Fraud and Whistleblower News for Monday, March 31

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The Supreme Court denied the cert petition in Nathan v. Takeda today. The petition questioned the Court of Appeals decision with regard to the Rule 9(b) heightened pleading requirement for fraud.

False Claims Act Against Bankrupt Companies – WSJ:Judge Gives $2.3 Billion Hawker Whistleblower Suit New Life
Whistleblowers can pursue their False Claims Act lawsuit against Hawker Beechcraft despite its bankruptcy, according to a ruling in federal court in New York. The whistleblowers alleged that the U.S. Navy and Air Force purchased more than 300 aircraft with defective parts from the company. They argued that the lawsuit was an intentional fraud and a debt to a domestic government unit that should not have been discharged. Last year, a bankruptcy judge ruled that liability from the lawsuit was extinguished by the Chapter 11 bankruptcy plan. Beechcraft was purchased by Textron following bankruptcy.

Currency Manipulation – Bloomberg: Swiss Antitrust Regulator Probes Eight Banks Over Alleged FX-Rigging
The Swiss Competition Commission, known as Weko, says it is investigating foreign exchange rate manipulation at UBS, Credit Suisse, JPMorgan Chase, Citibank, Barclays and a few other banks. At least a dozen regulators are now investigating collusion in currency trading.

Securities Fraud – CNBC: Years later, SEC fraud trial over Texas tycoons to start:
The Securities and Exchange Commission will start jury selection in New York today for the $550 million fraud trial of Samuel Wyly and the estate of his late brother, Charles Wyly. They are accused of committing securities fraud and insider trading. The SEC started investigating the Wyly brothers in 2005.

Medicaid Fraud – New York Times: Settlement in Medicaid Fraud Case Worries Health Providers
A New York Times article expresses concern that increased enforcement efforts against Medicaid providers might cause more doctors and medical practices to stop accepting Medicaid patients. The article cites a recent enforcement action against Carousel Pediatrics by the Office of Inspector General in the Texas Health and Human Services Commission. The percentage of physicians in Texas accepting Medicaid have declined substantially in the past ten years because of Medicaid rate cuts.

IRS Whistleblower Program – Pittsburgh Post-Gazette: Telling for Dollars: Tipsters get few payments in IRS program
The Pittsburgh Post-Gazette reported on the lack of rewards coming out of the IRS Whistleblower program. There have only been 38 recoveries from the 33,000 whistleblower tips the IRS received in the past five years. The IRS paid out $50 million in Fiscal Year 2013 according to the head of the IRS Whistleblower Office, although the majority of the payout went one whistleblower receiving a $38 million dollar award.

FDA Examines Drug Quality from Overseas Facilities.

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The United States Food and Drug Administration has stepped up enforcement efforts against overseas exporters of drugs to the U.S. in light of recent reports of drug quality and manufacturing issues. Facilities in India, the second largest exporter of prescription and over-the-counter drugs, have been under especially heavy scrutiny.

Last year, Ranbaxy Laboratories paid $500 million to resolve civil and criminal actions for improper manufacturing, storage and testing of generic drugs. Dinesh Thakur, a former Director & Global Head of Research Information & Portfolio Management at Ranbaxy, reported the misconduct at Ranbaxy and received $48 million from the government as a whistleblower.

Ranbaxy was the largest drug manufacturer in India by revenue. Drugs from two of its facilities were banned by the FDA in 2008. Two more overseas facilities operated by Ranbaxy were banned more recently, in September 2013 and January 2014. The most recent inspection of the Toansa facility found staff retesting active pharmaceutical ingredients after they failed quality tests.

Indian drug maker Wockhardt has also had imports from two manufacturing plants suspended by the FDA in the last year, according to Bloomberg. The FDA discovered issues with quality testing at the facilities, located in Chikalthana and Waluj, during inspections.

In addition to quality testing concerns, counterfeiting has also been a major issue. Counterfeit drugs often don’t contain the active pharmaceutical ingredients which provide medical benefits to patients from the drug’s consumption. China is believed to be a large source of counterfeits but the FDA has had difficulty inspecting facilities there in the past.

