According to the New York Times, Bank of America has raised its offer to the Justice Department to settle charges stemming from its part in the Great Recession. As the article notes, much of Bank of America's legal exposure stems from its acquisition of Countrywide Financial, a large subprime lender, in early 2008. Nevertheless, as Judge Rakoff's ruling shows, Bank of America is nevertheless on the hook for the misconduct. If an overall deal is reached, Bank of America would be the most recent large bank to reach such a settlement with the Justice Department.
In a case we first wrote about in November 2012 and have followed since, the U.S. District Court Judge has ordered that Bank of America, Countrywide and one individual pay a bank fraud penalty of $1.3 billion. In his opinion, Judge Rakoff adopted the United States' interpretation of the penalty provisions of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, 12 U.S.C. § 1833a ("FIRREA") (see U.S. brief and reply brief) and rejected the arguments by defendants (see BoA brief). As we have written before, FIRREA is a powerful weapon passed by Congress in response to the savings and loan crisis of the 1980's. Using a tip from a whistleblower, prosecutors dusted off the law and used it to great success in this case. Under FIRREA, a successful whistleblower shall be entitled to a reward of "20 percent to 30 percent of any recovery up to the first $1,000,000 recovered, 10 percent to 20 percent of the next $4,000,000 recovered, and 5 percent to 10 percent of the next $5,000,000 recovered." 12 U.S.C. § 4205. In calculating that award, the Attorney General may consider the size of the overall recovery and the usefulness of the information provided by the whistleblower. Id. This means that in this case, the whistleblower is entitled to an award of between $850,000 to $1.6 million of the government's $1.3 billion recovery. Unlike the False Claims Act, FIRREA caps the whistleblower's reward; in other words, he or she only shares in the first $10 million of any recovery. Presumably the defendants will appeal the jury verdict on liability and the judge's order on penalty so this saga is not yet over.
Bob Thomas to speak at the American Bar Association's Section of Public Contract Law meeting on August 8, 2014 regarding Recent Cases Interpreting the False Claims Act and Consequences for Conducting Internal Investigations.
Here is a message from the National Whistleblower Center which works to protect whistleblowers in all endeavors, not just False Claims Act (or SEC or IRS) whistleblowers. We thought our readers would enjoy their message:
False Claims Act filings and recoveries have reached new highs recently, with the Department of Justice expecting to collect over $5 billion in fiscal year 2014, bringing the total since 1987 to about $39 billion recovered for the taxpayers. Whistleblowers have earned some $4.3 million in rewards under the law. Amidst this success, it is perhaps not surprising that the business community, led in part by the U.S. Chamber of Commerce, is trying to blunt the effectiveness of the law with various legislative proposals. Today, the U.S. House of Representatives Judiciary Committee is holding a hearing on "Oversight of the False Claims Act;" the testimony to be delivered at today's FCA hearing is attached and can also be found on the Committee's website. The testimony is interesting reading from both sides of the debate. Senator Grassley, one of the co-sponsors of the 1986 amendments to the FCA that have been key to its success, will be testifying. He coontinues to be a champion of the FCA, whistleblowers, and the taxpayers.
A recent Washington Post article points out a disturbing trend in employment law practice, one which will surely be tested in the courts. It seems that just as Congress makes clear (in one of its rare shows of bi-partisanship) that it wants whistleblowers to come forward in a wide variety of potential frauds against the government and the public, some companies are taking the low road rather than embracing the notion that fraud detection is in everyone's best interest.
Those who have followed this whistleblower blog know all too well the turmoil that employees who report illegal (and potentially illegal) activities go through. It is not easy to blow the whistle on improper activity, because the threat of retaliation is usually a strong deterrent.
However, some employees muster the courage to do the right thing, and federal law protects them when they do so.
Against this backdrop, New York based Paradigm Capital Management was charged with retaliating against an employee who reported suspicious and potentially illegal activity. Essentially, the employee who reported what he saw to the Securities and Exchange Commission (SEC). Shortly afterwards, he was demoted from his position has head trader to a lowly compliance assistant.
Followers of this False Claims Act blog know that we've written about pharmacy compounders several times in the past (see blog 1, blog 2, blog 3). The meningitis outbreak caused by lax procedures at New England Compounding served as a wake-up call to regulators and to Congress, leading to new legislation clarifying the boundaries between federal and state oversight of these companies.
We've written frequently on our blog about hospitals and doctors that attempt to boost their profits by overbilling government programs such as Medicare or Medicaid. For example, clinics or doctors' offices submit claims for more-expensive procedures than were performed or -- more outrageously -- perform unneeded procedures on unsuspecting patients in order to collect a larger payoff. As a recent case shows, however, it's not just brick-and-mortar locations that are being accused of this behavior.
An ambulance service in Tennessee recently agreed to a $500,000 settlement to settle a whistleblower lawsuit brought under the False Claims Act. The original lawsuit was filed by an employee of the company who brought the alleged wrongdoing to the attention of the federal government. According to the complaint, the company often intentionally misstated the services it provided in order to collect more reimbursement from the government programs. For example, when employees provided what is known as basic life support, it was often coded instead as advanced life support -- something that is reimbursed at a higher rate.
A key provision of the False Claims Act is the so-called "first-to-file" bar which prevents a case from proceeding if there is a "related" action "pending" at the time the case is filed. After the United States Court of Appeals allowed a whistleblower's case to proceed despite the fact that another related case had at one time been filed, the Supreme Court has been asked to grant a petition for a writ of certiorari to review this question. Recently, DOJ filed an amicus brief expressing its view that the Fourth Circuit correctly interpreted and applied the FCA's first-to-file provision and the issue does not merit review by the Supreme Court. See brief. The Fourth Circuit held that once a case is no longer "pending" (e.g., has been dismissed and there is no pending appeal), the first-to-file provision does not bar a relator from filing a related case. While this outcome would seem obvious given the plain language of the FCA provision and the meaning of the word "pending," the defendant in the Fourth Circuit case is arguing that the recent contrary decision by a panel of the United States Court of Appeals for the D.C. Circuit creates a split in the circuit courts that merits Supreme Court review and resolution. In response, the Solicitor General and DOJ argue that the Fourth and Seventh Circuits are in agreement with DOJ's view, that the Tenth Circuit has agreed (albeit in dicta), and that the D.C. Circuit decision was a panel decision only with a vigorous dissent with a petition for rehearing en banc now pending. As such, DOJ views the split as the a narrow one that may well be resolved by the D.C. Circuit itself, and thus Supreme Court review is not merited. See Brief at 25-29 (pdf pages, not brief pages). We expect the D.C. Circuit will hear the case en banc and will ultimately agree with the other Circuits, rather than give the FCA a tortured reading. We also expect the Supreme Court will not grant certiorari to hear the Fourth Circuit case. Nevertheless, the case is a good reminder of the many potential pitfalls or land mines a relator and his or her counsel may encounter as well-funded defendants lob myriad arguments and defenses into the courts. Both the whistleblower and their counsel should expect significant (and often unforeseen or unknown) risks anytime a qui tam case is filed.