Kansas City Whistleblower Lawyer Blog

For the fiscal year ending September 30, 2011, the US Department of Justice (DOJ) recovered more than $3 billion under the False Claims Act. Of this amount, recoveries for fraud against US health care programs amounted to $2.4 billion. This is the 2nd year in a row that justice has recovered greater than $3 billion and the grand total amount recovered for all claims since 2009 was $8.7 billion.

The provisions of the False Claims Act allow individuals to file claims on behalf of the government. These individuals are known as relators and/or whistleblowers who report fraud, oftentimes an act that is fraught with risk and personal sacrifice. Assistant Attorney General West thanked these citizens with the following statement. "We are tremendously grateful to whistleblowers who have brought fraud allegations to the government's attention and assisted us in this public-private partnership to fight fraud."

US healthcare programs that sustained fraud include Medicare and Medicaid programs, health programs for Federal employees and Veterans, as well as the TRICARE program, which is administered by the Department of Defense for the benefit of Uniformed Service members, retirees and their families. Use of the False Claims Act for the recovery of federal health care dollars has yielded in excess of $6.6 billion dollars just since January 2009, which is the most recovered under this act during any previous 3 year period.

This was a top priority for the Obama administration. In support of this goal, the Health Care Fraud Prevention and Enforcement Action Team (HEAT) was created in May of 2009 in order to improve coordination between agencies and to step up enforcement.

Of the amounts recovered for healthcare fraud, the feds report that claims against the pharmaceutical industry represent the largest source of recoveries. Allegations against drug companies include illegal pricing for the purpose of profit maximization as well as criminal and civil charges against GlaxoSmithKline for adulterated drugs paid for by federal healthcare programs. Unfortunately, industry executives define these payouts, off-the-record, as a cost of doing business. Patrick Burns of Taxpayers Against Fraud, writes, "We are not seeing a decline in pharmaceutical fraud cases. Instead we are seeing the addition of other fraud streams, such as medical devices and pension fraud."

Justice also continues to aggressively pursue fraud in government procurement and financial fraud in the housing and mortgage industries in the aftermath of the financial disaster. To this end, the Financial Fraud Enforcement Task Force was established by President Obama in 2009 and is tasked with the pursuit of individuals and corporations contributing to the crisis. Nearly $358 million of the $3 billion collected in fiscal year 2011 resulted from this effort.

Senator Charles Grassley (R-Iowa) and Representative Howard Berman (D-California) have been leading the way since 1986 when they successfully led Congress to amend the False Claims Act, which included enhanced qui tam provisions that incented individuals to blow the whistle on fraud when they saw it. These individuals, along with Senator Patrick J. Leahy, chairman of the Senate Judiciary Committee, also supported the Fraud enforcement and Recovery Act of 2009. This act made possible additional improvements to the False Claims Act and many other fraud statutes.

Assistant Attorney General West stated that, "Twenty-eight percent of the recoveries in the last 25 years were obtained since President Obama took office. These record-setting results reflect the extraordinary determination and effort that this administration, and Attorney General Eric Holder in particular, have put into rooting out fraud, recovering taxpayer money and protecting the integrity of government programs."

Sources:

Justice Department Recovers $3 Billion in False Claims Act Cases in Fiscal Year 2011, Department of Justice, December 19, 2011.

Pharma Fraud Continues to Fill the US Treasury, by Ed Silverman, Pharmalot.com, December 19, 2011

The new Securities and Exchange Commission's Office of the Whistleblower opened on August 12, 2011. The new office is responsible for fielding tips received from whistleblowers, enforcing SEC rules and supporting the SEC in determining awards for whistleblowers. Motivated by the potential for large monetary awards, along with citizens' wanting to speak out about corporate wrongdoing, the expectation is that the number of individuals willing to report complaints to the SEC will increase dramatically.

This increase in activity is evidenced by the increase in these types of cases filed with the federal government since 2005, according to the Department of Labor's Occupational Safety and Health Administration (OSHA). While supporters of labor and shareholder interests are very much in favor of this trend, it puts increased pressure on corporations to ensure that strong internal compliance programs are in place as well as good communications and training to encourage internal reporting. Additionally, corporations are well served to have anti-retaliation policies in place.

OSHA administers multiple whistleblower protections under laws such as Sarbanes-Oxley and the Consumer Financial Protection Act. The agency has seen an increase in whistleblower complaints, specifically 2,339 charges in 2011 (through September 14, 2011), compared to 2,319 for all of 2010, and 2,158 in 2009.

Geoffrey Rapp, the Harold A. Anderson Professor of Law and Values at the University of Toledo's College of Law, commented on the increase in whistleblower charges. "The goal here is to get information about fraud before it becomes so serious, as in the collapse of [Bernard] Madoff and Enron, where the whole company falls apart, or the economy falls apart."

