Every year millions of Americans suffer from a preventable fall injury, and over 800,000 of those will end up in the emergency room with a fracture or head injury. According to the American Academy of Orthopedic Surgeons, falls are the most common cause of nonfatal unintentional injuries and are responsible for slightly more than three in 10 injuries overall. Deaths because of a fall have also skyrocketed since 2000, from 13,322 to 34,673. Half of all accidental deaths in the home are caused by a fall.
National data on cases of abuse in America’s 15,600-plus nursing homes and other elder-care programs is hard to come by. But several recent studies by government investigators, advocacy groups and the news media have chilling implications.
As parents, we like to think sending our children to school on the bus is safe. In reality, school bus accidents occur every year, often resulting in catastrophic injuries and wrongful death. In these moments it is difficult to think about involving a lawyer, however the sooner you engage a qualified lawyer, the sooner your child and family’s legal interests are protected and you can focus solely on your child and families well-being.
The United States Department of Justice and numerous state governments have intervened in numerous qui tam whistleblower suits, including one brought by Philadelphia based law firm McEldrew Young Purtell Merritt against INSYS Therapeutics, Inc. . The suit alleges, among other things, that INSYS engaged in a nationwide illegal scheme to increase profits from Subsys, a fentanyl sublingual spray and schedule II controlled substance.
Businesses with ties to foreign hackers engaged in cyber security breaches may be a target for substantial government penalties in the next few years. On April 1, President Obama issued an executive order authorizing sanctions on any person complicit in harming or significantly compromising the computer networks of an entity in a critical infrastructure sector.
The sectors at issue are defined by the U.S. Government and cut across a wide variety of industries. The 16 critical infrastructure sectors are chemical; commercial facilities; communications; critical manufacturing; dams; defense industrial base; emergency services; energy; financial services; food and agriculture; government facilities; healthcare and public health; information technology; nuclear reactors, materials and waste; transportation services; and water and wastewater systems.
It appears that it is up to the Secretary of the Treasury to designate individuals or entities engaged in prohibited activities for sanctions. One potential target of this law identified in the media reports was the state-owned enterprises in China which benefit from the industrial espionage by Chinese military hackers.
This executive order reminds me of the economic sanctions against Iran, Cuba and other foreign nations. These economic sanctions, administered by the Office of Foreign Assets Control (OFAC), have generated a couple substantial settlements with corporations over the past year. BNP Paribas and Commerzbank both had to pay settlements exceeding $1 billion for prohibited interactions with members of these nations.
A few weeks ago, we explored the potential for whistleblowers to report violations to the SEC whistleblower program for the failure of an issuer to disclose hacking incidents and material weaknesses in their cybersecurity defenses. There’s no reason yet to think that the SEC would play an enforcement role in President Obama’s prohibition against hacking. But it may be worth discussing this matter with one of our securities whistleblower attorneys in the future should evidence of corporate misconduct arise.
Whistleblowers earned a record amount of money in Fiscal Year 2014 as they were paid $435 million in rewards by the Department of Justice. The $2.3 billion in health care fraud recoveries was also outpaced by $3.1 billion in federal funds recovered from housing and mortgage fraud in the financial industry. It is the first time in more than 10 years that the health care industry has not had the largest fraud settlements under the False Claims Act.
We owe a tremendous debt to whistleblowers. More than half of the money recovered by the Department of Justice was initially filed under the False Claims Act’s qui tam provisions. This trend should continue in the near future as more than 700 lawsuits were filed by whistleblowers for the second straight year.
Although the Justice Department receives fewer tips than the SEC, which has been averaging around 3000 a year, the amount recovered thanks to the False Claims Act still exceeds the Dodd-Frank law by a significant amount.
This is the first time that recoveries under the nation’s most successful law in the fight against fraud have exceeded $5 billion.
Here is a quick recap of the ten largest settlements of fiscal year 2014 highlighted by the DOJ in their press release:
Bank of America – $1.85 billion
Johnson & Johnson – $1.1 billion
JPMorgan Chase – $614 million
SunTrust Mortgage – $428 million
U.S. Bank – $200 million
Amedisys – $150 million
Omnicare – $116 million
Community Health Systems – $98.15 million
Halifax Hospital Medical Center – $85 million
BNP Paribas – $80 million
We will continue to update this blog post as we digest the information released. Here is the link to the DOJ press release.
