VMware settles Best Price Whistleblower Suit for $75.5 Million

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The Department of Justice has settled a False Claims Act case against VMware for $75.5 million. The lawsuit, initiated by a whistleblower, contained allegations that the company concealed its commercial pricing practices and overcharged the U.S. Government on products and services sold pursuant to the GSA Multiple Award Schedule contract entered into by VMWare and Carahsoft Technology Corporation.

The U.S. Government requires contractors to disclose the prices and discounts offered to commercial customers in order to ensure that government agencies are getting the supplier’s best price. The GSA regulations specify that prospective vendors applying for a MAS contract make After negotiation of the price(s) and establishment of the government contract, contractors must subsequently inform the government of changes to their pricing practices or discounts for commercial customers.

If they do not make accurate disclosures, the submission of claims for payment under the contracts can overcharge the federal government and violate the False Claims Act. In this case, the settlement resolved the allegations without a determination of liability.

The U.S. Government spends more than $80 billion a year on information technology currently. It is divided between civilian and defense spending, with civilian agency spending accounting for approximately $48 billion a year. With growing spending in this area, it seems like there is more False Claims Act litigation as well. Last summer, the Government intervened in another best price case brought by a whistleblower against CA Technologies.

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GM Ignition Switch Fine to Top $1.2 Billion

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The Department of Justice is expected to fine General Motors more than $1.2 billion in connection with its delayed recall of automobiles with faulty ignition switches. The DOJ is still considering whether to require a guilty plea to criminal charges or offer a deferred prosecution agreement. This includes a possible charge of criminal wire fraud for misleading statements and the concealment of the defect.

The amount of the fine may still change. Wall Street analysts have speculated that the fine may exceed $2 billion. GM has already paid a fine of $35 million, the maximum the auto regulator is currently allowed to penalize a company for these types of cases, to the National Highway Traffic Safety Administration. Federal prosecutors are hoping to resolve the matter by early fall.

The total number of deaths from defective ignition switches in GM vehicles is now 111, since two more claims were approved by the compensation fund last week. GM has also approved claims for 12 serious injuries and 179 other injuries. 191 claims are still being reviewed. The total cost of compensating victims is estimated at around $550 million. The deadline for submission was January 31st.

In March 2014, Toyota Motors was fined $1.2 billion by the Justice Department for misleading consumers about the unintended acceleration of its vehicles through deceptive public statements. This was the largest criminal fine ever levied against an automaker by the United States. Toyota initially blamed acceleration issues on floor mats becoming stuck under gas pedals as well as driver error. Toyota also entered into a deferred prosecution agreement with the Government.

Two internal reports from the Transportation Department have also identified mistakes made by the NHTSA. The agency reportedly missed clues about the defect and is revising its procedures in response to the reports. President Obama is also seeking to provide the NHTSA additional funding and lift the maximum cap on penalties issued by the agency.

The Senate has already passed the Motor Vehicle Safety Whistleblower Act sponsored by Senators Thune and Nelson to provide monetary incentives to auto whistleblowers employed by car manufacturers, dealers and part suppliers about delayed recalls and other violations of federal law. The House has yet to act on the proposals for auto safety legislation made in light of the recalls by Toyota, GM, and Takata.

To learn more about the proposed bill, contact one of our whistleblower attorneys via our contact form or by calling 1-800-590-4116.

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Spring 2016 Update:

The Thune-Nelson proposal was signed into law by President Obama as part of the FAST Act in December 2015. For additional information, please visit our page dedicated to auto whistleblowers.

Medtronic Settles With IRS Over Overseas Cash in Kyphon Acquisition for $330 Million

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Medtronic, a medical device company, has just settled a tax dispute with the Internal Revenue Service over the repatriation of overseas cash for its 2007 acquisition of Kyphon for $330 million. Medtronic used a mix of U.S. and overseas cash in order to pay for the $4.2 billion acquisition.

The dispute arose over the amount of the repatriated $3.3 billion in overseas cash that would be taxable. Taxation of cash generated outside the United States has become an issue because of the large amount of cash that some corporations have acquired through overseas operations. If they bring that cash back into the US, they will have to pay tax on it here, minus the amount that they paid overseas. Lawmakers have discussed a variety of measures to encourage corporations to repatriate their cash located outside the United States and bring it into the country.

