A settlement was announced late last week in the False Claims Act case against Science Applications International Corporation (SAIC). According to the Justice Department and U.S. Attorney Kenneth J. Gonzales of the District of New Mexico, SAIC, one of the government’s largest contractors, paid $11.75 million regarding allegations that they inflated the cost of first responder training programs over a ten year period. SAIC had received subgrants in conjunction with grants awarded to the New Mexico Institute of Mining and Technology for the Weapons of Mass Destruction First Responder Program. Under the subgrants, SAIC was tasked with providing “course management, development, and instruction” to support the first responder personnel in anti-terrorism training. The FCA complaint against SAIC alleged the company claimed to use more expensive employees than those that actually worked on the project, thus inflating the overall cost spent on the program. Richard Priem, SAIC’s project manager for this program, brought these allegations to the attention of the government, prior to the United States intervening. His share of the settlement had not been determined at the time of the settlement announcement. In response to the settlement, Peter Chatfield, an attorney for the relator, noted more money would still be available to prevent and respond to terrorism activity “if SAIC [had] been honest and charged the government based on its true costs.”

For more information, please see:
http://www.justice.gov/opa/pr/2013/June/13-civ-668.html

On June 12, 2013, the SEC issued its second whistleblower award and a top SEC official has predicted additional larger awards will soon be forthcoming.  The award was issued in connection with an enforcement action against Andrey Hicks and his company, Locust Offshore Management, LLC.  The SEC charged that both Hicks and Locust sold shares in a pooled investment fund that turned out to be fictitious.  A default judgment was entered against the defendants and they were ordered to pay approximately $7.5 million for disgorgement and prejudgment interest. The Commission entered an order awarding 15% of any recovery to three of four whistleblowers who made claims under the SEC’s whistleblower program.  The three will each receive a 5% share of the amounts collected.  A fourth claimant was denied an award because he provided vague and non-specific allegations, which did not concern the fraud actually uncovered.  Accordingly, the Commission concluded that the information submitted did not cause the Commission to open an investigation and did not significantly contribute to the success of the enforcement action.  As to the remaining three whistleblowers, two provided sufficient information that caused the Commission to open an investigation while the third confirmed the information and identified key witnesses. 

On a related note, Division of Enforcement Associate Director Stephen Cohen, who is intimately involved in the SEC’s whistleblower program, reported on May 3 that the agency plans to announce additional awards by the end of 2013.  The SEC has already posted 51 notices of potential award on its website.

Not only was the IRS allegedly scrutinizing conservative groups more closely than their liberal counterparts, but apparently the Service was spending enough money to make even the wealthiest world travelers blush.  The Treasury Inspector General for Tax Administration has completed an audit of the IRS’ spending over a three-year span beginning in fiscal year 2010.  During that period, the Internal Revenue Service spent an astonishing $49 million on at least 220 conferences.  The most costly of those conferences appears to be an August 2010 conference in Anaheim, California for 2,600 IRS employees who serve in a division that assists small businesses and self-employed individuals prepare their taxes.  The conference cost $4.1 million.

IRS Acting Commissioner Daniel Werfel assumed his new role in the wake of the resignation of Commissioner Steven Miller last month.  Mr. Werfel, a former senior official in the Office of Management and Budget has categorized the IRS’ spending habits as “an unfortunate vestige from a prior era.”  Citizens providing the Service with information on tax cheats hope that Acting Commissioner Werfel will rejuvenate the whistleblower program of the prior era, as well.

In 2006, Congress passed the Tax Relief and Health Care Act, which created the IRS Whistleblower Office and made rewards to whistleblowers less discretionary than in years past.  Iowa Republican Senator Charles Grassley, a staunch supporter of whistleblowers, was the strongest congressional voice in support of the whistleblower provisions. 

There are two basic tracks currently in place for whistleblower complaints that are filed with the IRS.  On the first track, whistleblowers submit information concerning amounts in dispute (back taxes, interest, and penalties) in excess of $2 million.  In these cases, the IRS is looking for non-compliant taxpayers with annual gross income of more than $200,000.  If the IRS successfully obtains a recovery from a non-compliant taxpayer, the IRS is required to pay the whistleblower between 15 and 30% of the recovery.   Whistleblowers on this track who are not satisfied with the reward may appeal to the United States Tax Court located in Washington, D.C.

The second track applies to cases involving less than $2 million in dispute.  If the IRS obtains a recovery in these cases, payment of a reward to the whistleblower is discretionary, with a maximum of 15% of the recovery.  Whistleblowers on this track cannot appeal to the United States Tax Court.

This program received an impressive 332 informant submissions in fiscal year 2012 alone.  According to the IRS’ most recent report to Congress, the Whistleblower Office is currently processing and investigating an inventory of 1,449 submissions, each of which identifies taxpayers accused of avoiding more than $2 million in taxes, penalties, and interest. 

