Whistleblower Law Blog

SEC Chairman Says Whistleblower Program Yielding Significant Benefits, Calls Proposed Changes Premature

December 22, 2011

According to Securities and Exchange Commission (SEC) Chairman Mary Schapiro, the SEC’s new whistleblower program is already providing “significant benefits” one year after the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

In a letter sent to Rep. Barney Frank (D-MA), co-author of Dodd-Frank, SEC Chairman Schapiro argued that recent calls to change the whistleblower law “before it has had an opportunity to demonstrate its full value seem premature, particularly in the absence of any evidence of problems with the current program.”

Chairman Schapiro’s letter came in advance of last week’s move by the House Financial Services Subcommittee on Capital Markets and Government Sponsored Enterprises to approve an amendment to Dodd-Frank.  The bill, H.R. 2483,  also known as the “Whistleblower Improvement Act of 2011”, is sponsored by Rep. Michael Grimm (R-NY) and would require potential whistleblowers first to report wrongdoing internally to employers prior to notifying the government in order to be eligible for a whistleblower award. The bill would wave this requirement in the event that the SEC determines that there is evidence that management of a company may have participated in wrongdoing or fraud. The full House Committee on Financial Services is yet to vote on the proposed legislation.

Chairman Schapiro noted in her letter that mandating internal reporting of suspected wrongdoing would likely “have a chilling effect” on whistleblowers and that the current program already allows whistleblowers to collect an award if they report information internally first.  Those whistleblowers are still eligible for an award even if the company self-reports the same information to the SEC and that information leads to a successful SEC enforcement action against that company.

The proposed changes to Dodd-Frank may progress further in the House, but Senate passage is unlikely as a majority of members are expected to oppose efforts to make such changes to the Dodd-Frank Act whistleblower provisions.

Tax Court Protects Identity of IRS Whistleblower

December 21, 2011

On December 8, 2011, the United States Tax Court issued an opinion in Whistleblower v. Commissioner of Internal Revenue granting an IRS whistleblower’s motion for a protective order permitting the whistleblower to maintain his or her anonymity.  The court stated:

We conclude that granting [the whistleblower’s] request for anonymity strikes a reasonable balance between [the whistlebower’s] privacy interests as a confidential informant and the relevant social interest, taking into account the nature and severity of the asserted harm from revealing [the whistleblower’s] identity and relatively weak public interest in knowing [the whistleblower’s] identity.

The U.S. Tax Court also discussed the long history of granting anonymity to whistleblowers, including the Second Circuit’s discussion of the informer anonymity privilege in Socialist Workers Party v. Attorney General (In re United States) as:

… an ancient doctrine with its roots in the English common law, founded upon the proposition that an informer may well suffer adverse effects from the disclosure of his identity.  Illustrations of how physical harm may befall one who informs can be found in the reported cases.  However, the likelihood of physical reprisal is not a prerequisite to the invocation of the privilege.  Often, retaliation may be expected to take more subtle forms such as economic duress, blacklisting or social ostracism.  The possibility that reprisals of some sort may occur constitutes nonetheless a strong deterrent to the wholehearted cooperation of the citizenry which is a requisite of effective law enforcement.

Courts have long recognized, therefore, that, to insure cooperation, the fear of reprisal must be removed and the most effective protection from retaliation is the anonymity of the informer.

Internal quotations and citations omitted.  In the Tax Court’s first decision regarding anonymous whistleblower claims, the court ruled in favor of the anonymous whistleblower and established an important  precedent for those future whistleblowers who expose their employer’s tax fraud.

Related articles

• Tax Court Protects Anonymity of Whistleblower 14106-10W (forbes.com)
• Study Finds That Three-Quarter of Americans Would Blow the Whistle on Wrongdoing in the Workplace (employmentlawgroupblog.com)
• SEC Reports 334 Whistleblower Tips and 170 Enforcement Orders in First Seven Weeks of Whistleblower Award Program (employmentlawgroupblog.com)
• IRS Wants You To Report Abusive Tax Promotions Or Preparers (forbes.com)

Department of Justice Recovers Record-Setting $3 Billion in False Claims Act Settlements in 2011

December 21, 2011

On Monday, the Department of Justice (DOJ) announced that it collected more than $3 billion in judgments and settlements of fraud cases under the False Claims Act (FCA) for fiscal year 2011. This marks the second consecutive year in which the DOJ exceeded $3 billion in recoveries and brings the total recovered since 2009 to $8.7 billion – the largest ever three-year total.

Of the $3 billion recovered during fiscal year 2011, a record $2.8 billion was recovered under the whistleblower, or qui tam, provisions of the FCA which allow individuals to file lawsuits on behalf of the government and, as an incentive, offers whistleblowers a portion of the amount recovered. $2.4 billion of the amount recovered for fiscal year 2011 involved fraud against federal healthcare programs such as Medicaid, Medicare, and the Department of Defense’s TRICARE program.

