Whistleblower Archives - The National Law Forum

SEC Enforcement Director Highlights Increased Penalties for Violations of Whistleblower Rule

Recently, the U.S. Securities and Exchange Commission (SEC) has increased enforcement efforts around the whistleblower protection rule Rule 21F-17(a) which prohibits companies from impeding the ability of individuals to blow the whistle on potential securities law violations to the Commission. Most notably, the rule prohibits overly broad non-disclosure agreements and other employment agreements which restrict whistleblowing.

In remarks delivered November 6 at Securities Enforcement Forum D.C. 2024, Sanjay Wadhwa, the SEC’s Acting Director of the Division of Enforcement noted the importance of these enforcement efforts and highlighted the increased penalties levied by the Commission in Rule 21F-17(a) cases.

“The SEC’s whistleblower program plays a critical role in our ability to effectively detect wrongdoing, protect investors and the marketplace, and hold violators accountable.” Wadhwa said. “But that program only works if whistleblowers have unfettered ability to share with the SEC information about possible securities law violations. However, all too often we have seen, for example, confidentiality agreements and employment agreements by various advisory firms and public companies that impede that ability, including by limiting customers’ ability to voluntarily contact the SEC or by requiring employees to waive the right to a monetary award for participating in a government investigation. So this past fiscal year, and the year prior, the Commission brought a series of enforcement actions to address widespread violations.”

“There was a similar series of actions addressing this issue some years back,” Wadhwa continued. “And I think for a while there was better compliance, but then things slipped and we’re back here. So, this time around the Commission authorized what I view to be fittingly robust remedies, including the largest penalty on record for a standalone violation of the whistleblower protection rule. It is my hope that these enforcement actions will have a significant deterrent effect and will lead to greater and sustained proactive compliance.”

The record penalty referenced by Wadhwa was an $18 million penalty levied against J.P. Morgan in January. According to the SEC, J.P. Morgan regularly had retail clients sign confidential release agreements which did not permit clients to voluntarily contact the SEC.

In enforcing Rule 21F-17(a), the SEC has found illegal language in severance or separation agreements, employee contracts, settlement agreements and compliance manuals. Language in the various types of contracts found to violate Rule 21F-17(a) has included requiring the prior consent of the company before disclosing confidential information to regulators, preventing the employee from initiating contact with regulators, requiring the employee to waive their right to awards from whistleblowing award programs, including a “non-disparagement clause” that specifically included the SEC as a party the employee could not “disparage” the company to, and requiring the employee to inform the company soon after reporting information to the SEC.

No More Fraud Vampires: Whistleblowers Put a Stake in Phlebotomy Unlawful Kickback Scheme

31 October 2024. Two whistleblowers “stopped the bleeding” caused by an alleged kickback scheme perpetrated by a mobile phlebotomy service based in California. Veni-Express, Inc. and its owners have agreed to pay $135,000 to settle allegations of violating the Anti-Kickback Statute and False Claims Act. While the award for the two whistleblowers has not yet been determined, False Claims Act qui tam whistleblowers may be rewarded between 15-25% of the settlement.

Overview of the Case

According to the allegations, from 2015 to 2019, Veni-Express allegedly submitted false claims to federal health care programs for services that were not actually performed. These services included venipuncture procedures during homebound patient visits and non-reimbursable travel mileage claims for the visits. The fraudulent activities were reportedly conducted with the oversight of the company’s owners, Myrna and Sonny Steinbaum.

Additionally, between July 2014 and June 2015, Veni-Express allegedly paid unlawful kickbacks to Altera Laboratories, also known as Med2U Healthcare LLC, to market their services. These kickbacks were disguised as a percentage of company revenue.

Unlawful Kickbacks and Phantom Billing

The Anti-Kickback Statute (AKS) is a federal law that prohibits healthcare providers from offering, soliciting, or receiving anything of value to induce or reward referrals for services covered by federally funded healthcare programs, such as Medicare and Medicaid. When providers violate the AKS, they compromise patient care by prioritizing financial gain over medical necessity, which can lead to unnecessary, costly, or substandard treatments. Phantom billing, which involves charging Medicare and Medicaid for services never provided, drains funds that could otherwise be used for essential care for beneficiaries. It leads to increased healthcare costs, putting a strain on federally funded healthcare programs and potentially causing cuts or restrictions in services. This fraudulent practice also erodes trust in the healthcare system, which can prevent beneficiaries from seeking the care they need. As the Special Agent in Charge for the Department of Health and Human Services Office of the Inspector General said about the case, “Improper incentives and billing Medicare for services never actually provided divert taxpayer funding meant to pay for medically necessary services for Medicare enrollees.”

