The federal False Claims Act empowers whistleblowers and the Department of Justice to sue people and entities that commit fraud related to federal government funds.
Known as “Lincoln’s Law” and originally enacted during the Civil War to combat pervasive fraud by contractors selling fake and defective goods, supplies, and weapons to the Union Army, the False Claims Act has become an essential tool to protect the integrity of taxpayer-funded federal government programs.
There are a few essential “elements” of a False Claims Act case: (1) a false claim, (2) submitted knowingly, and (3) that caused the government to lose money or fail to collect money. For more detailed information, take a look at the text of the federal False Claims Act.
Examples of false claims include:
Federal Government Healthcare Fraud
- An opioid manufacturer paid $195 million to settle allegations that the company encouraged physicians (through bribery and kickback schemes disguised as educational meals) to prescribe highly addictive painkillers for unapproved purposes to Medicare and TRICARE beneficiaries.
- A major pharma company paid $625 million to resolve allegations that it improperly repackaged potentially contaminated oncology-supportive injectable drugs that were provided to patients covered by Medicare, Medicaid, TRICARE, Federal Employees Health Benefit Program, and the Department of Veterans Affairs.
- Two of America’s most respected pharmaceutical companies paid more than $233 million to resolve various claims that they set up bogus schemes—including funneling money through a non-profit foundation to pay patients’ co-pays—to improperly inflate the price of drugs paid by Medicare in some cases by as much as 40%.
- An inpatient rehabilitation facility company paid $48 million to resolve allegations that some patient admissions to its facilities were not medically necessary and that some of its facilities provided inaccurate information to Medicare and Medicaid to maintain their status as “inpatient rehabilitation facilities”—a designation that enabled the operator to earn a higher rate of reimbursement.
- A medical device manufacturer paid $33.2 million to resolve allegations that it sold a materially unreliable testing device that was intended to help doctors and nurses diagnose drug overdoses, assess acute coronary syndrome, and identify other serious conditions
- A major provider of electronic medical records paid $155 million to resolve charges that it misrepresented what its software could do, and then paid kickbacks to customers to promote the product.
- A major hospital system paid $731 million to resolve claims that it ordered medical tests that were not necessary, up-coded various charges, and misrepresented its advertising expenses as “community education” in order to get the government to pay for non-reimbursable expenses.
- A major nursing home chain paid $145 million to resolve a complaint that it provided unnecessary rehab services.
- A bank agreed to resolve allegations that it improperly processed Paycheck Protection Program (PPP) loans on behalf of an ineligible customer.
- A company agreed to resolve allegations that it applied for and obtained a PPP loan by lying on the application to claim it was eligible when it was not.
- A major university paid $112.5 million to settle allegations that it falsified research data in grant applications.
- A major pharmaceutical company paid $3 billion to resolve charges that it illegally promoted nine different prescription drugs, paid kickbacks to doctors to prescribe the medications, and falsified scientific research and articles.
Government Contract Fraud
- A company and its subsidiary paid $66 million to resolve claims that the fiber they used to produce their supposedly bullet-proof vests for law enforcement agencies was so weak and defective that it could not stop a bullet 50% of the time.
- A company responsible for servicing American Navy ships in foreign ports inflated its invoices, resulting in a $20 million fine.
- An aluminum manufacturer paid $34.6 million to resolve claims that it falsified critical testing data about the consistency and reliability of its products, resulting in two failed rocket launches by NASA.
- A Kuwaiti company paid $95 million to resolve claims that it overcharged the Department of Defense for the fruits and vegetables it provided to American troops stationed in Iraq.
- A major engineering and construction company agreed to pay $125 million to resolve allegations that it provided deficient materials, services, and testing involving nuclear waste.
Government Contract Compliance Fraud
- A defense contractor paid $9 million to resolve claims that it lied in certifications about its compliance with cybersecurity requirements and failed to disclose a breach to the Department of Defense and NASA.
- A construction company resolved claims that it misrepresented its status as a Disadvantaged Business Enterprise under Department of Transportation regulations to obtain work from a municipality that was required by DOT to hire subcontractors owned and managed by “economically disadvantaged,” minority, or otherwise disadvantaged individuals.
Government Mortgage Fraud
- One of the largest, most respected accounting firms paid $149 million for failing to properly audit a participant in an important government mortgage program.
- A home mortgage company was found liable by a jury for $92 million in damages for improperly issuing mortgages to unqualified applicants who then quickly defaulted on the loans.
