SEC Issues 2016 Whistleblower Report, Has Issued $111 Million in Whistleblower Awards to Date

Written December 2, 2016 by Matthew Melamed

On November 15, 2016, the U.S. Securities and Exchange Commission (“SEC”) issued its 2016 Annual Report to Congress on the Dodd-Frank Whistleblower Program.  According to Jane Norberg, Chief of the SEC Office of the Whistleblower, “Fiscal Year (FY) 2016 was historic for the SEC’s whistleblower program,” including surpassing the $100 million mark in awards issued since the program started.  Norberg continued: “Because of the key features of the whistleblower program – protecting the confidentiality of individuals who report through the program, taking action against employers who retaliate against or interfere with their employees’ ability to report wrongdoing to the agency, and awarding whistleblowers whose information leads to successful enforcement actions – we expect that the Commission will continue to receive high-quality tips that can be leveraged to detect and halt fraud earlier and more effectively.”

4,200 Tips, $57 Million Awarded in 2016During FY 2016 alone, the SEC received more than 4,200 tips and awarded more than $57 million to 13 whistleblowers, including 6 of the 10 highest awards ever issued under the program.  Each of the whistleblower awards resulted from information the SEC did not previously know, and which led to the opening of an investigation or significantly contributed to a successful enforcement action.

Enforcement Actions to Protect Whistleblowers.  The SEC also reported “significant and ground-breaking enforcement activity on the whistleblower protection front,” including the first stand-alone case brought against a company that fired a whistleblower after he reported questionable financial statements to senior management and the SEC.  The enforcement action resulted in a $500,000 penalty against the company.  The SEC also brought numerous enforcement actions against companies for entering into separation or severance agreements that sought to impede former employees from communicating voluntarily with the SEC.  These actions demonstrate the SEC’s commitment to protecting whistleblowers.  As Chief Norberg explained: “Assessing confidentiality, severance, and other kinds of agreements that may stifle a would-be whistleblower from reporting his or her information to the agency and that strip away the very incentives Congress intended for the program will continue to be a top priority for the SEC’s Office of the Whistleblower . . . .”

Claims Leading to Awards.  Though the SEC is prohibited from disclosing any information that reasonably could be expected to reveal the identity of a whistleblower, the Report discloses that 65% of award recipients were current or former insiders at the company on which they reported information of wrongdoing.  The remaining award recipients were either investors who had been victimized by the fraud, professionals working in the same or a related industry, or individuals who had a personal relationship with the wrongdoer.  The Report also provides that awards have resulted from complaints about financial services firms (including broker-dealers and investment advisers), Ponzi-schemes, false or misleading offering memoranda or marketing materials, accounting irregularities, and internal controls violations, among others.

Worldwide Whistleblowing.  Whistleblower tips were filed by citizens of every U.S. state and more than 60 foreign countries (including citizens of every continent but Antarctica) during 2016.

For more information about the SEC Whistleblower Program and the Firm’s resources in this area, please visit the Robbins Geller Rudman & Dowd LLP Whistleblower page.

PharMerica to Pay $23.5 Million to Settle False Claims Act Lawsuit

Written May 18, 2015 by Robert Lu

On Thursday, May 14, 2015, the U.S. Justice Department announced that PharMerica Corporation has agreed to pay the United States $23.5 million to resolve a lawsuit alleging that it violated the False Claims Act by submitting false claims to Medicare for Schedule II controlled substances without first obtaining the necessary physician prescription showing a medical need.   A separate part of the lawsuit, and settlement, resolved allegations that PharMerica violated the Controlled Substances Act. That portion of the lawsuit was resolved for $8 million.