This program has substantial promise in protecting taxpayer funds and in opening an avenue for tax whistleblowers.  Unfortunately, the Whistleblower Office has been slow in pursuing cases and paying awards.  Acting Commissioner Werfel stands in a unique position to restore confidence in the IRS and revamp the Service’s whistleblower program.  If the IRS is able to create a system to handle these tips faster and more effectively, the IRS will truly rid itself of the “vestige[s] from a prior era” and add to the coffers of the federal government in a substantial way.

We had previously reported that plans were in the works to renew efforts for Pennsylvania to adopt a False Claims Act.  House Bill 1493 has now been introduced in the Pennsylvania House of Representatives.  This proposed legislation, if enacted, would give the Pennsylvania Attorney General’s office primary responsibility for investigating and prosecuting suits against those who are suspected of committing fraud against the Commonwealth of Pennsylvania.  However, private individuals can also initiate lawsuits.  Under the bill, individuals or entities which are found to have engaged in fraudulent activity could be responsible for three times the damages sustained by the government.  Protections would also be provided to whistleblowers who bring a false claims act suit against an employer.  State Representative Brandon Neuman of Washington County who is one of the sponsors of the bill has stated that three advantages of passing this legislation would be 1) deterring fraud and punishing wrongdoers; 2) raising significant revenues through recovered losses or other damages and 3) making Pennsylvania eligible for a federal program which would increase by 10% the Commonwealth of Pennsylvania’s share of the recovery from a successful Medicaid fraud lawsuit.    

For more information, please see:
http://www.legis.state.pa.us/cfdocs/Legis/CSM/showMemoPublic.cfm?chamber=H&SPick=20130&cosponId=12608

The U.S. Department of Transportation has a program – the Disadvantaged Business Enterprise (DBE) Program – which encourages the use of minority and women owned businesses on federally-funded transportation projects.  Contractors on these projects are required to make a good faith effort to meet DBE participation goals in order to receive federal monies. 

TesTech, Inc.; Sherif Aziz; CESO Testing Technology, Inc., CESO International, LLC and CESO, Inc. (collectively CESO) and David and Sherry Oakes were accused of claiming DBE status for TesTech on highway and airport construction projects in Ohio, Indiana, Michigan and Kentucky.  According to the government, TesTech was owned and controlled by CESO and the Oakes.  CESO was not a DBE firm.  The government contends that CESO and the Oakes falsely claimed that TesTech was owned by Aziz so that TesTech could qualify as a minority-owned business which could take part in the DBE program.  TesTech, Aziz, CESO and the Oakes have agreed to pay $2,883,947 to settle these allegations. 

This matter was originally brought to light by Ryan Parker, a former TesTech employee.  Mr. Parker will receive $562,370 from the settlement in accordance with a provision in the False Claims Act which is designed to reward whistleblowers.

For more information, please see:
http://www.whiotv.com/news/news/crime-law/testech-owners-pay-29-million-to-settle-civil-suit/nYDXR/

Under the Affordable Care Act, all providers had to go through a reapplication process in order to participate in Medicare.  Those who didn’t meet certain requirements, had felony convictions, incorrect addresses or didn’t have the proper licenses were removed from participation in the Medicare program.  While 6,307 providers and suppliers had their Medicare billing privileges revoked during the two year period before the new system went into place, privileges have been removed from 14,663 providers and suppliers in the last two years.  Moreover, within the last four years, the government has recovered $14.9 billion in fraudulent Medicare payments.

The government is hoping to increase these figures by encouraging beneficiaries to report suspected fraud through a proposed rule which would increase the money that a whistle blower can receive.  Under the current system, the most that an individual whose tip leads to the recovery of fraudulent payments can receive is $10,000.  If the new rule is adopted, this figure would increase to a maximum of $9.9 million.  To assist in detecting when fraud might be taking place, beneficiaries are now being provided with a simplified statement which allows them to see exactly who has been using their identification number to submit bills to Medicare.  This has resulted in seniors contacting Medicare’s fraud hotline over the past year to report billing by doctors who they had never seen.  One provider was the source of calls from 200 to 300 Medicare beneficiaries.  This system is also being used to identify and track providers who are fraudulently using Medicare beneficiary numbers. 

Kathleen Sebelius reported last week that the reduction in fraudulent payments will result in Medicare remaining solvent for two more years than had been previously estimated.

In the 1970’s, the Florida Medical Association and individual physicians filed suit objecting to the release of a list by the U.S. Department of Health and Human Services identifying physicians or practices which received annual payments of $100,000 or more in Medicare reimbursements.  On October 22, 1979, a federal district court judge found that the doctors’ privacy interests outweighed the public’s interest in disclosure and prohibited the Department from revealing “any …. annual Medicare reimbursement amounts, for any years, in a manner that would personally and individually identify the providers.”  

Dow Jones, the publisher of the Wall Street Journal, challenged this ban in 2009 and sought access to the information stating that it had “essentially limitless potential to help expose fraud, waste, and abuse in the Medicare system.  Dow Jones’ suit was settled in January of 2010 under terms which allowed Dow Jones and the non-profit Center for Public Integrity to purchase a portion of the file containing all billings for a randomly selected 5% of Medicare recipients. A series of articles later appeared in the Wall Street Journal reporting on possible fraud and waste by Medicare providers. 

