Since Congress acted decisively in 1986 to breathe life into the False Claims Act through amendments intended to expand use of the nation’s major anti-fraud whistleblower law, the Supreme Court and some lower courts have regularly intervened by imposing their own views on what Congress must have meant in writing the 1986 amendments.

Those decisions hostile to enforcement of the False Claims Act included Allison Engine Co. v. United States ex rel. Sanders, 553 U.S. 662 (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)).

Since then, in 2009 and 2010 Congress responded emphatically with three more sets of FCA amendments to state, in essence, what Congress actually intended in 1986, and still intends, the law to mean. We have previously discussed those amendments made by the 2009-2010 legislation known as FERA, PPACA, and Dodd-Frank. (Fraud Enforcement and Recovery Act of 2009, Pub. L. No. 111-21, 123 Stat. 1617 (“FERA”); Patient Protection and Affordable Care Act, Pub. L. 111-148, 124 Stat. 119 (“PPACA”); Dodd-Frank Financial Reform Act (“Dodd-Frank”), Pub. L. No. 111-203, 124 Stat. 1376.)

Today’s decision in Schindler Elevator Corp. v. United States ex rel. Kirk is a victory for those who seek to make it more difficult to use the “old” version of the False Claims Act to battle fraud against taxpayers. The Supreme Court’s decision today continued the legislative tennis match with Congress.

The Court held that what is known as the “public disclosure bar” of the False Claims Act deprived courts of jurisdiction over this qui tam whistleblower case, because the whistleblower had attempted to corroborate his allegations through FOIA requests.

Fortunately for those who favor stopping fraud against taxpayers, the decision should have no effect on qui tam cases filed after the March 22, 2010 enactment of PPACA, the major health reform bill.

Before PPACA, the False Claims Act Act provided that, when there is an action “based upon the public disclosure of allegations or transactions” in one of three specified categories of places where disclosures can occur, the court shall lack jurisdiction over the action, unless “the person bringing the action is an original source of the information.” The three specified places of “public disclosure” were “[1] in a criminal, civil, or administrative hearing, [2] in a congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation, or [3] from the news media.”

As we have discussed in our past writings on the False Claims Act, PPACA has removed this jurisdictional bar, has authorized the government to prevent dismissal on this basis if it chooses, and has relaxed the standard for relators to establish that they are an “original source” as a means of avoiding dismissal on that basis as well. In addition, PPACA limited the type of public disclosures in question to federal sources, and thus pre-empted for future violations the Supreme Court’s ruling shortly thereafter in 2010 in Graham County Soil & Water Conservation District v. United States ex rel. Wilson, 130 S. Ct. 1396 (2010)(state report created public disclosure under prior version of FCA).

Today’s decision–similar to many past decisions attempting to limit what Congress has plainly said–nonetheless leaves readers to wonder if this Supreme Court has a preference for making large scale fraud against taxpayers more difficult to stop.

The False Claims Act is an important law enforcement statute. Courts do not need to legislate from the bench to change the meaning of what Congress has written. Taxpayers lose when decisions like this one occur.

Shouldn’t we want to encourage whistleblowers to verify and corroborate their information? As Justice Ginsburg’s dissent today observed:

Why should a whistleblower attentive to the heightened pleading standards of Federal Rule of Civil Procedure 9(b) be barred from court if he seeks corroboration for his allegations, as Kirk did, through a FOIA request simply for copies of a contractor’s filings? After today’s decision, which severely limits whistleblowers’ ability to substantiate their allegations before commencing suit, that question is worthy of Congress’ attention.

The post New Supreme Court False Claims Act Decision Today: Could This Court Be Any Friendlier to Qui Tam Defendants? appeared first on Whistleblower Lawyer Blog.

The government’s Complaint alleges that Deutsche Bank and MortgageIT “repeatedly lied to be included in a Government program to select mortgages for insurance by the Government. Once in that program, they recklessly selected mortgages that violated program rules in blatant disregard of whether borrowers could make mortgage payments. While Deutsche Bank and MortgageIT profited from the resale of these Government-insured mortgages, thousands of American homeowners have faced default and eviction, and the Government has paid hundreds of millions of dollars in insurance claims, with hundreds of millions of dollars more expected to be paid in the future.”

While health care fraud has been the subject of most qui tam cases under the False Claims Act in recent years, bank fraud, mortgage fraud, and other financial fraud and abuse promise to be growing areas of enforcement in False Claims Act cases.

The post Financial Fraud Cases Under False Claims Act Continue, As Deutsche Bank and MortgageIT Face Mortgage Fraud Suit appeared first on Whistleblower Lawyer Blog.

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.

When the Madoff fiasco surfaced, Congress asked why the law failed to encourage SEC whistleblowers to come forward, in the same way the qui tam whistleblower provisions of the False Claims Act have been so successful in rewarding whistleblowers for helping stop fraud against the government. Those same principles in the new IRS Whistleblower program have caused an explosion of valuable information presented by whistleblowers in exposing tax liability of many billions of dollars.

SEC leadership helped shape the tepid House version, which would have made rewards to whistleblowers wholly discretionary.

When we criticized the House version of the proposed SEC whistleblower rewards for that reason, staffers of the Senate Banking Committee contacted us to discuss what a meaningful whistleblower program should include, based on our experience with whistleblowers under the False Claims Act and IRS Whistleblower program. Our response was that, at minimum, a whistleblower with information about significant fraud must have a legally enforceable right to a meaningful reward.