One such case recently concluded against Bank of America, in which the bank allegedly used retaliatory tactics against a whistleblower. OSHA ordered the bank to pay the former employee $930,000 in interest and back wages and to reinstate the employee.

The uptick in whistleblower activity garners conflicting opinions within the legal industry. Gregory Keating, co-chair of Littler Mendelson's whistleblower practice, believes that the monetary incentives are motivating individuals to go forward with unsubstantiated claims, citing examples of employees who were suffering from poor performance threatening to blow the whistle.

Those on the other side of the argument indicate that since government enforcers are limited, the new rules are necessary to incent corporate employees, who might otherwise be reluctant to come forward to blow the whistle on wrongdoing. Some also say that the increase in complaints is a sign of the times in which we live.

The 2010 Ethics & Workplace Survey by Deloitte reports that the financial collapse has compromised trust and ethics, highly important components in conducting business. The survey indicated that almost a third of employees reported that their colleagues are more likely to be unethical in this environment and that those planning to look for new jobs would do so as a result of a loss of trust in their employers.

Reuben Guttman, an attorney for Grant & Eisenhofer, a law firm specializing in corporate governance and fraud, stated that, "We live in an era where people are more open about second-guessing institutional activity." He also indicated that the financial collapse caused many people to "open their eye[s]. Entities we thought were reputable may be making misrepresentations and not telling the truth about what they're doing."

Sources:

Increased motivation for whistle-blowing, AccountingWEB in Watchdog, November 18, 2010

More workers willing to blow the whistle on their employer, Careers on MSNBC.com, September 19, 2011

Rise of the Whistleblowers, Law360, New York, August 22, 2011

The Dodd-Frank Wall Street Reform and Consumer Protection Act established a whistleblower program to be adopted by the Securities and Exchange Commission (SEC). Specifically, section 922 of the Dodd-Frank act amended the Securities Exchange Act of 1934 by adding a new section called "Securities Whistleblower Incentives and Protection." According to this new section, the SEC is to pay awards to whistleblowers that provide the SEC with original information that leads to the successful action whereby the SEC assesses greater than $1 million in fines and sanctions. The rules for this program to be adhered to by corporate compliance departments were finalized on May 25, 2011. Prior to the Dodd-Frank Act, the SEC's authority for rewarding whistleblowers covered only insider trading cases.

On August 12, 2011, the new rules became effective and the SEC launched a webpage designed for individuals to access, report violations and apply for financial awards. The new webpage at www.sec.gov/whistleblower contains necessary information regarding how to submit a tip, eligibility requirements, and frequently asked questions and answers.

The final rules of this program, seen as one of the most controversial requirements of Dodd-Frank, were adopted by a very slim margin, a 3-2 vote by the SEC. Mary Schapiro, chairman of the SEC commented that the new rules "build upon our efforts over the past two years and our experience with the Sarbanes-Oxley Act - an Act that made great strides in creating whistleblower protections and requiring the internal reporting systems at public companies. From that experience, we learned that despite Sarbanes-Oxley, too many people remain silent in the face of fraud. Today's rules are intended to break the silence of those who see a wrong."

The 'no' votes were entered by Commissioners Kathleen Casey and Troy Paredes, their concerns being that the new rules would weaken corporations' internal compliance programs. The rules actually provide that whistleblowers are still eligible for a reward if they internally report wrongdoing to the company, and the company, in turn, reports it to the SEC. Additionally, a whistleblower could achieve a higher award if it is reported to the company first.

Commissioner Casey went on to elaborate that the rules could further decrease the bandwidth of the commission that is already struggling to keep up with limited resources. Commissioner Paredes believes that the new rules and process for providing tips to the SEC and then obtaining awards are "burdensome" and that individuals may not be as willing to report information.

Sean McKessy, Chief of the SEC's Office of the Whistleblower, commented that the agency would make changes if problems occurred. After a speech, delivered at Georgetown University's McDonough School of Business, he said, "If our program is not doing what it's intended to do, then we'll look at it and figure out ways to fix it."

McKessy also commented that, "Whistleblowers remain loathed in industry, but financial incentives should help the SEC ferret out more wrongdoing and could make investigations quicker and cheaper." He went on to say, "Look in a thesaurus under 'whistleblower' and see what kind of words you get out. I'm either the head of the office of the rats, or the rat finks, or rat bastards," McKessy said. "If even one fraud is stopped before it gets to a Madoff-type situation, then all the effort has been worth it."

Sources:

US SEC Says Will Fix Whistleblower Rule if Any Problems, Reuters, by Andrea Shalal-Esa, August 11, 2011

SEC's new Whistleblower Program Takes Effect Today, Securities and Exchange Commission, August 12, 2011

Price WaterHouse, A closer Look, The Dodd-Frank Wall Street Reform and Consumer Protection Act, PwC, May 19, 2011.

