Qui Tam (False Claims Act) Lawsuits
The False Claims Act, 31 U.S.C. § 3729, et seq. , often called the qui tam statute, permits persons to file suit as “relators” on behalf of, and in the name of, the United States against any person (a term that includes companies) that have filed false or fraudulent claims for payment with the Federal government. (Qui tam, a shortened form of a Latin phrase, means literally “who brings the action for the king as well as himself.”) If successful, the government recovers its actual damages, trebled, in addition to civil penalties of from $5,000 to $11,000 for each false claim.
The statute defines a “claim” as “any request or demand, whether under a contract or otherwise, for money or property that is made to a contractor, grantee, or other recipient,” if any portion of the claim is to be provided or reimbursed by the Federal government. 31 U.S.C. § 3729(c). Thus, not only claims presented directly to the United States, but claims made indirectly through a government contractor are covered by the law.
As an incentive to expose fraudulent claims, the relator is entitled to receive up to 30% of the total recovery. (This amount is reduced to 25% in the event the government intervenes in the action.) If a qui tam action is successful, the relator also is entitled to receive legal fees and other expenses of the action from the defendant.
Qui tam suits are required to be filed under seal and served upon the United States Attorney in the judicial district where the case is brought as well as upon the Attorney General of the United States. This is to allow the government to investigate the allegations and to decide whether to intervene in the case. If the government joins in the case, the complaint is unsealed and served upon the defendant and the government assumes primary responsibility for prosecuting the action. 31 U.S.C. § 3730(c)(1).
The kinds of claims that are covered by the law include all conceivable types of claims for payment. Department of Justice statistics, however, indicate that health care fraud is the most common type, accounting for more than 70% of total qui tam recoveries. Some of the health care-related claims found to be fraudulent include billing for services not performed, called “upcoding” (claiming that complex procedures were performed when only simple procedures were provided) and short-filling of prescriptions (causing the government to pay for more medication than was delivered). Types of non-health-care-related claims found to be fraudulent include “mischarging” for goods or services not provided and submitting false cost and pricing data to the government during contract negotiations.
Timing is critical in qui tam cases. This is because qui tam actions may proceed only via the first filer. This is known as the “first to file bar.” 31 U.S.C. § 3730(b)(5). (Later filers are barred from sharing in the recovery.) Further, it is worth noting that, under the statute of limitations applicable to qui tam cases, the case must be filed within six years of the alleged fraud.
Finally, we noted that qui tam actions have complicated venue issues, as well as complexities in understanding the myriad types of fraud schemes. Thus, it is important to engage experienced counsel with experience in working with United States Attorney’s Offices and the Department of Justice.
Securities and Exchange Commission Matters
Whistleblower awards are now available for credible information leading to an enforcement action by the Securities and Exchange Commission resulting in $1 million or more in sanctions is awarded. As reported by the SEC’s new Whistleblower Office:
“Assistance and information from a whistleblower who knows of possible securities law violations can be among the most powerful weapons in the law enforcement arsenal of the Securities and Exchange Commission. Through their knowledge of the circumstances and individuals involved, whistleblowers can help the Commission identify possible fraud and other violations much earlier than might otherwise have been possible. That allows the Commission to minimize the harm to investors, better preserve the integrity of the United States’ capital markets, and more swiftly hold accountable those responsible for unlawful conduct.
The Commission is authorized by Congress to provide monetary awards to eligible individuals who come forward with high-quality original information that leads to a Commission enforcement action in which over $1,000,000 in sanctions is ordered. The range for awards is between 10% and 30% of the money collected.”
The new SEC reward program encompasses all securities law violations, including disclosures of violations of the Foreign Corrupt Practices Act (“FCPA”).
Whistleblowers that provide “original information” which leads to successful enforcement of a judicial or administrative action that results in monetary sanctions in excess of $1 million are entitled to a reward of from 10 to 30% of the SEC recovery based on the whistleblower’s assistance. The law also protects whistleblowers against retaliation by their employers. A whistleblower who prevails in an unlawful discharge or discrimination action is entitled to twice his back pay, with interest, as well as reinstatement with the same seniority status, and compensation for litigation costs, including expert witness costs and reasonable attorney fees.
Internal Revenue Service Matters
The Internal Revenue Service also has a relatively new Whistleblower Office. Whistleblower awards are now available for credible information leading to collection action by the IRS resulting in $2 million or more in collections (including taxes, penalties and interest). As reported by the IRS’s Whistleblower Office:
The IRS Whistleblower Office, which was established by the Tax Relief and Health Care Act of 2006, will process tips received from individuals who spot tax problems in their workplace, while conducting day-to-day personal business or anywhere else they may be encountered.
An award worth between 15 and 30 percent of the total proceeds that IRS collects could be paid, if the IRS moves ahead based on the information provided. Under the law, these awards will be paid when the amount identified by the whistleblower (including taxes, penalties and interest) is more than $2 million. If the taxpayer is an individual, they must have at least $200,000 in gross income.
The Whistleblower Office will be responsible for assessing and analyzing incoming tips. After determining their degree of credibility, the case will be assigned to the appropriate IRS office for further investigation.