Whistleblower Qui Tam Law Blog

On March 2, 2012, the False Claims Act turns 149 years old. For the past 25 years, qui tam lawsuits brought by whistleblowers under the False Claims Act have been the single most effective tool for combating fraud against the government. The False Claims Act owes much of its success - over $30 billion recovered in judgments and settlements since 1986 - to the courage of whistleblowers who not only report fraud to the government, but also provide invaluable assistance in uncovering evidence and explaining highly complex schemes. This remains as true today as it was during post-Civil War reconstruction when the law was passed.

Recently, the Associated Press reported on the status of a new computer system that was launched last summer and is designed to stop Medicare Fraud. Congress expected the system to allow Medicare to stop losing an estimated $60 billion in fraud each year. But by Christmas, the new computer system had prevented just one suspicious payment, which saved taxpayers $7,591.

Medicare officials defended the results achieved by the computer system, stating that suspending payments is only one way of stopping fraud, and that the system has employed other methods as well, including referring cases to investigators and automatically denying suspect claims. According to Medicare, the computer system was designed to prevent Medicare from paying fraudulent claims and to avoid what is sometimes referred to as "pay and chase" - a system where Medicare pays all claims, however suspicious, and reviews its payments after the fact. According to Hank Walther, the former head of the Department of Justice's health care fraud division, "[t]he whole idea for creating this technology was they were going to be able to end pay-and-chase. . . . But we haven't yet seen evidence of its success."

Senator Tom Carper (D-Del), the chairman of a subcommittee that oversees federal financial management, is disappointed with the results of the computer system, which cost $77 million. Senator Carper has called on Medicare to "explain to us clearly that they are implementing the program, that their goals are well-established, reasonable, achievable, and they're making progress." "We're not sure that they've done those things," he added.

Medicare officials stated that screen technology is now being used to evaluate all Medicare inpatient, outpatient and medical-equipment claims before payment. But payment suspensions did not begin until December 2011 - six months after the system was launched.

The contract for the computer system was awarded to Northrup Grumman and a group of other companies, including IBM. Senator Tom Coburn (R-Okla) has questioned whether Northrup has the experience in financial services to lead the project. According to Senator Coburn, "we ought to be seeing savings of $5 billion a month," but "it will be two to three years before we get an effective predictive system."

Continue reading "Whistleblowers Remain Invaluable In The Fight Against Fraud" »

The Federal False Claims Act, formerly known as the Abraham Lincoln Act, was first passed in 1863 in response widespread corruption by defense contractors that were defrauding the Union Army. In 1987, the FCA was amended to provide financial incentives to whistleblowers who expose schemes defrauding the United States government.

Soon, states began to pass their own False Claims Acts to target healthcare fraud. The benefits of enacting state false claims statutes were the subject of a recent article. Over the last decade, more than 20 states have enacted state false claims statutes. These statutes, like the federal False Claims Act, allow states to join lawsuits filed by whistleblowers who expose fraud involving government programs.

Several states have tried - but failed - to pass such acts, including Pennsylvania, Ohio, and Kentucky. The primary criticism of the false claims statutes - on both the federal and state level - has come from the pharmaceutical and medical industries. Incidentally, of the $3 billion recovered by the government under the federal False Claims Act, $2.2 billion has come from fraudulent conduct in the pharmaceutical industry. Other opponents of state legislation fear to the cost-effectiveness of such statutes and emphasize the need to avoid litigation.

Despite these criticisms, state false claims statutes have proved to be instrumental to states in recovering moneys defrauded by unscrupulous corporations. Last May, for example, California announced a $241 million settlement of a False Claims Act lawsuit against Quest Diagnostics for alleged overcharges to the California Medicaid program. California's share of the settlement totaled $171 million.

In another example, New York, with one of the most powerful state FCAs in the country, recently intervened in a whistleblower lawsuit against the Bank of New York Mellon for defrauding investors in foreign exchange transactions. New York Attorney General Eric Schneiderman is seeking nearly $2 billion on behalf of public pension funds and other investors.

Continue reading "State Whistleblower Laws Have Huge Upside" »

Just over a month after agreeing to pay over $22.6 million to resolve allegations of fraud in the procurement of a government contract to provide support services for the National Center for Critical Information Processing and Storage at the Naval Oceanographic Major Shared Resource Center, Science Applications International Corporation ("SAIC") reported that its third-quarter profit has been wiped out by a $232 million charge against earnings relating to allegations of fraud in a contract with New York City.

Several years ago, the City of New York hired SAIC as the prime contractor to develop and implement a time and billing software program called CityTime to track employee time, generate payroll, and manage the City's workforce. At the end of 2005, SAIC had about 150 consultants working on the program. Two years later, that number more than doubled.

