrative fees to Group Purchasing Organizations (GPOs). Combined with internal control problems, this meant that IL was misrepresenting its financial condition to investors. Stone reported these problems to corporate officials who promptly began retaliating. First they gave Stone a bad performance appraisal. Then, in March 2006, they fired him.

Stone filed a SOX whistleblower complaint with DOL's Occupational Safety and Health Administration (OSHA) which (as it does in most cases) found no merit in the complaint. Stone appealed to an administrative law judge (ALJ) who dismissed the case without allowing Stone to have discovery or a hearing. It is no wonder then that Stone decided to leave the DOL process and file in federal court.

The federal judge, however, also did not want to hear the case. Citing a decision from Louisiana, and a comment by the Secretary of Labor, the judge said that allowing Stone to have a trial after the ALJ had issued a recommended decision was an "absurd result." Ignoring the plain language of SOX, the judge ordered that the case go back to DOL for a final decision. Stone appealed.

In our amicus brief, NWC and GAP argue that the plain and clear language of SOX controls, and it was an error for the judge to refuse to hear Stone's case. The brief notes that the Fourth Circuit reached the same conclusion for discrimination cases under Title VII, holding that de novo review “makes clear” that the trial in district court “proceeds as if no earlier proceedings had been completed at all.” Laber v. Harvey, 438 F.3d 404, 421 (4th Cir. 2006). Other courts have also followed SOX the way it is written, allowing de novo litigation. JDS Uniphase Corp. v. Jennings, 473 F.Supp.2d 705, 710 (E.D. Va. 2007); Collins v. Beazer Homes USA, Inc., 334 F. Supp. 2d 1365, 1374 (N.D. Ga. 2004).

The brief argues that legislative history need not be considered when the statute's language is clear. Nevertheless, the history of SOX supports what the language says. Senator Patrick Leahy stated “Only if there is not a final decision within 180 days of the complaint (and such delay is not shown to be due to the bad faith of the claimant) may he or she bring a de novo case in federal court with a jury trial available.” Legislative History of Title VIII of HR 2673, the Sarbanes-Oxley Act of 2002, Section 806, 148 Cong. Rec. S7418, S7420 (July 26, 2002). Congress clearly knew what it was saying. In fact, Congress has said it six more times in the whistleblower laws it has passed since enacting SOX in 2002: Energy Reorganization Act, 42 USC 5851(b)(4); Surface Transportation Assistance Act, 49 USC 31105(c); National Transit Systems Security Act of 2007, 6 USC 1142(c)(7); Federal Rail Safety Act, 49 USC 20109(d)(3); Defense Authorization Act, 10 USC 2409(c)(2); and Consumer Product Safety Improvement Act, 49 USC 2087(b)(4).

The brief concludes that it is not “absurd” to follow the law as Congress wrote it. A decision is expected by the end of 2009. Click here to download the Brief of Amici Curiae.

Qui Tam Whistleblower Recoveries under False Claims Acts (Federal and State) in 2008

Tue, 16 Dec 2008 23:11:01 GMT

Some recent significant recoveries under the False Claims Act--the nation's primary tool for fighting fraud and false claims--are summarized below. This summary is part of a paper I submitted in connection with serving on the faculty (with some excellent attorneys)...

Some recent significant recoveries under the False Claims Act--the nation's primary tool for fighting fraud and false claims--are summarized below. This summary is part of a paper I submitted in connection with serving on the faculty (with some excellent attorneys) of the "Southeastern Health Care Fraud Institute" on December 18, 2008.

Health care attorneys will gather at the Institute to discuss developments under the qui tam provisions of the nation's major whistleblower statute, the False Claims Act, as well as other issues relating to fraud in the health care industry.

Recent Significant False Claims Act Recoveries
(as reported by www.taf.org)

Merck ($650 million settlement in February 2008, arising from allegations of nominal pricing fraud, and kickback and best price violations for the arthritis drug Vioxx, the cholesterol drug Zocor, the acid-reflux drug Pepcid, the hypertensive medication Cozaar, the bone loss drug Fosamax, the migraine medication Maxalt, and the asthma medication Singulair.)

Cephalon ($375 million settlement in November 2007 arising from alleged off-label marketing of narcotic lollipop Actiq (Afentanyl citrate@) as well as Gabitril (an epilepsy medication) and Provigil (a narcolepsy medication.)

Amerigroup ($225 million settlement in July 2008, which was the final settlement after jury trial over allegations that the defendant was Acherry-picking@ the healthiest patients to reduce Medicaid HMO liability/spending.)

Staten Island University Hospital ($88 million settlement in September 2008, based on allegations that the hospital fraudulently billed Medicaid and Medicare for inpatient alcohol and substance abuse detoxification treatment beds for which it did not have verification, fraudulently inflated its patient count, and fraudulently billed Medicare for stereotactic body radiosurgery treatment that was provided on an out-patient basis to cancer patients.)

