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Democratic Convention Update

Reuben Guttman at Democratic National ConventionCHARLOTTE, NC — Inside the Democratic National Convention, the Obama campaign finally picked a mid-west issue that may make a difference in the presidential election campaign. Starting with former Ohio Governor, Ted Strickland, a parade of speakers hammered on the auto industry rescue as a single accomplishment that will be hard for the Republicans to challenge as unsuccessful.

With the Republicans attacking Obamacare, Democrats needed to find something that was an undisputed success. With the Ohio vote in the balance, the auto industry rescue was made a focal point of day one at the Democratic convention. To make the point, the convention planners called upon former Ohio Governor Strickland; although he lost his bid for re-election, he is beloved in Ohio where he also served as a Congressman.

Finding undisputed success stories was the key to day one as Massachusetts Governor Deval Patrick reminded delegates of the end of the Iraq war and the elimination of Bin Laden as accomplishments of the current administration.

It was indeed a well choreographed event with the swing state delegations seated in front of the cameras. The states not up for grabs, including California, were seated to the rear of the convention, behind the battery of cameras that were directly in front of the stage.

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From the Democratic Convention

CHARLOTTE, NC — Somewhere in the air between Washington, DC and Charlotte, NC — the site of the Democratic National Convention which starts tomorrow (September 3rd) — a flight attendant leaned into a cart pushing it up the aisle as the plane tilted upward gaining altitude. I thought of all the people on the plane from delegates, to media, to hanger’s on, this political season is about this flight attendant and working people like her. For all who participate in the political system, there are exponentially more who stand on the sidelines and feel its impact. From the Federal Aviation Administration which makes the airways safe, to the Food and Drug Administration which regulates our medicines and daily nourishment, government regulation touches all of us.

Back in 1968 when Richard Nixon accepted the Republican nomination for President he spoke in favor of rolling back federal involvement in our lives. It reminded me that Republicans have been saying that for years. Yet, Nixon, like those Republicans who followed him, could not escape the reality that federal regulation of the private sector is in some cases essential. Remember, it was President Nixon who signed the Occupational Safety and Health Act.

Today Republicans still say they favor less regulation; the only thing that has changed is that Democrats seem almost apologetic for its need. This too is a sad state as the growing business of greed — which has caused drugs to be illegally marketed and worthless financial products to be hawked — counsels for regulation and enforcement. (Of course whistleblowers are integral to the enforcement effort.)

The elephant in the room – as they say – is not the question of whether substantive regulation is good or bad – but how we enforce what is on the books. We live in an era where corporations ask their lawyers not only about the proscriptions of the law but the cost to be paid for the “right” to break it. Of course there is no “right” to break the law.

It is a sad state of affairs when corporations can pay for the “right” to break the law. This is what I was also thinking as I watched that flight attendant this morning.

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CMS and the Budetti Blunders

Senators Orrin Hatch and Tom Coburn have raised some concerns about a multimillion dollar anti-fraud command center opened up today.  Complete with a giant screen estimated to have cost hundreds of thousands, the center will house the HHS’ infamous $77 million dollar computer system which, as of last Christmas, had stopped one check for $7,591.  Peter Budetti, the Deputy Administrator of Program Integrity at the CMS(Centers for Medicare & Medicaid Services), a.k.a. the fraud czar, said that the center is expected to pay for itself many times over, repeating an old justification for a contract with Northrop Grumman that was also supposed to result in advances against fraud.  He actually had the “chutzpah” (this is a legal term of art) to say that the CMS could learn something from the private sector.  Perhaps when the private sector does business with itself there may be efficiencies, but, when the private sector does business with the public sector, the government gets robbed like an electronics store during a New York City blackout.  In any event, companies like Northrop Grumman are anything but private; take away the government contracts and their cash flow is about the same as a nine year old’s lemonade stand.  All this goes to show that Budetti may be better served by finding an honest nine year old – hopefully not one of Senator Hatch’s grandkids-for a government contract!

As Groucho Marx said, “Politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly, and applying the wrong remedies.”

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Blowing the Whistle on Education Fraud

The U.S. government provides $150 billion in loans per year to students participating in higher education programs.  This funding is only available to students attending accredited programs.  Despite the large amount of federal funding at stake, the Department of Education does not itself accredit educational programs.  Rather, the Department of Education relies on accrediting agencies, which are federally-approved private organizations, to assure taxpayers and students that federal financial aid is going to qualified institutions.

Programs seeking accreditation must go through a multi-step process where an accrediting agency evaluates the program to measure its performance against the agency’s own standards and those listed by the Department of Education.  After initial accreditation, programs must follow those standards to maintain accreditation.  False certifications by an educational institution to an accrediting agency, in order to become accredited and receive student funding, or to just maintain accreditation, can lead to Federal False Claims Act liability.  Interestingly, an accrediting agency’s operating funds come from fees paid by the entities they accredit.  This may pose a conflict of interest as accrediting agencies may be incentivized to compromise their standards to accredit as many programs as possible.  If an agency accredits organizations that do not meet certain standards, that agency may also be subject to False Claim Act liability.

Employees of for-profit colleges and online programs should be on alert for potential violations of the False Claims Act.  During the 2009-2010 school-year, for-profit programs received almost $32 billion in grants and loans provided to students under federal student aid programs.  The Government Accountability Office, the investigative arm of the U.S. Congress, has published reports in 2010 and 2011 illustrating various derelictions in the for-profit educational industry.  Investigators found that almost all programs instituted some suspect practices.

A common practice of for-profit schools is to pay recruiters for enrolling students.  The Higher Education Act prohibits schools participating in federal student aid programs from paying commissions, bonuses, or other incentive payments to individuals based on their success in enrolling students or securing financial aid for them.  Several for-profit institutions have also been known to encourage students to falsify their academic credentials to obtain federal funding.  These are just some of the many practices that may violate the Federal False Claims Act.

The federal government does not have the resources to police all college programs profiting from federal financial aid.  Accordingly, whistleblowers play an important role in protecting taxpayer dollars and ensuring that our students receive quality education.

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“The SEC, SEC, SEC, what are they going to do with all the whistleblowers, whistleblowers, whistleblowers …”

If you recall, the Dodd Frank whistleblower provisions were promulgated partially in response to the SEC‘s failure to heed the warnings of whistleblower Harry Markopolis who warned the agency early on about Bernie Madoff.

What flowed from the Madoff debacle was an expanded whistleblower rewards program. And this is a good thing. Yet what was not addressed was the problem that was at the root of the SEC’s failure to address Markopolis’ warnings — staffing!

The SEC has one (yes “1”) examiner for every $12 billion in assets that it has to oversee.  And the agency is so overworked that there is no guarantee that a whistleblower will ever make personal contact with an SEC investigator.  The Dodd Frank Whistleblower rules actually anticipate this predicament.  Once the whistleblower files with the agency, the rules encourage the whistleblower to check out the SEC’s website to determine if the agency settled a case like the one the whistleblower reported.  It is than up to the whistleblower to file papers explaining to the agency how he or she provided help in securing a resolution.  Shouldn’t the agency already know this?

Making whistleblowers part of the SEC’s compliance program is important.  But the only way the system will really work is if whistleblowers are able to pursue their cases in the absence of SEC action. This is how the False Claims Act works and this year recoveries will be in the billions.  Having recently represented the lead whistleblower in the government’s $1.6 billion recovery against Abbott labs for marketing derelictions with regard to the drug depakote, we have personal knowledge that whistleblowers who hire an experienced attorney to represent them as they navigate the SEC process works.

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