The United States Attorney's Office for the Southern District of New York and the City of New York have been investigating the program and have alleged "a massive and elaborate scheme to defraud the city" has corrupted the program. Two former SAIC employees, including the program leader, Gerard Denault, have been charged with conspiring to defraud the City of New York by receiving about $40 million dollars in illegal kickbacks; inflating hourly rates and the number of consultants without City approval; using offshore companies to receive payments as subcontractors and launder money; and delaying the implementation of the program through fraudulent means.

In October, SAIC removed three of its top executives: Deborah Alderson, president of SAIC's defense solutions group; John Lord, her deputy; and Peter Dube, general manager of the enterprise and mission solutions business. It also began an internal review of the program.

On December 6, 2011, SAIC reported a loss of $89 million (27 cents per share) in the quarter ending October 31, 2011, compared to a profit of $173 million (46 cents per share) for the same period in 2010. SAIC issued a statement in which it stated that it "believes that a loss related to the outcome of the CityTime investigations is probable and now estimates that the loss will be at least $232 million," but added that the amount could grow.

To Read the Washington Post article about the fraud, click here.

Fraud in the procurement or performance of government contracts is one of the most fertile areas for False Claims Act litigation. If you have information regarding a government contract fraud, contact Andrew M. Beato, an experienced whistleblower attorney with the law firm of Stein, Mitchell & Muse, LLP in Washington, D.C.

The False Claims Act was enacted in 1863 by Congress and President Abraham Lincoln in response to widespread corruption and fraud by defense contractors during the Civil War. At the time of enactment, the FCA, then known as the "Lincoln Law," made it illegal to present false statements or claims to the United States government for payment to which the claimant is not entitled.

Today, the FCA continues to be an invaluable tool in combating government contractor fraud. The United States government commits billions of dollars of its discretional spending budget to defense contractors. In 2010 alone, Lockheed Martin - which recently agreed to pay $2 million to resolve bid-rigging allegations - earned over $16.7 billion in revenue from government contracts.

Procurement fraud is not limited to large defense contractors. The United States contracts with third parties in a number of areas, including historical and environmental preservation. For example, Katherine Knapp brought a qui tam lawsuit under the False Claims Act against Calibre Systems, Inc., a government contractor providing environmental and archaeological services at the Ft. Irwin National Training Center.

Knapp is a former employee of Calibre Systems and worked at the Ft. Irwin site as an Analyst member of the Environmental Program Management Directorate. She alleged FCA claims under the false certification and worthless services theories of liability.

Continue reading "Procurement Fraud Is Not Limited to Defense Contractors " »

The government relies on whistleblowers to uncover fraud in the procurement or performance of defense contracts. Some common schemes include bid-rigging, overcharging and overbilling, failing to follow contract specifications, use of inferior products, and making false statements regarding the cost of a project.

On September 29, 2011, the Department of Justice announced that Science Applications International Inc. (SAIC), Applied Enterprise Solutions (AES), and numerous individuals have agreed to pay over $22.6 million to settle a False Claims Act lawsuit alleging bid-rigging in the procurement of a Government Services Administration (GSA) contract.

In April 2004, the GSA awarded a $3.2 billion task order to SAIC to provide support services for the National Center for Critical Information Processing and Storage (NCCIPS) at the Naval Oceanographic Major Shared Resource Center (NAVO MSRC). SAIC teamed with Lockheed Martin and AES to perform work under the task order. For its part, SAIC was paid a total of $116 million under the contract.

In June 2009, David Magee, a former supercomputer specialist with NAVO MSRC, filed a qui tam lawsuit, United States ex rel. Magee v. Lockheed Martin et al., 1:09 cv 324 HSO (JMR), in the Southern District of Mississippi, alleging that defendants knowingly submitted, or caused to be submitted, false claims to the United States through their bid-rigging activities designed to procure the task order. Specifically, Magee alleged that prior to the issuance, and once the NCCIPS solicitation had been publicized, two individual defendants (then government employees) conspired with SAIC, AES, the AES CEO, and Lockheed Martin to ensure that SAIC and its partners were awarded the task order by, for example, sharing non-public, advance procurement information with the SAIC team that was not provided to the other bidders; sharing information about the solicitation with the SAIC team before providing that information to other bidders; and choosing a type of contract and putting language in the solicitation order to bias the selection process in favor of the SAIC team.

Continue reading "SAIC and Other Defense Contractors Pay Over to $22.6 Million to Settle False Claims Act Allegations " »