Recent Increase in Breadth and Number of Whistleblower Actions May Signal “Tip” of the Iceberg
Think you don’t practice in the area of whistleblower claims?
Think again … because in a year you just might.
Why? Thanks to recent expansion of the False Claims Act and increased governmental incentives encouraging private individuals to come forward with insider fraud allegations, whistleblower actions now touch almost every practice and industry sector as filings of such actions continue to rise.
Whistleblower (or qui tam) actions have experienced significant increases, both in numbers of filings and amounts of recoveries, in response to recent federal and state statutory reform expanding the reach and strength of the False Claims Act.
For example, according to the Department of Justice, annual recoveries in whistleblower cases reached an all-time high in 2011, amounting to the largest three-year total in history and bringing in $8.7 billion since January 2009. The Department of Justice also reports that the number of qui tam suits reached well over 600 at the end of 2011, almost doubling the usual number of annual suits filed for much of the previous decade.
Expect this trend to continue. According to a comprehensive 2012 mid-year report on the False Claims Act published by Gibson Dunn, whistleblowers received more than half a billion dollars in awards in 2011 alone. Whistleblower suits are increasing exponentially as enforcement efforts at both the federal and state levels have never been stronger. Meanwhile, increase in whistleblower litigation and expansion of claims from healthcare to other sectors brings a parallel need for specialized experts who can consult in a wide variety of less traditional, fraud-related subject matter areas, includng securites, commercial lending, and tax.
Blowing the Whistle
As many readers know, whistleblower actions are typically filed under the False Claims Act, and allow private individuals (“relators”) to bring suit on behalf of the United States where the private individual has information that a possible defendant has knowingly submitted or caused submission of a false or fraudulent claim to the United States. Whistleblower actions are unique in that they allow the whistleblower to receive a financial reward in the event the government recovers damages.
In short, filing of a qui tam complaint initiates a government investigation of the allegations. The investigation can involve a number of evidence gathering techniques, including subpoenas for records, witness interviews, oral testimony, and now may require a broadening array of subject matter or technical experts for consultation or testimony, depending on the nature of the suit.
Tip of The Iceberg?
For litigators, experts, and others involved in such actions, this may just be the tip of the iceberg. Recent reports abound of huge payouts for whistleblowers coupled with high-profile recoveries against major players spanning a variety of industries.
For example, July of this year brought reports of resolution of quite possibly the largest healthcare False Claims Act case to date when GlaxcoSmithKline agreed to pay $3 billion to settle a series of cases brought to the U.S. government by whistleblowers.
While most claims under The False Claims Act have traditionally occurred in the healthcare industry, the past few months have shown burgeoning development towards extending large recoveries to other industries and sectors:
- Banking Industry
- On September 11, 2012 the IRS reportedly paid out possibly its highest whistleblower reward ever when it awarded an ex-banker $104 million for exposing UBS AG’s strategy for alleged widespread tax evasion occurring in the Swiss private banking institution. The whistleblower’s actions resulted in a $780 million fine against the bank and the turning over of thousands of suspected American tax evaders to the IRS.
- Securities Industry
- On August 21, 2012 the U.S. Securities and Exchange Commission (SEC) reported that a whistleblower who assisted in allegedly halting a multi-million dollar fraud will receive the first payout under provisions of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). Modeled after the False Claims Act, the Dodd-Frank Act strengthens protections given to whistleblowers and expands the scope of the False Claims Act to include companies under the jurisdiction of the SEC or U.S. Commodity Futures Trading Commission (CFTC).
- Mortgage Lending Industry
- On February 9, 2012 the Department of Justice reported a historic $25 billion settlement agreement in connection with alleged abuses involving five of the biggest mortgage servicers in the largest federal-state civil settlement to date. According to reports, whistleblowers were awarded more than $46 million collectively in connection with their part in the recovery.
Expect Upward Trend to Continue
As for the future? Expect claims, litigation, and enforcement actions to continue to rise as the justice system plays catch-up with enhanced power to enforce such claims in a growing variety of industries and sectors. We predict an increase in the need for attorneys who can litigate such actions as well as experts who specialize in a wide variety of industries.
Final Considerations…Food for Thought
Is too much focus placed on the regulatory compliance demanded of certain industries in an increasingly regulated commercial marketplace? Does heightened time and oversight needed to avoid any possible violation and threat of governmental investigation end up increasing the costs of running a business, which then shift to consumers in the form of higher prices for services or products? Do increased incentives for whistleblowers discourage internal resolution of what might actually be mistake?
Although few would argue against the notion of reducing taxpayer waste and curbing actions intent on perpetrating abuse and fraud on the U.S. government, have whistleblower actions gone too far?