Qui Tam: How Whistleblowers Win Compensation & Report Government Fraud

Qui Tam: How Whistleblowers Win Compensation & Report Government Fraud 2017-09-29T16:07:22+00:00

Do you have knowledge of government fraud? In a qui tam lawsuit, private citizens can sue individuals or businesses on behalf of the government, recovering stolen taxpayer dollars and securing significant financial rewards in the process.

  • Illegal Kickbacks
  • Price Manipulation
  • Fraudulent Billing
  • Contract Violations

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An estimated 10% of the combined budget for Medicare and Medicaid, around $100 billion, is consumed by fraud every year, according to Politifact. In post-Katrina New Orleans, federal reports show that nearly 10% of the Federal Emergency Management Agency’s overall aid package was lost to fraud. The American military has lost $60 billion to fraud on the battlefields of Iraq and $100 billion in Afghanistan.

What Is Qui Tam Law?

Government fraud is everywhere, but so is knowledge of fraudulent activity. That’s why the government actually rewards individual citizens who step forward and attempt to reclaim stolen taxpayer dollars on the government’s behalf.

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Under the body of qui tam law pioneered during the Civil War, whistleblowers can file civil lawsuits against fraudsters, both individuals and corporations, providing federal investigators with valuable information and holding those who would defraud the government accountable. In compensation for their efforts, whistleblowers are entitled to secure a hefty portion of the government’s recovery for themselves.

False Claims: What Do Whistleblowers Report?

Most qui tam lawsuits are filed under legal principles outlined in the False Claims Act, a federal law passed midway through the Civil War.

Government fraud was rampant during the War. Shameless contractors bilked the Union and Confederacy out of lucrative contracts, pawning off defective rifles, dying horses and putrid foodstuffs. At Abraham Lincoln’s urging, Congress enacted the False Claims Act in 1863, making it illegal for any party to lie to the federal government in an attempt to secure money or other reimbursements. Specifically, the Act prohibited:

  • knowingly presenting, or causing someone else to present, a false claim for payment or federal approval
  • knowingly making or using a false record or statement material to an inaccurate or fraudulent claim
  • falsely certifying the type or amount of property to be used by the government
  • certifying receipt of property on a document without completely knowing that the information is true
  • knowingly buying government property from an unauthorized officer of the government
  • conspiring to commit any violation of the False Claims Act

The Act also prohibits “reverse” false claims, in which a defendant submits false records to the government in an attempt to avoid or decrease their obligation to transmit property or money to the government.

Defense & Healthcare Fraud

The False Claims Act is usually invoked in relation to healthcare fraud against Medicare and Medicaid and fraud committed by defense contractors. Fraudulently-secured education grants, set-aside contracts for minority- or women-owned businesses, emergency relief contracts and fraud against federal housing programs also fall under the Act’s purview.

Awards For Whistleblowers

Alongside this general prohibition against “false claims,” the Act set up a mechanism to incentivize private citizens who become aware of government fraud to step forward. These “relators,” the law says, are entitled to a percentage of the government’s recovery.

Defendants who have violated the False Claims Act can be ordered to pay up to three times what they stole from the government and taxpayers, along with an extra $11,000 for every “false claim” submitted to federal authorities. Whistleblowers, as a reward for their efforts, are entitled to a portion of this recovery, usually between 10% and 30%. Most courts also order additional compensation to reimburse relators for their attorney’s fees. In short, whistleblowers get a cut of the government’s award if their civil lawsuits prove successful.

The False Claims Act also outlines a number of powerful protections to shield whistleblowers from retaliation, recognizing the personal and professional risks they assume in standing up against fraud. When an employee who files a qui tam action is fired, demoted or harassed in retaliation for their choice, the False Claims Act provides the relator all necessary relief to make them whole again, from reinstatement to double back wages.

The Qui Tam Process In Brief

When someone has knowledge that an individual or company is defrauding the government, they can file a whistleblower lawsuit in a civil court, outlining their allegations and specifying violations of the False Claims Act. A separate memorandum, with comprehensive details on the facts at issue, is served on the government, but not filed in court.

