False Claims Act Violations/Qui Tam Actions

The False Claims Act (FCA) was enacted in 1863 during the height of the Civil War to combat the abuse of public funds by unscrupulous suppliers of material for the war effort. The FCA allows the federal government to recover treble damages plus penalties of $5,500 to $11,000 per violation from any person or entity that knowingly submits false claims for payment to the federal government.

The False Claims Act implicitly accounts for the fact that incentives matter. As federal spending increases, incentives to commit fraud do as well. The False Claims Act not only promotes integrity but marketplace policing in which the government often plays a supporting role, rather than the lead. To this end, the FCA permits private citizens (called “relators”) to file suit on behalf of the Government and receive a share of the Government’s recovery in return for their efforts. These suits are called “qui tam” actions, which comes from a Latin phrase referring to those “who sue on behalf of the king as well as themselves.” Schilling Law specializes in representing whistleblowers bringing qui tam lawsuits under the False Claims Act.

This qui tam lawsuit allows a private person to bring a lawsuit on behalf of the government. Any individual with information about fraud against the government may become a whistleblower and bring a qui tam lawsuit. Often, this individual will be an employee of the company committing the fraud but it can also be a competitor of the defendant or any other outside party with relevant information about the fraud.

If the lawsuit is successful, the government can recover damages and penalties from the defendant and the qui tam plaintiff can receive a financial reward for alerting the government to the fraud. Since 1986, when the False Claims Act was amended to make filing a “qui tam” action easier, private citizens have collected hundreds of millions of dollars in such suits while simultaneously assisting in the prosecution and deterrence of fraud against the United States.

In January, 2021, the Department of Justice announced that it had recovered $2.2 billion from FCA cases in fiscal year 2020. Of the $2.2. billion, over $1.6 billion arose from lawsuits filed under the qui tam provisions of the FCA and the Government paid out $309 million to the individuals who exposed the fraud and false claims by filing these actions.

In addition to the federal False Claims Act, there are numerous state and local laws that allow individuals to sue on behalf of a state government or municipality when the individuals have knowledge of health fraud, tax fraud, securities fraud, and in some states, fraud on private insurance companies.

A broad range of scenarios can give rise to a qui tam claim. The most common examples include: Medicare and Medicaid Fraud; Anti-Kickback Violations; Federal Grant Fraud; Government Contract Fraud; Medical Device Fraud; and most recently, COVID-19 Fraud. When the COVID-19 pandemic struck, conditions became ripe for a new wave of qui tam actions related to federal COVID-19 relief funds, including Paycheck Protection Program (PPP) loans. Already, FCA settlements have begun to roll in, with many reports of businesses and individuals submitting false claims when seeking federal COVID relief funds. To ensure that these vital funds are not misappropriated, the U.S. Department of Justice (DOJ) announced that it will prioritize the investigation and prosecution of COVID-19-related fraud, and expressly encouraged members of the public to blow the whistle on fraudsters and potentially collect a monetary reward in return. Qui tam actions to enforce the FCA are likely to spike in this environment.

In this environment, the DOJ has stated that it expects to see an increasing number of cases. Along with Covid fraud, the DOJ’s enforcement efforts currently are focused on three additional areas: nursing homes, Medicare Advantage and electronic health records.

It is critical that the relator hire an experienced attorney to file the qui tam lawsuit on his or her behalf. Choosing an experienced and competent attorney is the most important decision a whistleblower will make. Wondering if you have a case? Please reach out so we can discuss your case.

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IRS Whistleblower Program

The U.S. Government loses hundreds of billions of dollars each year to tax fraud. To help recover some of these funds, the IRS established the IRS Whistleblower Program. Through this Program, the IRS Whistleblower Office pays money to people who blow the whistle on persons who fail to pay the taxes that they owe. If the IRS uses information provided by the whistleblower, it can award the whistleblower up to 30 percent of the additional tax, penalty and other amounts it collects.

Tax fraud occurs when an individual or business engages in illegal schemes to avoid paying taxes mandated by the government. Both civil and criminal penalties may be assessed in tax fraud matters. Tax whistleblowers are entitled to a reward for reporting tax fraud, as well as for reporting tax underpayments that are not a result of fraud. For an action to be considered tax fraud, the IRS must be able to prove willful intent to engage in illegal methods with the express purpose of withholding taxes from the federal government.

Reporting Tax Fraud

Tax whistleblower claims can raise complex legal and accounting issues that require the assistance of an experienced whistleblower attorney to ensure that you maximize your tax reward. Because of manpower constraints, the IRS does not act on the majority of whistleblower claims submitted to them. It is therefore important that your initial and subsequent submissions to the IRS be thorough and compelling.

