IRS Whistleblowing Potential

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Trying to save money, the federal government is cutting funding for the IRS. The result may be a loss of revenues costing taxpayers untold billions. By the end of Fiscal Year 2010, $330 billion dollars in federal taxes will remain uncollected. In context, $330 billion dollars represents nearly 9 times the projected savings of the recently agreed upon budget. However, in the recent budget agreement, lawmakers decided that no additional funds would be used to hire new IRS agents.

Although there is evidence that for every dollar spent on enforcing the tax code the investment results in up to ten dollars of revenue for the government. Politicians, fearing to align themselves with the tax man, have shown reluctance in supporting funding for additional IRS agents.

The idea is particularly troublesome in that the federal deficit continues to mount and broader compliance of the already existing tax code would help relieve the burden of an exploding deficit. Egan Young’s recent case is a prime example of the need for a strong IRS. An anonymous Whistleblower client of Egan Young received the very first mandatory tax fraud reward under the 2006 IRS Whistleblower rules.

The program which had been in place since the end of 2006, had taken nearly five years to distribute its first mandatory reward. The IRS acting on the tip of the Whistleblower, and the advocacy of attorney Eric Young, netted in excess of $20 million in unpaid federal taxes. This recent case highlights the need for a strong IRS. $20 million from one case represents near 2/3 of the savings the federal government cut in its recent budget negotiations. The addition of IRS agents, resources for the whistleblower office, and increased investment in IRS infrastructure would be a nearly 10 to 1 investment in paying down the exploding federal deficit.

JP Morgan Reported To Be Close To Finalizing A $13 Billion Settlement With Department Of Justice

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October 21, 2013 – It is being widely reported that the Department of Justice and JP Morgan are finalizing the details of a $13 billion settlement relating to the 2008 financial meltdown.  JP Morgan has already paid close to $6 billion dating back to 2010 in other fines and penalties arising out of the 2008 financial crisis.  Reports are that this settlement will encompass numerous open investigations into the bank’s fraudulent sale of toxic mortgage back securities.  If consummated, this settlement will be one of the largest settlements ever involving one of the nation’s largest financial institutions.  Reports are that the deal will include $9 billion in fines and provide relief to consumers totaling approximately $4 billion.  It is also being reported that this deal will not insulate JP Morgan from criminal charges.  While this amount seems to be substantial in the eyes of the average American, then certainly the largest penalty ever imposed on a U.S. corporation, however, it is less than half of the $21 billion profit JP Morgan recorded in 2012.

In addition, the bank previously set aside $28 billion to cover the legal costs in connection with the government investigations that have apparently led to the reported settlement.  The reality is that while these settlement amounts appear to be very large, they pale in comparison to the amount of money spent by the federal government to prop up these firms, including JP Morgan, in the aftermath of the 2008 mortgage meltdown.  For example, $4 billion will reportedly go to settle a suit by the Federal Housing Finance Agency against JP Morgan for knowingly making false statements and omitting material information with regard to the sale of $33 billion in worthless mortgage bonds to government-sponsored mortgage finance companies.  However, that is only about two percent (2%) of the almost $2 billion in taxpayer money the government spent so far to prop up JP Morgan and others for this misconduct.  The New York Times reported, “the government also prefers to settle with big companies rather than indict them, fearing that criminal charges can unnerve the broader economy.”

Attorney General Holder has been quoted as saying, “If we do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy.”  As such, the government appears to be concerned that if it levies harsh criminal sanctions against banks, including JP Morgan, that it will rattle the financial markets, and therefore, the government apparently shies away from taking such direct action to eradicate the type of misconduct that led to the 2008 collapse.  Does such an approach make sense?  Considering that these penalties appear to be nothing more than a slap on the wrist, when considering the damage that was caused and the profits that JP Morgan and others have made since 2008, isn’t it time that our government takes a tougher stance?  Unfortunately, it appears that the financial privileged in our country are above the law.  Until our government prosecutes corporations and executive who devise and carry out the fraudulent schemes, this type of misconduct will continue because it is profitable to do so.  In other words, it is the cost of doing business.

So long as these companies and their executives know that they will not be held to account for fraudulent misconduct, so long as that conduct is profitable, they will continue to engage in it.