Settlement Details

The settlement agreement is based upon the parties’ ability to pay, requiring Veni-Express to pay $100,000, with additional payments contingent upon the sale of company property. Myrna Steinbaum will pay $25,000, while Sonny Steinbaum will contribute $10,000.

Whistleblower Involvement

The whistleblowers in the qui tam actions were a former phlebotomist and a laboratory technical director. The qui tam provision in the False Claims Act allows private citizens with knowledge of fraud to report fraud schemes to the government and share in the government’s recovery.

Implications for Healthcare Professionals

This whistleblower settlement serves as a cautionary tale for healthcare professionals, emphasizing the need for strict adherence to regulatory standards. It underscores the power industry insiders have to speak up and put an end to fraud schemes that taint the healthcare profession.

Unitary Executive Theory Surfaces in Court: District Court Rules Qui Tam Provisions of the False Claims Act Unconstitutional

On September 30, 2024, the United States District Court for the Middle District of Florida ruled that filing claims on behalf of the government under qui tam provisions of the False Claims Act (FCA) is unconstitutional in United States of America ex rel. Clarissa Zafirov v. Florida Medical Associates, LLC, et al. The ruling, made by Judge Kathryn Mizelle, a 33-year-old Trump-appointee, declares that False Claims Act whistleblowers undermine executive power by filing qui tam lawsuits.

The Zafirov decision follows a recent dissent by Supreme Court Justice Clarence Thomas in which he questioned the constitutionality of the FCA’s qui tam provisions. It also follows a political movement pushing the Unitary Executive Theory in the United States judicial courts.

This controversial decision mischaracterizes the qui tam provisions of the FCA and will likely be appealed to the Eleventh Circuit. Should the ruling stand, however, it and other similar challenges to the constitutionality of the FCA’s qui tam provisions will cripple what has been America’s number 1 anti-fraud law. Since the False Claims Act was modernized in 1986, qui tam whistleblower cases have allowed the government to recover more than $52 billion from fraudsters, over $5 billion of which came in cases where the government chose not to intervene.

Applying the ‘Unitary Executive’ Theory to Paint Whistleblowers as ‘Self-Selected Private Bounty Hunters’

Originally passed during the Civil War, the False Claims Act contains qui tam provisions enabling whistleblowers, also known as ‘relators’, to report government contracting fraud and work directly with government investigators. Once the whistleblower brings forward the suit, the government may intervene and continue to prosecute the litigation as the plaintiff. However, in the interest of accountability, the qui tam provision of the FCA permits the whistleblower to pursue a case even if the United States declines prosecution. Whistleblowers who file successful qui tam lawsuits are eligible to receive up to 30% of recovered damages.

The question of the constitutionality of the False Claims Act’s qui tam provisions was notably raised in a dissent by Justice Clarence Thomas in the 2023 Supreme Court case U.S., ex rel. Polansky v. Executive Health Resources. While Polansky discussed the issue of a relator pursuing a lawsuit after the government declines to intervene, Thomas raised a separate issue of constitutionality in his dissent. He stated that “there are substantial arguments that the qui tam device is inconsistent with Article II and that private relators may not represent the interests of the United States in litigation.” In a one-paragraph concurrence, Justice Brett Kavanaugh, joined by Justice Amy Coney Barrett, invited challenges to the constitutionality of the FCA’s qui tam provisions, writing that “In my view, the Court should consider the competing arguments on the Article II issue in an appropriate case.”

Judge Mizelle, a former clerk of Justice Thomas, drew heavily upon Justice Thomas’ dissent in her decision. Echoing Thomas’ dissent in Polansky, JudgeMizelle concluded that the qui tam provision “directly defies the Appointments Clause by permitting unaccountable, unsworn, private actors to exercise core executive power [litigating on behalf of the government] with substantial consequences to members of the public.” The District Court thus agreed with the defendants that the FCA’s qui tam provisions indeed violates the Appointments Clause of Article II of the Constitution.

The Zafirov ruling relies upon the ‘unitary executive theory,’ a constitutional law theory that states the President of the United States has sole authority over the executive branch and that power cannot be limited by Congress.

According to then-Assistant Attorney General William Barr’s 1989 Memo Constitutionality of the Qui TamProvision of the False Claims Act, which repeatedly cited by both the judgment and the U.S. Chamber of Commerce amicus brief, the move to enable private citizens to file on behalf of the government represents a breach of the separation of powers allowing “Congress to circumvent the Executive’s check.” Barr rebrands whistleblowers as “private bounty hunters” and claims that the 1986 amendments which reincorporated the FCA’s qui tam provisions was a tactic by Congress to override presidential powers. Barr maintains that “only a unitary executive” that is, “only the President” can “take care that the laws be faithfully executed.”