- One of the largest banks in America—along with two financial institution subsidiaries—agreed to pay $16.65 billion to resolve charges that it engaged in fraudulent practices in the issuance and marketing of collateralized debt obligations involving home mortgages.
- Another major bank paid $641 million to settle allegations that it issued FHA and Veterans Affairs insured home loans to people who then defaulted; and the government paid the bank insurance money on mortgages that should never have been approved.
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The federal False Claims Act defines a claim as “any request or demand, whether under a contract or otherwise, for money or property” either presented directly or indirectly to the federal government.
Knowledge is an important element of a False Claims Act case. But the whistleblower does not need to prove the defendant had specific intent to defraud the government. Knowledge only requires that the defendant:
- Had actual knowledge that the claim (or a statement or document in support of the claim) was false; or
- Acted in deliberate ignorance of whether the information in the claim (or a statement or document in support of the claim) was true or false; or
- Acted in reckless disregard of the truth or falsity of the information in the claim (or a statement or document in support of the claim).
Anyone represented by an attorney can file a case under the federal False Claims Act. While whistleblowers (or as they are called under the False Claims Act, “relators”) can sometimes be stereotypical “insiders” like employees or former employees, there is no requirement that they be insiders.
Whistleblowers can file a qui tam case (meaning “on behalf of the King”) in federal court. The case is filed under seal (confidentially) on behalf of the government.
However, whistleblowers do need to have real knowledge of wrongdoing. You cannot report fraud based on information obtained from already-disclosed public sources like media reports, government publications, or existing government investigations or litigation.
The timing is also important. In order to successfully file a case (including potentially receiving a reward), a whistleblower needs to be the “first to file” a case related to the facts and allegations they are bringing forward. A whistleblower also has to file their case within the “statute of limitations,” usually between 6-10 years from when the fraud occurred.
If we work together, when we submit your information to the government and file your case in court, it is done confidentially and under seal. That means the only people who know your identity are the government officials to whom we report the wrongdoing, the court, and us. The defendants, your coworkers, and others cannot get that information while the case is “under seal.” Eventually, once the government has had an opportunity to investigate the allegations and decide how to proceed, the case is “unsealed.”
We sometimes work with clients with unique concerns that require extra confidentiality and protection of their identity and we do our best to preserve anonymity in these situations.
Even though the law says that whistleblowers remain confidential and defendants may not retaliate against them, sometimes wrongdoers mistreat whistleblowers for raising their concerns, working with a lawyer, or contacting the government.
Whistleblowers who face retaliation like firing, suspension, demotion, discipline, threats, harassment, or other discrimination can bring claims to be reinstated to their prior position and receive damages like back pay and special damages like emotional distress, attorney’s fees and costs.
Retaliation claims can be filed together with a whistleblower’s qui tam claims or separately.
Depending on the situation, Relators receive between 15% and 30% of what is collected by the government. The sliding scale is determined by the government based on the whistleblower’s role in the case and how helpful their information has been in identifying the fraud.
The overall amount that the government collects—and that can be after a trial or more often in a settlement negotiated by the government with the defendant—is not just a function of the size of the fraud. The law provides for “treble damages”—triple the amount of the actual fraud—plus per-claim fines.
Thus, for example, in a case where the actual damages are $10 million, the FCA can triple those damages to $30 million liability for the defendant. And the whistleblower’s share could be $4.5 million—$9 million. Not surprisingly, most defendants seek to avoid going to trial against the government and settle for a portion of the total liability they risk facing at trial.
Text of the Federal False Claims Act
31 U.S.C. § 3729 - False claims.
(a) Liability for certain acts.—
(1) In general.—Subject to paragraph (2), any person who—
(A) knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval;
(B) knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim;
(C) conspires to commit a violation of subparagraph (A), (B), (D), (E), (F), or (G);
(D) has possession, custody, or control of property or money used, or to be used, by the Government and knowingly delivers, or causes to be delivered, less than all of that money or property;
(E) is authorized to make or deliver a document certifying receipt of property used, or to be used, by the Government and, intending to defraud the Government, makes or delivers the receipt without completely knowing that the information on the receipt is true;
(F) knowingly buys, or receives as a pledge of an obligation or debt, public property from an officer or employee of the Government, or a member of the Armed Forces, who lawfully may not sell or pledge property; or
(G) knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government,
is liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000, as adjusted by the Federal Civil Penalties Inflation Adjustment Act of 1990 (28 U.S.C. 2461 note; Public Law 104-4101), plus 3 times the amount of damages which the Government sustains because of the act of that person.