A federal whistleblower, Bunnatine "Bunny" Greenhouse, has just won a major victory with the U.S. District Court in Washington. On Monday, July 25th, the court approved an award to Greenhouse in the amount of $970,000, which represents full restitution of wages, compensatory damages and attorney fees.

The case involves Kellogg Brown and Root (KBR), a subsidiary of Halliburton, and the settlement is with the Army Corps of Engineers. Greenhouse was an employee of the agency and took issue with KBR using its own cost projections for a "multi-year no-bid, no competition contract." After her initial objection with KBR, she took the contract issue to Congress. The result of her communication with Congress was that she was removed from the Senior Executive Service and her top secret clearance was revoked.

It all started in February of 2003, a short time prior to the U.S. invasion of Iraq. A Pentagon meeting agenda included the subject of an approximately $7 billion government contract award to Kellogg Brown and Root for the purpose of restoring Iraq's oil facilities. Greenhouse was in attendance in addition to officials from Defense Secretary Donald Rumsfeld's office and aides to retired Lieut. General Jay Garner. To her dismay, also present were several representatives from Halliburton. Her issue with the presence of the Halliburton representatives was with regard to the sensitive nature of the discussions and the obvious potential for conflict of interest with KBR, with Halliburton representatives in the meeting being privy to internal discussions about the terms of the contract. She requested, with a whisper to the presiding general, that the Halliburton employees be asked to leave the meeting.

Greenhouse then raised other concerns including the fact that the contract had never been put out for competitive bid and the five-year term was not justified, that the contract term should be opened to competition after only a one year term. When the contract came back for approval, the term was still five years. The war was looming and she had no choice but to approve the terms, but added a handwritten reservation voicing her objections and stating that a no-bid contract with greater than a one year term could imply, "there is not strong intent for a limited competition."

These objections did not become public until October of 2004. In January of 2004, the government had replaced the noncompetitive contract with two competitively bid awards. Interestingly, Halliburton was awarded the larger of the two, worth up to $1.2 billion. As early as 2004, she had received a lot of trouble for issuing concerns about the deal and was warned to stop interfering and then was threatened with a demotion. At the time, her lawyer sent a letter to the acting Secretary of the Army, charging that her superiors had tried to silence her. The letter states that over the seven years previous to the Halliburton contract, Greenhouse had voiced reservations about many procurement documents, but only after the Halliburton issue was she warned to stop. The letter also states that Robert Griffin, the major general who warned her, later gave a sworn statement in which he admitted her reservations on contracts had "caused trouble" for the army and that it was "intolerable" and "had to stop." The letter also states that he threatened to downgrade her.

Greenhouse said in a statement, "I hope that the plight I suffered prompts the administration and Congress to move dedicated civil servants from second-class citizenry and to finally give federal employees the legal rights that they need to protect the legal trust."

After suffering terrible working conditions, including a fall on a rigged trip cord in her office that resulted in a painful injury to her knee, Greenhouse retired with 29 years of service with the federal government. This retirement was earlier than she had planned and she retired without her SES credentials and top secret clearance.

Stephen Kohn, president of the National Whistleblowers Center, claimed that she was "an American hero." In a statement released by his office, he said, "She had the courage to stand alone and challenge powerful special interests. She exposed a corrupt contracting environment where casual and clubby contracting practices were the norm. Her courage led to sweeping legal reforms that will forever halt the gross abuse she had the courage to expose."

Her case illustrates the need to protect federal whistleblowers. Although legislation that would improve these protections has been in front of Congress for years, it has never gained any final approval.

Sources:
Beyond the Call of Duty, Time Magazine, October 24, 2004

A Bittersweet Win for a Federal Whistleblower, The Washington Post, July 26, 2011

During the summer of 2008, a move by Federal prosecutors that was not publicized much outside of the legal community, led to newly relaxed guidelines for charging corporations with crimes. Not surprisingly, these new rules were good news for banks and their defense counsel.

Unlike previous, more aggressive Justice Department practices, the new rules move toward more deferred prosecutions and new guidelines that promise leniency when companies under investigation self report their deviations from the rules. The new guidelines allow the government to agree to delay or cancel a prosecution if the company under investigation promises to change operations and move toward compliance. Although used prior to the financial crisis, deferred prosecution agreements were officially offered as an alternative by the Justice Department in 2008. Critics believe this self-reporting approach risks letting companies off too easily.

"If you do not punish crimes, there's really no reason they won't happen again," said Mary Ramirez, a professor at Washburn University School of Law and a former assistant United States attorney. "I worry and so do a lot of economists that we have created no disincentives for committing fraud or white-collar crime, in particular in the financial space."

Deferred prosecution is not a tool used only at the Justice Department. After the Supreme Court overturned the conviction won by the SEC against Arthur Anderson, the SEC began pulling back from prosecutions. So now the SEC not only employs deferred prosecution, but also has added another alternative to prosecution, reports that chronicle wrongdoing at institutions "like Moody's Investors Service," often without punishing anybody.