Medtronic agreed to pay $275 million to settle the allegations and another $54 million in interest. The company’s settlement does not resolve its dispute with the IRS over transfer pricing that arose from transactions in 2005 and 2006.

If you have questions about this or another aspect of the IRS whistleblower program, feel free to contact one of our IRS whistleblower attorneys via our contact form or by calling 1-800-590-4116.  Our law firm offers a free, confidential initial legal consultation with a lawyer for whistleblowers.

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Merrill Fined $11 Million for Hard to Borrow Short Sales

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The SEC has announced an agreement with Merrill Lynch to resolve charges that it violated Regulation SHO because its trade execution platforms used outdated easy to borrow lists in the short sale of securities. Merrill did not update its hard to borrow lists used by these computer programs during the business day, resulting in the use of data that was more than 24 hours old. Even when Merrill learned that a stock’s supply was restricted and its brokers updated their lists, it continued to allow trades by its customers in stocks through these programs as if they were easy to borrow.

The short sale of a stock, for those that aren’t familiar with the process, involves selling shares in stock that you do not own. The shares are borrowed from their actual owner and provided to the purchaser. The person who has sold short plans to buy them back in the market later and provide them to the owner who allowed his or her shares to be borrowed rather than the purchaser, who remains in possession of the owner’s original shares.

Normally, the borrowing happens behind the scenes at the clearing firm. But clearing firms are required to hold a percentage of their shares back from lending in case an actual owner wants to sell their shares. If too many of the shares in a stock have already been borrowed for short sale, then the stock may become hard to borrow. This typically requires the clearing company to find additional shares to borrow before a customer can sell them short.

Merrill’s trade platforms executed sales of 2.3 million shares of stock when it did not have sufficient securities in reserve to allow them to be borrowed. In the settlement with the SEC, Merrill admitted wrongdoing and agreed to pay $9 million in a civil penalty, a $1.6 million disgorgement and prejudgment interest.

The conduct at issue took place from 2008 to 2014. Merrill Lynch is a subsidiary of Bank of America.

If you have evidence of corporate wrongdoing similar to this conduct, contact one of our SEC whistleblower lawyers to discuss your options under the incentive program created by the Dodd-Frank Act. An attorney can be reached by our contact form or by phone at 1-800-590-4116.

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For ISDAfix Manipulation, CFTC Fines Barclays $115 Million

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Barclays has agreed to pay the CFTC $115 million to resolve its investigation into manipulation of the benchmark interest rate known as the ISDAfix. The misconduct occurred between 2007 and 2012, when U.S. traders attempted to manipulate the rate to favor their positions.

The announcement came in conjunction with the DOJ’s multi-billion dollar settlement of its criminal investigation into currency manipulation by banks.

Barclays was one of the panel banks submitting information to the U.S. ISDAfix rate. The bank tried to move the rate during the time period when it is calculated, according to the CFTC.

The ISDAfix is used for calculations of the costs on real estate loans and for payouts on pension funds. The process of determining the rate has since been changed. However, a group of other financial institutions that were involved in the process in the past are also under investigation by government authorities.

This is the first settlement that we know of related to the ISDAfix, which we have discussed before on our blog.  We haven’t seen any reports yet that there is an ISDAfix whistleblower.

Our CFTC whistleblower attorneys can assist you with answers to questions about this information as well as assistance reporting violations of the Commodity Exchange Act to the U.S. Government. To speak to an attorney, fill out our contact form or call 1-800-590-4116.

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Banks Pay $2.5 Billion, Plead Guilty in FX Spot Market Manipulation Settlement

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Citicorp, JPMorgan, Barclays, and The Royal Bank of Scotland (RBS) have agreed to plead guilty to felony charges and pay criminal fines of more than $2.5 billion in connection with the Justice Department’s investigation into manipulation of the foreign currency exchange (FX) spot market.

UBS, the fifth bank in the settlement, agreed to plead guilty to LIBOR manipulation and pay a $203 million criminal penalty for breaching the non-prosecution agreement it entered into with the U.S. Government in December 2012.

The other DOJ fines broken down by bank:

  • Citigroup $925 million;
  • Barclays: $650 million;
  • JPMorgan: $550 million;
  • RBS: $395 million fine; and
  • UBS will pay $203 million.