Medtronic/Kyphon ($75 million settlement in May 2008, after Kyphon was alleged to have improperly advised customers to bill its kyphonplasty procedure B a minimally invasive surgery used to treat spine fractures B as an inpatient procedure.)

CoxHealth ($60 million settlement in July 2008, over allegations that Cox improperly billed for end stage renal disease treatments.)

Pratt and Whitney ($52 million settlement in August 2008, based on allegations that Pratt & Whitney and PCC (a P&W subsidiary) allegedly knowingly sold defective turbine blade replacements for jet engines used in F-15 and F-16 fighter aircraft used by the U.S. Air Force.)

Hanson Building Materials ($42 million settlement in December 2007, based on allegations that the company improperly mined sand from Suisun and San Francisco bays and defrauded the state out of millions of dollars in royalties.)

CVS ($37 million settlement in March 2008, after allegations of illegally changing generic Zantac7 prescriptions from tablets to higher priced capsules.)

WellCare ($35.2 million settlement in August 2008, reportedly paid as a deposit for larger False Claims Act violations alleged and still being examined.)

Walgreens ($35 million settlement in June 2008, based on allegations of switching dosage forms in filling generic Prozac7, Zantac7 and Eldepryl7 prescriptions.)

Healthfirst ($35 million settlement in September 2008, based on allegations that Healthfirst, the largest Medicaid Managed Care provider in New York, violated state and federal contracts by paying bonuses to employees based on the number of people they enrolled in managed care.)

National Air Cargo ($28 million settlement in March 2008, arising from alleged billings to Defense Department.)

Abbott (TX) ($28 million settlement in September 2008, based on allegations of Average Wholesale Price violations and causing the state to overpay for prescription drugs.)

Cigna, Express Scripts ($27 million settlement in July 2008, arising from allegations that ExpressScripts disguised drug rebates as administrative and other fees and switched patients from one drug to another without doctor=s authorization.)

Defend NSA Whistleblower Thomas Tamm!

sam@whistleblowers.org (Sam Dratch) — Tue, 16 Dec 2008 14:57:43 GMT

This week’s cover story in Newsweek focuses on Thomas M. Tamm, a former Justice Department lawyer in its Office of Intelligence Policy and Review. Tamm blew the whistle on the National Security Agency's illegal wiretapping on U.S. citizens. As his reward for heroically exposing this illegal program, Tamm could be charged with violating national security and intelligence laws and jailed for up to 10 years.

Tamm is currently under investigation by the FBI for reporting NSA's illegal actions to the New York Times. Unfortunately, Tamm had no other option. He was repeatedly silenced by his supervisors. There was no place for him to report the criminal activities of the government's highest ranking employees, and there are no whistleblower protections for national security and intelligence employees who suffer retaliation.

President-Elect Obama and Attorney General nominee Eric Holder will be forced to decide whether to prosecute Tamm. Although both have publicly condemned the warantless wiretapping program as outside the bounds of the law, there has been a rise in the criminal prosecution of whistleblowers in recent years. This disturbing trend includes the Justice Department's prosecution of Richard Convertino, who blew the whistle to Congress on the failure of the Bush administration to prosecute terrorists after 9/11.

It is time to send a message to those who retaliate and threaten whistleblowers, and put an end to the government's use of "national security" as a justification to break the law.

If you would like to take action on this critical issue please click here.

NSA Whistleblower Thomas Tamm

sam@whistleblowers.org (Sam Dratch) — Tue, 16 Dec 2008 14:57:43 GMT

It is time to send a message to those who retaliate and threaten whistleblowers, and put an end to the government's use of "national security" as a justification to break the law.

If you would like to take action on this critical issue please click here.

Fourth Circuit leaves SOX whistleblower out in the cold

rr@whistleblowers.org (Richard Renner) — Mon, 15 Dec 2008 12:57:27 GMT

The Fourth Circuit U.S. Court of Appeals has affirmed an administrative appeal decision that leaves corporate whistleblower Stacy Platone out in the cold. The December 3, 2008, opinion affirms a decision of the U.S. Department of Labor's Administrative Review Board that took away Platone's order from an Administrative Law Judge. The Court held that under the Sarbanes-Oxley (SOX) employee protection, whistleblowers have to be specific about their allegations of fraud to be protected from retaliation.

In 2002, Atlantic Coast Airlines (ACA) lured Stacy Platone away from her career position with the Airline Pilots Association (ALPA) to become a labor relations manager. Platone soon noticed that the company was not billing the union for flight-loss time. Flight-loss time arises when pilots miss flying time to attend meetings on behalf of the union. Platone discovered that the company continued to pay the pilots, even though they did not fly. She raised the issue to her superior in the company and was promptly fired.

