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Michael Sullivan

Where Is the Oversight?

Just before Christmas I read an article about a case in Texas where a doctor was sentenced to a lengthy prison term for a scheme to defraud Medicare and Medicaid in excess of $25 million. The doctor had been approached by individuals offering to pay him a kickback for supplying Certificates of Medical Necessity (CMN) approving a beneficiary to receive a motorized wheelchair. I have been watching TV and seeing these adds for sometime about scooters for disabled individuals and I was wondering how so

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The Most Significant Recent Qui Tam Whistleblower Cases Under the False Claims Act

This is the final section of my article. It discusses the most significant recent qui tam cases under the False Claims Act (as of December 2006).

B. Recent Significant Recoveries Under the False Claims Act:

1. Health Care Industry

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The Growing Importance of the Qui Tam Whistleblower Cases Under the False Claims Act

This is part 4 of my article on the False Claims Act. This part discusses the huge increase in federal dollars recovered in the past few years:

IV. Recent Recoveries and Other Developments In Qui Tam Litigation

A. An Explosion of Federal Dollars Recovered Since 1986, Under the False Claims Act

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How the Modern False Claims Act Works in Qui Tam Whistleblower Cases

This is part 3 of my article on how the False Claims Act works:

III. Brief Overview of How the Modern False Claims Act Works

A. Conduct Prohibited

The federal False Claims Act imposes civil liability under several different theories:

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History of the False Claims Act

This is the second part of my article explaining the False Claims Act–it addresses the history of the Act:

II. Background of the False Claims Act
While the False Claims Act may be the best known qui tam statute, it is far from being the first. Qui tam actions date back to English law in the 13th and 14th Centuries. This tradition took root in the American colonies and, by 1789, states and the new federal government had authorized qui tam actions in various contexts.7
According to one writer, “[i]n the early years of the Nation, the qui tam mechanism served a need at a time when federal and state governments were fairly small and unable to devote significant resources to law enforcement. As the role of the Government expanded, the utility of private assistance in law enforcement did not diminish. If anything, changes in the role and size of Government created a greater role for this method of law enforcement.” 8

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Introduction to the False Claims Act and Qui Tam Whistleblower Cases

I wrote this article for a seminar to explain the False Claims Act to those who may not know about it. I hope it may be useful to those who are interested in the Act. I have divided it into several sections–this is the first section, summarizing how the False Claims Act came to be in the time of Abraham Lincoln, and how it has evolved since then:

I. Introduction

Fraud is perhaps so pervasive and, therefore, costly to the Government due to a lack of deterrence. GAO concluded in its 1981 study that most fraud goes undetected due to the failure of Governmental agencies to effectively ensure accountability on the part of program recipients and Government contractors. The study states:

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Does SEC Whistleblower Reward of $1 Million Signal A New Attitude Toward Wall Street Whistleblowing?

Only days after the new financial reform law created the first potentially meaningful awards for whistleblowers reporting securities and commodities violations and abuses, the SEC may have signaled a new attitude toward encouraging whistleblowers.

The SEC recently announced its first million dollar award for a whistleblower’s report of information about insider trading involving hedge fund adviser Pequot Capital Management, Inc., its chief executive, Arthur J. Samberg, and David E. Zilkha, a Microsoft employee.

Although $1 million may not sound like much when compared to the losses caused by the Madoffs of the world, it is a dramatic improvement over what the SEC had done before.

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International Tax Evasion Targeted by IRS Move to Revamp Its Large Business Division

To battle offshore tax abuses and other international tax fraud and tax evasion, the IRS has announced that it is “realigning” and renaming its Large and Mid-Size Business (LMSB) division. To reflect its new emphasis, it will known as the “Large Business and International” division (LB&I).

As more transactions cross international borders, and more corporations and wealthy individuals use offshore tax havens and foreign low tax jurisdictions to avoid their tax obligations, the IRS is smart to focus more of its enforcement efforts in this way.

Based on our experience with tax whistleblowers, it is clear that the IRS Whistleblower Program is already seeing increasing numbers of tax whistleblower claims dealing with offshore tax abuses and other international tax issues.

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Offshore Tax Havens Face Increasing Scrutiny, With IRS Whistleblowers Assisting

“Offshore” accounts are an increasing priority of IRS enforcement, aided by the new IRS Whistleblower Program. The Offshore World has changed and will never be the same again. The traditional tax haven assurance of secrecy and anonymity won’t necessarily work any more.

The US has concluded Tax Information Exchange Agreements (TIEA’s) with a number of Offshore jurisdictions. Although the TIEA’s fall short of comprehensive Double Tax Treaties, they allow the IRS to obtain tax information about entities and accounts in Offshore jurisdictions under
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How Whistleblower Lawyers Work Alongside Government Lawyers In Successful Qui Tam Cases Under the False Claims Act

When whistleblower attorneys bring a qui tam False Claims Act case, the most successful results usually occur when Government counsel and the whistleblower’s lawyers (Relator’s counsel) work together in what is known as the “public-private” partnership model.