Quality concerns overseas are troubling because the majority of drugs consumed in the United States now have some foreign component. Nearly 80% have active pharmaceutical ingredients from foreign countries, usually China or India, and nearly 40% are manufactured outside of the United States. The percentage is even higher when name brand prescription drugs are excluded. More than forty percent of OTC and generic pharmaceuticals are made in India.

Problems with overseas manufacturing may have developed because of disparities between domestic and foreign inspection rates. The FDA conducts strict inspections of drug manufacturing facilities in the United States every two years and has authority to conduct surprise inspections. In 2011, a GAO study found foreign drug manufacturers were inspected far less frequently. They estimated that overseas facilities were inspected once every ten years. As a result, Congress passed legislation to give the FDA broader authority to conduct inspections of drug facilities overseas. If they are refused entry for an inspection, the FDA can now block entry of drugs from the facility into the United States.

The FDA is also establishing an Office of Pharmaceutical Quality to improve the detection of quality issues in brand name, generic and over-the-counter drugs. The office will be focused on enforcing existing requirements and will not impose new quality restrictions. The interim director of the office is Janet Woodcock, director of the Center for Drug Evaluation and Research at the FDA.

These problems have also come to the attention of Congress. There is a Congressional hearing set for February 26th in order to further investigate substandard generic drugs from overseas. Cleveland Clinic doctor Harry Lever, among others, will testify about his experience with cardiology drugs manufactured in India.

The Young Law Group represents whistleblowers bringing forth claims of health care fraud under the False Claims Act. If you wish to report evidence of drug quality problems at a pharmaceutical manufacturer in the United States or abroad, please call 1-800-590-4116 or fill out the contact form for a free, confidential consultation.

UK Contemplates Qui Tam Provision

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It has recently been reported that the British government is contemplating the creation of a reward system, with qui tam provisions similar to the False Claims Act, to encourage whistleblowers to come forward with necessary information to root out government fraud and other white-collar crime.

The U.K. Home Office, acting in concert with other British agencies, are examining the qui tam provisions contained in the False Claims Act, as well as the IRS and SEC Whistleblower programs. As of now, the British government does not financially reward individuals for revealing original information used by the government to thwart fraud. Due to the recognized potential and actual hardships associated with the courageous act of blowing the whistle, as a seasoned False Claims Act attorney, I feel the addition of a qui tam provision will greatly assist our allies across the pond in its fight against government fraud.

As reported in the New York Times here, Britain’s government will “consider the case for incentivizing whistleblowing, including the provision of financial incentives, to support whistleblowing in cases of fraud, bribery and corruption,” the Home Office said as part of a document announcing the new National Crime Agency (“NCA”) in Britain. The NCA is Britain’s closest equivalent to the FBI. Although discussions concerning a qui tam provision have commenced, there is no deadline regarding a decision on the same.

Since 1986, the Department of Justice’s civil fraud section has recovered more than $20 billion in settlements and judgments, including whistleblower actions.  It is well-recognized that the qui tam provisions of the FCA provide strong incentive for citizens to assist the government in preventing and deterring fraud.

In 2011, the SEC established its own whistleblower program pursuant to the Dodd-Frank Act, the financial industry reform bill passed in response to the financial crisis. Under the SEC’s program, whistleblowers who supply original information that results in sanctions exceeding $1 million can receive rewards representing up to 30 percent of those sanctions. The SEC on numerous occasions has praised the legislatures’ inclusive of a qui tam provision which, according to Mary Jo White, SEC Chairwoman, “has had a big impact on our investigations by providing us with high quality, meaningful tips.”

I am hopeful that the British government will recognize and appreciate the importance of our qui tam provisions and establish its own incentives to reward courageous whistleblowers for their vital information.

Young Law Group is a nationwide leader in whistleblower representation and has successfully represented numerous clients in some of the nation’s largest qui tam cases for over a decade.  For a free confidential consultation, please call Eric L. Young, Esquire at (800) 590-4116 or complete the online form here.