Fortunately, the Senate version included such a right to an award of 10-30% in substantial cases, and the Senate view ultimately prevailed (see below text of whistleblower provisions in Section 922).

It remains to be seen how SEC leadership will respond. At this spring’s Offshore Alert Conference in Miami, an SEC official listened to his panelists describe how successful mandatory rewards have been in causing whistleblowers to come forward in False Claims Act cases and IRS Whistleblower claims, yet apparently failed to “get” that SEC whistleblowers need a similar incentive to come forward in the best cases.

In our experience in representing whistleblowers, persons with the most significant information will rarely come forward without an enforceable right to a meaningful reward. The SEC has not exactly fostered public confidence in its judgment in recent years. If it embraces whistleblowers as Congress has directed, the SEC will find that–like the IRS Whistleblower Office–it will receive better, and dramatically more, information about fraud within its jurisdiction.

The full text of section 922 regarding SEC whistleblowers is reprinted below:

SEC. 922. WHISTLEBLOWER PROTECTION.

(a) In General- The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is amended by inserting after section 21E the following:

`SEC. 21F. SECURITIES WHISTLEBLOWER INCENTIVES AND PROTECTION.

`(a) Definitions- In this section the following definitions shall apply:

`(1) COVERED JUDICIAL OR ADMINISTRATIVE ACTION- The term `covered judicial or administrative action’ means any judicial or administrative action brought by the Commission under the securities laws that results in monetary sanctions exceeding $1,000,000.

`(2) FUND- The term `Fund’ means the Securities and Exchange Commission Investor Protection Fund.

`(3) ORIGINAL INFORMATION- The term `original information’ means information that–

`(A) is derived from the independent knowledge or analysis of a whistleblower;

`(B) is not known to the Commission from any other source, unless the whistleblower is the original source of the information; and
`(C) is not exclusively derived from an allegation made in a judicial or administrative hearing, in a governmental report, hearing, audit, or investigation, or from the news media, unless the whistleblower is a source of the information.

`(4) MONETARY SANCTIONS- The term `monetary sanctions’, when used with respect to any judicial or administrative action, means–

`(A) any monies, including penalties, disgorgement, and interest, ordered to be paid; and
`(B) any monies deposited into a disgorgement fund or other fund pursuant to section 308(b) of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7246(b)), as a result of such action or any settlement of such action.

`(5) RELATED ACTION- The term `related action’, when used with respect to any judicial or administrative action brought by the Commission under the securities laws, means any judicial or administrative action brought by an entity described in subclauses (I) through (IV) of subsection (h)(2)(D)(i) that is based upon the original information provided by a whistleblower pursuant to subsection (a) that led to the successful enforcement of the Commission action.

`(6) WHISTLEBLOWER- The term `whistleblower’ means any individual who provides, or 2 or more individuals acting jointly who provide, information relating to a violation of the securities laws to the Commission, in a manner established, by rule or regulation, by the Commission.

`(b) Awards-

`(1) IN GENERAL- In any covered judicial or administrative action, or related action, the Commission, under regulations prescribed by the Commission and subject to subsection (c), shall pay an award or awards to 1 or more whistleblowers who voluntarily provided original information to the Commission that led to the successful enforcement of the covered judicial or administrative action, or related action, in an aggregate amount equal to–

`(A) not less than 10 percent, in total, of what has been collected of the monetary sanctions imposed in the action or related actions; and
`(B) not more than 30 percent, in total, of what has been collected of the monetary sanctions imposed in the action or related actions.

`(2) PAYMENT OF AWARDS- Any amount paid under paragraph (1) shall be paid from the Fund.

`(c) Determination of Amount of Award; Denial of Award-

`(1) DETERMINATION OF AMOUNT OF AWARD-

`(A) DISCRETION- The determination of the amount of an award made under subsection (b) shall be in the discretion of the Commission.

`(B) CRITERIA- In determining the amount of an award made under subsection (b), the Commission–

`(i) shall take into consideration–

`(I) the significance of the information provided by the whistleblower to the success of the covered judicial or administrative action;

`(II) the degree of assistance provided by the whistleblower and any legal representative of the whistleblower in a covered judicial or administrative action;

`(III) the programmatic interest of the Commission in deterring violations of the securities laws by making awards to whistleblowers who provide information that lead to the successful enforcement of such laws; and
`(IV) such additional relevant factors as the Commission may establish by rule or regulation; and
`(ii) shall not take into consideration the balance of the Fund.

`(2) DENIAL OF AWARD- No award under subsection (b) shall be made–

`(A) to any whistleblower who is, or was at the time the whistleblower acquired the original information submitted to the Commission, a member, officer, or employee of–

`(i) an appropriate regulatory agency;

`(ii) the Department of Justice;

`(iii) a self-regulatory organization;

`(iv) the Public Company Accounting Oversight Board; or
`(v) a law enforcement organization;

`(B) to any whistleblower who is convicted of a criminal violation related to the judicial or administrative action for which the whistleblower otherwise could receive an award under this section;

`(C) to any whistleblower who gains the information through the performance of an audit of financial statements required under the securities laws and for whom such submission would be contrary to the requirements of section 10A of the Securities Exchange Act of 1934 (15 U.S.C. 78j-1); or
`(D) to any whistleblower who fails to submit information to the Commission in such form as the Commission may, by rule, require.