In a dissent in the 1988 Supreme Court case Morrison v Olsen, Justice Antonin Scalia interpreted the ‘Unitary Executive’ to have unchecked authority to appoint and remove executive officials, claiming that the firing of an independent counsel without cause falls within the limitless power of the President over the executive.

The Middle District of Florida ruling draws on Scalia’s rationale arguing that the right to pursue a qui tam case denies the President the executive authority of appointment of the relator. Under the FCA, however, whistleblowers are granted certain rights. For example, the executive must guarantee a whistleblower the “right to continue as a party” with or without the United States intervening and wait for the relator’s approval before settling the action.

The court agrees with the defendants’ argument that the FCA therefore “den[ies] the President necessary removal authority and sufficient supervisory control over [the relator].”

The court contends that the physician-turned-whistleblower Zafirov was “an improperly appointed officer” in violation of the Appointments Clause and the Take Care and Vest Clause of the Article. According to the ruling, by filing a qui tam against Medicare fraud, Zafirov was granted “core executive power” without any “proper appointment under the Constitution.”

A Mischaracterization of Qui Tam Whistleblowing

Judge Mizelle’s decision in United States ex rel. Zafirov v. Fla. Med. Assocs. first mischaracterizes the FCA’s qui tam as a breach of presidential power instead of as a provision that strengthens checks and balances. Second, the court ignores case law outlining government prerogatives over relators such that they are not menacing to the core Executive powers.

The revived qui tam provision of 1986 was a legislative move to improve government accountability over fraud—neither expanding Congressional oversight nor the size of government—by mobilizing private citizens rather than public agents. The Florida court wrongfully elevates the status of a relator to an ‘officer’ responsible to the government. A citizen pursuing a claim on behalf of the government is not and does not pretend to be an extension of the Executive Office and, therefore not subject to administrative appointment procedure. Rather the relator is a private person, and the government is a third party to the case. The Vt. Agency of Natural Res. v. United States ex rel. Stevens majority opinion also written by Justice Scalia discussing whether relators have judicial standing under Article III, qualifies that the relator is on “partial assignment of the Government’s damages claim.” A ‘partial assignee’—to which only some rights are transferred—may “assert the injury suffered by the assignor” (the U.S.) so long as the harm done is sufficient. Scalia reiterates the ‘representational standing’ of relators and makes no remarks on its challenge to the Unitary Executive. Judge Mizelle’s reliance on Morrison v Olsen to claim that like an independent counsel, a relator should also qualify as an officer ignores the Stevens Supreme Court ruling distinguishing relators as a type of assignee.

Mizelle also raises that relators seem to enjoy unbridled authority over the Executive by initiating a qui tam suit without government intervention. While Mizelle points to 31 U.S.C. § 3730 (c) to demonstrate the unchecked power of the relator, she neglects the numerous limitations specified in § 3730 (c)(2), including the broad power of the government to dismiss the qui tam action after intervening notwithstanding any objections from the relator. She frames the government intervention as “the government’s ability to pursue a parallel action and to exert limited control [which] does not lessen a relator’s unchecked civil enforcement authority to initiate.” In truth, the statute and years of judicial history maintain the government’s absolute discretion over whether to intervene in or completely stop the case by dismissing the action.

Contrary to Judge Mizelle’s belief, relators are not free from potential government intervention even when independently pursuing the case. On the contrary, relators are not able to independently pursue any binding action on the government unimpeded by the government. While Zafirov independently pursued the claim for five years, the government could have intervened and then dismissed the claim at any time. If the government intervenes, underlined in 31 U.S.C. § 3730 (c)(2), the government is empowered to settle the action with the defendant notwithstanding any objections from the relator and to restrict their participation in the course of the litigation. The fact that the government may choose not to intervene at one point does not divest them of their ability to intervene later and exercise significant authority over the relator.

Implications: Crippling the False Claims Act

Judge Mizelle’s decision seeks to end the historic success of the qui tam provision of the FCA by declaring the government’s most effective mechanism of detecting fraud as unconstitutional. While the decision does not invalidate the FCA nationally, this case could be the first step in a series of appeals that may elevate the issue to the Supreme Court.

The government’s largest obstacle to fighting white-collar crime such as fraud is detection. The diffuse and indirect nature of fraud requires those with insider knowledge to assist the government in pursuing corruption. In terms of the effectiveness of the qui tam provision, between 1987 and 2022, the Department of Justice Civil Fraud Division recovered $22.1 billion without the help of whistleblowers versus $50.3 billion with the help of whistleblower lawsuits. Since the 1986 amendments to the FCA, whistleblowers have been the direct source of approximately 70% of civil fraud recoveries by the federal government. From the Medicare billing fraud committed in Florida Medical Associates to Russian money laundering, the United States may lose its most effective tool to fight fraud fraud if the qui tam provisions of the FCA are ruled unconstitutional.

