Category Archives: Whistleblower News

This past July, SEC attorney Darcy Flynn decided to blow the whistle against the SEC, bringing its widespread destruction of records to the attention of Congress. Flynn reported that for the past two decades, the SEC has been destroying thousands of records involving preliminary investigations. But under a deal the SEC has with the National Archives and Records Administration, all agency records are required to be maintained for at least 25 years. It also turns out that many of the destroyed files were of companies who eventually came to play a significant role in the economic crash of 2008, including Goldman Sachs, Lehman Brothers, and Deutsche Bank.

To read more, go to: http://www.rollingstone.com/politics/news/is-the-sec-covering-up-wall-street-crimes-20110817

On August 12, 2011, the SEC opened a whistleblower website as its new bounty program under the Dodd-Frank began. The Dodd-Frank Act’s incentive program rewards whistleblowers with up to 30 percent of the penalties collected from wrongdoers. Congress enacted the legislation that created the program last year and it has been operating on an interim basis since that time. Chief of SEC’s whistleblower office, Sean McKessy, reported that “tip quality” has already shown improvement from last year.

To read more, go to: http://www.bloomberg.com/news/2011-08-12/sec-opens-whistle-blower-website-as-dodd-frank-program-begins.html

Here are a few False Claims Act (FCA) decisions that took place from July 18-22, 2011. One case analyzed the Federal FCA and two analyzed its state counterparts.

1) In USA, ex rel. Brady Folliard v. Synnex Corporation, et al, the U.S. District Court for the District of Columbia (July 19) held that a relator’s complaint was barred pursuant to the FCA’s first-to-file rule by a previous relator’s complaint, which alleged the “same material elements,” even though the previous complaint was dismissed under F.R.C.P. 9(b) for failure to plead fraud with particularity. Both complaints alleged that HP and other defendants sold products to the General Services Administration (“GSA”) that were listed as coming from countries encompassed by the Trade Agreements Act (“TAA”) when, in fact, the products came from non-TAA countries, such as China. While Folliard’s complaint included allegations that Cisco, in addition to the defendants named by the first-filed complaint, misrepresented the country-of-origin clause, the court noted that the first-filed complaint “pertaining to HP products gave the government sufficient notice to discover the allegedly fraudulent Cisco products.” The court held that, “[a]lthough there may be some cases in which a prior complaint dismissed for failure to plead with particularity would not preclude subsequent complaints, this is not one of them.”

2) In Knox County ex rel. Environmental Termite & Pest Control, inc. v. Arrow Exterminators, Inc. (Tenn. July 20, 2011), the court held that a relator qualifies as an “original source” under the Tennessee False Claims Act, even when a relator relies on public documents in uncovering the alleged false claims. The court emphasized the importance of the analysis conducted by the relator with regard to those public documents. Interestingly, in deciding this case, the Supreme Court of Tennessee implicitly recognized that corporations have standing under the TFCA, and can use the statute to bring claims against competitors.

3) In State of Utah v. McKesson Corp., (N.D.Cal. July 19, 2011), the court analyzed the application of the statute of limitations in a claim for restitution and civil penalties under Utah’s False Claims Act. In discussing when the claim accrued, the court cited Attorney General of Utah v. Pomeroy, (Utah 1937), stating “where fraud is an element of an action itself, and a statute does not provide otherwise, the statute of limitations does not begin to run until the fraud was discovered or reasonably could have been discovered.”

One of the nation’s largest employers of disabled people, PRIDE Industries, will pay $400,000 to the federal government to resolve allegations that it submitted false claims relating to a maintenance contract at the Fort Bliss Army Base in El Paso, Texas.  The contract, which is part of the AbilityOne program, required that PRIDE ensure that 75% of all direct labor hours are performed by severely disabled employees.  The Justice Department claims that PRIDE instead employed a large number of temporary, non-disabled workers as part of its maintenance staff, but did not count their hours in its overall ratio.  A lawsuit by two whistleblowers under the False Claims Act was the catalyst of the government’s investigation.

Read more: http://www.sacbee.com/2011/07/12/3763017/pride-industries-agrees-to-pay.html

Last week, the Government Accountability Office released a report stating that current systems for catching Medicare and Medicaid fraud are inadequate.  Additionally, only 41, of the 639 analysts which were supposed to have been trained to use the system, have been trained.  The Centers for Medicare and Medicaid Services is trying to improve protection with a separate technology program.  Something has to be done to curtail the $60 billion to $90 billion in fraudulent claims paid out each year.

Read more: http://www.washingtontimes.com/news/2011/jul/12/report-systems-catch-medicaid-fraud-inadequate/