Barclays will pay an extra $1.3 billion to other regulatory authorities, including the New York Department of Financial Services, the Commodity Futures Trading Commission and the U.K. Financial Conduct Authority.  The CFTC settlement involved its investigation into ISDAfix rate manipulation.

The Federal Reserve also imposed fines of more than $1.8 billion on the five banks.  The fines are among the largest the Federal Reserve has ever assessed.  These fines include:

  • UBS AG: $342 million;
  • Barclays: $342 million;
  • Citigroup: $342 million;
  • JPMorgan Chase: $342 million;
  • RBS: $274 million;
  • Bank of America: $205 million.

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Massive Currency Manipulation Settlement Expected Wednesday

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The Justice Department is expected to announce a multi-billion dollar settlement this week (reportedly Wednesday) with five financial institutions over manipulation of the currency market. Barclays, which was not a part of the November global forex settlement, is expected to also resolve investigations by the CFTC, NY DFS and UK FCA at the same time for a sum that may be as high as $3.1 billion.

The Department of Justice has been investigating the banks for antitrust violations related to their rigging of the forex markets. Traders at the banks reportedly used electronic chat rooms to manipulate the markets and foreign exchange benchmark rates.

JPMorgan, Royal Bank of Scotland, Citigroup and UBS are expected to settle in addition to Barclays. UBS is still talking with the DOJ about possible criminal charges, but subsidiaries of the other four banks are expected to plead guilty to criminal charges. The banks are expected to pay as much as $1 billion each as part of the DOJ settlement. The media is reporting that the DOJ is pushing for a Wednesday announcement but wrapping up all of the loose ends on the agreements might take another day or two.

JPM, RBS, Citi and UBS were all part of the November settlement which resolved investigations by the CFTC, OCC and UK FCA, but not the DOJ. That deal provided them with a discount for early settlement of the charges. According to the media, Barclays backed out of the deal in November because it could not reach agreement with the New York Department of Financial Services as well. This agreement will reportedly carve out the NYDFS investigation into its use of electronic trading programs to manipulate the forex market to allow that aspect to go forward.

Citigroup also announced today that the DOJ had declined to prosecute it for LIBOR rigging. Including the Deutsche Bank fines last month, a dozen financial institutions have paid a total of about $9 billion to resolve investigations into Libor manipulation.

The deadline for submitting a whistleblower claim on most of the first set of Notices of Covered Actions has passed, with only Citibank still open for a few more days. If there was a forex whistleblower behind any of these actions, the award would likely set a record for the Dodd-Frank whistleblower programs. The highest reward handed out so far was by the SEC – $30 million to an international whistleblower last year.

For questions about this and other aspects of the CFTC whistleblower program, as well as assistance reporting violations of the Commodity Exchange Act to the U.S Government, contact one of our whistleblower attorneys via our contact form or by calling 1-800-590-4116.

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Record Breaking Settlement of Declined False Claims Act Lawsuit

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DaVita Healthcare Partners agreed to pay up to $495 million to settle a False Claims Act lawsuit brought by two whistleblowers, a doctor and a nurse, that worked at DaVita. It is the largest settlement ever in a case where the Department of Justice chose to decline intervention. The company has now agreed to pay nearly $1 billion to settle allegations of Medicare and Medicaid fraud since 2012.

DaVita provides dialysis services to patients with chronic kidney failure and end stage renal disease.  The lawsuit concerned allegations that DaVita wasted medicine in vials and billed Medicare for it. The CDC since 2002 has allowed the reuse of single-use vials in the drugs at issue if proper procedures are followed. The company billed Medicare for the unused portions of the drugs which it discarded.

What is a declined case? The government, after conducting an investigation on the merits of the litigation, generally intervenes and takes over prosecution of the civil claims in around 20 percent of cases brought under the False Claims Act. The rest of the whistleblowers receive a declination letter from the Department of Justice which informs the relator (as a whistleblower under the FCA is known) that they may continue the lawsuit on the government’s behalf (this is what is meant by qui tam, which you may often see in this context).

There have only been five years in the history of the False Claims Act where non-intervened cases reached settlements or judgments exceeding $100 million. Looking at the statistics since 1987, none of the annual totals of these cases exceeded $200 million.

In the past, relatively few non-intervened cases reached a successful settlement or judgment. Some whistleblowers evaluate the situation and decide that they are not interested in prosecuting it themselves if the government isn’t interested in vindicating the fraud against them. However, the success ratio may be improving as more law firms have decided to take these cases and run with them against the large corporations that they challenge.