`(d) Representation-

`(1) PERMITTED REPRESENTATION- Any whistleblower who makes a claim for an award under subsection (b) may be represented by counsel.

`(2) REQUIRED REPRESENTATION-

`(A) IN GENERAL- Any whistleblower who anonymously makes a claim for an award under subsection (b) shall be represented by counsel if the whistleblower anonymously submits the information upon which the claim is based.

`(B) DISCLOSURE OF IDENTITY- Prior to the payment of an award, a whistleblower shall disclose the identity of the whistleblower and provide such other information as the Commission may require, directly or through counsel for the whistleblower.

`(e) No Contract Necessary- No contract with the Commission is necessary for any whistleblower to receive an award under subsection (b), unless otherwise required by the Commission by rule or regulation.

`(f) Appeals- Any determination made under this section, including whether, to whom, or in what amount to make awards, shall be in the discretion of the Commission. Any such determination, except the determination of the amount of an award if the award was made in accordance with subsection (b), may be appealed to the appropriate court of appeals of the United States not more than 30 days after the determination is issued by the Commission. The court shall review the determination made by the Commission in accordance with section 706 of title 5, United States Code.

`(g) Investor Protection Fund-

`(1) FUND ESTABLISHED- There is established in the Treasury of the United States a fund to be known as the `Securities and Exchange Commission Investor Protection Fund’.

`(2) USE OF FUND- The Fund shall be available to the Commission, without further appropriation or fiscal year limitation, for–

`(A) paying awards to whistleblowers as provided in subsection (b); and
`(B) funding the activities of the Inspector General of the Commission under section 4(i).

`(3) DEPOSITS AND CREDITS-

`(A) IN GENERAL- There shall be deposited into or credited to the Fund an amount equal to–

`(i) any monetary sanction collected by the Commission in any judicial or administrative action brought by the Commission under the securities laws that is not added to a disgorgement fund or other fund under section 308 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7246) or otherwise distributed to victims of a violation of the securities laws, or the rules and regulations thereunder, underlying such action, unless the balance of the Fund at the time the monetary sanction is collected exceeds $300,000,000;

`(ii) any monetary sanction added to a disgorgement fund or other fund under section 308 of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7246) that is not distributed to the victims for whom the Fund was established, unless the balance of the disgorgement fund at the time the determination is made not to distribute the monetary sanction to such victims exceeds $200,000,000; and
`(iii) all income from investments made under paragraph (4).

`(B) ADDITIONAL AMOUNTS- If the amounts deposited into or credited to the Fund under subparagraph (A) are not sufficient to satisfy an award made under subsection (b), there shall be deposited into or credited to the Fund an amount equal to the unsatisfied portion of the award from any monetary sanction collected by the Commission in the covered judicial or administrative action on which the award is based.

`(4) INVESTMENTS-

`(A) AMOUNTS IN FUND MAY BE INVESTED- The Commission may request the Secretary of the Treasury to invest the portion of the Fund that is not, in the discretion of the Commission, required to meet the current needs of the Fund.

`(B) ELIGIBLE INVESTMENTS- Investments shall be made by the Secretary of the Treasury in obligations of the United States or obligations that are guaranteed as to principal and interest by the United States, with maturities suitable to the needs of the Fund as determined by the Commission on the record.

`(C) INTEREST AND PROCEEDS CREDITED- The interest on, and the proceeds from the sale or redemption of, any obligations held in the Fund shall be credited to the Fund.

`(5) REPORTS TO CONGRESS- Not later than October 30 of each fiscal year beginning after the date of enactment of this subsection, the Commission shall submit to the Committee on Banking, Housing, and Urban Affairs of the Senate, and the Committee on Financial Services of the House of Representatives a report on–

`(A) the whistleblower award program, established under this section, including–

`(i) a description of the number of awards granted; and
`(ii) the types of cases in which awards were granted during the preceding fiscal year;

`(B) the balance of the Fund at the beginning of the preceding fiscal year;

`(C) the amounts deposited into or credited to the Fund during the preceding fiscal year;

`(D) the amount of earnings on investments made under paragraph (4) during the preceding fiscal year;

`(E) the amount paid from the Fund during the preceding fiscal year to whistleblowers pursuant to subsection (b);

`(F) the balance of the Fund at the end of the preceding fiscal year; and
`(G) a complete set of audited financial statements, including–

`(i) a balance sheet;

`(ii) income statement; and
`(iii) cash flow analysis.

`(h) Protection of Whistleblowers-

`(1) PROHIBITION AGAINST RETALIATION-

`(A) IN GENERAL- No employer may discharge, demote, suspend, threaten, harass, directly or indirectly, or in any other manner discriminate against, a whistleblower in the terms and conditions of employment because of any lawful act done by the whistleblower–

`(i) in providing information to the Commission in accordance with this section;

`(ii) in initiating, testifying in, or assisting in any investigation or judicial or administrative action of the Commission based upon or related to such information; or
`(iii) in making disclosures that are required or protected under the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7201 et seq.), the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.), including section 10A(m) of such Act (15 U.S.C. 78f(m)), section 1513(e) of title 18, United States Code, and any other law, rule, or regulation subject to the jurisdiction of the Commission.

