Whistleblower Blog

New Compliance and Education Reforms Take Effect

In February, 2006, President Bush signed into law the Deficit Reduction Act of 2005 (DRA). An obscure provision within this Act mandates that entities receiving greater than $5 million per year in Medicaid payments must educate their employees about “whistleblower” claims under the Federal False Claims Act. Under the DRA, effective January 1, 2007, as a requirement of continued eligibility for the receipt of Medicaid payments, any entity receiving annual payments of $5 million or more in Medicaid funds must have mandatory compliance and education programs in place for its employees to provide detailed information about the Federal False Claims Act. This education must include information provided to employees about administrative remedies, state laws pertaining to civil or criminal penalties, whistleblower protections, and the role of such laws in preventing and detecting fraud, waste, and abuse in federally funded healthcare programs.

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Tax Whistleblower Rewards Increase

We are excited that, in December 2006, Congress dramatically increased the “rewards” to whistleblowers under the IRS Whistleblower rewards program. Whistleblowers now can receive up to 30% of the taxes, interest, and penalties that the IRS recovers based on information furnished by a whistleblower in large tax cases.

For years, the Internal Revenue Service has been authorized to pay informants reporting tax fraud a percentage of any back due taxes collected. Usually the maximum percentage was approximately fifteen (15%) percent of the back tax recovered.

The new whistleblower reform provisions passed by Congress have changed this maximum, and now allow the Internal Revenue Service to consider not only the back tax amount, but also interest and penalties. Given the amounts of money involved, and depending on the passage of time, the fines, penalties and interest in addition to the tax could be significant.

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Will Whistleblower Tax Reforms Produce Results?

The Federal False Claims Act has been recognized as the government’s most effective tool for combating fraud and waste in government programs. According to the Justice Department, false claims act recoveries for the fiscal year 2006 exceeded 3 billion dollars. Unfortunately, the whistleblower reward program utilized by the Internal Revenue Service can hardly be characterized as being so successful. Since new IRS reward reform measures were enacted by Congress, we have been giving thought to the crucial question of whether the IRS will be successful in implementing its new informant reward program. Statistics available from the IRS are hardly encouraging.

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Addressing Contractor Fraud and Abuse in Iraq

According to the Congressional Research Service, the United States has spent to date over $437 billion on the Iraq War. An additional $100 billion is estimated to be spent this year. While much of the money, obviously, goes for troops, a great deal of these amounts has gone to civilian contractors involved in reconstruction efforts in Iraq. But where has the money gone and who is accounting for its proper use?

According to Senator Patrick Leahy of Vermont, “Eventually we’re going to have a bill

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The CMS Clarifies the Mandatory Whistleblower Reforms

The salutary intent of the Deficit Reduction Act was to require that employers educate employees about the Federal False Claims Act and, hopefully, address fraud and abuse by employer entities receiving $5 million dollars or more in federal funds under the Medicaid program. When the Deficit Reduction Act was passed in 2005, a debate emerged about whether the DRA education provisions mandating employee education about the Federal False Claims Act applied directly to healthcare providers and/or whether states receiving Medicaid had to pass implementing legislation to make the provision effective. In December of 2006, the Centers for Medicare and Medicaid Services (CMS) set the record straight. An “entity” includes a government agency, organization, unit, corporation, partnership or other business arrangement (including any Medicaid managed care organization, irrespective of the form of business structural or arrangement by which it exists) whether for profit or not for profit, which receives or makes payments under a state plan approved under Title XIX or under any waiver of such plan, totaling at least $5 million annually. In short, states do not have to implement legislation to make the provision effective and any entity receiving $5 million or more annually in Medicaid benefits must implement the mandatory education provision.

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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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Major Whistleblower Law Development–False Claims Act Amendments Pass House of Representatives, As Part of the “Fraud Enforcement and Recovery Act of 2009”

Today is an historic day–the House of Representatives has passed the Fraud Enforcement and Recovery Act of 2009 by a vote of 367-59. The Act includes long-needed amendments to the nation’s primary anti-fraud law, the False Claims Act, about which we have written often.

The amendments are designed to protect the hundreds of billions in taxpayer funds now being spent from fraud affecting TARP, other “stimulus” measures, Medicare and Medicaid, national defense including the Iraq and Afghanistan wars and reconstruction efforts, and countless other government programs.

The Senate approved the Act by a vote of 92-4 on April 28th. A conference committee now will consider reconciling differences in the versions of the bill.

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Fraud Against TARP Funds A Real Threat, Warns Special Inspector General for TARP

We have written previously how the “bailout” measures such as TARP–the Troubled Assets Relief Program–and other “stimulus” measures must have effective oversight,disclosure, and anti-fraud provisions to protect those funds from those who look to commit fraud. The speed at which the government has acted to address the faltering economy will only increase the opportunities for fraud. Already, TARP whistleblowers have begun to come forward with reports of misuse of billions in TARP funds.

