Kansas City Whistleblower Lawyer Blog

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