Now government lawyers are outsourcing investigations. During the early stages of an inquiry, the government lawyers instruct companies to determine whether improper activities occurred. The companies then hire law firms to investigate and report to the government. This arrangement only heightens compromise and conflicts of interest whereby government lawyers allow companies and their lawyers to self police their activities.

This collaboration is even more widespread in the banking industry and dates back to the mid 1990's. In an effort to reduce regulators' workload, the Treasury Department requested that banks regularly report suspicious activities. This assumes that banks would willingly identify and report all wrongdoing, the likelihood of which is rather low according some academics.

Solomon L Wisenberg, former chief of the financial institutions fraud unit for the United States attorney in the Western District of Texas in the early 1990s said, "Traditionally, a bank would tell the Department of Justice when an employee engaged in crimes, but what do you do when the bank itself is run by a criminal enterprise? You have to be able to investigate without just waiting for the bank to give you the referral. The people running the institutions are not going to come to the D.O.J. and tell them about themselves."

Industry wide strategies to respond to investigations are being developed as a result of companies' cooperation with the government. "The corporate crime defense bar has this down to a science," said Russell Mokhiber, the editor of Corporate Crime Reporter, a publication that tracks prosecutions. "I interview them all the time, and they boast about how they've gamed the system."

In the end the process occurs behind closed doors. The Justice Department does not make public any details about its decision making in specific cases. We can never know why individuals at a company were never charged.

Source:
As Wall St. Polices Itself, Prosecutors Use Softer Approach, The New York Times; Business Day, by Gretchen Morgenson and Louise Story, July 7, 2011.

Final rules regarding the whistleblower provisions of the Dodd-Frank Act have been released by the U.S. Securities and Exchange Commission. The rules are effective as of August 12, 2011 and will apply retroactively to whistleblower tips made since July 21, 2010. If you provide original information about potential securities law violations you can receive a monetary award for that information if it results in a successful enforcement action by the SEC or a related agency.

The rules do not require that employees first report their suspicions to an internal compliance system prior to going to the SEC. This creates an incentive for whistleblowers to skip a company's internal compliance procedures. If this is done, compliance programs would be undermined and companies would not have an opportunity to quickly respond to a problem or self report prior to an investigation. In order to reduce the possibility of whistleblowers skipping internal compliance procedures, the SEC made rules that are intended to encourage the whistleblower to in fact use the company's internal compliance procedure.

Companies now have a strong incentive to encourage whistleblowers to report suspicions internally and promptly respond to reports. Potential whistleblowers should expect to see companies implementing strong internal reporting procedures as well as the latest investigation techniques. Corporate attorneys will be at the ready to protect the company's attorney-client privilege and attorney work product protections by being involved with the reporting and investigation of whistleblower claims. Companies will adapt a proactive approach with regulators to avoid surprises from whistleblowers or the SEC.

One provision of the rules is the 120 day look-back provision. When a whistleblower reports internally, he or she will have 120 days from the date of the internal report to provide the same information directly to the SEC without losing his or her place in line to claim a bounty award. Therefore, companies will have 120 days from receiving a report to do an investigation and determine if they wish to self report to the SEC.

Whistleblowers should expect to see various, easily accessible reporting methods including 24/7 access to anonymous reporting systems like free hot lines, web and email reporting methods and access to company compliance officers.

Training about reporting tools and availability will be emphasized.

Instead of whistleblowers being shunned, they will probably be recognized and praised.

Companies will most likely make it a requirement that all employees must report possible misconduct and violations and certify periodically that they are not aware of securities law violations not already reported.

On the investigation side of things, if the whistleblower identifies him or herself, he or she will most likely be one of the first witnesses interviewed. The whistleblower can expect to be in the loop on communication about the report because management will not want to make the whistleblower feel that no action is being taken.

Company attorneys will most likely conduct investigations or at least supervise the investigators doing the investigation. This is because the company will want to preserve and protect the company's attorney-client privilege and this can only be done if a company attorney is directly involved.

Expect to see more companies making more voluntary disclosures because the SEC will treat the company more favorably if the company has disclosed the wrongdoing before a whistleblower broadcasts the wrongdoing.

Source:
Dealing with tipsters under Dodd-Frank; New SEC whistleblower rules will require companies to examine and restructure their internal compliance programs; Corporate & Business Law, The Wall Street Journal, June 27, 2011

Forty years to the day that the New York Times began publication of the Pentagon Papers, Mr. Stephen M. Kohn, Executive Director of the National Whistleblowers Center, writes an enlightening article in the Times about our founding fathers and their actions that established America's first whistleblower-protection law.

"That it is the duty of all persons in the service of the United States, as well as all other inhabitants thereof, to give the earliest information to Congress or any other proper authority of any misconduct, frauds or misdemeanors committed by any officers or persons in the service of these states, which may come to their knowledge."