Reports are that the Justice Department’s case against JP Morgan is being bolstered in part by the involvement of a whistleblower from inside the bank who is aiding the government.  The Wall Street Journal has reported that, “the cooperating person has provided information – including emails – suggesting the bank vastly overstated the quality of mortgages that were being bundled into securities and sold to investors before the financial crisis, the people said.”  The Wall Street Journal also reported, “Justice Department lawyers are embolded by documents, uncovered in the course of their investigation, that point to JP Morgan knowingly peddling mortgage back securities whose underlying loans were of lesser quality than pitched to investors, according to people familiar with the investigation.”  Reports of insider assistance to the government in pursuing a case against JP Morgan further highlights the critical nature that whistleblowers play in allowing our system to self-correct.  The simple matter is, without the assistance of an insider such as the person being reported to be assisting the Justice Department in the JP Morgan case, the government would be at a severe disadvantage at the pre-litigation stage in leveraging any meaningful resolution.

Whistleblowers provide detailed uncontroverted evidence that otherwise would be unavailable to the government.  It is believed that this insider may have filed a claim under the Federal False Claims Act, which includes a qui tam provision that enables individual citizens to bring claims on behalf of the taxpayers against companies such as JP Morgan, who are alleged to have defrauded our government.  To encourage such whistleblowers to come forward, the False Claims Act includes bounty provisions that compensate whistleblowers for the courageous efforts that are necessary for someone to step forward and report powerful corporate interest, such as those in the JP Morgan case.  These bounties can range anywhere between 15 and 30 percent of civil penalties and fines collected by the federal government as a result of the underlying qui tam action.

Young Law Group, P.C., represents whistleblowers in the United States and abroad, in a variety of cases, including IRS Whistleblowers, False Claims Act (Qui Tam), and SEC related fraud.  For a free confidential consultation, please call Eric L. Young, Esquire at (215) 367-5151 or email to eyoung@young-lawgroup.com.

 

School of Medicine Looking to Ban Speaking Fees

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Oregon Health & Science University School of Medicine Looking to Ban Speaking Fees

On November 26, 2012, Pharmalot reported that a medical school, Oregon Health & Science University School of Medicine, is looking to implement a plan recommending that its researchers should no longer accept paid speaking fees from drugmakers.  The proposal has drawn criticism from some University staff members who received lucrative compensation (upwards of $50,000 annually) from drugmakers.  Nonetheless, the proposal is expected to be approved in about two months.

According to the article, the school a month ago received a positive, but qualified grade on the most recent American Medical Student Association (AMSA) annual report card that tracks medical school policies toward financial dealings with the pharmaceutical industry. The AMSA noted that OHSU medical school policy is deficient by failing to prohibit participation in speakers bureaus.  Dean Mark Richardson, of OHSU School of Medicine remarked, “I think there’s a conflict-of-interest potential there that we should just eliminate, so nobody has to think about it.”  Various medical schools recently have tightened or adopted policies to limit industry influence or the perception of conflicts of interest.

The AMSA found that 102 medical schools out of a total of 152 – or 67 percent – were given a grade of A or B for policies governing interactions between drugmakers, faculty and students.  Of the 152 medical schools tracked, only 17 had policies restricting speaker bureau fees.

The Sunshine provision of the Affordable Care Act has given the issue greater urgency because the law requires drugmakers to post payments exceeding $10 to physicians on their web sites.  The author noted, however, that the federal government has not yet issued a final rule for gathering and publishing the data.

To learn more about whistleblowing and for a free confidential consultation, contact Eric Young at Young Law Group today at (800) 590-4116 or email to eyoung@young-lawgroup.com.

http://www.pharmalot.com/2012/11/a-medical-school-looks-to-ban-speaking-fees/

First Whistleblower Award Issued by CFTC

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The Commodity Futures Trading Commission announced today that they are making a payment of approximately $240,000 to a whistleblower for information under the authority granted to it by the Dodd-Frank Act. It is the first award by the CFTC Whistleblower Program.

Additional details about the case and the individual paid were not released. They are committed to protecting the identity of people submitting tips and treat information as non-public and confidential, so we don’t expect to hear more about the specific case from them. Sometimes, based on the timing of announcements, it is possible to speculate about the underlying enforcement action. The CFTC probably collected between $800,000 and $2.4 million because of the tip.

The CFTC program receives tips about violations of its regulations and the Commodity Exchange Act. It had rejected approximately 25 applications for awards through the end of 2013.