Senators John Thune (R-S.D.) and Bill Nelson (D-Fla) are expected to introduce a bill to provide auto industry whistleblowers with up to 30% of monetary penalties resulting from enforcement actions by the Department of Transportation or Justice Department. Called the Thune-Nelson Motor Vehicle Safety Whistleblower Act, it will provide for the Secretary of the Treasury to issue auto industry employees and contractors discretionary rewards for voluntary information about problems at motor vehicle manufacturers, parts suppliers and dealerships. The legislation is modeled after the Internal Revenue Service and Securities and Exchange Commission whistleblower programs, including confidentiality protections.
It is co-sponsored by Claire McCaskill (D-Mo.) and Dean Heller (R-Nevada), the leaders of the Commerce Committee’s subcommittee on consumer protection. The subcommittee is investigating delayed recalls of ignition switches at General Motors. The bipartisan sponsors of the bill suggest that the issue may cross party lines even though corporations have in the past vehemently opposed past efforts to strengthen rewards.
The Detroit News called out the bill as “the first significant auto safety proposal to receive backing of a top Republican.” The chairman of the House Energy and Commerce Committee, Representative Fred Upton (R-MI) said he is still considering proposing a bill for auto reform.
Democrats in the House and Senate proposed sweeping reforms earlier this year. In September, the Vehicle Safety Improvement Act was introduced to reform the industry. Senate Democrats proposed the Early Warning Reporting System Improvement Act in March followed by the Motor Vehicle and Highway Safety Enhancement Act in August.
The introduction of the whistleblower bill comes at a time when several companies in the auto industry are being investigated for defective products. The introduction of the bill coincides with a hearing today in the Senate Commerce Committee regarding the recall of 7.8 million vehicles by 10 major automakers because of defective Takata air bags.
In June, news broke about a GM whistleblower who had been silenced and fired by the company for accusing it of dragging its feet to fix safety issues. The company had known about the problematic ignition switches for years before it finally issued a recall.
Toyota paid a $1.2 billion fine earlier this year for misleading the government and consumers about unintended acceleration complaints. U.S. Attorney Preet Bharara said, “Even while giving unequivocal assurances that it had fully addressed a grave safety problem, Toyota knew full well that the problem of unwanted acceleration persisted.” Toyota initially blamed the problem on the accelerator being stuck under the floor mat while hiding the potential for “sticky pedals”. The company recall didn’t cover all of the cars in danger and they continued to manufacture problematic vehicles.
Earlier this month, Hyundai Motor and Kia Motors were also fined $300 million for overstating vehicle fuel-economy standards. We haven’t been able to track down the bill yet to determine whether information about this time of fine for a violation of the Clean Air Act will also be covered.
This bill is not the only area where the U.S. Government is considering expanding rewards.
Representative Maxine Walters (D-CA) introduced the Holding Individuals Accountable and Deterring Money Laundering Act (H.R. 3317) into the House of Representatives last October. It provides for an increase in the potential payment for FinCEN whistleblowers from the current maximum payment of $150,000. The new law would offer a minimum of 10 percent and maximum of 30 percent on eligible recoveries over $1 million.
The Centers for Medicare and Medicaid Services proposed an increase last year in the maximum reward for its own Medicare Incentive Reward Program to $9.9 million from $1,000. The U.S. Government Accountability Office also published a report on reform of the criminal cartel enforcement laws in 2011 which considered, among other things, adding incentives for reports of antitrust violations.
New York is also considering rewards for information provided to its Department of Financial Services. The agency, run by Benjamin Lawsky, has issued several large fines against financial institutions this year, including this week’s $315 million settlement with Bank of Tokyo Mitsubishi UFJ. It also will reportedly pursue penalties against Barclay’s for forex manipulation similar to the conduct involved in settlements between five banks and the CFTC last week.
At least one of the top three may surprise you.
The Securities and Exchange Commission asks whistleblowers to provide information about their occupation when they submit a tip to the agency. Since 2011, when they launched the Office of the Whistleblower, more than 6500 people have filled out the form in the hopes of putting a stop to fraud and earning a reward.
The Wall Street Journal submitted a Freedom of Information Act request and gained access to the list of 3,600 job titles listed by whistleblowers. They published an article about the results on Monday and our SEC whistleblower attorneys examined it.
In third place, and one that we wouldn’t have guessed, were engineers. 138 have submitted tips about violations. In the article, a representative of the American Society for Engineering Education ascribed this to the code of ethics among engineers.
Practically, it may have more to do with the financial markets dependence on complex computer systems these days. Engineers are programming the systems used by financial institutions and the algorithms used by traders. If they are knowledgable about the rules, then they will know when the instructions they are given to program into the system don’t comply with the regulations.
Coming in second, submitting 290 tips, were investors. This should not come as a shock. A significant number of the enforcement actions pursued by the agency take aim at companies and individuals defrauding investors. Investors can run into an assortment of violations of the rules, from the illegal marketing of securities to misappropriated investor funds.
