October 20, 2009–California Attorney General Jerry Brown announced his intervention in a California state qui tam lawsuit against State Street Bank today. The original complaint was filed under seal by a qui tam relator and his counsel roughly one year ago in the Superior Court for the City of Sacramento.
For those of you new to the qui tam litigation framework, a qui tam relator and his or her attorney file a complaint under seal, and serve it first only on the government. In federal qui tam cases, the Attorney General of the United States is served, along with the local U.S. Attorney. The government then has a period of time to investigate and decide to do one of three things: (1) whether to take control over the case entirely; (2) whether they want to allow the qui tam relator to handle the case herself with the government playing a more passive role; or (3) the government can move to dismiss if it thinks the complaint is not well-grounded.
“Over a period of eight years, State Street bankers committed unconscionable fraud by misappropriating millions of dollars that rightfully belonged to California’s public pension funds,” Brown said. “This is just the latest example of how clever financial traders violate laws and rip off the public trust.”
You can read the full complaint in intervention below, and I have also embedded a link to a California newspaper.
California Files Suit Against State Street–Claims Bankers Engaged in Massive Fraud
Everyone seems to focus on the treble damages, civil penalties, and attorney’s fees…
For understandable reasons, people tend to focus on the treble damages, civil penalties, and attorney’s fees provided for in the federal False Claims Act and in the 26 states with false claims acts. Today, I want to talk about one of the least emphasized–but most important–benefits that accrues to the public fisc as a result of increased false claims prosecutions.
I am talking about the increase in compliance with the law that follows well-publicized and effective false claims prosecutions, and I will demonstrate with a concrete example from my home state of Virginia.
In 2007 and 2008, I /files/116785-109034/signed_order_issue_summons.pdf”>non-intervened state qui tam action under the Virginia Fraud Against Taxpayers Act. The case involved a federal credit union’s (alleged) failure to deliver unclaimed property to the Virginia Treasury. After the case’s successful resolution in late 2008, there was a fair amount of
The chart clearly shows Virginia’s unclaimed property recoveries holding pretty steady from 2003 through 2008; on average, between $65 and $80 million dollars in unclaimed property escheats to the Virginia Treasury each year during that time span.
Now look at the first three quarters of FY 2009–unclaimed property recoveries jumped to more than $120,000,000 in the wake of the publicity surrounding the Siddiqui case. To be fair, a sizable chunk of this arose from the Siddiqui case itself–as part of the settlement of the qui tam case, the Virginia Treasury obtained the right to conduct an audit and declare any property as unclaimed that it desired.
Still, there can be no doubt that increased compliance with the law is one of the most important goals of increased FCA enforcement. While increased compliance with the law does benefit the treasury, that is not the most important benefit–indeed, we could even live without that.
I firmly believe that the more important result of increased compliance is that indicates an increased respect for the law in general and for government institutions in particular–and that, ladies and gentlemen, is something we could not live without.
In Pursuit of a Maryland False Claims Act
The current edition of the Maryland Bar Bulletin sports an article by yours truly on the topic of a Maryland False Claims Act. I strongly believe that 2010 will be the year–so stay tuned…
North Carolina Joins the Deficit Reduction Club With a Bang
My apologies for missing this last week, but on August 28, 2009, North Carolina Governor Beverly Perdue signed the North Carolina False Claims Act into law, making North Carolina, by my count, the 26th state to pass a state false claims act. Congratulations to all those who worked so hard to pass this legislation.
But that is not all–North Carolina added her own twist to this historic occasion. Namely, to the best of my knowledge, North Carolina became the first state to pass a state false claims act with liability provisions identical to the new federal False Claims Act. I invite anyone to correct me if I am wrong.
The North Carolina Department of Justice, of course, immediately faces the same difficult situation faced by many states to enact a state false claims act. Starting December 1, 2009, North Carolina Attorney General Roy Cooper will have this fantastic new weapon in his arsenal, but he will have no one in his office with experience using the statute in contexts other than health care. Even worse, given the current economic climate, General Cooper will probably not have the funds necessary to hire new staff to get the North Carolina False Claims Act off the ground.