Assistant Attorney General Tony West offered his praise for whistleblowers who have come forward to report fraud, saying “we are tremendously grateful to whistleblowers who have brought fraud allegations to the government’s attention and assisted us in this public-private partnership to fight fraud.”

In 1986, the FCA was amended to increase the incentives offered to whistleblowers. According to Sen. Chuck Grassley (R-IA), a co-sponsor of the amendments, the FCA has “[proven] to be the most powerful tool in rooting out fraud against the federal treasury.”

“The whistleblowers who bring these cases to light know the secrets hidden by those who are ripping off federal taxpayers,” he added. Since the 1986 amendments, the DOJ has successfully recovered more than $30 billion.

Medtronic Pays $23.5M to Settle Kickback Allegations

December 21, 2011

Last week, Medtronic Inc., the world’s largest manufacturer of medical devices, agreed to pay $23.5 million to settle two lawsuits alleging that the company paid kickbacks to doctors in an effort to encourage them to implant Medtronic pacemakers and defibrillators in their patients.

The Department of Justice alleged that Medtronic paid physicians between $1000 and $2000 for every patient implanted with a Medtronic defibrillator or pacemaker as a part of post-market studies designed to assess the performance of medical devices after approval by the Food and Drug Administration (FDA). According to the allegations, Medtronic solicited physicians for the studies to encourage them to use the company’s devices which, in turn, caused false claims to be submitted to Medicaid and Medicare.

The settlement resolves two whistleblower lawsuits pending in California and Minnesota which were brought under the qui tam provisions of the False Claims Act.  As part of the settlement, the whistleblowers will receive a portion of the federal government’s share of the recovery totaling more than $3.96 million.

According to Benjamin Wagner, U.S. Attorney for the Eastern District of California, the “settlement highlights one of the key purposes of the Anti-Kickback law – to ensure that the judgment exercised by healthcare providers in treating Medicare and Medicaid patients is not influenced by unlawful payments.”

Medtronic denied any wrongdoing in settling the lawsuit, saying that the settlement is not an admission that any of the studies it sponsored were improper or unlawful.

Medtronic is facing another probe by the Department of Justice and U.S. Senate over concerns that physicians paid by the company may have failed to report side effects of one of its products, Infuse, which is a medical device used in spinal surgery.

Whistleblower Alleges That Contractors Cut Corners at Marlins Stadium

December 20, 2011

Roy Fastabend, a welder and inspector, alleges that he was fired after reporting that in order to save time and money, a subcontractor cut corners in the construction of the new stadium that will be home to the Florida Marlins.  Fastabend claims to have witnessed  Mike Garcia, a fellow inspector , routinely ignoring engineering specifications and falsifying records, signing off on welds that were never examined.

When Miami-Dade County Inspector General (IG), Chris Mazzella, learned of Fastabend’s complaints, the IG sent the Marlins a letter asking detailed questions about the welding done in the ballpark. The Marlins general contractor, Hunt/Moss, reported that after receiving the Inspector General’s letter, it had many parts of the stadium redone or replaced .  Miami-Dade County then had its engineer of record sign off on the final inspection.

“If people knew what was going on there or how they did things, I mean, I won’t go to that stadium… I won’t take my kids into that place,’’ said Fastabend. “Sadly, it looks beautiful, but there are questions.”

Study Finds That Three-Quarter of Americans Would Blow the Whistle on Wrongdoing in the Workplace

December 20, 2011

According to a recent study commissioned by Labaton Sucharow LLP, a securities and antitrust law firm, approximately three-quarter of Americans say that they would be willing to report wrongdoing in the workplace, as long as they were protected against retaliation, could remain anonymous, and would receive a monetary reward.

The “Ethics and Action Survey,” conducted from November 17 to 20, 2011, questioned 1007 Americans, and found that 78% of respondents would blow the whistle on workplace wrongdoing. The survey also found that 34% of respondents claim knowledge of wrongdoing in the workplace.

The Dodd–Frank Wall Street Reform and Consumer Protection Act, Pub.L. 111- 203, which was enacted by Congress in 2010, includes provisions intended to encourage reporting of fraud and other malfeasance.  These include strong protections against retaliation and financial rewards for whistleblowers between 10 and 30% of the penalties or monies recovered by the Securities and Exchange Commission (SEC).  The Ethics and Action Survey showed that a startling 68% of the individuals interviewed were unaware of the new whistleblower program operated by the SEC, following the enactment of Dodd-Frank.

Reflecting on its results, the study states:

It is disheartening to see that wrongdoing in the workplace continues to be so widespread. However, the findings affirm the need for, and value of, the SEC’s Whistleblower Program. This program, in concert with other regulatory reforms, has the potential to dramatically enhance investor protection and restore public faith in the markets.

