Archive for December, 2009

House approves Wall Street Reform and Consumer Protection Act

Tuesday, December 22nd, 2009

On December 11, 2009, the United States House of Representatives approved The Wall Street Reform and Consumer Protection Act (H.R. 4173).  The legislation is aimed at reforming the financial services industry in the wake of the recent economic crisis.  Significantly, the legislation contains a whistleblower incentive program.  Under the program, the SEC would pay the whistleblower up to 30% of any monetary sanctions recovered by the SEC as a result of the whistleblower’s disclosure.  Furthermore, the legislation provides whistleblowers who have been retaliated against as a result of disclosing information, to the SEC investigation or to the SEC, a private right of action.

H.R. 4173 can be accessed by clicking: http://financialservices.house.gov/press.shtml

Los Angeles’ Kerlan Jobe Orthopaedic Clinic Pays $3 Million to Settle Kickback Allegations

Tuesday, December 22nd, 2009

An orthopaedic sports medicine clinic in Los Angeles, California, has agreed to pay $3 million to the United States government to settle allegations that it received illegal kickbacks from HealthSouth Corporation.  The Kerlan Jobe Orthopaedic Clinic, a prominent practice whose patients have included numerous pro athletes, allegedly received kickbacks from HealthSouth Corporation in the form of loan forgiveness, stock option grants, charitable donations, and ownership interest in an ambulatory surgery center, in exchange for referring its patients to HealthSouth facilities for medical care.

As part of the settlement, Kerlan Jobe must enter into a Corporate Integrity Agreement with the Office of Inspector General, Department of Health and Human Services. 

The Department of Justice’s press release can be found at:  http://www.justice.gov/opa/pr/2009/December/09-civ-1294.html

Four companies pay $39 million to settle California whistleblower case involving water supply system parts

Tuesday, December 8th, 2009

A state whistleblower claim brought under California’s False Claims Act settled for $39 million last month, bringing to almost $60 million the total recovery that California water districts and municipalities, including the cities of San Francisco and Los Angeles, have recovered because of excessive lead levels in water valves and fittings manufactured by James Jones Company LLC.  The settlement resolves allegations brought to light more than a decade ago that James Jones and some of its parent companies, at various times including Mueller Co. Ltd., Tyco International and Watts Water Technologies, ignored the advice of its own engineers and manufactured valves and fittings containing more lead than permitted by industry standards, customer specifications and its own catalogs and marketing materials, in search of extra profits.

This most recent settlement comes as a result of mediation between the four companies and 54 water utilities and municipalities, including the cities of San Diego, Oceanside and Corona.  The proceeds of the settlement with Los Angeles, which occurred in 2001, were used to replace lead-containing parts with lead-free or low-lead parts.  Over the course of lengthy litigation, the California Court of Appeals held that misstatements in catalogs can form the basis of a California False Claims Act action, and that passive beneficiaries of fraud who fail to disclose the existence of false claims after becoming aware of them are also liable.

Lead can leach from exposed lead-containing surfaces into the water supply, and is absorbed by the body upon ingestion.  Long-term chronic exposure can cause significant health problems, including cognitive and developmental defects, reproductive effects, and even death.  There is no known safe exposure level.

For more information, please see:  http://www.sanjoseca.gov/clerk/Agenda/20091103/20091103_0204.pdf

Case Studies Show Fraud and Abuse Allowed Ineligible Firms to Obtain Millions of Dollars in Contracts

Tuesday, December 8th, 2009

The U.S. Government Accountability Office (GAO) released a report on November 19 finding that contractors falsely claiming to be run by disabled military veterans have defrauded the government of at least $100 million since 2003.  Congress established goals for the distribution of a certain portion of federal contracts to small businesses that are owned and operated by vets injured in the course of active duty.  The Small Business Administration (SBA) administers these contracts, and is tasked with the responsibility of both determining whether the businesses to which they dole out the funds meet eligibility requirements and imposing fines if the firms misrepresent their status.

Responding to the report, however, the SBA contends that the contracting officials at the various federal agencies seeking the contracts bear responsibility for determining eligibility.  Falling through the cracks, of course, is fraud committed in the procurement of enormous federal contracts in which the companies have misrepresented themselves.

The GAO cited numerous abuses by a number of unnamed companies, including the procurement of a contract by a Nevada company to maintain FEMA trailers intended for the victims of Hurricane Katrina.  The firm was discovered to have falsely misrepresented that it was owned and operated by disabled vets.  Nevertheless, it was not required to repay the $7.5 million it had already received under the program, and is not prohibited from soliciting future work from the government.

Another $900,000 contract to provide furniture at an Air Force base in Florida was simply passed on from a disabled veteran to his wife and then on to an unrelated furniture company that did not meet the eligibility requirements.  No fines were levied against anyone involved.

Congress has established a benchmark for the distribution of approximately 3% of federal contracts to disabled veterans, or about $12 billion.  This standard has yet to be met, but, for example, in 2007, $4 billion was administered through this program.  With this much at stake, the field is ripe for abuse.  The GAO has therefore recommended that the SBA develop stiffer penalties for fraud, including levying fines, suspending contracts and prohibiting the award of future contracts.  Further, the GAO has urged that the Veterans Affairs Department’s database of disabled veteran-owned firms be expanded and access provided to other contracting agencies to allow for easier determination of eligibility.  The present process is a self certification that does nothing to detect or avoid fraud.  Whistleblower suits might be another avenue to combat any fraud that is ongoing and that continues to diminish the value and benefit of a program aimed to support our wounded veterans.

For more information, the GAO report can be found at:  http://www.gao.gov/new.items/d10255t.pdf