When False Claims Act cases like these settle, the whistleblowers who file them typically get between 15 and 30 percent of the settlement. The law mandates these percentages, but there are few situations where the amount paid could be less than the minimum award. However, the Department of Justice, on behalf of the U.S. Government, investigated the relator’s claims and declined to intervene in it. In a declined case, the mandated percentage by the law is between 25 and 30 percent.

If you have additional questions about how these lawsuits worker, or have evidence of misconduct by a company which you wish to report, contact one of our Philadelphia FCA attorneys.

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Truth in Settlements Act Pushes for Fraud Disclosures.

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Senators Elizabeth Warren and James Lankford have introduced the Truth in Settlements Act into Congress. The legislation requires companies and federal agencies to disclose additional information about settlements exceeding $1 million.

It is aimed at giving the American public a better idea of the costs businesses are paying for corporate wrongdoing and whether our regulators are effectively punishing these companies. A summary on Senator Warren’s website highlights a number of aspects of the legislation, including:

  • Federal agencies would have to explain the classification of settlement payments for tax purposes and credits for routine conduct.
  • Companies would have to disclose tax deductions from settlement payments in SEC filings.
  • Requires copies of settlements to be posted online as well as key details disclosed.
  • Explanations for confidential settlements and aggregate annual statistics on those settlements.
  • Commissions a GAO study on handling confidential settlements.

These summaries were pulled from what I imagine is the version of the legislation introduced into Congress last year.  If you agree that greater information about settlements entered into between companies and the Federal Government is a good idea, please write to your Congressional representatives!

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DOJ Targets Swiss Banks for Offshore Tax Evasion

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More deals between the Department of Justice and Swiss banks can be expected to resolve offshore tax evasion investigations before the end of the year, according to a report by Reuters.

In 2013, the Department of Justice offered to avoid criminal charges if Swiss banks came forward about their cross-border business involving U.S. account holders. BSI SA was the first bank to reach a deal with the Justice Department, agreeing to pay a $211 million penalty.

About a 100 Swiss banks signed up for the program before the deadline in December 2013. Although some have withdrawn their participation in the program, the Justice Department is hopeful that agreements will be reached with the other banks by the end of the year. The initial deadline for reaching deals with the banks was September 2014.

A significant number of them are expected to have a penalty smaller than the one paid by BSI. BSI helped thousands of clients hide assets from authorities for decades. The penalty is based on the value of assets in U.S. related counts, with higher penalties applying to accounts opened after the U.S. said it would pursue offshore banks for tax evasion in August 2008. BSI had 3,500 U.S. client accounts with $2.78 billion under management at its peak.

The program is not available to banks which were already the subject of criminal investigations. The Justice Department is investigating a dozen banks that were not eligible for program.

A whistleblower tip on offshore tax evasion by Bradley Birkenfeld led to a payment of more than $100 million under the IRS whistleblower program a few years ago. Birkenfeld’s report on UBS for helping U.S. clients use Swiss bank accounts to hide their assets from the Internal Revenue Service led to a fine of $780 million.

The U.S. has continued its pursuit since the UBS investigation. Last year, Credit Suisse paid $2.6 billion and plead guilty to one county of conspiring to aid tax evasion in order to resolve the allegations against the ban.

The United States is not the only country going after international tax fraud right now. France is currently pursuing HSBC in a criminal investigation for tax evasion and last week was ordered to provide bail of $1.1 billion (1 billion euros). Whistleblower Herve Falciani provided details about HSBC bank’s client accounts which he acquired as a former IT employee at the from in 2008. UBS, which has previously settled with the U.S. and Germany, has previously been required to post a $1.37 billion bond as a down payment on potential penalties from a French criminal investigation.

Tax evasion at HSBC has proven controversial for President Obama’s Attorney General nominee, Loretta Lynch. Lynch was part of a 2012 deal negotiating a resolution of the HSBC money laundering investigation. She has insisted that the deal does not protect the bank from tax evasion charges. An unnamed U.S. official told The Guardian that the U.S. is considering a criminal indictment of the bank.

If you have questions about this, feel free to contact one of our tax whistleblower lawyers via our contact form or by calling 1-800-590-4116.  Our law firm offers a free, confidential initial legal consultation with a lawyer for whistleblowers.

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