Archive for December, 2010
Monday, December 20th, 2010
With the passage of The Patient Protection and Affordable Care Act of 2010 (“PPACA”) and the Healthcare and Education Reconciliation Act of 2010 (“HERA”), 2010 has seen important legislative change come to the FCA. And, on the whole, this change has been good, especially for whistleblowers.
One positive outcome of the new legislation is that there are now fewer restrictions on the ways in which a whistleblower can bring fraudulent conduct before the government. Until 2010, a whistleblower was barred from filing a suit under the False Claims Act if the conduct he was exposing had already been brought into the public domain through the media, federal, state, or local reports, audits and investigations, or criminal, civil, hearings and proceedings.
Under the new amendments the definition of ‘public disclosures’ has been limited. This is a direct benefit to future whistleblowers as parties will be able to bring suit under the False Claims Act for publications which were previously unapproved (different word here: not allowed?). It will be exciting to think of what new ways of attacking fraud and corruption will be seen in the coming years as a consequence of this beneficial legislation.
Tuesday, December 7th, 2010
The False Claims Act (“FCA”), despite its recent blockbuster achievements and notoriety, comes from humble beginnings. Also know as the Lincoln Law, the first incarnation of the statute was enacted during the Civil War to combat the fraud perpetrated by companies that sold supplies to the Union Army.
Specifically, war profiteers were found to be shipping boxes of sawdust instead of guns, and swindling the Union Army into purchasing the same cavalry horses several times. ”You can sell anything to the government at almost any price you’ve got the guts to ask,” boasted Jim Fisk, a profiteer who made millions unloading moldy blankets to the military.
The behavior was so egregious that in 1958, the Supreme Court addressed the birth of the FCA in United States v. McNinch, 356 U.S. 595, 599 (1958) stating “The False Claims Act was originally adopted following a series of sensational congressional investigations into the sale of provisions and munitions to the War Department. Testimony before the Congress painted a sordid picture of how the United States had been billed for nonexistent or worthless goods, charged exorbitant prices for goods delivered, and generally robbed in purchasing the necessities of war.”
While the False Claims Act itself was revolutionary for its time, President Lincoln strongly advocated for the inclusion of “qui tam” provisions that vested power in private citizens to sue, on the government’s behalf, companies and individuals that were defrauding the government. Short for the Latin phrase, “qui tam pro domino rege quam pro se ipso in hac parte sequitur,” “Qui tam” roughly means “he who brings an action for the king as well as for himself.” Congress passed the statute on March 2, 1863.
Although, currently at what may be considered the height of its popularity, the use of the False Claims Act has ebbed and flowed with the passage of time and various amendments and remains a tremendously successful weapon in the public arsenal against fraud.
Sources: J. Randy Beck, The False Claims Act and the English Eradication of Qui Tam Legislation, 78 N.C. L. REV. 539, 541 (2000)
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Thursday, December 2nd, 2010
The Securities and Exchange Commission has announced that it has set aside over $450 million for payments to outside whistleblowers whose information results in the conviction or penalization of companies or individuals of securities fraud. A report issued recently by the SEC shows that the agency has put $451.9 million into a new fund to pay whistleblowers. The Dodd-Frank Act stipulated that this fund must comprise at least $300 million. To be eligible to receive an award, a whistleblower’s information must lead to a successful SEC or CFTC (Commodities Futures Trading Commission) recovery. Specifically, the whistleblower must have voluntarily provided the SEC with “original information about a violation of the federal securities laws that leads to the successful enforcement of a covered judicial or administrative action, or a related action.”
The SEC set up the program in accordance with The Dodd-Frank Wall Street Reform and Consumer Protection Act enacted in July. This financial overhaul law also creates a new whistleblower office at the SEC. The law follows intense public criticism of the agency for the breakdown that allowed Bernard Madoff’s multibillion-dollar fraud to go undetected for more than 15 years, despite numerous red flags raised by whistleblowers, but ignored by the SEC.
Thanks to the generous new program which rewards tipsters for providing “original information” with anywhere from 10% to 30% of any sanctions levied by the SEC in cases involving at least $1 million in penalties, whistleblowers have stepped up their efforts. According to the SEC, the Act is leading to an increase in high-quality tips. Kenney & McCafferty possesses the necessary experience in both civil and criminal tax matters to safely navigate the whistleblower through the difficult process of reporting tax fraud.