 The IRS evaluates the following criteria when determining whether to pursue your case:

  • The amount of tax underpayment
  • The quality of proof presented as part of your tax whistleblower claim Whether the claim involves allegations of tax fraud which can extend the applicable statute of limitations and lead to additional civil and criminal penalties
  • Whether the claim is timely filed, i.e., whether any statute of limitations applies to the claim thereby barring the IRS from collecting on the claim
  • Whether any legal or accounting privileges bar the IRS from using the information submitted to the IRS as part of the claim
  • How sound are the legal and accounting analyses submitted in support of your claim

The IRS Whistleblower Claim Process

There are several steps in the IRS Whistleblower Program claim process:

  • Preliminary assessment by the IRS Whistleblower Office as to whether the claim is viable;
  • Analysis by the IRS General Counsel Office of any legal issues, including privilege issues, raised by the submission of the claim;
  • Assignment of the claim to the appropriate IRS audit team;
  • IRS audit and investigation;
  • Determination and collection of the tax underpayment and penalties and interest;
  • Determination of the reward amount by the Tax Whistleblower’s Office;
  • An appeal to the United States Tax Court of the award if appropriate

Each of the steps can take months, and even years, to complete. Your counsel should be prepared to assist you and the IRS in each of the steps. Your counsel’s analysis of any applicable privilege issues can be critical in determining whether the IRS decides to proceed or decline your claim.

IRS Whistleblower Program Provisions

The guidelines set forth under the Tax Relief and Health Care Act of 2006 were designed to target large tax underpayments. Therefore, in order to qualify for the Tax Whistleblower Program, your knowledge must lead to the recovery of at least $2 million in taxes, penalties, and interest. If the tax evader is an individual, his annual gross income must exceed $200,000. There is no annual gross income requirement for corporations. Since there is no cap on the size of the reward, your percentage can be quite lucrative depending on the amount of the underpayment.

If you provide the IRS with information about tax underpayment which results in the recovery of unpaid taxes, you can receive between 15% and 30% of the proceeds recovered by the IRS, including penalties and interest. The percentage you are awarded will be based on your contribution to the case. Therefore, to ensure that you maximize your tax reward, it is crucial that you provide the IRS with detailed information and continue to assist them throughout the investigation. Your report should include:

  • Documentation of fraudulent transaction(s);
  • A solid paper trail, and/or
  • Detailed evidence demonstrating tax fraud

If your claim falls short of these requirements, it will be handled under the discretionary award statutes in place prior to 2006. You may still receive an award, but any such award would be at the sole discretion of the IRS.

Timeframe for Filing a Claim

IRS whistleblower claims are highly time sensitive. The statute of limitations for these cases varies a great deal with regard to the nature of the tax underpayment being reported. You need an experienced attorney to determine whether or not your claim is timely.  There is another important reason to act quickly.  If someone else comes forward with information about the same tax violation before you do, you may not be eligible to earn a reward.

We will work with you to obtain as much evidence as possible before submitting your claim to the IRS, and we will help organize your evidence into a compelling narrative which clearly demonstrates the nature and extent of the underpayment.  

 Choosing an experienced and competent attorney is the most important decision a whistleblower will make.  Wondering if you have a case? Please reach out so we can discuss your case.   

SEC/CFTC Whistleblower Program

The Dodd-Frank Act of 2010 is the U.S. financial regulatory law that created whistleblower reward programs at the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). The Dodd-Frank Act was enacted in order to reform the U.S. financial system following the financial crisis of 2008. Whistleblowers who provide information to the SEC or CTFC that leads to monetary sanctions exceeding $1 million are entitled to rewards of 10-30 % of the amount collected by the Government.

Importantly, the law also contains protections for whistleblowers who are retaliated against for blowing the whistle or assisting the agencies in the investigation. In these cases, the injured individuals may sue and get twice the amount of back pay owed, reinstatement and compensation for litigation costs.

SEC Whistleblower Program

The SEC Office of the Whistleblower was established to administer the SEC’s Whistleblower Program, which offers awards to eligible whistleblowers who provide original information that leads to successful SEC enforcement action in which over $1 million is ordered.

The new financial reform bill is much broader than the previous SEC whistleblower program, which only covered insider-trading violations. Whistleblowers can now receive rewards for reporting a wide variety of securities law violations, including: Late Trading, Insider Trading, Money Laundering, and Violations of the Foreign Corrupt Practices Act.

The SEC recognizes that assistance and information from a whistleblower can be among the most powerful weapons in the law enforcement arsenal of the SEC. Through a whistleblower’s 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. A whistleblower may receive an award of between 10% and 30% of the total monetary sanctions collected in actions brought by the SEC and in related actions brought by other regulatory or law enforcement authorities. Since the inception of the SEC Whistleblower Program, the SEC has paid more than $700 million in awards to whistleblowers.