The genesis of this law was the reporting by 10 revolutionary sailors and marines that their commander of the Continental Navy, Commodore Esek Hopkins, had participated in the "inhuman and barbarous" treatment of captured British sailors. This occurred during the winter of 1777, a time during which warship Warren was anchored near Providence, R.I. The men accusing Commodore Hopkins included 10 sailors and marines that were engaged in the revolutionary war. They met on the Warren in order to discuss their issues about the commander, knowing full well the risks they faced, considering that Hopkins was from a very powerful New England family.

The result of their petition, presented to the Continental Congress by a Marine Captain named John Grannis, was that the Continental Congress voted in March of 1777 to suspend Hopkins from his post.

Hopkins, who was furious with the suspension, retaliated with the filing of a criminal libel suit in Rhode Island against the whistleblowers. Two of Hopkins' accusers, who were in Rhode Island at the time, were jailed. In July of 1778 the men pleaded that they had been "arrested for doing what they then believed and still believe was nothing but their duty." The result of their pleading was Congress' enacting of the whistleblower-protection law. Congress went another step further by authorizing payment for the legal fees of the two men, thereby ensuring that the whistle-blowers could have the funds for legal counsel to fight the libel charges.

Mr. Kohn's article makes the point that, "Congress did not hide behind government secrecy edicts, even though the nation was at war. Instead, it authorized the full release of all records related to the removal of Hopkins. No "state secret" privilege was invoked. The whistle-blowers did not need to use a Freedom of Information act to obtain documents to vindicate themselves. There was no attempt to hide the fact that whistle-blowers had accused a Navy commander of mistreating prisoners."

Two hundred years later, the Supreme Court justice William O. Douglas reiterated the meaning of the first amendment and praised our founders' commitment to freedom of speech. He wrote, "The dominant purpose of the First Amendment was to prohibit the widespread practice of government suppression of embarrassing information."

However, just in the last 20 years, laws that were in place to protect federal employee whistleblowers have unraveled. The government now has the right to "strip employees of their security clearances and fire them, without judicial review." Another loophole affects employees of the National Security Agency and the Central Intelligence Agency by barring them from any coverage under the law. Finally, national security whistle-blowers, fired for uncovering and exposing wrongdoing, are barred from obtaining protection in federal court.

Our current administration continues to aggressively pursue leakers such as Thomas A. Drake, a former official at the National Security Agency and Bradley E. Manning, an Army private. Drake just plead guilty to a misdemeanor claiming misuse of the agency's computer system by providing information to a reporter and Manning is suspected of passing classified data to Wiki Leaks and has been imprisoned based on these allegations since May of 2010.

Kohn closes the article with, "Instead of ignoring and intimidating whistle-blowers, Congress and the executive branch would do well to follow the example of the Continental Congress, by supporting and shielding them."

Source:
The Whistle-Blowers of 1777, The New York Times, June 12, 2011

It is estimated that health care fraud carrys about a $60 billion a year price tag for taxpayers, with Medicare as one of the main targets for fraudsters. The Medicare program now faces huge financial challenges, including possible insolvency. As such, it is more important than ever to battle.

Since the inception of the program, Medicare, the Government health program for retirees, has always paid claims and then later asked questions. The payment of fraudulent claims prior to pursuit of scam artists has been a losing proposition. Medicare announced on June 17 that it will be implementing screening technology to mitigate fraud. The new system is scheduled to begin operation July 1. This technology is similar to what is currently used by credit card companies.

The technology is designed to detect system abuses, such as billing for a particular procedure at a suddenly much higher rate than that of major medical institutions in the same geographical area.

Patrick Burns, of Taxpayers Against Fraud, states that Medicare "is putting in place the kind of computer program it should have had in 1980 or earlier." He goes on to say, "The bad news is that the largest Medicare and Medicaid frauds are designed at the highest levels of companies, with accountants, billing experts and salespeople smoothing over the paperwork so that it will slide past all the proctors."

The routine process that has been employed by Medicare includes basic testing for fraud on an individual claim basis prior to making payment. The new system is designed to analyze large amounts of data in order to recognize patterns and anomalies in claims, which can lead to discovery of potential fraud. The data analysis leads to the development of a predictive model that may then be applied to individual claims. Through this process of data evaluation, the system assigns risk scores to claims. An alert is issued when the risk score indicates a problem. This will allow the claim to be investigated before it is paid out. Medicare claims payers will even be able to customize the new system so that particular types of facilities, geographic areas, services or equipment may be flagged.

The Wall Street Journal article reports that, "United Health Group has said it saved about $125 million over two years using predictive modeling."

The contract for development of the new system, which is valued at $77 million, has been awarded to Northrup Grumman along with a group of companies. Peter Budetti, Medicare anti-fraud czar, said, "We will be able to translate their experience from the private sector into Medicare."

