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  • DOJ Intervenes in False Claims Act Litigation Against City of Los Angeles for Alleged Misuse of HUD Funds

    Courts

    On June 7, the Department of Justice (DOJ) announced that the United States has intervened (see proposed order here) in a lawsuit against the city of Los Angeles (City) alleging that the City misused Department of Housing and Urban Development (HUD) funds intended for affordable housing that is accessible to people with disabilities. See U.S. ex rel Ling et al v. City of Los Angeles et al, No. 11-00974 (D.C. Cal. 2017).

    The DOJ joins in the lawsuit originally instituted by a disabled Los Angeles resident, who filed the False Claims Act (FCA) suit as a whistleblower. The FCA whistleblower provision allows private citizens to file suit on behalf of the government and likewise permits the government to intervene in the suit. Together, the DOJ and the whistleblower allege that the City and a city agency called the CRA/LA falsely certified compliance with federal accessibility laws, including the Fair Housing Act and Section 504 of the Rehabilitation Act as well as the duty to further fair housing in the City, in order to receive millions of dollars in HUD housing grants.

    As recipients of the HUD funds, the City and the CRA/LA were obligated to ensure that (i) “five percent of all units in certain federally-assisted multifamily housing be accessible for people with mobility impairments”; (ii) “an additional two percent be accessible for people with visual and auditory impairments”; (iii) “the City and the CRA/LA maintain a publicly available list of accessible units and their accessibility features”; (iv) “the City and the CRA/LA have a monitoring program in place to ensure people with disabilities are not excluded from participation in, denied the benefits of, or otherwise subjected to discrimination in, federally-assisted housing programs and activities solely on the basis of a disability.” The false certifications resulted in too few accessible housing units, the suit claims.

    The City denies the allegations.

    Courts HUD Litigation Fraud False Claims Act / FIRREA Whistleblower Fair Housing DOJ

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  • Government Settles False Claims Act Suit for $23 Million

    Courts

    On May 26, the DOJ ended a False Claims Act case with a $23 million settlement. The case, brought by whistleblowers against a pharmacy goods provider (company), involved alleged fraudulent Medicaid claims and kickbacks to pharmacies that prescribed one of the company’s drugs. The qui tam action, originally filed in 2007, resulted in the company agreeing to pay nearly $13 million to the U.S. within seven business days of the settlement, of which the government will pay the whistleblowers $3.7 million. Additionally, the company will pay over $10 million toward state Medicaid settlements.

    Courts False Claims Act / FIRREA Fraud Whistleblower DOJ

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  • DOJ Enters $89 Million Settlement with Texas-Based Bank in False Claims Act Matter

    Lending

    On May 16, the U.S. Department of Justice (DOJ) announced that a Texas-based bank (Bank) agreed to settle the DOJ’s allegations that it violated the False Claims Act and FIRREA by wrongfully seeking payments from a federally insured reverse mortgage program. To protect lenders, HUD provides mortgage insurance through a program administered by the Federal Housing Administration (FHA) on reverse mortgage loans, in which seniors borrow money against the equity they have in their homes. The DOJ alleged that the Bank sought to obtain insurance payments for interest from the FHA despite failing to properly disclose on the filed insurance claim forms that the mortgagee was not eligible for such interest payments because it had failed to meet various deadlines relating to appraisal of the property, submission of claims to HUD, and pursuit of foreclosure proceedings. As a result, from approximately 2011 to 2016, the mortgagees on the relevant reverse mortgage loans serviced by Bank “allegedly obtained additional interest that they were not entitled to receive.” The Bank agreed to pay more than $89 million to resolve the allegations, of which $1.6 million will be paid to the individual who filed the lawsuit under the whistleblower provisions of FIRREA.

