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With TARP and Wall Street Bailout, Securities Fraud and Accounting Fraud Are Targeted by New Supplemental Anti-Fraud Enforcement (“SAFE”) Markets Act

January 27, 2009
Michael Sullivan

Financial fraud is a frequent topic of whistleblower cases and of this whistleblower lawyer blog, especially with TARP and the Wall Street “bailout” dominating headlines.

Senators Chuck Shumer and Richard Shelby have proposed a bipartisan bill to bolster federal resources to combat securities fraud and accounting fraud, the Supplemental Anti-Fraud Enforcement (“SAFE”) Markets Act.

Here are excerpts from the Senators’ announcement:

“Our white collar crime divisions are under-staffed, under-funded, and overwhelmed,” Schumer said. “When a wave of violent crime sweeps through a city,
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Will Wall Street Bailout Help Firms That Are “Tax Dodgers” and Hide Income in Offshore Tax “Havens”? And Will the IRS Whistleblower Program Provide a Remedy?

January 18, 2009
Michael Sullivan

As our government hemorrhages its taxpayers’ funds to “bail out” firms that made poor decisions–such as American International Group (AIG), Bank of America, Citigroup, Goldman Sachs, and American Express–a just-issued report from the Government Accountability Office (GAO) raises a disturbing question: have many of the same firms already been avoiding paying their “fair share” of U.S. taxes by using offshore tax “havens”?

If so, whistleblowers will be performing a civic duty by reporting any tax evasion and noncompliance through the IRS Whistleblower Program.

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Treasury Department Announces $14 Billion in TARP Funds to More Than 40 “Local” Banks

January 13, 2009
Michael Sullivan

Continuing the “bailout,” the Treasury Department has just announced the release of $14.77 billion in TARP funds to what it refers to as 43 “local” banks (listed below).

“Local” may be a misnomer, as the list includes $10 billion to Bank of America Corp., and more than $3 billion to American Express Company.

Let’s hope that Congress and the Treasury Department make good on the promise to protect these taxpayer funds through effective oversight, meaningful restrictions, and whistleblower protections, and that Sen. Grassley’s prediction that the qui tam whistleblower provisions of the False Claims Act will be used vigorously to redress any fraud or abuse with TARP funds comes true.

Below are today’s announced recipients of the funds:
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Fraud and Abuse in Underpayment of Royalties from Oil and Gas Leases–The False Claims Act Provides A Solution

January 11, 2009
Michael Sullivan

As hundreds of billions in taxpayer funds flow to TARP bailout recipients, the government must make doubly sure to stop or minimize fraud and abuse in every federal program.

One area that cries out for attention is the underpayment of royalties owed to the government under oil and gas leases. The qui tam whistleblower provisions of the False Claims Act provide a basis for taxpayers to recover damages–and the whistleblower to receive a share of the recovery–when obligations to the government are underpaid.
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TARP Fund Restrictions Are Proposed in New Legislation

January 10, 2009
Michael Sullivan

Much criticism has flowed from how the first $350 billion in TARP “bailout” funds are being used. Thus far, the need for additional restrictions to prevent and penalize fraud and abuse of TARP money remains unmet.

In response, yesterday House Financial Services Committee Chairman Barney Frank proposed legislation establishing greater limits on use of TARP funds, among other things.

The “TARP Reform and Accountability Act of 2009” (HR 384) would require quarterly reports from recipients on their use of TARP funds, restrict the use of
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Treasury Department Announces TARP Investment in GMAC

December 29, 2008
Michael Sullivan

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

December 18, 2008
Michael Sullivan

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.

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

December 16, 2008
Michael Sullivan

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)

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Pharmaceutical Industry Hit by Layoffs

December 8, 2008
Michael Sullivan

The country’s ongoing economic distress has produced layoffs in many industries, and pharma appears to be feeling the pain as well.

Recent layoffs reported in the drug industry include Sanofi (650 sales reps);Novartis (550 U.S. salespersons);Merck (8,000); Wyeth (2,440); GSK (1,000); Schering-Plough (5,500);and Boehringer Ingelheim (200).