Federal District Court in Florida Holds FCA’s Qui Tam Provisions Unconstitutional

In the Supreme Court’s 2022 decision in United States ex rel. Polansky v. Executive Health Resources, Inc., three justices expressed concern that the False Claims Act’s qui tam provisions violate Article II of the Constitution and called for a case presenting that question. Justice Clarence Thomas penned a dissent explaining that private relators wield significant executive authority yet are not appointed as “Officers of the United States” under Article II. Justice Brett Kavanaugh and Justice Amy Coney Barrett, concurring in the main opinion, agreed with Justice Thomas that this constitutional issue should be considered in an appropriate case.

Earlier this year, several defendants in a non-intervened qui tam lawsuit in the Middle District of Florida took up the challenge. The qui tam, styled United States ex rel. Zafirov v. Florida Medical Associates, LLC et al., involves allegations of Medicare Advantage coding fraud. After several years of litigation, the defendants moved for judgment on the pleadings, arguing the relator’s qui tam action was unconstitutional, citing Justice Thomas’s dissent in Polansky.

The defendants’ motion prompted a statement of interest from the United States and participation as amici by the U.S. Chamber of Commerce and the Anti-Fraud Coalition. The Court also asked for supplemental briefs on Founding-era historical evidence regarding federal qui tam enforcement.

On September 30, 2024, Judge Kathryn Kimball Mizelle granted the defendants’ motion, agreeing the relator was unconstitutionally appointed and dismissing her complaint. Judge Mizelle, who clerked for Justice Thomas, held a private FCA relator exercises significant authority that is constitutionally reserved to the executive branch, including the right to bring an enforcement action on behalf of the United States and recover money for the U.S. Treasury. In doing so, a relator chooses which claims to prosecute, which theories to raise, which defendants to sue, and which arguments to make on appeal, resulting in precedent that binds the United States. Yet, a relator is not appointed by the president, a department head, or a court of law under Article II, making the qui tam device unconstitutional.

Judge Mizelle distinguished historical qui tam statutes, which were largely abandoned early in our nation’s history, on the ground that few gave a relator the level of authority the FCA does. And while the FCA itself dates back to the Civil War, the statute largely remained dormant (aside from a flurry of use in the 1930s and 40s) until the 1986 amendments set off a new wave of qui tam litigation.

The ruling is significant for the future of the FCA. As Judge Mizelle’s opinion explains, most FCA actions are brought by relators as opposed to the government itself. If the decision is upheld on appeal, a number of outcomes are possible. If the FCA is to continue as a significant source of revenue generation for the government, the DOJ must devote more resources to bringing FCA actions directly. Congress may also consider amending the FCA’s qui tam provisions to limit relators’ authority to conduct FCA litigation, thereby maintaining the statute as a viable avenue for whistleblowing.

One thing is almost certain, however. FCA defendants across the country will likely raise similar arguments in light of Judge Mizelle’s ruling. Whether in Zafirov or another case, it appears the Supreme Court will get to decide the constitutionality of the FCA’s qui tam provisions sooner rather than later.

DOJ Announces Changes to Guidance on Corporate Compliance Programs, Updates on Whistleblower Program

In an address this week to the Society of Corporate Compliance and Ethics, Principal Deputy Assistant Attorney General Nicole M. Argentieri of the Department of Justice’s (“DOJ”) Criminal Division, highlighted several updates relevant to corporate compliance programs, including the DOJ’s new whistleblower programs and incentives.

Sufficient Compliance: Updated Areas to Consider

The Evaluation of Corporate Compliance Programs (“ECCP”) is the compass by which the DOJ measures the efficacy of a corporation’s compliance program for potential credit or mitigation in the event an organization is potentially subject to prosecution.[1] Ms. Argentieri highlighted several key updates to the ECCP that the DOJ will now consider when evaluating whether a corporation’s compliance program is “effective” and thus deserving of credit and/or mitigation of criminal penalties.

These new factors include whether:

the resources and technology with which a company does business are applied to its compliance program, and whether its compliance program fully considers the risks of any technologies it utilizes (such as generative AI)[2];
the company had a culture of “speaking up” and protecting those who report on corporate misdeeds;
a company’s compliance department had access to adequate resources and data to perform its job effectively; and
a company learned from its past mistakes—and/or the mistakes of other companies.