The CFTC receives fewer tips than the other programs. It received 138 submissions of Form TCR in Fiscal Year 2013 compared to the approximately 3,000 tips received by the Securities and Exchange Commission.

The SEC paid its first award to a whistleblower in August 2012. The initial payment was for $50,000. In April, they announced payment of an additional $150,000 to the individual after collecting additional funds from one of the defendants in the case. The follow up award represented 30 percent of the $500,000 collected, the maximum the agency is allowed to pay.

The first mandatory award under 26 U.S.C. § 7623(b) by the Internal Revenue Service program went to a Young Law Group (predecessor to McEldrew Young Purtell) client of Eric Young in 2012. The client was awarded $4.5 million by the IRS.

False Claims Act Case Over Customs Duties Near Settlement

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When the Department of Justice reported its Fiscal Year 2013 results, it put the use of the False Claims Act to fight health care fraud front and center.  Whistleblowers are not limited to bringing lawsuits against hospitals and drug companies, however.  The False Claims Act applies broadly to fraud against the government.  A number of companies operating outside the health care industry, including J.P. Morgan, have found that out.  Symantec, for example, recently reported potential liability of $145 million under a False Claims Act investigation.  Another wasn’t even providing services to the government under a contract.  Instead, it violated the False Claims Act by underreporting the value of imported products for customs duties.

When companies import products, they must pay duties according to the value of the imported merchandise.  The customs value is not merely the material costs of manufacturing.  It also includes the value of additional materials and services involved in making the imported merchandise, known as assists.  The value of an assist is apportioned across all of the products manufactured with the assist.  If a company intentionally excludes the assist from the value reported to U.S. Customs and Border Protection, it violates the False Claims Act.

OtterBox, a maker of smartphone and tablet cases, is now in settlement talks in the False Claims Act lawsuit brought against it by Bonnie Jimenez in 2011, according to court documents providing additional time to finalize a settlement.  Jimenez, the former Supply Chain Director at OtterBox, accused OtterBox of understating the value of imported items to Customs from 2007 to 2011.  As a result, OtterBox paid lower customs duties to the U.S. Government on imported smartphone cases.

As Otterbox would import smartphone cases from a Chinese manufacturer, it did not report engineering and tooling costs performed overseas in the value of its products.  In one example cited in the lawsuit, Otterbox imported 3,000 cases for Blackberry phones at a cost of $2.13 from a Chinese manufacturer in April 2010.  The additional value was estimated at between $2,500 and $12,000 per mold, which should have been apportioned across the manufactured products.  Because it did not report the additional value of the assist, it did not pay the proper amount of import taxes.

Any settlement must be approved by the Department of Justice, the U.S. Attorney’s Office and the Department of Homeland Security.   United States Customs and Border Protection is a division of the Department of Homeland Security.

McEldrew Young Purtell represents whistleblowers reporting fraud to the government through the False Claims Act.  For a free confidential consultation, please call Eric Young, Esq. at 1-800-590-4116 or complete our online contact form.

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Lesson From Fifth Circuit: Don’t Delay Filing Your False Claims Act Lawsuit

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It may be tempting to report misconduct to the government outside of the formal procedures provided by whistleblower laws. It would be comparatively easy for a whistleblower to send the government a fraud report through a letter, email or hotline without legal representation as soon as they discover it. Two whistleblowers were unfortunately denied a share of the government’s recovery by the Fifth Circuit on Friday in U.S. ex rel. Babalola v. Sharma, No. 13-20182, slip op. (5th Cir. Feb. 14, 2014) because they did.

The relators discovered Medicare and Medicaid fraud at the medical clinics where they were employed. They submitted an anonymous letter to various government agencies detailing the crime in 2007. The Government investigated and the Defendants pleaded guilty to criminal charges in 2010. The Defendants were ordered to pay $43 million to Medicare, Medicaid and private insurers as restitution in 2011. The award was later reduced to $37 million.

During the appeal, the relators filed their qui tam lawsuit under the False Claims Act in November 2011. On a motion for partial summary judgment, the Government sought to deny the relators a share of the proceeds from the criminal prosecution. The District Court agreed with the Government.

The False Claims Act provides for recovery by a relator even if they have previously disclosed the fraud to the government. It requires the dismissal of lawsuits based on publicly disclosed information unless the relator is the “original source” of the information. 31 U.S.C. § 3730(e)(4)(A). An individual is the original source if they “voluntarily disclosed to the Government the information on which allegations or transactions in a claim are based” prior to the public disclosure. 31 U.S.C. § 3730(e)(4)(B). This rule encourages whistleblowers to come forward early and report fraud to the Government.