`(B) ENFORCEMENT-

`(i) CAUSE OF ACTION- An individual who alleges discharge or other discrimination in violation of subparagraph (A) may bring an action under this subsection in the appropriate district court of the United States for the relief provided in subparagraph (C).

`(ii) SUBPOENAS- A subpoena requiring the attendance of a witness at a trial or hearing conducted under this section may be served at any place in the United States.

`(iii) STATUTE OF LIMITATIONS-

`(I) IN GENERAL- An action under this subsection may not be brought–
`(aa) more than 6 years after the date on which the violation of subparagraph (A) occurred; or

`(bb) more than 3 years after the date when facts material to the right of action are known or reasonably should have been known by the employee alleging a violation of subparagraph (A).

`(II) REQUIRED ACTION WITHIN 10 YEARS- Notwithstanding subclause (I), an action under this subsection may not in any circumstance be brought more than 10 years after the date on which the violation occurs.

`(C) RELIEF- Relief for an individual prevailing in an action brought under subparagraph (B) shall include–

`(i) reinstatement with the same seniority status that the individual would have had, but for the discrimination;

`(ii) 2 times the amount of back pay otherwise owed to the individual, with interest; and
`(iii) compensation for litigation costs, expert witness fees, and reasonable attorneys’ fees.

`(2) CONFIDENTIALITY-

`(A) IN GENERAL- Except as provided in subparagraphs (B) and (C), the Commission and any officer or employee of the Commission shall not disclose any information, including information provided by a whistleblower to the Commission, which could reasonably be expected to reveal the identity of a whistleblower, except in accordance with the provisions of section 552a of title 5, United States Code, unless and until required to be disclosed to a defendant or respondent in connection with a public proceeding instituted by the Commission or any entity described in subparagraph (C). For purposes of section 552 of title 5, United States Code, this paragraph shall be considered a statute described in subsection (b)(3)(B) of such section.

`(B) EXEMPTED STATUTE- For purposes of section 552 of title 5, United States Code, this paragraph shall be considered a statute described in subsection (b)(3)(B) of such section 552.

`(C) RULE OF CONSTRUCTION- Nothing in this section is intended to limit, or shall be construed to limit, the ability of the Attorney General to present such evidence to a grand jury or to share such evidence with potential witnesses or defendants in the course of an ongoing criminal investigation.

`(D) AVAILABILITY TO GOVERNMENT AGENCIES-

`(i) IN GENERAL- Without the loss of its status as confidential in the hands of the Commission, all information referred to in subparagraph (A) may, in the discretion of the Commission, when determined by the Commission to be necessary to accomplish the purposes of this Act and to protect investors, be made available to–

`(I) the Attorney General of the United States;

`(II) an appropriate regulatory authority;

`(III) a self-regulatory organization;

`(IV) a State attorney general in connection with any criminal investigation;

`(V) any appropriate State regulatory authority;

`(VI) the Public Company Accounting Oversight Board;

`(VII) a foreign securities authority; and
`(VIII) a foreign law enforcement authority.

`(ii) CONFIDENTIALITY-

`(I) IN GENERAL- Each of the entities described in subclauses (I) through (VI) of clause (i) shall maintain such information as confidential in accordance with the requirements established under subparagraph (A).

`(II) FOREIGN AUTHORITIES- Each of the entities described in subclauses (VII) and (VIII) of clause (i) shall maintain such information in accordance with such assurances of confidentiality as the Commission determines appropriate.

`(3) RIGHTS RETAINED- Nothing in this section shall be deemed to diminish the rights, privileges, or remedies of any whistleblower under any Federal or State law, or under any collective bargaining agreement.

`(i) Provision of False Information- A whistleblower shall not be entitled to an award under this section if the whistleblower–

`(1) knowingly and willfully makes any false, fictitious, or fraudulent statement or representation; or
`(2) uses any false writing or document knowing the writing or document contains any false, fictitious, or fraudulent statement or entry.

`(j) Rulemaking Authority- The Commission shall have the authority to issue such rules and regulations as may be necessary or appropriate to implement the provisions of this section consistent with the purposes of this section.’.

(b) Protection for Employees of Nationally Recognized Statistical Rating Organizations- Section 1514A(a) of title 18, United States Code, is amended–

(1) by inserting `or nationally recognized statistical rating organization (as defined in section 3(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78c),’ after `78o(d)),’; and
(2) by inserting `or nationally recognized statistical rating organization’ after `such company’.

(c) Section 1514A of Title 18, United States Code-

(1) STATUTE OF LIMITATIONS; JURY TRIAL- Section 1514A(b)(2) of title 18, United States Code, is amended–

(A) in subparagraph (D)–

(i) by striking `90′ and inserting `180′; and
(ii) by striking the period at the end and inserting `, or after the date on which the employee became aware of the violation.’; and
(B) by adding at the end the following:

`(E) JURY TRIAL- A party to an action brought under paragraph (1)(B) shall be entitled to trial by jury.’.

(2) PRIVATE SECURITIES LITIGATION WITNESSES; NONENFORCEABILITY; INFORMATION- Section 1514A of title 18, United States Code, is amended by adding at the end the following:

`(e) Nonenforceability of Certain Provisions Waiving Rights and Remedies or Requiring Arbitration of Disputes-

`(1) WAIVER OF RIGHTS AND REMEDIES- The rights and remedies provided for in this section may not be waived by any agreement, policy form, or condition of employment, including by a predispute arbitration agreement.