If I could offer two pieces of unsolicited advice to General Cooper, I would tell him the following: first, please do not view the North Carolina False Claims Act as just a whistleblower statute. Rather, see it for what it is–the single most important affirmative civil enforcement tool any Attorney General has ever had. General Cooper, this is a means to protect the public fisc.
To that end, my second piece of advice would be that you not sit back and wait for the whistleblowers to come to you. You should bring in outside counsel to represent the state and bring affirmative civil enforcement claims on behalf of the state. The right outside counsel will be wiling to work with you to identify existing claims on behalf of the state; once these claims are identified, the same outside counsel can prosecute those claims on behalf of the state.
Such representation could be done on a contingency-fee basis, and thus would not cost North Carolina anything at all–it would literally be found money. And by the way, some of that found money could be set aside to hire permanent staff once the ball gets rolling.
It is important to bring in outside counsel, because attorneys with experience in state false claims act prosecutions know where the hot spots for false claims are located, and we know where the taxpayer’s hard earned dollars are being lost. Outside counsel with state false claims act experience can use that experience to identify claims that North Carolina is more or less certain to have.
In addition to generating money, the attorneys in the North Carolina Department of Justice would get a first-hand chance to work with experienced FCA lawyers, and to see how state prosecutions work.
There are many types of false claims act claims that are specific to states, and there is no reason to delay–North Carolina should retain outside counsel and start recovering its money on December 1, 2009; there is simply no reason to wait.
Announcing the Largest Federal Qui Tam/False Claims Act Settlement in History–and Virginia’s Share
Today, the United States Department of Justice announced the largest qui tam/False Claims Act settlement in history–all totaled, Phizer will pay $2.3 billion to settle civil and criminal allegations that it committed a wide variety of fraud with regard to a number of its drugs.
Less than half of this total amount (about $1 billion) is for allegations related to the federal False Claims Act. The company will pay a criminal fine of $1.195 billion, the largest criminal fine ever imposed in the United States. Pharmacia & Upjohn will also forfeit $105 million, for a total criminal resolution of $1.3 billion.
Among other allegations, Phizer (along with a number of its subsidiaries) are alleged to have misbranded the drug Bextra with the intent to defraud or mislead. Bextra is an anti-inflammatory that Phizer pulled from the market in 2005.
Under the provisions of the Food, Drug and Cosmetic Act, a company must specify the intended uses of a product in its new drug application to FDA. Once approved, the drug may not be marketed or promoted for so-called “off-label” uses – i.e., any use not specified in an application and approved by FDA. Pfizer promoted the sale of Bextra for several uses and dosages that the FDA specifically declined to approve due to safety concerns.
The settlement is between the United States and a number of states, including Virginia, which will received $12 million according toVirginia Attorney General Bill Mims.
A total six whistleblowers (or qui tam relators) filed lawsuits under the federal False Claims Act and various state false claims acts, triggering the investigations that led to this settlement. As their statutory share, the six individuals will share more than $102 million in relator’s fees.
This case is another fine example of excellent teamwork between the private sector (i.e., the private qui tam lawyers who represented the six individual relators), numerous state Attorney Generals, the United States Department of Justice, and the U.S. Attorneys for the District of Massachusetts, Eastern District of Kentucky, and the Eastern District of Pennsylvania.
Congratulations to everyone who contributed to this fine job. Nationwide, the pace of false claims act recoveries is picking up speed–the old record for the largest qui tam recovery in history (the amount was over $1 billion) lasted less than four months. In Virginia, our Medicaid Fraud Control Unit has done a fine job of prosecuting these claims to the fullest extent of the law; we can only hope that the next Attorney General of Virginia will pick up the pace on non-health care civil prosecutions under the Virginia Fraud Against Taxpayers Act.