Medicare Administrator Don Berwick said, "We're getting ahead of the game here." Hopefully the new technology will deliver a good process for detecting fraud on the front end, as opposed to tracking down perpetrators after the fact.

Sources:
Medicare goes high-tech to head off fraud, Business Week, The Associated Press, June 17, 2011

Medicare Will Start Flagging Suspicious Claims - Before They're Paid, The Wall Street Journal, June 17, 2011

In an article published by Land Line Magazine in the June 2011 issue, the subject of fuel card fraud is discussed. Two truckers share experiences of being the victims of theft related to their fuel credit card accounts with Comdata and EFS Transportation Services. In one instance, the perpetrators had been able to gather enough information about a card holder's account to write thousands of dollars of checks against the account. The trucker had been told two weeks prior to this event that Comdata had discontinued online checks.

Another owner-operator from Soldiers Grove, WI lost $10,400 in April when his EFS Transportation Services fuel card was hacked. Seventeen checks were cashed in three states using the account. The driver alleges that the company had time to stop payment and didn't.

In both instances, the victims express a great deal of frustration with the credit card companies in that the companies and law enforcement authorities do not provide much assurance of getting to the bottom of the issue. Comdata does not accept responsibility for the loss, even though it acknowledges that its customers have been the target of hackers. The risk management representative states that, "This appears to be a group of hackers who have been targeting the industry as a whole."

Land Line magazine conducted an informal survey on its website and the results indicate that 10 percent of respondents communicated that their fuel card/check was compromised or hacked one or more times. Fifteen percent say that they go ahead and pay for diesel with cash.

A recent lawsuit filed by Brady & Associates against Pilot Travel Centers, LLC is based on the Fair and Accurate Credit Transactions Act (FACTA) rule that "[N]o person that accepts credit cards or debit cards for the transaction of business shall print more than the last five digits of the card number or the expiration date upon any receipt provided to the cardholder at the point of sale or transaction." The lawsuit alleges that the defendant willfully violated FACTA and failed to protect Plaintiff and others similarly situated against identity theft as well as credit card and debit card fraud by printing "more than the last five digits of the card number" on receipts provided to cardholders doing business with Pilot.

The attorneys at Brady & Associates would like to hear from drivers who use fuel cards who have also been the victim of fraud or identity theft. Please contact us if you or someone you know has experienced a loss you suspect may be due to these alleged vulnerabilities.

Source:
Fuel cards hacked? Comdata warns of account thefts, Land Line Magazine, June 2011

The "too-big-to-fail" problem is defined as the government using taxpayer dollars to rescue "systemically important" banks. Federal Reserve Chairman Ben Bernanke said that regulatory reform would fail if it did not contemplate a system where Goldman Sachs could take bankruptcy and its creditors lose money. So far banking reform has fallen short of what Bernanke wanted. More importantly, the solutions being debated may increase overall risk instead of reducing it.

The expectation of bailouts gives banks no incentive to take precautions against greater risks. Bank rescues can cause worldwide economic problems.

According to Ernie Patrikis, a partner in White & Case LLP, banking regulators want banks safe, sound, and big. Multinational firms see large money-center banks as indispensable. They provide investment banking and capital-raising. They are some of the best-run banks in the country per JoAnn Lilek of consulting firm Accretive Solutions and former CFO of Midwest Bank Holdings.

Many financial executives feel irresponsible management should suffer consequences, but worry that middle-market companies would be more vulnerable without a government safety net. Large corporations can increase their stable of lenders, smaller companies have to concentrate their credit relationships with one or two banks to get access to debt.

The question is "Can U.S. banking regulators solve the too-big-to-fail problem without causing financial institutions higher capital costs and subjecting banks customers to another credit crunch, or granting banks an incredible amount of political independence?"

It seems unwise to let operating entities of big banks to declare the kind of Chapter 11 in which they enter a turnaround situation or are acquired without government assistance. Under the current regulatory framework it would be nearly impossible per restructuring experts. Jacen Dinoff of KCP Advisory Group says "you're not going to see a bank file Chapter 11 and sit in bankruptcy winding down its assets while depositors petition as creditors to get percentage recoveries on life savings."

The Dodd-Frank Wall Street Reform and Consumer Protection Act does limit how far regulators will go in propping up a large bank. The FDIC has powers to dismantle the largest financial firms when they falter; the FDIC becomes a receiver for a bank if its failing presents a systemic risk to the financial markets.

During the Latin American debt crisis U.S. regulators took a very measured approach. They let the largest banks work out their problems over an extended period, rather than forcing them to recognize losses if they had to sell the debt immediately. Per Sandy Brown, of Bracewell & Giuliani LLP, "In the next crisis, multiple institutions will experience problems simultaneously, and regulators need flexibility to work in a manner that is not terribly hasty."