Some examples of the kind of conduct the SEC is interested in include:

  • Ponzi scheme, Pyramid scheme, or a High-Yield Investment Program
  • Theft or misappropriation of funds or securities
  • Manipulation of a security’s price or volume
  • Insider trading
  • Fraudulent or unregistered securities offering
  • False or misleading statements about a company (including false or misleading SEC reports or financial statements)
  • Abusive naked short selling
  • Bribery of, or improper payments to, foreign officials
  • Fraudulent conduct associated with municipal securities transactions or public pension plans
  • Initial Coin Offerings and Cryptocurrencies
  • Other fraudulent conduct involving securities

The SEC Whistleblower Program also rewards individuals who provide the government with information about violations of the Foreign Corrupt Practices Act (FCPA). The FCPA makes it unlawful to bribe a foreign government official to obtain or retain business. The Act prohibits U.S. companies and individuals from paying money or any other inducement to a foreign official with the intent to influence a decision or action affecting that company’s business.

The FCPA was enacted in an effort to halt widespread bribery of foreign officials, and was intended to create a level playing field for honest businesses. The FCPA contains two provisions: the anti-bribery provisions and the accounting provisions. The anti-bribery provisions of the FCPA prohibit U.S. persons and businesses, U.S. and foreign public companies listed on stock exchanges in the United States or which are required to file periodic reports with the SEC, and certain foreign persons and businesses acting while in the territory of the United States, from making “corrupt payments” to foreign officials to obtain or retain business.

The FCPA’s accounting provisions, which were designed to operate in tandem with the anti-bribery provisions, require public companies to make and keep accurate books and records and to devise an adequate system of internal accounting controls, and prohibits individuals and businesses from knowingly falsifying books and records or knowingly circumventing or failing to implement a system of internal controls.

An important feature of the SEC Whistleblower Program is that whistleblowers may submit a tip anonymouslyif they are represented by an attorney.

Choosing an experienced and competent attorney is the most important decision a whistleblower will make. Wondering if you have a case? Please reach out so we can discuss your case.

CFTC Whistleblower Program

The Commodity Futures Trading Commission (CFTC)’s Whistleblower Program, created by the Dodd-Frank Act, provides monetary incentives to individuals who report possible violations of the Commodity Exchange Act that lead to a successful enforcement action, as well as privacy, confidentiality, and anti-retaliation protections for whistleblowers. The CFTC’s Whistleblower Office administers the program.

The CFTC pays monetary awards to eligible whistleblowers who voluntarily provide the CFTC with original information about violations of the Commodity Exchange Act (CEA) that leads the CFTC to bring a successful enforcement action resulting in monetary sanctions exceeding $1,000,000.

The CFTC pays monetary awards to eligible whistleblowers whose information leads to the successful enforcement of a Related Action brought by another governmental entity and certain other entities that is based on original information voluntarily submitted by a whistleblower to the CFTC that led to the successful enforcement of an action brought by the CFTC. (A Related Action is a successful judicial or administrative action brought by certain other specified entities that is based on the same original information voluntarily provided by a whistleblower to the CFTC that led to the successful enforcement of a CFTC action.)

The total amount of an award for an eligible enforcement action is between 10% and 30% of the amount of monetary sanctions collected in the CFTC’s enforcement action or a Related Action. If multiple whistleblowers are granted awards in an action, the total award amount is still limited to between 10% and 30% of the amount of the monetary sanctions collected.

Whistleblowers have certain protections regarding confidentiality of their identity. Importantly, whistleblowers are permitted to report fraud anonymously provided they have secured legal representation.

Employers may not take any action to impede would-be whistleblowers from communicating directly with the Commission’s staff about possible violations of the Commodity Exchange Act (CEA), including by enforcing, or threatening to enforce, a confidentiality agreement or predispute arbitration agreement with respect to such communications. Nor may employers retaliate against whistleblowers for reporting violations of the CEA—as through discharge, demotion, suspension, threats, harassment, direct or indirect, or any other discrimination against a whistleblower in the terms and conditions of employment because of any lawful act done by the whistleblower.
A whistleblower who has been retaliated against has the right to sue an employer in federal court. In addition, the CFTC has authority to enforce the anti-retaliation provisions of the CEA by bringing an enforcement action or proceeding against an offending employer.

Your information could lead the Commission to open a new investigation, re-open a closed investigation, or pursue a new line of inquiry in an ongoing investigation. This could result in a successful enforcement action, and you may be eligible for an award if your information matches certain criteria.

Submitting a tip alone will not be sufficient to obtain an award. In order to be considered for an award, a whistleblower must also submit an award application when the Whistleblower Office releases a Notice of Covered Action, or when a judgment is issued in a Related Action.

The CFTC uses its Customer Protection Fund, established by Congress, to pay whistleblower awards. The fund is financed entirely through monetary sanctions paid to the CFTC by violators of the CEA.
Choosing an experienced and competent attorney is the most important decision a whistleblower will make. Wondering if you have a case? Please reach out so we can discuss your case.