Whistleblowers, TARP, and Other Wall Street “Bailout” Measures–Why the False Claims Act and IRS Whistleblower Program Are More Essential Than Ever

December 8, 2008
Michael Sullivan

On the same grey November day when President Bush visited Wall Street’s Federal Hall to address the ever-morphing “bailout,” I was in lower Manhattan meeting with IRS officials about an IRS Whistleblower matter. The tax evasion scheme we discussed was yet another that has cost taxpayers dearly.

As NYPD officers scurried about to help protect the President that day, I wondered who and what would protect our taxpayer funds–the hundreds of billions the government was now about to dole out–from fraud and abuse.

Fraud is rampant, as proven by the evidence brought to light by so many of our whistleblower clients under the qui tam statute, the False Claims Act, and now under the new IRS Whistleblower Program.

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Greatest Impact of 2009 False Claims Act Amendments–“Civil Investigative Demands”

March 17, 2010
Michael Sullivan

Among the many 2009 changes to strengthen the False Claims Act is one whose impact is about to be experienced: greater use of “civil investigative demands” to gather evidence.

Civil investigative demands allow to government to require any person believed to have documents or information relevant to a False Claims Act investigation to do the following:

(A) to produce such documentary material for inspection and copying,

(B) to answer in writing written interrogatories with respect to such documentary material or information,

Iraq Reconstruction Fraud Continues to Fuel Investigations by Office of the Special Inspector General for Iraq Reconstruction

March 13, 2010
Michael Sullivan

As if the nation’s expenditures to rebuild Iraq were not enough, fraud that steals taxpayer dollars continues to infect the Iraq reconstruction program. This fraud often results in qui tam whistleblower cases under the False Claims Act, which allows those reporting the fraud to receive a a share of the government’s recovery of money.

Today’s New York Times piece by James Glanz reports on the more than 50 new fraud investigations in the past six months alone in the Iraq reconstruction effort.

The Office of the Special Inspector General for Iraq Reconstruction is responsible for these investigations. “Chaos, weak oversight and wide use of cash payments in the reconstruction program in Iraq allowed many more Americans who took bribes or stole money to get off scot-free,” in Mr. Glanz’s words.

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Georgia Psychiatric Hospitals: Justice Department Suit for Immediate Relief to Protect Patients

January 29, 2010
Michael Sullivan

The Justice Department has just announced that, to protect patients from harm in seven Georgia psychiatric hospitals, its Civil Rights Division has filed for relief including immediate appointment of a monitor to protect those patients.

DOJ cited the threat to patients of “imminent and serious threat of harm to their lives, health and safety.”

The seven hospitals include East Central Regional Hospital, Georgia Regional Hospital at Savannah, Georgia Regional Hospital at Atlanta, Southwestern State Hospital, Central State Hospital, West Central Georgia Regional Hospital, and Northwest Georgia Regional Hospital.

The announcement is repinted below:
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Taxation of Qui Tam Whistleblower Awards by IRS Addressed by Tax Court

January 22, 2010
Michael Sullivan

How does the IRS treat whistleblowers who receive awards under the False Claims Act’s “qui tam” provisions, which allow private citizens who expose fraud to share in the government’s recovery of money?

The Tax Court this week addressed that question. It held that awards to whistleblowers or “relators” are part of “gross income” and thus are taxable, but that the whistleblower nonetheless may deduct the attorney’s fees paid as a miscellaneous itemized deduction.

Thus, no income taxes were owed on that portion of the whistleblower’s award that was paid as attorney’s fees to the whistleblower’s attorney.

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Health Care Fraud Lawyers Gather to Discuss Amendments to False Claims Act and Other Whistleblower Developments

December 16, 2009
Michael Sullivan

Attorneys from across the country will gather tomorrow in Atlanta to discuss health care fraud and the 2009 amendments to the False Claims Act, the nation’s primary whistleblower statute.