PharMerica is a long-term care pharmacy that dispenses medications to residents of long-term care facilities, including nursing homes and skilled nursing facilities. Many of the prescriptions filled by PharMerica are for controlled substances listed in Schedule II under the Controlled Substances Act. Schedule II drugs, such as oxycodone and fentanyl, can cause significant harm if used improperly and have a high potential for abuse. The lawsuit alleged that that PharMerica submitted false claims to Medicare for drugs dispensed without valid prescriptions in violation of the Controlled Substances Act.
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SEC Awards Compliance Officer Approximately $1.5 Million Whistleblower Bounty

Written April 22, 2015 by Robert Lu

On April 22, 2015, the SEC announced that it would pay an unidentified compliance officer a whistleblower bounty award of between $1.4 and $1.6 million. This is the second award that the SEC has made to a whistleblower with internal audit or compliance responsibilities. According to the SEC, the recipient of the bounty award “had a reasonable basis to believe that disclosure to the SEC was necessary to prevent imminent misconduct from causing substantial financial harm to the company or investors.”

This current whistleblower bounty underscores the SEC’s position that employees who perform audit and/or compliance functions are eligible to receive bounty awards and may not be precluded from communicating with the SEC about potential securities violations. This award by the SEC sends the message that companies should effectively address internal reports of misconduct, whether from a compliance officer or other employees.

Since its inception in 2011, the SEC’s whistleblower program has paid more than $50 million to 16 whistleblowers who provided the SEC with “unique and useful information that contributed to a successful enforcement action.” In August 2014, the SEC announced its first whistleblower award to a compliance employee — a $300,000 award to an employee who performed “audit and compliance functions and reported wrongdoing to the SEC after the company failed to take action when the employee reported it internally.”

For additional information about the SEC Whistleblower program, or the Firm’s resources in this area, please visit the Robbins Geller Rudman & Dowd LLP Whistleblower page.

Two Medical Laboratories to Pay $48.5 Million to Settle False Claims Act Claims of Paying Kickbacks and Conducting Unnecessary Testing

Written April 10, 2015 by Robert Lu

On Thursday, April 9, 2015, the U.S. Department of Justice announced that Health Diagnostic Laboratory Inc. (HDL) and Singulex Inc. agreed to pay at least $47 million and $1.5 million, respectively, to settle civil allegations that they paid doctors for patient blood and billed Medicare for medically unnecessary testing. At the same time, the government also intervened in related lawsuits involving similar allegations against another laboratory, Berkeley HeartLab Inc.; a marketing company, BlueWave Healthcare Consultants Inc., and its owners, Floyd Calhoun Dent and J. Bradley Johnson; and former CEO Latonya Mallory of HDL.

As alleged in the lawsuits, HDL, Singulex and Berkeley induced physicians to refer patients to them for blood tests by paying them processing and handling fees of between $10 and $17 per referral and by routinely waiving patient co-pays and deductibles. In addition, HDL and Singulex allegedly conspired with BlueWave to offer these inducements on behalf of HDL and Singulex. As a result, physicians allegedly referred patients to HDL, Singulex and Berkeley for medically unnecessary tests, which were then billed to federal health care programs, including Medicare.

The lawsuits were filed by Dr. Michael Mayes, Scarlett Lutz, Kayla Webster and Chris Reidel under the qui tam, or whistleblower, provisions of the False Claims Act. Under the Act, private citizens can bring suit on behalf of the government for false claims and share in any recovery. The whistleblowers’ share of the settlements has yet to be determined.

For additional information about the False Claims Act, and the Firm’s resources and services for whistleblowers under the Act, please visit the Robbins Geller Rudman & Dowd LLP Whistleblower page.

Why 2015 Could Be Huge For Whistleblowers: Predictions and Perspectives

Written January 26, 2015 by Robert Lu

Unquestionably, 2014 was a banner year for whistleblowers on many fronts. The U.S. Securities and Exchange Commission (“SEC”), under the penumbra of the relatively new Dodd-Frank Act, started to sharpen its focus on corporate whistleblowing, as evidenced by the record payout in September 2014 of more than $30 million to a whistleblower who had helped alert the SEC to what it described as an ongoing fraud. And not to be outdone, the U.S. Justice Department recovered nearly $6 billion from False Claims Act cases in fiscal year 2014. According to the Justice Department, this was the first time the government’s annual recovery exceeded $5 billion, and for the second consecutive year there were over 700 whistleblower lawsuits filed.  These trends will likely continue going forward as both the SEC and the Justice Department have increased resources for fighting and ferreting fraud. Continue reading