    Lending Reverse Mortgages Enforcement False Claims Act / FIRREA Whistleblower

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  • DOJ Enters $18 Million Settlement with Healthcare Providers Following False Claims Act Whistleblower Action

    State Issues

    On April 27, the Department of Justice announced that two Indiana-based healthcare providers agreed to settle allegations that financial arrangements between the two entities violated the federal and state False Claims Act and the federal Anti-Kickback Statute. DOJ alleged that one of the providers made available to the other an interest-free line of credit consistently in excess of $10 million, the balance of which such other provider “was allegedly not expected to substantially repay” as a means of inducing referrals for obstetrics and gynecology patients to seek medical attention at a particular hospital. The Anti-Kickback Statute prohibits “the knowing and willful payment of any remuneration to induce the referral of services or items that are paid for by a federal health care program, such as Medicaid,” and claims that are submitted to federal health care programs in violation of the Anti-Kickback Statute can also constitute false claims under the False Claims Act. The settlement resolves a qui tam case filed by an individual under the whistleblower provisions of the False Claims Act. Under the terms of the settlement, the providers agreed to pay a total of $18 million, with each of them paying $5.1 million to the United States and $3.9 million to the State of Indiana.

    State Issues State AG False Claims Act / FIRREA Whistleblower DOJ

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  • High Court Passes on Opportunity to Resolve Circuit Split over Statutory Requirements for Whistleblower Protection Under Dodd-Frank Act

    Courts

    On March 21, the U.S. Supreme Court denied a Petition for Writ of Certiorari in Verble v. Morgan Stanley Smith Barney, LLC,  (No. 16-946), thereby declining to resolve a circuit split regarding whether the protections against retaliation provided in the Dodd-Frank Act extend to whistleblowers who do not report the misconduct to the SEC. At issue were the statutory requirements for qualifying as a “whistleblower” under the Dodd-Frank Act. While the Act defines “whistleblower” as an individual who reports wrongdoing “to the Commission,”[1] a separate provision provides protection against retaliation for whistleblowers reporting wrongdoing under Sarbanes-Oxley,[2] which includes both reporting to federal agencies or internal reporting within the company.[3]

    The Verble case came to the Court on appeal from a Sixth Circuit decision affirming the dismissal of Mr. Verble’s claim that he was improperly terminated in retaliation for being a confidential informant (and whistleblower) to the FBI. A U.S. District Court for the Eastern District of Tennessee dismissed the former financial advisor’s Dodd-Frank retaliation claim after finding that Dodd-Frank’s anti-retaliation provision was available only for whistleblowers who reported their concerns directly to the SEC. See Verble v. Morgan Stanley Smith Barney, 148 F. Supp. 3d 644 (E.D. Tenn. 2015). On appeal, the Sixth Circuit affirmed the dismissal, but did not reach the issue regarding the scope of Dodd-Frank’s anti-retaliation provision. Rather than taking sides on the split between circuits, the Sixth Circuit panel opted instead to base its decision solely on the ground that Mr. Verble “fail[ed] to meet the threshold requirement of providing enough facts to state a plausible claim for relief.” 

    On January 26, Mr. Verble filed the aforementioned unsuccessful Petition for Writ of Certiorari. The first question presented in the petition for certiorari was whether the Sixth Circuit erred by avoiding the issue; next, Mr. Verble asked the Court to settle a split between the Fifth and Second Circuits—the only two circuits to have opined on the issue. Weighing in first, the Fifth Circuit had strictly applied the Dodd-Frank Act’s definition of “whistleblower” to the later anti-retaliation provision, so as to require dismissal of the plaintiff’s action in that case because he did not make his disclosures to the SEC. See Asadi v. G.E. Energy (USA), L.L.C., 720 F.3d 620, 621 (5th Cir. 2013). In so doing, the court declined to rely upon an SEC regulation adopting a contrary interpretation. By contrast, the Second Circuit, viewing the statute itself as ambiguous, applied Chevron deference to (and accepted) the SEC’s interpretation, which extended protections to all whistleblowers. Berman v. Neo@Ogilvy LLC, 801 F.3d 145, 155 (2d Cir. 2015).

    Notably, while the petition for certiorari was pending, the Ninth Circuit became the third appellate circuit to stake out a position on the existence of an external reporting requirement when, in an opinion filed on March 8, it held that the Dodd-Frank Act whistleblower provision “unambiguously and expressly protects from retaliation all those who report to the SEC and who report internally.” See Somers v. Digital Realty Trust, No. 15-17352, 2017 WL 908245 (9th Cir. 2017).