 

 

 

SEC Foreign Corrupt Practices Act Guide

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SEC Publishes a Foreign Corrupt Practices Act Resources Guide

The United States Securities and Exchange Commission (“SEC”) published a new resource guide for the Foreign Corrupt Practices Act (“FCPA”).  The FCPA prohibits the payment of bribes to foreign officials to assist in obtaining or retaining business.  The FCPA can apply to prohibited conduct anywhere in the world and extends to publicly traded companies and their officers, directors, employees, stockholders, and agents. Agents can include third party agents, consultants, distributors, joint-venture partners, and others.

The FCPA also requires issuers to maintain accurate books and records and maintain adequate internal controls to provide reasonable assurances that transactions are executed and assets are accessed and accounted for in accordance with management’s authorization.

FCPA sanctions can be significant.  The SEC may bring civil enforcement actions against issuers and their officers, directors, employees, stockholders, and agents for violations of the anti-bribery or accounting provisions of the FCPA. Companies and individuals that have committed violations of the FCPA may have to disgorge their ill-gotten gains plus pay prejudgment interest and substantial civil penalties.

The sanctions for FCPA violations can be significant. The SEC may bring civil enforcement actions against issuers and their officers, directors, employees, stockholders, and agents for violations of the anti-bribery or accounting provisions of the FCPA.  Companies and individuals found in violation of the FCPA may have to disgorge their ill-gotten gains plus pay prejudgment interest and substantial civil penalties. Companies may also be subject to oversight by an independent consultant.

The SEC, among other things, enforces the Foreign Corrupt Practices Act and under the new SEC whistleblower program allows those who come forward with Foreign Corrupt Practices violations to share in any penalty imposed by the SEC.

The SEC report is available here:  http://www.sec.gov/spotlight/fcpa.shtml

McEldrew Young Purtell Merritt represents whistleblowers globally reporting to the U.S. Government. For a free confidential consultation with one of our Foreign Corrupt Practices Act whistleblower lawyers, please call Eric L. Young, Esquire at 1-800-590-4116 or contact us.

Whistleblowing Across the Pond

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As one of our writers recently crossed the Atlantic to find out more about governance in Europe, she coincidentally came across this poster. Occupying ad space in numerous places on one of London’s major streets, the poster promotes blowing the whistle on housing fraud. While blowing the whistle on housing fraud is not our only focus, we were happy to find a poster which advocated whistleblowing, regardless of how specific the whistleblowing case may be.

Whistleblowing has become an international phenomenon. While rules and regulations pertaining to whistleblowing are different across national borders, many policy-makers, organizations, non-profits, and advocates are encouraging their citizens to speak up about fraudulent activity that they have witnessed. The U.S. is known to have some of the best whistleblowing protections and rewards programs. Because qui tam laws in the U.S. both protect the whistleblower and reward the whistleblower with a monetary incentive to report fraud, other countries are beginning to model their laws after the U.S.’s. In recent years, UK policy-makers have thought to ramp-up legislation to protect and reward whistleblowers in a similar fashion to the U.S. system.

In the U.S. whistleblowers cannot be fired nor punished in their field for blowing the whistle. Under the most recent law protecting whistleblowers, the Dodd-Frank Act (the new Financial Reform bill), employers cannot “‘discharge, demote, suspend, threaten, harass, directly or indirectly, or in any other manner discriminate against, a whistle-blower in the terms and conditions of employment because of any lawful act done by the whistle-blower’” (for more information on the new U.S. law see “New Financial Reform Law Provides Incentives for Whistleblowers”). Because of these stringent protections, other countries are modeling after the U.S. law. However, it is not only the protections that the U.S. offers whistleblowers, but the monetary incentives that make the U.S. system a good model. In cases that involve recoveries of $1 million or more, the whistleblower must receive a minimum of 10 percent to a maximum of 30 percent of the recovery. (In order to receive a reward the recovery must total $1 million or more.) This means that the lowest possible reward a whistleblower can reap is $100,000.