New Proposed Rules to Require Drug and Medical Device Companies to Report Payments to Physicians

December 20, 2011

On December 14, the Centers for Medicare and Medicaid Services (CMS) announced a proposed rule that would require drug and medical device manufacturers to report their payments to physicians to federal regulators. These rules will implement the “physician payments sunshine” provisions of the 2010 Patient Protection and Affordable Care Act (ACA).

The proposed rules aim to increase the transparency of the relationships between health care providers and the manufacturers of drugs, medical devices, biological, and medical supplies covered by Medicaid, Medicare, or the Children’s Health Insurance Program.  The proposed rule would require such manufacturers to report certain “payments or transfers of value provided to physicians or teaching hospitals” to the federal government every year. In addition to these reports, the ownership interests or investments of physicians in these kinds of manufacturers or companies would also have to be reported. These reports would be made publically available online under the proposed rules.

CMS noted that while Section 6002 of the ACA requires that physician payment data be collected beginning January 1, 2012, the agency has proposed that manufactures not start collecting the data until the rules are finalized. Collected data for 2012 would still need to be disclosed to CMS by March 31, 2013.

The proposed rules will be published in the December 19, 2011 edition of the Federal Register and CMS will accept comments on the rules until February 17, 2012.  The final rules are expected sometime in 2012.

KV Pharmaceutical Reaches Settlement with the Department of Justice for $17 Million

December 15, 2011

KV Pharmaceutical (KV), the parent company for Ethex Corporation (Ethex), this month agreed to pay $17 million to settle claims that Ethex of violated the False Claims Act when it allegedly reported false information to the Centers for Medicare and Medicaid Services (CMS).

According to the complaint filed by the Department of Justice (DOJ), Ethex falsified Food and Drug Administration (FDA) certifications of two products, Nitroglycerin ER and Hyoscyamine Sulfate ER, to CMS, thereby allowing the company to sell these unapproved drugs to Medicare patients.  The Food, Drug, and Cosmetic Act requires that all drugs must be approved by the FDA for safety and effectiveness before they can be marketed for mass consumption.  Neither drug has received FDA approval, which potentially places consumers at risk.  Ilisa Bernstein, acting director of the Office of Compliance for the FDA, outlined the seriousness of this violation, stating, “This settlement sends a strong message to those who seek to put the health of American patients at risk by distributing and promoting drugs which have not been approved by the FDA.”

To settle the case, KV has agreed to pay the federal government $10,158,695 and $6,841,305 to the state Medicaid Services.  The whistleblower who reported the company’s unlawful actions received $1,523,804 of the federal share and additional amounts from the state share.

House Panel to Hold Meetings with Air Force and Office of Special Counsel to Investigate Military Mortuary

December 13, 2011

The House Oversight and Government Reform Committee is scheduled to meet with representatives of the U.S. Air Force and Office of Special Counsel in the next few days to investigate the mishandling of remains at the military mortuary in Dover, Delaware. The committee requested that by December 9th, Secretary of Defense Leon Panetta submit a list naming those involved in the allegations of mishandling remains and describing any discipline they faced.
The Pentagon has reassured members of the military and their families that the Air Force addressed all of the problems at the mortuary.  However, the Office of Special Counsel has said that the Air Force has not taken full responsibility for Dover’s operational shortcomings. In November, Panetta initiated a special review of the mortuary to gather more information about how the Air Force disciplined those responsible.  In another case of mishandling and misidentification of remains at the Arlington National Cemetery in Virginia, three supervisors were punished, but no one was fired.

“Let me make very clear to the families of our fallen heroes that every step will be taken to protect the honor and dignity that their loved ones richly deserve,” Panetta said in a written statement.

OSHA Sues Whole Foods for Terminating Whistleblower

December 13, 2011

Last week, the Department of Labor’s Occupational Safety and Health Administration (OSHA) sued retail food store chain Whole Foods Market for terminating marketing specialist Bridget Hobart in November 2009 because she had reported health concerns to OSHA after a sewer line ruptured in the Whole Foods store in Miami Beach.  The lawsuit follows an OSHA investigation which found that Whole Foods violated the whistleblower protection provisions of Section 11 (c) of the Occupational Safety and Health Act for terminating Hobart.

After a sewage line ruptured on November 1, 2009, Hobart alerted her supervisor that the sewage was spilling into the workplace, including store restrooms and the specialty cheese department. Hobart alleges that despite her report to her supervisor and the company’s anonymous tip line, no corrective actions were taken. On November 5, Hobart voiced her concerns to another manager and was subsequently fired “for allegedly making false and malicious statements,” according to OSHA.

OSHA is asking that the federal government issue an order against Whole Foods that includes a permanent injunction in order to prevent future violations of whistleblower protections. OSHA is also asking that Whole Foods reinstate Hobart with full benefits and provide her with back pay as well as punitive and compensatory damages.