Dow Jones and another company, Real Time Medical Data – which uses Medicare data to help hospitals with marketing and strategic planning – subsequently moved to intervene in the Florida case.  Dow Jones argued that the 1979 injunction interfered with its ability to report on Medicare while Real Time Medical Data claimed that the public had an interest in the information given the billions of dollars which are spent in connection with Medicare.  According to Dow Jones and Real Time Medical Data, access to the reimbursement data could help expose Medicare fraud.  Dow Jones also argued that, “….the privacy interests of physicians no longer clearly outweigh the compelling public interest in monitoring a program that now consumes one out of every eight federal dollars.”  The court agreed and the 33 year old injunction has now been lifted.

American Commercial College, which is based in Lubock, Texas, will pay $1 million over the next five years to settle allegations that it falsified financial records in order to qualify for federal student aid money.  The college may also have to pay an additional $1.5 million.  However, it is unclear under what circumstances more money would have to be paid. 

The federal government requires that for-profit colleges receive no more than 90% of their annual revenues from a federal student aid program known as Title IV.  The lawsuit against American Commercial College claimed that the school arranged for short-tem private loans, which were ultimately paid with federal student aid, so the school could appear to be complying with federal requirements.  An attorney for the college stated that the Lubbock campus will reopen after it reapplies for a license.  Two other campuses that were also the subject of investigation are still open. 

Two whistleblowers, former administrators at the college, will receive $170,000 as a result of the settlement.  In the event that the school is required to pay an additional $1.5 million, the whistleblowers would receive another $255,000. 

For more information, please see:
http://www.justice.gov/opa/pr/2013/May/13-civ-630.html

Connecticut has settled claims against Gary Anusavice of North Kingstown, Rhode Island and six of Anusavice’s management and consulting companies in a civil suit revolving around an allegedly fraudulent Medicaid billing scheme.  The suit, which was brought last May, alleged that Anusavice, his companies and other defendants took part in an elaborate plot covering a two year period which led to the payment of more than $24 million in fraudulent Medicaid claims.  Anusavice and the companies are to pay $9.9 million to the state and Anusavice has agreed to cooperate with the state’s ongoing investigation and the continuing litigation against the other defendants who were named in the lawsuit. 

Anusavice has also pled guilty to criminal charges which were brought by the United States government as a result of his involvement with the billing scheme.  Any restitution which Anusavice is ordered to pay as part of his plea agreement may be credited towards the $9.9 million settlement.  Under the terms of the settlement agreement, Anusavice and the companies are also barred from participating in any health care-related business in Connecticut or engaging in any other business with state agencies for at least ten years after he serves any prison time which may be imposed in connection with his conviction.  Interestingly, it appears that Anusavice had previously been convicted in Massachusetts for submitting false health care claims and was excluded by the U.S. Department of Health and Human Services from participating in Medicare and state health care programs, including Medicaid.  Connecticut alleged in its complaint that Anusavice violated this program exclusion by creating, through a series of corporations, a number of dental practices throughout the state that were operated by practicing dentists who billed Medicaid for services.  Connecticut also claimed that Anusavice violated his program exclusion by actively managing the practices by reviewing patient charts, suggesting dental procedures, reviewing billing records, reviewing income reports, interviewing and hiring dentists and providing overall management direction to the offices.  According to the state’s complaint, the dental practices failed to disclose the ownership interest Anusavice and/or his companies had in the practices as required by state and federal regulations.  This allowed Anusavice to implement the billing system that resulted in Medicaid being double billed for certain services or being billed for services which were not provided.  

The Connecticut Department of Social Services was the first to suspect that fraudulent activity might be taking place.  That Department then worked with the state attorney general’s office and federal authorities to develop the case against Anusavice and others.

Tony West, the acting Associate Attorney General, claimed that the Justice Department is a “friend” of whistleblowers in his testimony before Capitol Hill regarding his nomination.  West noted that it was his leadership as Chief of the Civil Division that led to the filing of a greater number of whistleblower suits and greater recovery of taxpayer dollars than at any other time in history.  Specifically, West stated that the government recovered more than $11 billion in taxpayer funds during his three and half years as Civil Division chief.

West’s nomination as Associate Attorney General has come under scrutiny due to a controversy related to an agreement the Department of Justice had with the City of St. Paul regarding a whistleblower suit.  In exchange for not intervening in a whistleblower lawsuit in St. Paul, Minnesota, the Department of Justice expected the City of St. Paul to withdraw its appeal to the U.S. Supreme Court in an unrelated disparate impact case.   Republicans have called this arrangement inappropriate.

Despite these allegations, West stated that under his leadership, the Department of Justice would continue to pursue qui tam cases and would “keep trying to set new records every year.”

For more information, please see:

http://tinyurl.com/lseqazb