Encouraging Self-Reporting: Presumptive Declination and Reduced Penalties

In her remarks, Ms. Argentieri stated that the previously announced Whistleblower Awards Program [3] had so far been successful in the eyes of the DOJ, but did not point to any specific case or outcome. Likely, it is too soon for the public to see the fruits of the program, given its nascent state and the time that usually elapses between the initiation of an investigation and its resolution. The DOJ appears to be stating, though, that it is receiving and following up on whistleblower reports already.

This new policy encouraging whistleblowing through financial incentives, however, was combined with an amendment to DOJ’s Corporate Enforcement and Voluntary Self-Disclosure Policy, which provides that there is a presumptive declination to prosecute should a company make a disclosure of wrongdoing within 120 days of receiving an internal report of alleged misconduct and before DOJ contacts the company regarding that matter. In short, DOJ is seeking to incentivize a “race to DOJ” to report potential misconduct – perhaps before the company can even confirm whether the allegation is credible.[4]

Organizations that opt to not take the early self-disclosure route can still reduce any criminal penalties they may face by up to half by fully cooperating with the DOJ in its investigation. Considerations DOJ will factor in when evaluating whether an organization “fully cooperates” include, among other things, how timely the cooperation was and if the company took appropriate remedial action (such as improving compliance programs and disciplining employees). The DOJ continues to emphasize the importance of clawing back compensation and/or reducing compensation and bonuses of wrong-doers (if not also terminating them).[5]

Tipping the Scales

In sum, these programs are clearly intended to materially alter the disclosure calculus of whether a company should disclose misconduct by putting quantifiable incentives on the side of timely disclosure and cooperation, namely declination. Combined with the DOJ’s updates to the ECCP, these programs attempt to bring clarity and consistency to the world of corporate criminal penalties (and possibly how to avoid them altogether). Companies are well-advised to review their existing compliance programs in light of these new incentives and guidance from the DOJ to ensure that they address the new factors enumerated by the DOJ, but also account for increased incentives for corporate whistleblowers.

FOOTNOTES

[1] The U.S. Sentencing Guidelines also define what constitutes an “effective compliance and ethics program” for credit under the guidelines. U.S.S.G. §8B2.1.

[2] This is not the first time, and unlikely to be the last, where DOJ has emphasized the use of AI to enhance corporate compliance. See Lisa Monaco, Deputy Attorney General, Department of Justice, Remarks at the University of Oxford on the Promise and Peril of AI (Feb. 14, 2024).

[3] Under the Criminal Division’s whistleblower pilot program (and like those of other U.S. Attorney’s Offices who have thus far adopted similar programs), whistleblowers are financially rewarded—through criminal forfeiture orders—for bringing forward information on specific alleged violations, so long as that person first reports the misconduct to the company and DOJ has not already learned of it. The Criminal Division’s Pilot Program on Voluntary Self-Disclosure for Individuals also provide culpable individuals who report to receive non-prosecution agreements in exchange for reporting their own conduct and the conduct of the company.

[4] The “race to DOJ” incentivized by these programs may indeed alter the corporate disclosure calculus—by moving up the date for any disclosure in light of the threat that an employee or third-party, aware of any investigation, may choose to report the matter to DOJ. Likewise, it may also change the nature of the internal investigation in ways to limit knowledge of the investigation early-on, like limiting early interviews until documents and data can be reviewed and analyzed.

[5] Indeed, DOJ will permit companies to earn a dollar-for-dollar reduction of a criminal penalty for each dollar a company successfully claws back from a wrong-doer to further incentivize companies to seek to claw back compensation paid.

Former Acadia Employees Received Reward for Blowing the Whistle on Healthcare Fraud

The United States Department of Justice settled a False Claims Act qui tam whistleblower lawsuit against inpatient behavioral health facilities operator Acadia Healthcare Company, Inc. Under the terms of the settlement, the operator paid almost $20 million to the United States and the States of Florida, Georgia, Michigan, and Nevada. The relators, or whistleblowers, who filed suit in 2017, received a reward of 19% of the government’s recovery of misspent Medicare, TRICARE, and Medicaid funds. According to one of the Relators, Jamie Clark Thompson, a former Director of Nursing at Acadia’s Lakeview Behavioral Health facility, “I am passionate about advocating for improved and quality services for individuals living with mental illness. Unfortunately, our communities have seen the devastating impact when this vulnerable population receives inadequate care. I firmly believe that by continuously working to improve our mental health system, we can support recovery and well-being, benefiting our entire community. I hope that my actions have made a difference, and I know that properly allocating funds is crucial to supporting behavioral health services and those working tirelessly to improve them.”