Fighting fraud should be bipartisan in California
Just in from California is this article from Capitol Weekly: the Newspaper of California Government and Politics in which California state Rep. Bob Blumenfield opines on California’s struggle to update its state false claims act.
As has been discussed on this blog many times, on May 20th of this year the federal False Claims Act was amended and, as a result, became a much more formidable tool in the fight against fraud waste and abuse of federal money. To my knowledge, however, no state government has yet updated its false claims acts to match the new federal statute, as California is trying to do. Largely, I hope, this is a result of the federal FCA amendments being signed into law after the close of most states’ legislative sessions.
I find it truly amazing that anyone in California’s state government would push back on amending the California False Claims Act. Over the last ten years, California has recovered, on average, more than $30 million per year with its FCA.
State Rep. Blumenfield also points out the bi-partisanship that exists at the federal level for FCA-related issues: for example, the amended False Claims Act passed 92-4 in the U.S. Senate and 367-59 in the House of Representatives. The bill was co-authored by Congressman Howard Berman (D-CA) and Senator Charles Grassley (R-IA).
The ACLU’s Ill-Advised Publicity Stunt Comes to an End
Today, Judge O’Grady issued his previously posted a copy of Taxpayers Against Fraud’s amicus brief supporting the Department of Justice’s position.
Plaintiffs brought three distinct challenges to the seal provisions of the FCA. First, they argued that the seal provisions are facially unconstitutional because the seal denies access to information of paramount public interest. Second, the ACLU argued that the seal provisions of the FCA are content-based restrictions that “gag” relators from speaking about the case. Third, the ACLU argued that the seal provisions infringe on a district court’s inherent authority to decide on a case by case basis whether a particular FCA case should be sealed; the ACLU argued that this is a violation of the separation of powers doctrine.
In his well-reasoned opinion, Judge O’Grady dismisses these frivolous claims. He also cites the amicus brief filed by Taxpayers Against Fraud in a footnote.
Special thanks go to Jeb White, Cleveland Lawrence, and Thea Cohen from Taxpayers Against Fraud and J. Marc Vezina of Vezina & Gattuso for their work on the amicus brief.
Oregon Joins the Deficit Reduction Club
Congratulations to Oregon for becoming the 25th state to join the Deficit Reduction Club by passing a state false claims act.
There is no need to speculate about the benefits Oregon will receive from this common-sense legislation–we have the examples of Virginia and 24 other states to guide us.
The Virginia Fraud Against Taxpayers Act became law on July 1, 2003. That same year, Virginia recovered $11.8 million in civil penalties and treble damages from dishonest healthcare providers. In FY06-07, by way of contrast, Virginia recovered $117 million, and for FY 07-08 Virginia recovered more than $450 million from dishonest healthcare providers.
The First Shots in the Battle Over the Retroactivity Provisions of the New False Claims Act
As previously discussed on this blog, /files/116785-109034/Doc__718_Statement_of_Interest.pdf”>filed its statement of interest in support of the relator in Allison Engine.
More battles are on the horizon–among the most interesting will be the battle concerning retention of overpayments. More on that to follow.
This sure explains a few things….
Having followed Maryland’s battle to enact a Maryland False Claims Act, I can’t help but point out this article from the Washington Post.
It seems former Maryland Republican Party Chairman John Kane has been nailed under the federal False Claims Act. The allegations are that Kane’s company, and its subsidiaries (including Office Movers, Inc. and Office Installers, Inc.) fed exclusively off of federal and state government contracts, but failed to pay their employees the wages required under federal law.
Despite the failure to pay employees the wages required by law, Kane and his companies repeatedly certified that they were paying the required wages to their employees. In fact, they would not have obtained most of these contracts if they had told the truth about their compensation practices.
Here is yet another wake-up call for Maryland to pass a Maryland False Claims Act–Kane and his companies also obtained more than $2 million worth of Maryland state government contracts, and no doubt they committed the same violations of the law with regards to the state contracts. Yet Maryland will not recoup even a single dollar of the state money, because there is no Maryland False Claims Act.
What a shame, on many different levels.