Defense Contractor Lockheed Martin Agrees to Pay $27.5 Million to Settle Overbilling Allegations under the False Claims Act

Written December 22, 2014 by Robert Lu

On December 19, 2014, the Justice Department announced that a subsidiary of defense contractor Lockheed Martin has agreed to pay $27.5 million to resolve allegations that it overbilled the government.

The settlement announced by Acting Assistant Attorney General Joyce R. Branda for the Justice Department’s Civil Division and U.S. Attorney Paul J. Fishman for the District of New Jersey resolved allegations that LMIS, a subsidiary of Lockheed Martin, violated the False Claims Act by knowingly overbilling the government for work performed by LMIS employees. According to the complaint, LMIS allegedly violated the terms of the contracts by using under-qualified employees who were billed to the United States at the rates of more qualified employees. The overbilling allegedly resulted in greater profit for LMIS.

For more information about the False Claims Act, which provides for treble damages and up to 30% of the government’s recovery as a reward to whistleblowers, visit the Firm’s whistleblower page.

Dignity Health Agrees to Pay $37 Million to Settle False Claims Act Allegations

Written November 14, 2014 by Janine Arno

On October 30, 2014, the Department of Justice announced Dignity Health has agreed to pay the United States $37 million to settle allegations that 13 of its hospitals in California, Nevada and Arizona knowingly submitted false claims to Medicare and TRICARE by admitting patients who could have been treated on a less costly, outpatient basis, the Justice Department announced today.  Dignity, formerly known as Catholic Healthcare West, is based in San Francisco and is one of the five largest hospital systems in the nation with 39 hospitals in three states.
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SEC Rewards Tipster With Whistleblower Award

Tom Zanki

Law360, New York (July 31, 2014, 6:48 PM ET) — The U.S. Securities and Exchange Commission on Thursday announced an award of more than $400,000 to an unnamed whistleblower who reported a fraud to the agency after company involved failed to address the issue internally despite several alerts.

The SEC said the whistleblower provided the agency with timely and credible details that allowed for a more rapid investigation that exposed underlying misconduct. The agency did not disclose the nature of its enforcement action.

“The whistleblower did everything feasible to correct the issue internally,” Sean McKessy, chief of the SEC’s Office of the Whistleblower, said in a statement. “When it became apparent that the company would not address the issue, the whistleblower came to the SEC in a final effort to correct the fraud and prevent investors from being harmed.”

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6 Lessons For Lawyers From Feds’ 2013 FCA Haul

January 6, 2014

Health Care Is Still the Epicenter

The lion’s share of FCA recoveries has long come from health care and life sciences, with the defense industry placing a distant second. There’s been speculation in recent years that better compliance among providers and drugmakers, along with wider application of the FCA, could change things. In 2012, for example, just 60 percent of recoveries were related to health care, an unusually low portion.

But there was no evidence of a shift in 2013, as more than 68 percent of FCA proceeds were derived from the health and life sciences industries.

Robert K. Lu, a former health fraud lawyer at the DOJ who is now at Robbins Geller Rudman & Dowd LLP, said the disparity will almost certainly persist, given that Medicare and Medicaid are expanding and the federal government is taking on an even greater role in health care.

“I just don’t see that share of the pie in terms of FCA recovery ever dropping below two-thirds,” Lu said.

It’s possible that the proportion will remain stable instead of becoming even more skewed toward health care, Lu said, depending on the government’s success using other statutory tools to go after businesses in other fields. Several looming cases, for example, are testing the potency of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 for punishing fraud.

“The only reason I could see where the numbers don’t trend upward as highly as we expect them to is just a different emphasis on priorities,” Lu said.

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