By Glenn C. McGovern, Attorney
Metairie, La.
I just changed all my initial client interview forms as there was something I was missing. I realized I was totally missing extremely large quantum potential claims. I have been overlooking such False Claims Act (FCA), (31 U.S. C. 3729 (a)(1)(A-‐G), qui tam, banking, mortgage and The Sarbanes-‐Oxley Act (SOX )claims in the course of the routine screening cases. Unfortunately, most of us plaintiff attorneys are making the same mistake.
From 1987 to 2010, false claims Act recoveries have increased significantly due to whistleblower contributions according to the U.S. Department of Justice, Civil Fraud Division. In 2010, 80% of the U.S. Civil Fraud Recovery was from whistleblowers and only 20% from non-‐whistleblowers. (The full report is reprinted at www.whistleblowers.org.)
Congress has responded to continued financial frauds in the banking and mortgage industry. The Dodd-‐Frank financial rewards are modeled on existing qui tam whistle blowing reward programs covering federal contracting and procurement, the False Claims Act and tax fraud/underpayment of taxes in the Internal Revenue Code Whistleblower Rewards It is also based on the rewards part of the Securities Exchange and Commodity Exchange Acts. The Securities Exchange Act incorporates other laws, such as the Foreign Corrupt Practices Act. The whistleblowers "original" information must have "led to the successful enforcement" of the law, and result in he payment of "sanctions" to the SED or CFTC of one million dollars or more. The qualified whistleblowers must be paid no less that 10% and no more than 30% of the total sanction obtained by the SEC or CFTC. Whistleblowers can file their claims anonymously through an attorney. (SEC Act, 15 U.S. C. §78u-‐6 and Commodity Exchange Act (CEA) 7 U.S.C. § 23. There are anti-‐ retaliation provisions in SEC and CEA law to protect employees who file reward claims. There is no mandatory arbitration allowed. There is a right to proceed in federal court and a right to jury trial. There is even a federal obstruction of justice state that makes the retaliation criminal with fines and imprisonment of not more than 10 years in jail. 18 U.S.C. §1513(e)
Our clients work every day in corporate America. They are the ones who know fraudulent activity in their workplace before any auditors or government regulators may ever know 80% of the time. In our role with representing them as their attorneys, we are also in the best position to discover fraud that is occurring by banks, credit unions, mortgage lenders, government contractors, drug manufacturers, Medicare health care providers, air carriers and their parts suppliers just to name a few.
EMPLOYEES DO NOT KNOW THESE CLAIMS MAY APPLY
Employees usually initially are immediately concerned with being treated unfairly. That's generally all they know. They were wronged, being mistreated and come to you for help. They may come to an attorney initially due to sexual harassment, racial discrimination, age discrimination or retaliation for reporting unethical behavior and illegal acts. Yet there are many multiple larger claims clients have no idea exist-very large claims, may that tower way above the quantum of the single employment claim they are concerned with when they see their attorney. They are usually focused on their supervisor's wrongdoing and not on a bigger picture of FCA and qui tam retaliation claims.
SCREEN FOR MORE THAN THE PROBLEM AT HAND BUT FOR FALSE CLAIMS ACT AND QUI TAM CASES
It is important in handling all cases when a client is interviewed that you ask questions about practices in the work place they know so well as employees. Why? Because usually an employee is not aware of the numerous new laws that reward whistleblowers with potentially millions of dollars in rewards for reporting fraudulent conduct. It behooves every attorney to take a little extra time to question the employee about potential fraudulent practices in the workplace.
A FEW OF THE MANY LAWS WITH A FEW EXAMPLES OF CLAIMS WE ALL NEED TO SCREEN FOR
The FCA, 31 U.S.C. §3729(a)(1) (A-‐G) includes seven separate ways in which a defendant may be held liable. Congress attempted to capture every potential scheme where the government could be cheated including making liable the ones who caused the wrongful conduct. Senate Bill 386 now defines a "false statement" to include mortgage applications statement by mortgage brokers as defined in 18 USC Sect. 1014. FERA was amended to amend the definition of "financial institution" in he criminal code 18 U.S. C. § 20 to cover private brokers. Congress appropriated $265 million to hire more than 160 F.B.I agents and 200 more Justice Department Prosecutors to work on mortgage fraud alone.