Time is not something regulators want to give failing banks. Globally there is a concentrated push to get national regulators to intervene sooner.

An early intervention strategy is no cake walk. There are at least two problems: First, spotting a bank that is headed for failure is not easy. Second, if U.S. regulators do catch problems early, there may be no resolve to take action.

Dodd-Frank ensures that taxpayers will no longer bear all the burden of federal rescues. In a perfect world banks and their investors will bear some or all of any losses. If regulators instill a sense of greater market discipline on investors, the hope is that investors will become better watchdogs of bank risk-taking.

No changes would necessarily change the risky behaviors of large banks or eliminate another global banking crisis. Nor would changes preclude the U.S. from rushing to the aid of giant, crippled institutions. So, the too-big-to-fail problem is still with us. And, it could get bigger. There is nothing to prevent more banks from entering the too-big-to-fail fraternity. Banks get bigger when larger institutions merge with troubled banks. And so it goes around and around.

Source:
The Big Fail, CFO Magazine, April 2011

The Securities and Exchange Commission (SEC) has approved rules that will entitle whistleblowers to receive 10 to 30 percent of the money they help the SEC collect through enforcement actions.

The SEC has rejected requests by business groups to require whistleblowers to notify the companies they are accusing of wrongdoing, prior to going to the SEC, to give them an opportunity to correct the allegations. Business groups and some Republican commissioners felt that by allowing whistleblowers to bypass companies' internal compliance programs, the agency might allow problems to become worse and that the SEC would be flooded with tips not related to securities enforcement.

The SEC commissioners were told by enforcement director Robert Khuzami that he saw no evidence of such problems and that the agency is already seeing an increase in high quality, well documented tips.

The biggest concession to corporations is that the SEC could give whistleblowers credit for taking their allegations to the company's own compliance program when determining the size of the reward.

Source:

SEC approves new rewards for whistleblowers, The Washington Post, May 25, 2011

Representative Michael Grimm, R., N.Y. plans to introduce legislation whereby employees would not be eligible for a Securities and Exchange Commission (SEC) bounty program unless they first report the wrongdoing to their company.

If the SEC determines evidence indicating that the employer's top management participated in the fraud or showed bad faith, the requirement for internal reporting to one's employer would not be necessary. Additional factors that would exempt employees from the internal-reporting requirement include the absence of an anonymous internal reporting system or hotline as well as the lack of human resource policies that prohibit retaliation against employees who report abuses and potentially fraudulent activities.

Following the implementation of the 2002 Sarbanes-Oxley law, corporations put into place hotlines and internal reporting channels. The fear is that with the lure of a multimillion-dollar bounty, these internal reporting channels would be ignored. The bounty program that was included in the Dodd-Frank financial reform law provides that employees reporting "original" information regarding possible SEC violations can collect as much as 30% of the sanctions greater that $1 million obtained by the SEC.

Conversely, whistleblower lawyers express concern that the internal-reporting requirement could be an impediment to the communication of tips to the government investigators. Additionally they fear that the requirements could provide companies the opportunity to get rid of any evidence of wrongdoing.

The SEC continues to work to complete the rules for the new regulations imposed by the Dodd-Frank legislation.

Source:
US Lawmaker Wants To Require Whistleblowers To Report Internally, The Wall Street Journal, May 5, 2011

A civil lawsuit filed Tuesday in Manhattan federal court seeks to recover alleged damages from Deutsche Bank AG related to mortgages that were insured by the Department of Housing and Urban Development. The lawsuit was filed under the False Claims Act and as such, the government may seek three times the damages in addition to possible punitive and other damages. The damages could amount to more than $1 billion. The justice department alleges that Deutsche Bank AG "recklessly" lied about the quality of loans made by a mortgage unit of the German bank.

U.S. Attorney Preet Bharara describes a long history of unreliable underwriting standards and quality control at the mortgage lender, MortgageIT Inc., which was acquired by Deutsche Bank in 2007. This lawsuit against Deutsche Bank is so far the highest-profile case filed by U.S. Attorney, Mr. Bharara's unit that was established last year to uncover complex financial-fraud cases. Mr. Bharara stated at a news conference that it wouldn't be a "fantastical stretch to think we are looking at other financial institutions as well."

A spokeswoman for Deutsche Bank said the "claims against MortgageIT and Deutsche Bank are unreasonable and unfair, and we intend to defend against the action vigorously." Additionally, the spokeswoman claimed that as much as 90% of the activity alleged in the lawsuit occurred prior to Deutsche's acquisition of MortgageIT.

The purchase of lending companies for the purpose of increasing mortgage operations was common among some of the Wall Street firms including Deutsche Bank. Mortgage bonds, made up of pooled loans, were sold to investors, which proved to be profitable at the time, but ultimately added to the financial crisis faced by the nation. Loans that are backed by the FHA insurance program are sold to investors and representated as very safe Ginnie Mae securities. Purchasers of these loans typically include pension funds, insurance companies and central banks. The guarantee on these bonds is "akin to the full faith and backing of the U.S. government."