Because of the advantages of the U.S. qui tam law, some lawmakers in other countries, such as the UK, would like similar protections and rewards for their citizens. It appears that the most recent law protecting whistleblowers in the UK is the Public Disclosure Act 1998, which amends the Employment Rights Act 1996. Under the 1998 Act, citizens can disclose illegal activity including, “a criminal offence; the breach of a legal obligation; a miscarriage of justice; a danger to the health or safety of any individual; damage to the environment; or deliberate covering up of information tending to show any of the above five matters.” Under Part V, “Protection from suffering detriment in employment,” of this law, 47B on “Protected disclosures” states that, “A worker has the right not to be subjected to any detriment by any act, or any deliberate failure to act, by his employer done on the ground that the worker has made a protected disclosure.” Detriment includes a range of punishments including “denial of promotion, facilities or training opportunities which the employer would otherwise have offered.” In this case, a whistleblower in the UK cannot be punished by his employer for whistleblowing if the whistleblower has made a protected disclosure. However, it appears that under these laws, whistleblowers are protected but not rewarded.

Seeing that rewards are what push many to become whistleblowers, UK government officials have questioned whether it should provide such incentives to its citizens. In the “Asset Recovery Action Plan” the Home Office of the UK presents arguments for and against enacting a program similar to the U.S.’s qui tam under the False Claims Act (FCA). Some promising features of the qui tam law that would support the creation similar program include:
• Whistleblowing laws in the U.S. have been “strikingly successful, particularly in defence and healthcare sectors, with many billions of dollars raised annually.”
• “FCA recoveries far exceed the cost of prosecuting fraud—it has been estimated that for every dollar the federal government invests in investigating and prosecuting these case[s], it receives $15 back.”
• It is believed that the law allows for cases to be brought to the attention of the government that otherwise may not have been reported.
• It is believed that, because of qui tam provisions, companies are more likely to comply with the law and avoid committing fraud.
These are advantages to the law in the U.S. that could influence UK policymakers to attempt to create a similar law that would be effective in the UK. However, there are obstacles to qui tam that would require the creation of a similar yet different law that would suit the UK. Qui tam types of provisions have existed since 1790 in the U.S., whereas they would be new to the UK. Legislative differences in U.S. and UK laws would make a law similar to the U.S.’s qui tam hard to implement in the UK because of how unusual it would be in the UK system. Additionally, “Some organizations representing the interests of whistleblowers in the UK have been skeptical about the Qui Tam approach, arguing it would discredit the practice generally.” Because of these similarities and differences the UK government has welcomed debate on the creation of a law similar to the U.S. qui tam law.

This more open debate has sparked further knowledge of whistleblowing and U.S. whistleblowing laws in the UK as it has been reported in The Guardian and other news sources throughout the country. The UK government has not changed its present law, but is certainly on the way to offering a better incentive to blow the whistle.

Sources:
“Asset Recovery Action Plan.” Home Office, the National Archives. 24 May 2007.
http://webarchive.nationalarchives.gov.uk/+/http://www.homeoffice.gov.uk/documents/cons-2007-asset-recovery/asset-recovery-consultation.pdf.
“Asset Recovery Action Plan: A Consultation Document.” Home Office. May 2007.
http://www.lccsa.org.uk/assets/documents/consultation/asset-recovery-consultation.pdf.
“Employment Rights Act 1996.” The National Archives.
http://www.legislation.gov.uk/ukpga/1996/18/contents.
Henning, Peter J. “Come Blow Your Horn for the S.E.C.” The New York Times
DealBook Blog. 26 July 2010. http://dealbook.blogs.nytimes.com/2010/07/26/come-blow-your-horn-to-the-s-e-c/.
Laytons Solicitors. “Whistleblowing.” UK Employment Law. 2005.
http://www.roydens.co.uk/content40.htm.
“Public interest Disclosure Act 1998.” The National Archives.
http://www.legislation.gov.uk/ukpga/1998/23/contents.
Walker, Peter. “Fraud whistleblowers could get cash rewards.” Guardian.co.uk.
24 May 2007. http://www.guardian.co.uk/uk/2007/may/24/ukcrime.immigrationpolicy.
Wylie, Ian. “Whistleblowing that pays.” Guardian.co.uk Money Blog. 1 Feb. 2008.
http://www.guardian.co.uk/money/blog/2008/feb/01/whistleblowingthatpays.

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