`(2) PREDISPUTE ARBITRATION AGREEMENTS- No predispute arbitration agreement shall be valid or enforceable, if the agreement requires arbitration of a dispute arising under this section.’.

(d) Study of Whistleblower Protection Program-

(1) STUDY- The Inspector General of the Commission shall conduct a study of the whistleblower protections established under the amendments made by this section, including–

(A) whether the final rules and regulation issued under the amendments made by this section have made the whistleblower protection program (referred to in this subsection as the `program’) clearly defined and user-friendly;

(B) whether the program is promoted on the website of the Commission and has been widely publicized;

(C) whether the Commission is prompt in–

(i) responding to–

(I) information provided by whistleblowers; and
(II) applications for awards filed by whistleblowers;

(ii) updating whistleblowers about the status of their applications; and
(iii) otherwise communicating with the interested parties;

(D) whether the minimum and maximum reward levels are adequate to entice whistleblowers to come forward with information and whether the reward levels are so high as to encourage illegitimate whistleblower claims;

(E) whether the appeals process has been unduly burdensome for the Commission;

(F) whether the funding mechanism for the Investor Protection Fund is adequate;

(G) whether, in the interest of protecting investors and identifying and preventing fraud, it would be useful for Congress to consider empowering whistleblowers or other individuals, who have already attempted to pursue the case through the Commission, to have a private right of action to bring suit based on the facts of the same case, on behalf of the Government and themselves, against persons who have committee securities fraud;

(H)(i) whether the exemption under section 552(b)(3) of title 5 (known as the Freedom of Information Act) established in section 21F(h)(2)(A) of the Securities Exchange Act of 1934, as added by this Act, aids whistleblowers in disclosing information to the Commission;

(ii) what impact the exemption described in clause (i) has had on the ability of the public to access information about the regulation and enforcement by the Commission of securities; and
(iii) any recommendations on whether the exemption described in clause (i) should remain in effect; and
(I) such other matters as the Inspector General deems appropriate.

(2) REPORT- Not later than 30 months after the date of enactment of this Act, the Inspector General shall–

(A) submit a report on the findings of the study required under paragraph (1) to the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Financial Services of the House; and
(B) make the report described in subparagraph (A) available to the public through publication of the report on the website of the Commission.

The post New SEC Whistleblower Program Approved by Senate in Financial Reform Bill appeared first on Whistleblower Lawyer Blog.

Using shell corporations and “nominee” entities established in the Cayman Islands, Switzerland, or a host of other countries that market “secrecy,” those looking to conceal income from the IRS, or assets from potential creditors, have made offshore tax havens a booming business.

An interesting example of allegations of offshore tax violations was described in the Justice Department’s announcement yesterday of the indictment of two Miami Beach hotel developers. Mauricio Cohen Assor and his son, Leon Cohen-Levy. They were charged with conspiring to defraud the United States and filing false tax returns. The government alleged as follows:

According to court documents, the two men and their co-conspirators used nominees and shell companies formed in tax haven jurisdictions, including the Bahamas, the British Virgin Islands, Panama, Liechtenstein and Switzerland to conceal their assets and income from the IRS. In order to further conceal their assets and income from the IRS, court documents state the men also provided false and forged documents to banks, opened bank accounts in the name of nominees, titled their personal residences and luxury vehicles in the name of shell companies, filed false and fraudulent tax returns, failed to file other tax returns, suborned perjury in a civil matter pending before the New York Supreme Court by directing individuals to testify falsely under oath, and induced other individuals to make false statements to federal law enforcement agents.

Both defendants are permanent resident aliens who, in 2000, received approximately $33 million from the sale of the New York Flatotel, according to the government. They transferred the proceeds using various Swiss bank accounts in the names of foreign nominee entities, including at least one “bearer share” corporation.

When bearer shares are used, the corporation’s records do not list its owners, as the owners are whoever has physical possession of the stock certificates. As IRS Special Agent Scott Johnson testified by affidavit, “[b]earer share corporations are often used to hide the true ownership of assets because ownership records are not maintained and nominee officers and directors are often used to control the affairs of the corporation.’

Later, the defendants allegedly transferred the funds to accounts of nominee companies at that bank’s New York location, and later to the escrow account of a Florida attorney. The government also alleged that defendants used the money to “fund a luxury lifestyle for themselves and for their family members.”

Offshore tax abuse remains a great priority of the IRS, and thus is a major focus of many IRS Whistleblower claims. The new IRS Whistleblower Program recognizes that whistleblowers have an enforceable right to 15-30% of what the IRS recovers based on information whistleblowers provide.

The government’s full press release is below:

MIAMI BEACH HOTEL DEVELOPERS INDICTED AND CHARGED WITH TAX FRAUD May 26, 2010 FOR IMMEDIATE RELEASE
Wifredo A. Ferrer, United States Attorney for the Southern District of Florida, Acting Assistant Attorney General John DiCicco, and Daniel W. Auer, Special Agent in Charge, Internal Revenue Service, Criminal Investigation Division, announced that defendants Mauricio Cohen Assor and his son, Leon Cohen-Levy, each with residences in Miami Beach, Fla., have been charged with conspiring to defraud the United States and filing false tax returns. Both defendants have been ordered detained pending trial.