Medicare, TRICARE, and Medicaid Fraud Allegations

According to the settlement agreement, the whistleblowers alleged Acadia and certain of its facilities submitted false claims to Medicare, TRICARE, and Medicaid. Specifically, the facilities allegedly admitted ineligible patients, provided services for longer than was medically necessary or did not provide treatment at all (but still billed the healthcare programs for it), did not provide sufficient care for those who needed acute care or individualized care plans, and hired the wrong people or failed to train their staff to “prevent assaults, elopements, suicides, and other harm resulting from staffing failures.”

Behavioral Health Facility Fraud

Behavioral healthcare facilities provide inpatient, outpatient, and residential care for adolescents, adults, and seniors for mental health conditions. As taxpayer-funded healthcare programs, Medicare, Medicaid, and TRICARE cover behavioral healthcare. Treating mentally ill Medicare, Medicaid, or TRICARE beneficiaries as cash cows, and either under-treating, over-treating, or not treating them at all both robs the individuals of the chance to recover, wastes taxpayer resources, and may even jeopardize their safety and well-being.

The Importance of Medicare, Medicaid, and TRICARE Whistleblowers

Whistleblowers who report behavioral health facility fraud are not only protecting vulnerable patients but also making sure federally funded healthcare dollars are being spent to properly treat adolescent, adult and older patients with significant behavioral health conditions. Three employees at different Acadia facilities came forward, faced retaliation for speaking up, and are now being rewarded for helping to fight fraud and abuse and for their courage.

Read the Department of Justice’s Press Release

by: Tycko & Zavareei Whistleblower Practice Group of Tycko & Zavareei LLP

Walgreens Settles for $106.8 Million Over FCA Violations

On September 13, the US Department of Justice (DOJ) announced that Walgreens Boots Alliance Inc. and Walgreen Co. (collectively, Walgreens) agreed to pay $106.8 million to resolve allegations of violating the False Claims Act (FCA) and state statutes. The allegations pertain to billing government health care programs for prescriptions that were never dispensed. The government alleged that from 2009 until 2020, Walgreens submitted claims to federal health care programs for prescriptions that were processed but never picked up by beneficiaries. This resulted in Walgreens receiving 10s of millions of dollars for prescriptions that were never actually provided to health care beneficiaries.

Under the resolution, Walgreens agreed to enhance its electronic pharmacy management system to prevent future occurrences and self-reported certain conduct. In addition, Walgreens refunded $66,314,790 related to the settled claims, which allowed Walgreens to receive credit under the DOJ’s guidelines for taking disclosure, cooperation, and remediation into account in FCA cases.

Under the settlement agreement, the federal government received $91,881,530, and the individual states received $14,933,259 through separate settlement agreements. The settlement will resolve three cases pending in the District of New Mexico, Eastern District of Texas, and Middle District of Florida under the qui tam, or whistleblower, provision of the FCA. Whistleblowers Steven Turck and Andrew Bustos, former Walgreens employees, will receive $14,918,675 and $1,620,000, respectively, for their roles in filing the suits.

The DOJ’s press release can be found here.

CVS Health Subsidiary Settles FCA Allegations for $60 Million

On September 16, Chicago company Oak Street Health, a subsidiary of CVS Health, agreed to pay $60 million to resolve allegations that it violated the FCA by paying kickbacks to third-party insurance agents in exchange for recruiting seniors to Oak Street Health’s primary care clinics from September 2020 through December 2022.

According to the DOJ, in 2020, Oak Street Health developed a program called the Client Awareness Program. Under the program, which was developed to increase patient membership, seniors who were eligible for Medicare Advantage received marketing messages designed to generate interest in Oak Street Health. Upon receipt of these messages, third-party insurance agents organized three-way phone calls with Oak Street Health employees for the interested seniors. Oak Street Health paid agents around $200 per beneficiary referred or recommended as part of this service. Instead of basing referrals and recommendations on the best interest of the seniors, these payments allegedly encouraged agents to base referrals and recommendations on Oak Street Health’s financial interests.

The DOJ’s press release can be found here.

Dunes Surgical Hospital Settles for $12.76 Million Over FCA Violations

On September 16, South Dakota companies Siouxland Surgery Center LLP, d.b.a. Dunes Surgical Hospital, United Surgical Partners International Inc. (USPI), and USP Siouxland Inc. agreed to pay approximately $12.76 million to settle FCA allegations related to improper financial relationships between Dunes and two physician groups. Since July 1, 2014, USPI has maintained partial ownership of Dunes through USP Siouxland, a wholly owned subsidiary of USPI. Following an internal investigation, Dunes and USPI disclosed the arrangements at issue to the government.