Platone filed a whistleblower complaint with the U.S. Department of Labor. The company claimed it was not aware of Platone's concern, but the notes of an assistant to the director confirmed that Platone had raised the flight-loss issue in a meeting shortly before she was fired. An administrative law judge (ALJ) issued a decision finding that Platone had a reasonable basis to believe that company officials were involved in a fraud. The ALJ also found that the company's director was not credible, and that he clearly knew about Platone's concern when he fired her. In 2004, the ALJ ordered ACA to pay backpay and attorney fees.

ACA appealed to the Department of Labor's Administrative Review Board (ARB). Meanwhile, ACA changed its name to Flyi, Inc., and then went out of business. In 2006, the ARB reversed the ALJ and held that Platone had not been specific enough in raising her concern about fraud. The ARB held that when Platone raised the flight-loss issue, she had not specifically informed her boss that the company had created to acquiesced in a scheme to provide improper payments to the union officers. The ARB required whistleblowers to be specific in raising their concerns about fraud.

Even though the company was out of business, Platone and her lawyers did a favor for whistleblowers by asking the federal Fourth Circuit to overturn the ARB decision. Sadly, though, the Fourth Circuit approved the ARB decision. The court defered to the ARB's conclusion the Platone had only alerted management to a billing issue, and had not "specifically and definitively" implicated any fraud when she reported the issue.

The "definite and specific" standard for SOX whistleblowing is not in the SOX law. It is a creation of the ARB. The ARB used the same rule to overturn another ALJ decision in the very first SOX case. The Fourth Circuit also affirmed that ARB decision. See Welch v. Chao, 536 F.3d 269, 275-76 (4th Cir. 2008). This special SOX rule is a departure from prior ARB decisions in environmental cases that only required employee concerns to touch on and relate to the issues protected by law. Does the ARB really mean to encourage law-breakers to fire workers at the first sign of conscience and backbone, before that worker can put all the pieces together to make a specific report of a violation? Apparently yes.

The outcome in the Platone case exemplifies the way that the current ARB has undercut what Congress made clear in passing SOX and other whistleblower protections. Hopefully, President-elect Obama will move quickly to appoint new members to the ARB, and to the federal circuits courts of appeals, to protect working people and restore a sense of the law's true purpose.

New Whistleblower Rules Approved for Government Contractors

blog@whistleblowers.org (Marshall Chriswell) — Sat, 13 Dec 2008 15:30:58 GMT

The National Whistleblower Center is reporting that the Civilian Agency Acquisition Council and the Department of Defense have approved new rules governing federal contracting which go into effect today.

For the full story on the NWC website, and to read the rules, Click Here.

Change (for the better) May Be In the Works for Whistleblowers; WaPost Story Highlights Obama's Support

blog@whistleblowers.org (Marshall Chriswell) — Thu, 11 Dec 2008 23:02:24 GMT

We told you that Obama's hardest promise would be protecting whistleblowers.

According to today's Washington Post, he just might be up for it.

Many of us in the whistleblower community of supporters have been cautiously optimistic about the opportunity to pass truly meaningful whistleblower protection laws under an Obama administration. The President-elect has a history of supporting whistleblowers, in fact, as a young lawyer he worked representing whistleblower Dr. Janet Chandler in a False Claims Act case that eventually wound its way to the Supreme Court. As a Senator, Obama supported legislation to protect government employees from retaliation when they report waste, fraud and abuse. Now as he prepares to take office, he has again, via the transition team website, reiterated his support for whistleblowers.

There is much reason for optimism, and all signs point to continued support from the Obama Administration, but we must also be cautious. Many a politician or corporate manager have vowed to strive for the highest ethical standards, to hold the powerful in check...that is, until they attained those positions of power. The voices of dissent are often not so appealing when they are bringing to light problems with which you must deal.

DIGG This story here

It's a Start...Senate Appoints Inspector General for the Bailout Billions

blog@whistleblowers.org (Marshall Chriswell) — Wed, 10 Dec 2008 16:03:35 GMT

Last week, I blogged about the recent critical GAO report which found that Congress and the Administration have not done enough to implement oversight of the $700 corporate bailout bill that was passed in October. Well, after weeks of foot-dragging, the Senate has finally voted to appoint former New York Prosecutor Neil Barofsky to the position of Inspector General of the Troubled Asset Relief Program (TARP) -- the program responsible for doling out all of that money.

This is a good first step, but much more needs to be done. As this exceptional article in the Washington Post reports, IG's serve at the pleasure of the president, and some have been notoriously loyal to the administration. Further, the IG will not be effective unless he can get credible information about illegal or wasteful spending from employee whistleblowers who can speak up without fear of retaliation. That's why the most important piece of this, and any oversight effort, is a strong whistleblower law. Congress should pass one immediately.

Recent Articles in Whistleblower Law from LexMonitor