However, in their specific case, the whistleblowers delayed filing a complaint under the False Claims Act until the Government had already received an award for restitution in the criminal proceedings. When the Department of Justice declined to intervene in their action, the relators sought to have the criminal proceeding considered an “alternate remedy” under § 3730(c)(5).

Section 3730(c)(5) permits the Government to pursue an alternate remedy to the relator’s civil suit under the False Claims Act. “Notwithstanding subsection (b), the Government may elect to pursue its claim through any alternate remedy available to the Government, including any administrative proceeding to determine a civil monetary penalty.” 31 U.S.C. § 3730(c)(5). However, if the Government does pursue an alternate remedy, the relator is entitled to share in the proceeds as if it had been recovered through their False Claims Act lawsuit. “If any such alternate remedy is pursued in another proceeding, the person initiating the action shall have the same rights in such proceeding as such person would have had if the action had continued under this section.” Id.

The Fifth Circuit agreed with the Department of Justice and the District Court. The criminal prosecution was not an alternate remedy because it was filed prior to the qui tam action. The Court of Appeals reasoned, from the text of the statute and the definition of the word alternate, that the qui tam proceeding must exist in order for the government to elect an alternate remedy to it. Babalola, slip op. at 7. As the relators did not file their complaint until after the Government pursued the criminal prosecution, they were not entitled to recover a portion of the proceeds as an alternate remedy.

If, instead of sending the anonymous letter to the government, the whistleblowers had filed a lawsuit under the False Claims Act, they may have been entitled to recover a portion of the funds. See United States v. Bisig, 2005 WL 3532554 (S.D. Ind. Dec. 21, 2005)(criminal prosecution is an alternative remedy under the False Claims Act). As it stands now, the whistleblowers will need to continue their lawsuit under the False Claims Act in order to earn their whistleblower reward.

The concurring opinion by Judge James Dennis points out how this result is at odds with a central goal of the False Claims Act.

Babalola and Adetunmbi could have withheld their information and allowed the fraud to continue while they searched for an authority to represent their interests in a qui tam suit. But they did not — they took the path of the Good Samaritan and without delay provided the government with the evidence needed to purse the defrauders …. For all their efforts, Babalola and Adetunmbi received nothing. Had Babalola and Adetunmbi first filed their qui tam suit before providing their information to the government, then they would have been entitled, under § 3730(d)(1), to an award of between fifteen to thirty percent of the government’s proceeds.

Babalola, slip op. at 15-16 (Dennis, J., concurring).

McEldrew Young Purtell represents whistleblowers in litigation under the False Claims Act. If you would like a free, confidential consultation with an attorney regarding a potential claim, please call 1-800-590-4116.

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JURY FINDS GOVERNMENT CONTRACTOR JM EAGLE LIABLE FOR FRAUD

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Today a federal jury in the Central District of California unanimously found JM Eagle liable for defrauding the United States and several individual states.  The trial was the first step in the culmination of seven years of contentious litigation.  In order to facilitate a smoother proceeding, U.S. District Judge George H. Wu separated the trial into liability and damages phases.  The second half of the bifurcated trial will soon commence to determine damages, and ultimately the amount owed by JM Eagle.

JM Eagle, the world’s largest manufacturer of PE and PVC piping, is headquartered in Los Angeles, CA.  Given its preeminence in its field, JM Eagle has supplied considerable amounts of PE and PVC piping to the federal government, as well as, state and local governments throughout the nation.

The qui tam suit, filed under the False Claims Act, was brought by former JE Eagle employee John Hendrix.  Mr. Hendrix formerly worked as an engineer in the company’s product assurance division, located in New Jersey.  Mr. Hendrix claimed that JE Eagle deliberately manufactured and sold substandard piping, which was utilized throughout the country in water and sewer lines to disastrous effect.  The jury agreed with Mr. Hendrix and found JE Eagle knowingly manufactured and sold an inferior, albeit cheaper to produce, product to increase its profit margins.

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.

Senators to Propose Whistleblower Rewards for the Auto Industry

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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.

Behind the Opioid Epidemic

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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 against INSYS Therapeutics, Inc. [1]. 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.

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.

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