Let's talk about some examples of what to look for in screening cases. It is said some contracts by SEC registered corporations in China for example involve some kickbacks paid to foreigners by U.S. companies. If such kickbacks are not listed on the SEC 10k forms, that would be a violation of the Corporate and Criminal Fraud Accountability Act of 2002 (The Sarbanes-‐Oxley Act). The SEC and Commodity Exchange Act now provide that anonymously reporting to the SEC can be made by the attorney for he whistleblower employee. There is a good reason for this. The employee can continue to work and provide valuable information to the government without the employer knowing whom the whistleblower is. If the whistleblower and relater is discovered by the employer, the act provides anti-‐ discrimination protection to employees of publicly traded corporations who report violations of the Securities Exchange Act or any other federal law relating to fraud against shareholders. The rewards paid to relaters' can be from 10% to 30% with 17% to be an average reward paid. The relater must be the first to report the claim to recover the reward.
There can be multiple qui tam statues and huge damages that are triggered by a multiple repeated acts of fraud. For example, take the case of an air carrier who has a contract to do business in Iraq or Afghanistan. The company is perhaps providing or using unairworthy parts ( a violation of 14 C.F.R. § 42.12) or providing unairworthy planes in violation of the terms of its contract with the federal government.. Perhaps it is supplying defective bulletproof vests to the government. The corporation may also be a SEC corporation thus may not be accurately filing its SEC disclosures. The employee may know first hand of the fraud but probably does not know what a qui tam claim is.
The employee/client may have a bad/weak employment complaint but a good FCA qui tam Retaliation Claim that the employer may have violated its government contract. If the employer retaliates against the employees protected activity in reporting the unairworthy parts or operations issues that affect air safety there would not only be a FCA qui tam Retaliation Claim under the FCA Act, 31 U.S.C. § 3730(h) but also a claim under the Sarbanes-‐Oxley Act, (SOX) The FCA Act for fraud committed against the federal government in fulfilling its federal contract. There would also possibly exist a violation of the Wendell H. Ford Aviation Investment and Reform Act for the 21st Century (AIR21). Air 21 also provides retaliation protection to employees of air carriers, contractors, or subcontractors of air carriers who raise safety concerns definitely and specifically. But selling knowingly defective unairworthy parts and/or using unairworthy aircraft could trigger the FCA and SOX Act. These can be 100 million dollar contracts in which the penalty is disgorgement of the all the money received. The rewards can be very large and much larger than the mere retaliation claim. Naturally the employee retaliation claim becomes worth far more due to the potential qui tam claim.
The employee may come to you to complain about retaliation for bringing fraud to the attention of the SEC of a employer that is a publicly traded corporation that files reports with the SEC. The SEC registered employer finds out about the whistleblower and retaliates. Thus there is a possible Dodd-‐Frank Retaliation Claim. But there would also be a possible qui tam claim for the employer's fraud committed against the federal government and the employee sues on behalf of the federal government in a sealed qui tam lawsuit to recover losses caused by the fraud.
An employee may complain and report that the employer is filing false claims for payment to perform hazardous waste treatment and disposal services at the site of a toxic chemical plant. The employee may have a La. State Environmental Whistleblower claim, a FCA qui tam claim and a Comprehensive Environmental Response, Compensation and Liability Act Of 1980 ( CERLA) lawsuit. The CERLA act also protects internal disclosures. An employee with a FDIC insured depository institution has protection for disclosures made to a "Federal Banking agency or Attorney General" under the FDIC Whistleblower Statue. The act protects reporting of a possible violation of any law or regulation, or gross mismanagement, a gross waste of funds, an abuse of authority or a substantial and specific danger to public health or safety by he depository institution. Lippert v Cmty. Bank, Inc. 438 F.2d 1275 (11th Cir. 2006). Thus the employee may also have not only a FDIC Whistleblower State claim ( or he/she may not if he/she failed to report to the Federal Banking agency or Attorney 4 General) and may have a qui tam claim of there was fraud against the government for say, overcharging the federal government on interest on loans it collected or charged.
There are many other examples. Fraudulent shipyards doing work for the government, military contractors providing defective gun barrels, universities that file false grant applications, false flood claims to the National Flood Insurance program, selling substandard parts and food to the federal government or falsely certifying receipt of substandard vessels to the federal government can all be violations of the FCA under 31 U.S.C. 3729(a)(1) (A-‐G)
There are many other federal acts that may lead a client to have a valid or invalid retaliation complaint but still may lead you to learn of a viable qui tam claim that may be worth far more that the originally perceived employee complaint.
I have changed my initial client screening techniques to take a little more time to explore these areas of possible corporate fraudulent activity. I suggest we all do the same. This will benefit our government and society. We can serve the public and our clients well in being on the frontlines of preventing fraudulent activity such as the recent mortgage lending and investment banking disasters, from which we have still not fully recovered.