The complaint and any supporting documents are kept “under seal” for a minimum of sixty days. Only the government, and specifically the US Department of Justice, is able to view the claims, which allows federal officials to investigate the allegations on their own terms. No one is made aware of the lawsuit, including the person or business being sued.

Federal Investigation & Intervention

Sixty days is a baseline, the period explicitly mentioned in the Act. In reality, judges frequently extend the time period under which a qui tam complaint is held under seal because federal investigations can take a long time. Some stretch on for years before the government makes a decision on whether or not to “intervene” in the case.

The government may or may not choose to formally join the lawsuit and pursue the matter openly in court. This is relatively rare and, while relators are free to pursue their lawsuits without the government’s help, federal intervention increases the chances of success exponentially. More common is when the Justice Department asks the court to partially lift the seal, making way for settlement negotiations. The majority of qui tam claims that result in recovery find their way to resolution on this path, not in a courtroom.

How Much Do Whistleblowers Get?

Federal intervention can make a big difference in how relators are compensated for their whistleblowing, too. We mentioned above that whistleblowers are generally entitled to between 15% and 30% of the government’s total recovery. Rewards are determined by a sliding scale, depending on how much work the relator shouldered in securing the recovery:

  • 25 – 30% when the government does not intervene in the case
  • 15 – 25% when the government intervenes in the case
  • 10% or less when the government intervenes in the case and most of the information relevant to the claims was publicly available

Beyond this compensation scale, awards can be reduced for relators who planned or submitted the fraudulent claims at issue in the lawsuit. Importantly, however, the False Claims Act allows people who violated the Act themselves to file a qui tam lawsuit and secure some measure of compensation in exchange for their service to the government. The only exception comes in the case of relators who are convicted of a crime relevant to the false claims alleged in the lawsuit, who are not entitled to any award.

State Laws May Vary

A majority of states (32 at the time of this writing) have enacted similar statutes, allowing qui tam whistleblowers to bring civil claims on behalf of the state’s government. Most of the state laws are modeled explicitly on the federal False Claims Act, although major distinctions should not be disregarded.

Arkansas’ law, for example, awards whistleblowers a “finder’s fee” only in relation to the State’s Medicaid program. While most state qui tam provisions are broader than the one found in Arkansas, it’s a good idea to contact a local attorney experienced in qui tam proceedings with any action that affects a state government program.

Washington D.C. also has a false claims act, as do seven of the nation’s largest cities, including New York, Philadelphia, Chicago and Miami. Needless to say, these laws can, in some cases, interact. Fraud can affect a state’s government and the federal government simultaneously. Complex cases often involve multiple state governments at the same time.

Tax & Securities Fraud

Whistleblower lawsuits involving tax or securities fraud are handled differently. The Internal Revenue Service (IRS) processes tips on tax evasion and, as of 2006, grants whistleblowers a portion of any tax revenues recovered. The Dodd-Frank Act, enacted in 2010, created a similar whistleblower program under the Securities and Exchange Commission (SEC), offering “bounties” to citizens who provide the SEC with information that results in an enforcement action.

How Long Do I Have?

Do you know about fraudulent activity at your workplace? Are you involved in fraud but want to step forward? Contact an experienced qui tam attorney immediately to discuss your legal options. Whistleblowers lawsuits are bound by strict statutes of limitations, laws that limit the amount of time relators have to file suit.

In line with Title 31, Section 3731(b) of the US Code, actions filed under the False Claims Act must be submitted to the correct court no later than 6 years after the actual date of fraudulent activity or 3 years after the government should have known about the fraud, whichever date comes later. A “statute of repose” serves as a hard deadline. More than 10 years after the fraud took place, a qui tam lawsuit will be dismissed out-of-hand.

We strongly suggest taking prompt action to preserve your rights, along with the possibility of any financial reward.

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