I am pleased to be on the panel discussing “False Claims Act Developments,” moderated by Jack Boese of Fried Frank. This will be a particularly interesting year for this annual meeting, as Congress enacted major changes to the False Claims Act that took effect on May 20, 2009.

In addition, the “Health Care Fraud Enforcement Act” pending in the Senate would enhance further the government’s tools used to investigate and remedy Medicare and Medicaid fraud. This bill would remove any question that all payments made pursuant to illegal kickbacks are “false” for purposes of the False Claims Act.

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New SEC Whistleblower Rewards and Whistleblower Protections Approved by House Committee–But Improvements Are Needed

November 9, 2009
Michael Sullivan

Since the Madoff and Stanford schemes proved ruinous to so many investors, many have asked why the SEC has no meaningful “whistleblower” program to expose wrongdoing, a topic we have written about previously.

Perhaps Harry Markopolis’ voice is finally being heard, albeit faintly. Last week, the House Financial Services Committee approved legislation that would expand both whistleblower rewards and whistleblower protections, among other things.

Still, past experience with the False Claims Act and the IRS Whistleblower statute shows that the proposed rewards need to be beefed up to be effective.

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New ‘‘Health Care Fraud Enforcement Act of 2009’’ Includes Health Care Whistleblower Provisions Aimed at Kickbacks

October 30, 2009
Michael Sullivan

The battle against those who steal taxpayer dollars through Medicare fraud and other health care fraud took a step forward this week. The Senate is now considering the “Health Care Fraud Enforcement Act,” which will enhance the government’s tools used to investigate and remedy Medicare and Medicaid fraud.

After a Senate Judiciary Committee hearing Wednesday on “Effective Strategies for Preventing Health Care Fraud,” Senators Leahy, Kaufman, Specter, Kohl, Schumer, and Klobuchar sponsored the new anti-fraud measure.

Excerpts of the Senate announcement follow:

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Health Care Fraud Strike Force Targets Medicare and Medicaid Fraud

October 25, 2009
Michael Sullivan

With the nation’s health care costs growing, a DOJ and HHS initiative to combat health care fraud continues to show progress.

Building on past enforcement efforts, in May 2009 the government announced its Health Care Fraud Prevention and Enforcement Action Team (HEAT), as part of what is now a Cabinet-level battle against Medicare fraud. To date in FY 2009, the Department of Justice has recovered close to one billion dollars in health care fraud cases, and has obtained 300 convictions.

Last week, the government announced
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New False Claims Act Amendments Strengthen Enforcement of Health Care Fraud and Procurement Fraud Laws

October 25, 2009
Michael Sullivan

Defrauding the government of taxpayer dollars has gotten tougher over the past five months.

Important changes to the nation’s primary anti-fraud statute, the False Claims Act, took effect on May 20, 2009, when the Fraud Enforcement and Recovery Act of 2009 became law.

Among the most significant changes, Congress clarified and corrected the False Claims Act by legislatively overruling certain court decisions that sought to limit the scope of the Act, including Allison Engine Co. v. United States ex rel. Sanders, 128 S. Ct. 2123 (2008); United States ex rel. Totten v. Bombardier Corp., 380 F.3d 488 (D.C. Cir. 2004), cert. denied, 544 U.S. 1032 (2005); and United States ex rel. DRC, Inc. v. Custer Battles, LLC, 376 F. Supp. 2d 617 (E.D. Va. 2005), rev’d, 562 F.3d 295 (4th Cir. 2009).

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Health Care Fraud Lawyers to Analyze Recent Amendments to False Claims Act

September 26, 2009
Michael Sullivan

At the “Advanced Health Law” seminar on October 9, attorneys prosecuting and defending cases of alleged health care fraud will discuss the important new amendments to the False Claims Act. I am honored to be the panelist who will discuss these important new provisions from the perspective of representing whistleblowers (known as “relators”) who bring qui tam whistleblower cases under the False Claims Act.

These significant changes to the False Claims Act took effect on May 20, 2009, when the Fraud Enforcement and
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