According to court documents, the two men and their co-conspirators used nominees and shell companies formed in tax haven jurisdictions, including the Bahamas, the British Virgin Islands, Panama, Liechtenstein and Switzerland to conceal their assets and income from the IRS. In order to further conceal their assets and income from the IRS, court documents state the men also provided false and forged documents to banks, opened bank accounts in the name of nominees, titled their personal residences and luxury vehicles in the name of shell companies, filed false and fraudulent tax returns, failed to file other tax returns, suborned perjury in a civil matter pending before the New York Supreme Court by directing individuals to testify falsely under oath, and induced other individuals to make false statements to federal law enforcement agents.

According to court documents, Mauricio Cohen Assor and Leon Cohen-Levy were the developers and owners of several residential hotels known by the trade name Flatotel International. In 2000, the defendants sold one of their New York hotels and generated proceeds of $33 million. The income earned from the sale of the hotel was never reported on United States tax returns by the Cohens or by any of their related entities.

According to court documents, among the assets and income the Cohens concealed from the IRS are a $45 million investment portfolio, a condominium at Trump World Tower in New York City that was worth as much as $10 million, the personal residence of Mauricio Cohen Assor on Fisher Island in Miami Beach worth approximately $20 million, the personal residence of defendant Leon Cohen Levy in Miami Beach worth approximately $26 million, the personal residence of the daughter of Mauricio Cohen Assor in Bal Harbor, Fla., commercial properties valued in excess of $55 million in Miami Beach, luxury vehicles, including a Rolls Royce Phantom, a Porsche Carrera GT, a Bentley, a Ferrari Testarossa, a BMW Z8, a Dodge Viper, a limousine and a $1.2 million helicopter.

A criminal indictment is only an accusation and a defendant is presumed innocent until proven guilty. If convicted, the Cohens each face a maximum of 14 years in prison and a maximum fine of $1 million, plus being ordered to pay tax, penalties and interest.

Wifredo A. Ferrer, U.S. Attorney for the Southern District of Florida, and Acting Assistant Attorney General John DiCicco commended the investigative efforts of the IRS agents involved in this case, as well as Senior Litigation Counsel Kevin M. Downing and Trial Attorneys Mark F. Daly and John E. Sullivan of the Tax Division, and Assistant U.S. Attorney Jeffrey A. Neiman, who are prosecuting the case.

More information about the Justice Department’s Tax Division and its enforcement efforts is available at www.usdoj.gov/tax/.

A copy of this press release may be found on the website of the United States Attorney’s Office for the Southern District of Florida at https://www.usdoj.gov/usao/fls. Related court documents and information may be found on the website of the District Court for the Southern District of Florida at http://www.flsd.uscourts.gov or on http://pacer.flsd.uscourts.gov.

Technical comments about this website can be e-mailed to the Webmaster. PLEASE NOTE: The United States Attorney’s Office does not respond to non-technical inquiries made to this website. If you wish to make a request for information, you may contact our office at 305-961-9001, or you may send a written inquiry to the United States Attorney’s Office, Southern District of Florida, 99 NE 4th Street, Miami, Fl. 33132.

The post Offshore Tax Evasion Scheme to Defraud IRS Alleged in Indictment of Miami Beach Developers appeared first on Whistleblower Lawyer Blog.

Forbes has run interesting column by Bill Singer, calling for a statute that apples “False Claims Act” whistleblower remedies to Wall Street. Why not protect investors from the massive losses that so many incurred? The current system obviously failed to do so. Harry Markopolis has described eloquently how the SEC could do so much better, and new SEC whistleblower rewards should make a huge difference.

We are already seeing the successes of another innovative law based on the same idea, the IRS Whistleblower Program. To stop those who would have you and I carry their share of the nation’s tax burden, private citizens are stepping forward with better and better information to provide to the IRS about significant tax cheating. The quality of the information that our clients are presenting is compelling, and some of it will help stop major abuses of the tax laws.

Since the very start of the new IRS Whistleblower Program, our whistleblower lawyers at Finch McCranie, LLP have represented whistleblowers in the new IRS Whistleblower Rewards program. Among our clients are private citizens with IRS Whistleblower claims in the hedge fund industry, other financial services industries, real estate, manufacturing, government procurement, and many other businesses, as tax fraud, tax evasion, and other tax noncompliance are not limited to any one field.

Since the late 1980s, our attorneys also have worked with the nation’s other major whistleblower law, the False Claims Act. We have represented whistleblowers who reported fraud and false claims in many government programs, including contractor fraud in Iraq reconstruction, other military contracts, NASA programs, Hurricane Katrina and other disaster relief, and of course the largest single source of qui tam cases, the health care industry and claims of Medicare/Medicaid fraud.

For a free consultation about a possible whistleblower claim, please call us at 800-228-9159, or email us HERE.

The post Calls Continue for a “False Claims Act” for Wall Street Whistleblowers appeared first on Whistleblower Lawyer Blog.

In perhaps a new trend, last week a federal court in Florida agreed with the IRS that a hospital CEO is personally liable for failing to pay over to the IRS close to $2 million in payroll taxes. (Doulgeris v. United States, M.D.Fla., August 03, 2009).