From at least 2014 through 2019, Dunes allegedly made financial contributions to a nonprofit affiliate of a physician group whose physicians referred patients to Dunes. According to the complaint, those payments allegedly funded the salaries of referring employees. Other allegations include that Dunes provided a different physician group with below-market-value clinic space, staff, and supplies. The DOJ alleged that these arrangements violated both the Anti-Kickback Statute and the Stark Law, which are “designed to ensure that decisions about patient care are based on physicians’ independent medical judgment and not their personal financial interest.”

Following Dunes’ and USPI’s internal compliance review and independent investigation, the companies promptly took remedial actions and disclosed such arrangements to the DOJ. The companies also provided the government with detailed and thorough written disclosures and cooperated throughout its investigation, resulting in cooperation credit for the companies.

Under the settlement, Dunes and USPI will pay $12.76 million to the federal government for alleged violations of the FCA, and approximately $1.37 million to South Dakota, Iowa, and Nebraska for their share of the Medicaid portion of the settlement.

The DOJ’s press release can be found here.

California Man Convicted for Paying Illegal Kickbacks for Patient Referrals to Addiction Treatment Facilities

On September 11, a federal jury convicted Casey Mahoney, 48, of Los Angeles, for paying nearly $2.9 million in illegal kickbacks for patient referrals to his addiction treatment facilities in Orange County, California. The facilities involved are Healing Path Detox LLC and Get Real Recovery Inc.

According to court documents and evidence presented at trial, Mahoney paid illegal kickbacks to “body brokers” who referred patients to his facilities. These brokers appeared to pay thousands of dollars in cash to patients to induce them to procure treatment at Mahoney’s facilities. Mahoney allegedly concealed these illegal kickbacks through sham contracts with the body brokers. The contracts purportedly required fixed payments and prohibited payments based on the volume or value of patient referrals, when in reality, payments were negotiated based on patients’ insurance reimbursements and the number of days Mahoney could bill for treatment. Mahoney also allegedly laundered the proceeds of the conspiracy through payments to the mother of one of the body brokers, falsely characterizing them as consulting fees.

The Eliminating Kickbacks in Recovery Act formed the basis of the charges against Mahoney. He was convicted of one count of conspiracy to solicit, receive, pay, or offer illegal remunerations for patient referrals, seven counts of illegal remunerations for patient referrals, and three counts of money laundering. He is scheduled to be sentenced on January 17, 2025, and faces a maximum penalty of five years in prison for the conspiracy charge, 10 years in prison for each illegal remuneration count, and 20 years in prison for each money laundering count.

The DOJ’s press release can be found here.

by: D. Jacques Smith, Randall A. Brater, Michael F. Dearington, Nadia Patel, Hillary M. Stemple, and Rebekkah R.N. Stoeckler of ArentFox Schiff LLP

For more news on FCA Violations visit the NLR Criminal Law Business Crimes section.

Emergency Congressional Action Needed to Save CFTC Whistleblower Program

In 2021, Congress passed an emergency measure to save the U.S. Commodity Futures Trading Commission (CFTC) Whistleblower Program from financial collapse. This measure is set to expire at the end of September, threatening to shut down a program which plays a critical role in policing corruption and fraud.

The CFTC Whistleblower Program’s financial crisis is due to its own success. In setting up the program, Congress placed a cap on the amount of money which could be in the fund used to finance the program, including both paying the expenses of the Whistleblower Office and paying out whistleblower awards. Only $100 million is allowed to be placed in the fund, which is entirely financed by sanctions collected thanks to the whistleblower program.

Thus, while the CFTC Whistleblower Program has directly led to over $3.2 billion in sanctions, only a fraction of that money has been placed in the CFTC Whistleblower Program’s fund. Under the CFTC Whistleblower Program, qualified whistleblowers are eligible for monetary awards of 10-30% of the sanctions collected in the enforcement action aided by their disclosure. The large sanctions being collected due to the whistleblower program therefore result in large payouts to whistleblowers.

It is these large sanctions and corresponding large awards which are threatening the program. Given the cap on the program’s fund, a large award could completely drain the balance of the fund.

In 2021, CFTC officials and whistleblower advocates raised concerns to Congress that the funding crisis could cause the CFTC Whistleblower Office to shut down. Recognizing the consequences of this, Congress passed an emergency measure which created a separate account to fund the Whistleblower Office. This meant that even if the award fund was depleted by a large award, the program could continue to function.

This measure is set to expire at the end of September, meaning that the CFTC Whistleblower Program is once again facing a funding crisis which could lead to its collapse. Congress must swiftly act again in order to save the program.

“Whistleblowers play a critical role assisting the CFTC be a strong cop on the beat. Much of our Division of Enforcement’s success is tied to the strength of our Whistleblower Office,” said CFTC Chairman Rostin Behnam back in February.