This approach to qui tam cases allows the government to leverage its limited resources by calling on the resources provided by private attorneys. This is essentially a “joint prosecution effort, ” in which the government counsel and investigators can rely on Relator’s counsel at each stage,

–from the beginning of its investigation,

–to obtaining input for preparation of subpoenas for documentary evidence from the defendants,

–to review of evidence compiled by the government in response to subpoenas,

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New Rewards for Whistleblowers Reporting Bribery of Foreign Government Officials, Corporate Fraud In Foreign Government Contracts

When the President signed the new financial reform bill into law today, new whistleblower provisions quietly took effect to battle corruption, bribery, and corporate fraud to obtain foreign government contracts.

This new law creates the new SEC whistleblower program that we have followed since its gestation after the Madoff scandal broke. The SEC and the U.S. Department of Justice share jurisdiction over a growing and increasingly important area of enforcement, the Foreign Corrupt Practices Act (FCPA).

Bribery of foreign government officials in international business transactions, and false entries in books and records of those companies within the statute, are the targets of the FCPA. Whistleblowers whose information helps the SEC recover monetary sanctions from those corrupt entities in FCPA cases now have an enforceable right to a monetary award of 10-30%.

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Whistleblowers Reporting Derivatives Fraud? Whistleblower Incentives Must Be Paid by CFTC Under New Financial Reform Bill

The new financial reform bill that awaits the President’s signature this week has something important for potential whistleblowers with knowledge of fraud in options, futures, derivatives and other financial products within the jurisdiction of the Commodity Futures Trading Commission (CFTC). The bill will modify the Commodity Exchange Act to provide whistleblower rewards and protections.

Similar to the new SEC whistleblower awards for persons who reports securities fraud, the rewards to whistleblowers will be available if the CFTC recovers monetary sanctions of more than $1 million because of the whistleblower’s information.

Like SEC whistleblowers, CFTC whistleblowers will have an enforceable right to 10-30% of what the CFTC recovers in substantial cases when the whistleblower has “voluntarily provided original information to the Commission that led to the successful enforcement of the covered judicial or administrative action, or related action.” (Section 748 of Dodd-Frank Wall Street Reform and Consumer Protection Act, reprinted below).

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New SEC Whistleblower Program Approved by Senate in Financial Reform Bill

Since the SEC refused for years to heed Madoff whistleblower Harry Markopolis’ warnings that Madoff was running a Ponzi scheme, we have followed with great interest the efforts of those who sought to create the first meaningful SEC whistleblower program.

The Senate this week took an important step by authorizing a new SEC whistleblower program–one more potent than the SEC apparently wanted–as part of the Wall Street Reform and Consumer Protection Act.

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New IRS Procedures for Whistleblowers Should Encourage More Significant IRS Whistleblower Claims

This morning’s Washington Post quotes me, among others, in criticizing one aspect of the new procedures for IRS whistleblowers recently published in the Internal Revenue Manual. That one glaring defect aside, the new IRM procedures are welcome news that should encourage more IRS whistleblowers to come forward.

Today’s Post article by David Hilzenrath on the IRS whistleblower procedures makes the following point, among others:

“There’s apparently an institutional resistance to rewarding whistleblowers that will take some time to dissipate,” said Michael A. Sullivan
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TARP Fraud and Other Violations Alleged by SEC Against Chairman of Major Mortgage Lender

As we have written previously, the billions of “bailout” dollars to financial institutions through the TARP program inevitably would result in many fraud cases, including some by TARP whistleblowers.

Today, the SEC announced allegations of TARP fraud and securities fraud of more than $1.5 billion other violations against Lee B. Farkas, through his company Taylor, Bean & Whitaker Mortgage Corp. (TBW).

According to the SEC, Farkas “sold more than $1.5 billion worth of fabricated or impaired mortgage loans and securities to Colonial Bank. Those loans and securities were falsely reported to the investing public as high-quality, liquid assets. Farkas also was responsible for a bogus equity investment that caused Colonial Bank to misrepresent that it had satisfied a prerequisite necessary to qualify for TARP funds. When Colonial Bank’s parent company – Colonial BancGroup, Inc. – issued a press release announcing it had obtained preliminary approval to receive $550 million in TARP funds, its stock price jumped 54 percent in the remaining two hours of trading, representing its largest one-day price increase since 1983.”

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New IRS Whistleblower Claim Procedures for Determining Awards to Whistleblowers Announced

Today the long-awaited IRS Whistleblower Office procedures for determining awards to tax whistleblowers were announced in an update to the Internal Revenue Manual.

The new provisions for IRS Whistleblower claims address many details of how tax whistleblower claims will be handled. The full provisions are reprinted below:

Part 25. Special Topics
Chapter 2. Information and Whistleblower Awards
Section 2. Whistleblower Awards

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