     

    [1] 15 U.S.C. § 78u-6(a)(6)

    [2] 15 U.S.C. § 78u-6(h)(1)(A)(iii)

    [3] 17 C.F.R. § 240.21F-2 (2011)

    Courts SCOTUS Dodd-Frank Whistleblower SOX

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  • Justice Department Recovers Over $4.7 Billion From False Claims Act Cases in Fiscal Year 2016

    Federal Issues

    On December 14, the DOJ announced that it has obtained more than $4.7 billion in settlements and judgments in civil cases involving fraud and false claims against the government in fiscal year 2016 (ending September 30). Of the $4.7 billion recovered, $2.5 billion came from the health care industry, including drug companies, medical device companies, hospitals, nursing homes, laboratories, and physicians. The DOJ also recovered $1.6 billion from housing and mortgage settlements and judgments this past fiscal year – the second highest annual recovery in the history of the federally insured mortgage program.

    There were 845 new False Claims Act suits in 2016, one of the largest totals in history. Of those, 143 were initiated by the government and 702 were brought by whistleblowers. Approximately $100 million was recovered in cases handled exclusively by whistleblowers and their attorneys—a sharp drop from the record $1.1 billion recovered in 2015, but an amount comparable to the averate amount recovered in previous years. Notably, the $4.7 billion recovered in 2016 does not include state shares. Such shares were significant in 2016 because of payouts involving the federal-state Medicaid program, with the top three health care settlements alone resulting in distributions of approximately $500 million to states.

    Federal Issues Mortgages Fraud Whistleblower False Claims Act / FIRREA Health Care

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  • SEC Announces $22 Million-Plus Whistleblower Award; Program Surpasses $100 Million in Awards

    Securities

    On August 30, the SEC announced that a whistleblower will receive more than $22 million for providing the SEC with a “detailed tip and extensive assistance” to help the agency uncover “well-hidden” securities fraud at the whistleblower’s company. The $22 million-plus award is the second largest SEC whistleblower award, following a $30 million award in September 2014. The SEC began the whistleblower program in 2011 and announced its first award in August 2012. Since then, the agency’s program has surpassed $100 million in total money awarded. More than 14,000 whistleblower tips have been submitted to the Whistleblower Office, with a total of 33 whistleblowers receiving monetary awards.

    Fraud SEC Whistleblower

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  • SEC Awards At Least $5 Million to Whistleblower

    Securities

    On May 17, the SEC announced that a former company insider will receive between $5 million and $6 million for providing a “detailed tip” that led the agency to uncover securities violations. According to the SEC, without the whistleblower’s information, the violations would have been “nearly impossible” to detect. Since the SEC started its whistleblower program in 2011, the agency has awarded more than $67 million to 29 whistleblowers. The SEC’s most recent award is its third highest and follows a $3.5 million award announced last week.

    SEC Whistleblower

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  • SEC Reports on Dodd-Frank Whistleblower Program

    Securities

    On November 16, the SEC’s Office of the Whistleblower (OWB) issued its 2015 annual report to Congress on its Whistleblower Program established pursuant to Dodd-Frank. According to the report, in Fiscal Year 2015, the OWB received more than 3,900 whistleblower tips – a 30% increase since 2012, which the SEC attributes to increased public awareness of the program due to Dodd Frank’s implementing rule awarding tipsters 10 to 30 percent of a securities violation when the penalty is greater than $1 million. Additional items to note from the report include: (i) the SEC brought its first enforcement action against a company for using language in confidentiality agreements that impeded a whistleblower from reporting possible securities law violations; (ii) the SEC received whistleblower submissions from all 50 states and the District of Columbia, along with tips from individuals in 95 countries outside of the U.S.; and (iii) the most common complaint categories reported were Corporate Disclosures and Financials, followed by Offering Fraud and Manipulation.

    SEC Whistleblower

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  • SEC Announces Whistleblower Award to Compliance Officer, Over $1 Million Dollars

    Securities

    On April 22, the SEC announced an award of more than $1 million to a compliance officer for providing the agency with information on the company’s misconduct. The Dodd-Frank Act whistleblower regime is designed to encourage employees to submit evidence of securities fraud. When sanctions of a successful enforcement action exceed $1 million, the program allows for up to 30 percent of the money collected to be provided to the whistleblower. Since the program began in 2011, 16 whistleblowers have received upwards of $50 million from an investor protection fund, which was established by Congress and is financed through the monetary sanctions the SEC receives from securities law violators.

    Dodd-Frank SEC Whistleblower

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