Earlier this year, the chairman of the board of a tax-exempt hospital was held personally liable for the hospital’s failing to collect and pay to the IRS payroll taxes, as the Fifth Circuit Court of Appeals affirmed that decision. (Verret v. United States, 5th Cir., 2009). The board chair, however, had extensive involvement in the operations of the entity.

Payroll tax fraud thus appears to remain an IRS priority. The reasoning of the Florida federal judge explains how the CEO was found personally liable for unpaid payroll taxes;

When a person who is responsible for paying to the government funds withheld for the purpose of payroll taxes, willfully fails to turn those funds over to the government, he may be held personally liable for the amount that is not paid over. 26 U.S.C. § 6672. The government has the burden of demonstrating by a preponderance of the evidence that the person in question was a responsible person under the law; if the government so demonstrates, the burden shifts to the responsible person to show that he did not act willfully in failing to pay over the taxes. Thibodeau v. United States, 828 F.2d 1499, 1503 (11th Cir.1987).

Based on the facts in evidence, it is clear that Plaintiff willfully enabled hospital funds to be used for purposes other than paying taxes owed to the government while he knew that such taxes were owing and was able to effect their payment. Thus, even making all inferences in favor of Plaintiff, there is insufficient evidence by which a reasonable jury could find for Plaintiff on the issue of willfulness. Therefore, as a matter of law, Plaintiff was willful in failing to pay over the payroll taxes for the fiscal quarters in question.

Doulgeris v. United States, (M.D.Fla.,2009)

The post Court Agrees with IRS That Hospital CEO Is Personally Liable for Unpaid Payroll Taxes appeared first on Whistleblower Lawyer Blog.

Whenever it shall appear to the Commission that any person has violated any provision of this chapter or the rules or regulations thereunder by purchasing or selling a security or security-based swap agreement (as defined in section 206B of the Gramm-Leach-Bliley Act) while in possession of material, nonpublic information in, or has violated any such provision by communicating such information in connection with, a transaction on or through the facilities of a national securities exchange or from or through a broker or dealer, and which is not part of a public offering by an issuer of securities other than standardized options or security futures products, the Commission–

(A) may bring an action in a United States district court to seek, and the court shall have jurisdiction to impose, a civil penalty to be paid by the person who committed such violation; and

(B) may, subject to subsection (b)(1) of this section, bring an action in a United States district court to seek, and the court shall have jurisdiction to impose, a civil penalty to be paid by a person who, at the time of the violation, directly or indirectly controlled the person who committed such violation.

(2) Amount of penalty for person who committed violation

The amount of the penalty which may be imposed on the person who committed such violation shall be determined by the court in light of the facts and circumstances, but shall not exceed three times the profit gained or loss avoided as a result of such unlawful purchase, sale, or communication.

(3) Amount of penalty for controlling person

The amount of the penalty which may be imposed on any person who, at the time of the violation, directly or indirectly controlled the person who committed such violation, shall be determined by the court in light of the facts and circumstances, but shall not exceed the greater of $1,000,000, or three times the amount of the profit gained or loss avoided as a result of such controlled person’s violation. If such controlled person’s violation was a violation by communication, the profit gained or loss avoided as a result of the violation shall, for purposes of this paragraph only, be deemed to be limited to the profit gained or loss avoided by the person or persons to whom the controlled person directed such communication.

(b) Limitations on liability
(1) Liability of controlling persons

No controlling person shall be subject to a penalty under subsection (a)(1)(B) of this section unless the Commission establishes that–

(A) such controlling person knew or recklessly disregarded the fact that such controlled person was likely to engage in the act or acts constituting the violation and failed to take appropriate steps to prevent such act or acts before they occurred; or

(B) such controlling person knowingly or recklessly failed to establish, maintain, or enforce any policy or procedure required under section 78o(f) of this title or section 80b-4a of this title and such failure substantially contributed to or permitted the occurrence of the act or acts constituting the violation.

(2) Additional restrictions on liability

No person shall be subject to a penalty under subsection (a) of this section solely by reason of employing another person who is subject to a penalty under such subsection, unless such employing person is liable as a controlling person under paragraph (1) of this subsection. Section 78t(a) of this title shall not apply to actions under subsection (a) of this section.

(c) Authority of Commission
The Commission, by such rules, regulations, and orders as it considers necessary or appropriate in the public interest or for the protection of investors, may exempt, in whole or in part, either unconditionally or upon specific terms and conditions, any person or transaction or class of persons or transactions from this section.

(d) Procedures for collection
(1) Payment of penalty to Treasury

A penalty imposed under this section shall (subject to subsection (e) of this section) be payable into the Treasury of the United States, except as otherwise provided in section 7246 of this title.

(2) Collection of penalties

If a person upon whom such a penalty is imposed shall fail to pay such penalty within the time prescribed in the court’s order, the Commission may refer the matter to the Attorney General who shall recover such penalty by action in the appropriate United States district court.

(3) Remedy not exclusive

The actions authorized by this section may be brought in addition to any other actions that the Commission or the Attorney General are entitled to bring.

(4) Jurisdiction and venue

For purposes of section 78aa of this title, actions under this section shall be actions to enforce a liability or a duty created by this chapter.