In June, Behnam also told the Senate that “the overwhelming success of the Whistleblower Program has unintentionally led to the potential for disruptions in these two vital offices due to their funding mechanisms.”

When Congress placed the cap on the CFTC Whistleblower Program’s fund back in 2010 it seemed like a fair number. The agency was little known and the great success of whistleblower award programs was not as well established.

Since then, however, the CFTC has greatly expanded as a critical law enforcement agency, thanks in large part to whistleblowers. In recent years the agency has levied massive sanctions against major global entities such as the world’s three largest oil traders, Vitol (a Dutch oil trader; $130 million sanction), Glencore (a Swiss oil trader; $1.2 billion sanction), Trafigura, (a Singapore oil trader; $55 million sanction), and the world’s largest crypto exchange, Binance ($4 billion), to name a few.

According to the CFTC, approximately 30% of the agency’s enforcement actions involve whistleblowers. The collapse of the whistleblower program would be dire for the agency’s enforcement efforts and the United States’ anti-corruption efforts more broadly.

National Whistleblower Center is calling on Congress to immediately pass an emergency measure to save the CFTC Whistleblower Program and has set up an Action Alert allowing the public to urge their elected officials to do so as well.

Geoff Schweller also contributed to this article

SEC Enforcement Takes Broad View of Anti-Whistleblower Rule in Latest Action Targeting Investment Advisers and Broker-Dealer

On 4 September 2024, the US Securities and Exchange Commission (SEC) announced that it settled charges against affiliated investment-advisers and a broker-dealer over the use of restrictive language in confidentiality agreements, in violation of Rule 21F-17(a) of the Securities Exchange Act of 1934. The firms agreed to pay a combined $240,000 in civil penalties to settle the charges. The enforcement action is the latest in the SEC’s ongoing focus on confidentiality provisions in release agreements; an emphasis that has increasingly focused on investment advisers and broker-dealers.

Rule 21F-17(a) prohibits companies from impeding an individual’s ability to communicate with the SEC regarding possible violations of the US securities laws. The SEC has read the Rule broadly and objected to what it views as restrictive language in the confidentiality provisions of a variety of agreements. In January 2024, for example, the SEC announced a $18 million civil penalty against a dual registered investment adviser and broker-dealer based on a confidentiality provision in release agreements with retail clients that the SEC interpreted as not permitting affirmative reporting.

The agreements at issue in today’s settlement similarly included language the SEC viewed as limiting an individuals’ ability to report. The SEC viewed these agreements as permitting a response to a Commission inquiry only if the “inquiry [was] not resulting from or attributable to any actions taken by [client].” The SEC also took issue with language that it viewed as requiring clients to certify both they had not made previous reports and that they would refrain from future reporting.

The Order makes clear that the SEC is aggressively enforcing Rule 21F-17(a), interpreting carveouts in confidentiality provisions narrowly and focusing instead on a client’s “reasonable impression” after reviewing the agreement. Firms should take a second look at the confidentiality provisions in their agreements, using the SEC’s strict standard, to ensure that they measure up.

Boeing Whistleblower Continues to Raise Concerns

At the National Whistleblower Day celebration held on Capitol Hill on July 30, a Boeing whistleblower announced new documents which he claims further demonstrate shortcomings by Boeing around the manufacturing of the 737 Max which crashed in Ethiopia on March 10, 2019.

During his speech, Ed Pierson, the Executive Director of The Foundation for Aviation Safety, an aviation industry watchdog group, stated “since it’s Whistleblower Day, I thought I’d do some whistleblowing.”

Pierson went on to detail three sets of documents which he said Boeing employees had recently shared with him. The documents include the production records for the Ethiopian Airlines 737-8 MAX airplane, which according to the Foundation for Aviation Safety “paint a clear picture of the confusing and chaotic production operations going on at the 737 factory when this airplane was being manufactured.”

The documents also include information about a Federal Aviation Administration (FAA) investigation into whistleblower complaints about alleged loss of quality control at Boeing’s Electrical Systems Responsibility Center (ESRC) in Everett, Washington. According to Pierson, this investigation occurred the same week that the Ethiopian Airlines 737-8 MAX airplane was being manufactured in nearby Renton, Washington.

Lastly, the documents include communication between Boeing and Ethiopian Airlines about an uncommanded roll that plane had allegedly taken within three weeks of being delivered to Ethiopia.

In recent months, a number of Boeing whistleblowers have come forward alleging both safety concerns as well as a culture of retaliation at the company.

Category: Whistleblower

SEC Enforcement Director Highlights Increased Penalties for Violations of Whistleblower Rule

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