Occupying the top spot are the 365 tips submitted by retirees. There are two reasons this group is on the list. Ex-employees are more easily able to provide information about their former employer without worrying about the potential for retaliation. Retirees, specifically, do not have to worry about the potential impact on their career if their name becomes public.
The other reason is that retirees are frequently the target and victim of fraudulent enterprises. Like investors, if you regularly have people approach you asking for money, you are more likely to encounter a violation of the securities laws and regulations.
Also interesting are the professions that were not reported by the Wall Street Journal. These include some of the jobs that have been the most controversial for the program, including attorneys, compliance professionals and accountants. Traders were also not mentioned.
It’s possible that these individuals simply did not list their job title. Only 3,600 of the more than 6,500 SEC whistleblowers who have submitted tips did so. On the other hand, it may be that many in these professions are still hesitant to blow the whistle when they encounter misconduct.
If you discover fraud in the FCC’s E-rate program, don’t file in the Fifth Circuit. Earlier this month, the Fifth Circuit Court of Appeals held that E-rate funds are not “provided” by the Federal Government and reversed a lower court decision on that basis.
The appellate decision raises serious questions on the viability of qui tam lawsuits in this area going forward. Defendants accused of improperly billing the FCC’s E-rate program have paid nearly $50 million in settlements to the United States Government over the years.
In U.S. ex rel. Shupe v. Cisco Systems, Inc., No. 13-40807 (5th Cir. July 7, 2014)(per curiam), the relator alleged that the telecommunications company presented false claims for payment to the government’s E-Rate program, which is funded out of the Universal Service Fund (“USF”) and administered by the Universal Service Administrative Company (“USAC”).
USAC is an independent, not-for-profit corporation assigned to administer the USF by the FCC. The USF is funded by private corporations at the direction of Congress in the Telecommunications Act of 1996 and does not receive federal funds from the treasury.
The False Claims Act defines a “claim” in relevant part as “any request or demand … for money or property … if the United States Government … provides or has provided any portion of the money or property requested or demanded.” 31 U.S.C. § 3729(b)(2)(A)(ii)(I).
Because treasury money does not fund the USF, and the money is not collected by tax, the Fifth Circuit concluded that the government did not provide any portion of the money paid out because of the false claim. “[T]he Government ‘provides any portion’ of the money requested under §3729(c) when United States Treasury dollars flow to the defrauded entity or if the false claim is submitted to a Government entity.” Shupe, slip op. at 5.
The Court of Appeals explicitly rejected the Government’s argument that funds paid by a corporation at the direction of Congress are government funds protected by the False Claims Act. It also disagreed with the contention that substantial FCC oversight was sufficient to bring the false statements within the False Claims Act even though the money was ultimately disbursed by a private organization.
At the moment, this is a blow to whistleblower actions to protect privately funded programs created by Congress and not administered by a government body. In the case, the United States argued that the FCC would ultimately end up administering the program if the False Claims Act did not apply to it as currently structured. If other courts agree with the Fifth Circuit, the United States will need to restructure the program, and others like it, in order to protect it from fraud.
Bloomberg had an interesting story last month about a whistleblower who claims that an unapproved change to highway guardrails by their manufacturer, Trinity Highway Products, has rendered them dangerous. The trial started on Monday.
At the beginning and end of a guardrail, there is a piece designed to minimize damage from the guardrail to a vehicle during a crash. Without the specially designed end treatment, it risks impaling the car and severely injuring or killing occupants.
The original design was approved by the Federal Highway Administration and functions properly, minimizing the risk that it becomes a danger in a collision. However, in 2005, a different design began appearing on the National Highway System. The lawsuit alleges that this change was not approved and poses a safety risk.
When Trinity sells the product, it has to certify to the buyer that it has essentially the same geometry and mechanical properties as the one approved by the Federal Highway Administration. The states will then submit the cost of the purchase to the federal government for reimbursement from the Highway Trust Fund.
The false certification has become the core claim in the whistleblower lawsuit brought by relator Joshua Harman on behalf of the U.S. government under the False Claims Act. The False Claims Act permits lawsuits to recover money spent by the federal government as a result of a false claim or fraud. The complaint asks for damages sufficient to replace the defective guardrail and three times the government’s actual damages. If the lawsuit is successful, Harman will be entitled to an award of between 25 and 30 percent of the recovery.
The Business Week article has Harman’s interesting back story. He copied the Trinity end treatment design, manufactured it and sold it in Virginia because he believed it was off patent. Trinity sued him for it. His investigation led him to examine a guardrail that had malfunctioned in a crash. That is when he first discovered that the approved design was not the same as the design on the road.