January 25, 2017 - Posts

SO YOU WANT TO BLOW THE WHISTLE: What Is the False Claims Act and How Does It Work?

This is the fifth entry in a six-part series on the process and practical realities of being a whistleblower and exposing fraud against the government.  The final entry will appear here next Wednesday.

 

Part 5: What Is the False Claims Act and How Does It Work?

In prior entries in this series, we have referred several times to the federal False Claims Act—the most significant federal whistleblower law that permits citizens to bring claims against those who commit fraud against the government. It is worth taking a step back at this stage to provide a little more detail on that law and how it works.

 

President Abraham Lincoln – The father of the False Claims Act

As far back as the Civil War, Congress recognized that the U.S. Government is too big and too cumbersome to uncover and combat fraud on its own. The False Claims Act (FCA) was passed to help fix this problem, by establishing major financial rewards for whistleblowers who come forward with evidence of fraud against the United States. President Lincoln championed the statute to rein in rampant fraud perpetuated against the army during the Civil War.

 

The FCA has always incentivized whistleblowers to come forward by promising them a share of any recovery. This reward, often called a “bounty,” helps give whistleblowers the extra nudge they need to come forward to expose fraud. In 2016, whistleblowers who filed False Claims Act cases were paid $519 million by the Department of Justice. We think “Honest Abe” Lincoln would approve.

 

The nuts and bolts of a False Claims Act complaint

Under the False Claims Act, an individual with knowledge of fraud against the government “blows the whistle” by filing a lawsuit in federal court, laying out all the details of the fraud being alleged. Although they are filed in court, these False Claims Act lawsuits differ from most other federal cases in several important ways.

 

First, the lawsuit is filed under seal and remains completely confidential for at least 60 days—and generally much longer. The United States Department of Justice is served with a copy of the lawsuit, but defendants are not, in order to give the government time to conduct its own investigation. The government typically requests multiple extensions to the seal, and many cases remain under seal for two or more years while the government conducts its investigation.

 

It is important to remember that even though the whistleblower may take a tremendous amount of professional risk in filing a case, the underlying claims belong to the government. After all, it is the government that was defrauded. These cases are often referred to as “qui tams,” which comes from a Latin phrase meaning “he who sues in both the name of the king (in this case the United States) and on behalf of himself.” Understanding that your case involves claims that belong to the government is critical because once the case is on file you immediately lose a lot of control of its fate. Because the United States is the party who has been harmed, the claims in your lawsuit all belong to the federal government. That means that the whistleblower cannot dismiss those claims without the government’s consent and cannot settle with the defendants except with the government’s express approval.

 

Once served with the complaint, the government commences its investigation, which can often take two to three years. Eventually, the Justice Department will make a formal decision about whether to “intervene” in the case. If the Justice Department does intervene, then the rest of the case is handled by the government, with only limited involvement from the whistleblower or the whistleblower’s attorneys. If the Justice Department chooses not to intervene in the case, the whistleblower has the legal right to keep going and litigate the case without the government’s assistance. Any would-be whistleblowers would be well advised to hire lawyers prepared to litigate a case without the government’s intervention. Either way, once the government makes its decision, the case will come out from under seal and the defendants will finally be served with the complaint.

 

The sweet reward for doing the right thing

One of the most remarkable aspects of the False Claims Act is whistleblowers can not only serve an important function in stopping fraud and protecting tax payers, but can also be handsomely rewarded for their efforts. You can do “right” and do well at the same time. If the government recovers any money from the lawsuit—either through a settlement or a court judgment—then the whistleblower is entitled to a significant piece of that recovery as a reward for bringing the case to the government’s attention. In cases where the government intervenes, the whistleblower is entitled to at least 15% and potentially as much as 25% of the government’s total recovery. In cases where the government does not intervene, but the whistleblower still recovers money on the government’s behalf, then the whistleblower is entitled to receive between 25% and 30% of that money. That means that in a case involving a $10,000,000 recovery to the government, the whistleblower should receive between $1,500,000 and $3,000,000 as a reward for coming forward to expose the fraud.

 

Conclusion

This summary is merely an overview of how the False Claims Act works. If you have more specific questions about how the Act applies to your own specific circumstances, you should raise those questions with your attorney.

 

To learn more about our Whistleblower & Qui Tam practice, click here.  This is the fifth in our six part series on the ins and outs of exposing fraud against the government. Be on the lookout for our final entry in this series discussing what happens after you filed a False Claims Act lawsuit.

 

 

Don’t miss our other entries in the “So You Want To Blow The Whistle” series:

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