(5) Statute of limitations

No action may be brought under this section more than 5 years after the date of the purchase or sale. This section shall not be construed to bar or limit in any manner any action by the Commission or the Attorney General under any other provision of this chapter, nor shall it bar or limit in any manner any action to recover penalties, or to seek any other order regarding penalties, imposed in an action commenced within 5 years of such transaction.

(e) Authority to award bounties to informants
Notwithstanding the provisions of subsection (d)(1) of this section, there shall be paid from amounts imposed as a penalty under this section and recovered by the Commission or the Attorney General, such sums, not to exceed 10 percent of such amounts, as the Commission deems appropriate, to the person or persons who provide information leading to the imposition of such penalty. Any determinations under this subsection, including whether, to whom, or in what amount to make payments, shall be in the sole discretion of the Commission, except that no such payment shall be made to any member, officer, or employee of any appropriate regulatory agency, the Department of Justice, or a self-regulatory organization. Any such determination shall be final and not subject to judicial review.

(f) Definition
For purposes of this section, “profit gained” or “loss avoided” is the difference between the purchase or sale price of the security and the value of that security as measured by the trading price of the security a reasonable period after public dissemination of the nonpublic information.

(g) Limitation
The authority of the Commission under this section with respect to security-based swap agreements (as defined in section 206B of the Gramm-Leach-Bliley Act) shall be subject to the restrictions and limitations of section 78c-1(b) of this title.

The post SEC “Bounties” for Whistleblowers–The Statute appeared first on Whistleblower Lawyer Blog.

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.

“The actual reconstruction money, I estimate 15 to 20 percent has been wasted. Roughly $3-$4 billion,” he said. Many projects have been plagued by waste and poor design.

“Millions [have been] wasted at the Baghdad police college because of extremely shoddy construction,” Bowen said.

Iraq reconstruction whistleblowers may receive rewards of 15-30% of the fraud or false claims reported by using the False Claims Act, the major whistleblower law that we have written about often. They may also potentially use the IRS Whistleblower Program to obtain rewards, since illegal activity often results in tax violations.

In this age when fraud and abuse are depleting taxpayer funds, any whistleblower who steps forward to report fraud or other impropriety in the Iraq reconstruction is to be commended.

Since the late 1980s, our attorneys have worked with the major whistleblower law, the False Claims Act. We have represented whistleblowers who reported fraud and false claims in many government programs, including contractor fraud in Iraq reconstruction, other military contracts, NASA programs, Hurricane Katrina and other disaster relief, and of course Medicare/Medicaid fraud.

Ever since the beginning of the new IRS Whistleblower Program, our whistleblower lawyers at Finch McCranie, LLP have represented whistleblowers in the new program. We have represented persons with IRS Whistleblower claims in the hedge fund industry, other financial services industries, real estate, manufacturing, and many other businesses, as tax fraud, tax evasion, and tax noncompliance are not limited to one area.

For a free consultation about a possible whistleblower claim, please call us at 800-228-9159, or email us HERE.

The post Iraq Whistleblowers Coming Forward, as Special Inspector General for Iraq Reconstruction Estimates Billions in Fraud and Waste appeared first on Whistleblower Lawyer Blog.

This week, the U.S. prosecution of the former head of UBS AG’s wealth management business, Raoul Weil, took a strange turn as he failed to surrender himself and was declared a fugitive. Weil allegedly conspired to help 17,000 American taxpayers conceal approximately $20 billion of assets in Swiss accounts, to avoid payment of U.S. taxes.

Weil is not the only person to try to conceal himself from the many ongoing DOJ and IRS investigations into tax fraud, tax evasion, and other tax cheating and fraud. In June, former hedge fund manager Samuel Israel III reportedly tried to fake his own death, rather than face a 20-year prison sentence for defrauding investors out of $400 million. (He later turned himself in to authorities.)

Of course, these disappearances raise questions about Bernard Madoff’s actions while not incarcerated as he faces the music for what is apparently perhaps the largest known fraud scheme in history.

Since the birth of the new IRS Whistleblower Program, our firm Finch McCranie, LLP has represented whistleblowers in the new program. We have represented clients with IRS Whistleblower claims in the hedge fund industry, other financial services industries, real estate, manufacturing, and many other businesses, as tax cheating is not confined to one area.

You may contact us toll-free at 800-228-9159, or by email by clicking HERE. There is no charge for consulting with us about a potential IRS Whistleblower case or qui tam whistleblower case under the False Claims Act.

The post Offshore Tax Evasion Case: Former UBS AG’s Raoul Weil Declared a Fugitive appeared first on Whistleblower Lawyer Blog.

The LMSB Division has responsibility over corporations, subchapter S corporations, and partnerships with assets greater than $10 million. This IRS Division is divided by industry groups, including (1) Communications, Technology, and Media; (2) Financial Services; (3) Heavy Manufacturing and Transportation; (4) Natural Resources and Construction; and (5) Retailers, Food, Pharmaceuticals and Healthcare. (The IRS Financial Services group, as well as the IRS overall, will be especially busy as the troubled economy and the TARP “bailout” motivate more citizens to report tax cheating through IRS Whistleblower claims.)

Among the procedures discussed are measures to protect the confidentiality of the whistleblower and the whistleblower’s information:

The post More IRS Whistleblower Procedures Announced by IRS Large and Midsize Business Division (LMSB) appeared first on Whistleblower Lawyer Blog.