Of the 39,000 mortgages worth more than $5 billion, for which MortgageIT approved FHA insurance, more than 12,500 of the loans have proven to be uncollectible. Some of these loans went sour as soon as two months after the loan was closed. Consequently, the Department of Housing and Development has sustained $386 million in insurance claims as of February of this year for loans that were underwritten by MortgageIT. The government agency is facing an additional $888 million for defaulted loans for which claims have yet to be paid.

The lawsuit alleges, "While Deutsche Bank and MortgageIT profited from the resale of these government-insured mortgages, thousands of American homeowners have faced default and eviction, and the government has paid hundreds of millions of dollars in insurance claims." Additional allegations include breakdowns in required procedures, citing outside consultants' letters regarding underwriting violations that were ignored by MortgageIT. The suit accuses MortgageIT of not reading the letters at the time and that the letters were placed "unopened and unread" in a "closet" in the company's Manhattan offices.

The potential damages faced by the FHA due to this type of activity are enormous and the agency's projected reserves have fallen to $4.7 billion as of last September, 2010, "down from $21 billion three years earlier." The FHA could ultimately be forced to seek taxpayer support for the first time in its history, should the reserves be completely depleted.

Source:
U.S.Says Deutsche Bank Lied, The Wall Street Journal, May 4, 2011

A statutory deadline of April 21, 2011 had been imposed by Congress for the SEC (Securities and Exchange Commission) to issue rules for a whistleblower program. The SEC has not yet announced when the final rules of the program, a product of the Dodd-Frank financial reform law, are to be considered.

Rep. Barney Frank, D-Mass., has stated that the law does not indicate that the deadlines are "drop-dead." "There is no penalty for not meeting the deadline," Mr. Frank said during a webinar sponsored by the National LGBT Bar Association. "There's no gun at their heads. Nobody gets fired." Mr. Frank is the ranking Democrat on the House Financial Services Committee. He has communicated that if agencies need to have more time to develop rules based on the legislation, he is comfortable with the postponement of implementation of some of the provisions.

The type of timeline adjustment that Mr. Frank approves include the SEC's postponement to the first quarter of 2012 the rule requiring investment advisers with $25 million to $100 million in assets to switch their registration from the SEC to their states. However, there are other delays that are opposed by the Democratic Representative from Massachusetts.

Specifically, Republicans on the House Financial Services Committee have introduced a bill that would delay implementation of the Dodd-Frank derivatives rules until December of 2012. The Republicans argue that this extra time would allow regulators more time to meet objectives, consider costs, benefits and effects on the market. Mr. Frank considers this a stall in the event that a GOP president and Senate majority could do away with the provisions.

Republicans feel that the law is being implemented too quickly. Rep. Spencer Bachus, R-Ala., chairman of the House Financial Services Committee stated, "At the current breakneck pace, it is difficult for individual firms - especially small businesses - and the public at large to meaningfully participate and offer their insights and observations."

Mr. Frank countered, "I think they're making a political and economic mistake. We think it forces changes that are overwhelmingly constructive."

Sources:
SEC will Miss Deadline for Whistleblower Rules, The Wall Street Journal, April 21, 2011.

No gun at regulators' heads to hit Dodd-Frank deadlines: Barney Frank, InvestmentNews, April 26, 2011

Insurance Commissioner Dave Jones announced last week that California has joined a whistleblower lawsuit against Bristol-Myers Squibb Co., which alleges that the pharmaceutical giant bribed medical doctors to prescribe its drugs. This is described to be the largest alleged health care fraud case handled by the state to this day and has perhaps cost insurers millions of dollars.

The law suit was originally filed in 2007 by one current and two former employees of the company. The amended complaint, now including California, was filed by state insurance department lawyers in Los Angeles Superior Court two weeks ago. If the former employees and California win, the whistleblowers and the state would share damages.

Allegations claim that Bristol-Myers Squibb Co. salespeople offered physicians many perks, including paid speaking engagements, various gifts and trips, such as professional sports tickets, golf outings, meals, and luxury hotel accommodations in exchange for doctors prescribing large amounts of the company's drugs. These prescriptions were then allegedly billed to private insurers.

The current lawsuit alleges that by tracking prescription data, the company could identify low-prescribing doctors and then inform those doctors that they could lose perks. Additionally, salespeople at dinner events were allegedly instructed by the company to get physicians to prescribe for certain patient types and to then monitor new prescriptions by doctors.

Bristol -Myers Squibb has been the target of accusations involving kickbacks before. In 2007, the company agreed to a $515 million payout to settle federal whistleblower lawsuits in Massachusetts and Florida.

Source:
Calif Claims drug giant bribed docs to prescribe, The Wall Street Journal, March 18, 2011