This week, Neal Barofsky, the Special Inspector General for the Troubled Assets Relief Program reiterated those points in his Quarterly Report to Congress. The IG described TARP as “inherently vulnerable to fraud, waste and abuse, including significant issues relating to conflicts of interest facing fund managers, collusion between participants and vulnerabilities to money laundering.”

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False Claims Act Amendments Gain Momentum In Bill to Combat Financial Fraud

New legislation to combat financial institution fraud, securities fraud, mortgage fraud, and other fraud and abuse is gaining momentum, and brings closer long-needed amendments to restore to its intended strength the nation’s major “whistleblower” law, the False Claims Act.

The Fraud Enforcement and Recovery Act of 2009 (S. 386) received support yesterday in a statement from the Administration:

The Administration strongly supports enactment of S. 386. Its provisions would provide Federal investigators and prosecutors with significant new criminal and civil tools and resources
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Tax Evasion Using Offshore Accounts Establishes Fraud, As IRS Prevails Against Statute of Limitations Argument

A frequent question in our IRS Whistleblower cases is how IRS Whistleblower claims are affected by the statute of limitations. In long-running violations of the tax laws, that question can determine how much of past tax liability the IRS may be able to recover.

Yesterday, the Tax Court issued a decision that illustrates what happens when the taxpayer has engaged in fraud. (Joseph B. Williams III v. Commissioner, 2009 TNT 72-11). Because the court found that fraud was established by the taxpayer’s plea to
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IRS Announces New List of “Dirty Dozen” Tax Scams

In our March 7, 2009 “IRS Whistleblower Boot Camp,” IRS Whistleblower Office Director Steve Whitlock mentioned that the IRS’s priorities include the “Dirty Dozen”–a list of tax scams that is updated yearly.

The IRS has just issued its 2009 “Dirty Dozen” list, which should be of interest to potential IRS whistleblowers. It is reprinted below:

Beware of IRS’ 2009 “Dirty Dozen” Tax Scams

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Major False Claims Act Victory for Whistleblowers in Iraq Fraud Case: Fourth Circuit Reverses Custer Battles Decision

In a major victory today for whistleblowers reporting fraud in the Iraq reconstruction effort, the Fourth Circuit Court of Appeals reversed a trial court’s decision that took away a jury verdict from the whistleblowers or relators in this qui tam case under the False Claims Act.

The Custer Battles case has been a hard-fought one, which until this decision had produced one of the odder results found.

With hundreds of billions of U.S. dollars spent on the Iraq War and Iraq reconstruction, and with the False Claims Act supposedly protecting U.S. taxpayer funds from fraud, the whistleblowers filed a qui tam case under the False Claims Act that alleged fraud in certain contracts that addressed, among other things, replacing Iraqi currency in the Iraq reconstruction effort.

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Iraq Whistleblowers Coming Forward, as Special Inspector General for Iraq Reconstruction Estimates Billions in Fraud and Waste

Whistleblowers reporting fraud by contractors in Iraq reconstruction are coming forward, reports Stuart Bowen, the Special Inspector General for Iraq Reconstruction. The relatively calmer conditions in Iraq apparently are a factor in more whistleblowers coming forward, he believes.

From the $21 billion Iraq Relief and Reconstruction Fund, billions have been lost, according to Bowen.

“Thirty-two billion dollars later, we don’t know a whole lot about what’s happened to that money,” Bowen said.

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The AIG Whistleblowers Begin to Speak About Its Credit Default Swaps?

The facts about how the AIG Financial Products unit took down AIG begin to emerge more clearly, as AIG whistleblowers begin to speak.

Former AIG auditor Joseph St. Denis described his concerns about AIG’s Financial Products unit–and how AIGFP’s Joseph Cassano refused to let him investigate:

“Mr. Cassano shouted at me for several minutes, and then said, as previously noted: ‘I have deliberately excluded you from the valuation of the Super Seniors because I was concerned that you would pollute the process.”

More to
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Appreciating Harry Markopolis, the Madoff “Whistleblower” to the SEC

I had the pleasure of seeing again and speaking last week with Harry Markopolis, the “whistleblower” now renowned for his excellent work in recognizing and reporting to the SEC that Bernie Madoff was running a huge Ponzi scheme. Harry was in Washington attending the “IRS Whistleblower Boot Camp” sponsored by Taxpayers Against Fraud.

Harry Markopolis exemplifies the whistleblower who works diligently to “do the right thing.” His appearance on 60 Minutes gave us a taste of his frustration over the years in attempting to
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IRS Whistleblower Attorneys Join IRS Whistleblower Office Director and Other IRS Officials for “IRS Whistleblower Boot Camp”

I spent a very productive day today with IRS Whistleblower Office Director Steve Whitlock, former IRS Commissioner Margaret Richardson, IRS Special Counsel Tom Kane, and other senior IRS officials working with the IRS Whistleblower Office, in helping stage the most comprehensive legal education program yet about the new IRS Whistleblower Program–the “IRS Whistleblower Boot Camp.” The day-long event was sponsored by Taxpayers Against Fraud.

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