(2) Reduced damages.—If the court finds that—
(A) the person committing the violation of this subsection furnished officials of the United States responsible for investigating false claims violations with all information known to such person about the violation within 30 days after the date on which the defendant first obtained the information;
(B) such person fully cooperated with any Government investigation of such violation; and
(C) at the time such person furnished the United States with the information about the violation, no criminal prosecution, civil action, or administrative action had commenced under this title with respect to such violation, and the person did not have actual knowledge of the existence of an investigation into such violation,
the court may assess not less than 2 times the amount of damages which the Government sustains because of the act of that person.
(3) Costs of civil actions.—A person violating this subsection shall also be liable to the United States Government for the costs of a civil action brought to recover any such penalty or damages.
(b) Definitions.—For purposes of this section—
(1) the terms “knowing” and “knowingly”—
(A) mean that a person, with respect to information—
(i) has actual knowledge of the information;
(ii) acts in deliberate ignorance of the truth or falsity of the information; or
(iii) acts in reckless disregard of the truth or falsity of the information; and
(B) require no proof of specific intent to defraud;
(2) the term “claim”—
(A) means any request or demand, whether under a contract or otherwise, for money or property and whether or not the United States has title to the money or property, that—
(i) is presented to an officer, employee, or agent of the United States; or
(ii) is made to a contractor, grantee, or other recipient, if the money or
property is to be spent or used on the Government's behalf or to advance a Government program or interest, and if the United States Government—
(I) provides or has provided any portion of the money or property requested or demanded; or
(II) will reimburse such contractor, grantee, or other recipient for any portion of the money or property which is requested or demanded; and
(B) does not include requests or demands for money or property that the Government has paid to an individual as compensation for Federal employment or as an income subsidy with no restrictions on that individual's use of the money or property;
(3) the term “obligation” means an established duty, whether or not fixed, arising from an express or implied contractual, grantor-grantee, or licensor-licensee relationship, from a fee-based or similar relationship, from statute or regulation, or from the retention of any overpayment; and
(4) the term “material” means having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property.
(c) Exemption from disclosure.—Any information furnished pursuant to subsection (a)(2) shall be exempt from disclosure under section 552 of title 5.
(d) Exclusion.—This section does not apply to claims, records, or statements made under the Internal Revenue Code of 1986.
31 U.S.C. § 3730 - Civil actions for false claims
(a) Responsibilities of the Attorney General.—The Attorney General diligently shall investigate a violation under section 3729. If the Attorney General finds that a person has violated or is violating section 3729, the Attorney General may bring a civil action under this section against the person.
(b) Actions by private persons.—
(1) A person may bring a civil action for a violation of section 3729 for the person and for the United States Government. The action shall be brought in the name of the Government. The action may be dismissed only if the court and the Attorney General give written consent to the dismissal and their reasons for consenting.
(2) A copy of the complaint and written disclosure of substantially all material evidence and information the person possesses shall be served on the Government pursuant to Rule 4(d)(4) of the Federal Rules of Civil Procedure.1 The complaint shall be filed in camera, shall remain under seal for at least 60 days, and shall not be served on the defendant until the court so orders. The Government may elect to intervene and proceed with the action within 60 days after it receives both the complaint and the material evidence and information.
(3) The Government may, for good cause shown, move the court for extensions of the time during which the complaint remains under seal under paragraph (2). Any such motions may be supported by affidavits or other submissions in camera. The defendant shall not be required to respond to any complaint filed under this section until 20 days after the complaint is unsealed and served upon the defendant pursuant to Rule 4 of the Federal Rules of Civil Procedure.
(4) Before the expiration of the 60-day period or any extensions obtained under paragraph (3), the Government shall—
(A) proceed with the action, in which case the action shall be conducted by the Government; or
(B) notify the court that it declines to take over the action, in which case the person bringing the action shall have the right to conduct the action.
(5) When a person brings an action under this subsection, no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.
(c) Rights of the parties to qui tam actions.—
(1) If the Government proceeds with the action, it shall have the primary responsibility for prosecuting the action, and shall not be bound by an act of the person bringing the action. Such person shall have the right to continue as a party to the action, subject to the limitations set forth in paragraph (2).
(A) The Government may dismiss the action notwithstanding the objections of the person initiating the action if the person has been notified by the Government of the filing of the motion and the court has provided the person with an opportunity for a hearing on the motion.
(B) The Government may settle the action with the defendant notwithstanding the objections of the person initiating the action if the court determines, after a hearing, that the proposed settlement is fair, adequate, and reasonable under all the circumstances. Upon a showing of good cause, such hearing may be held in camera.
(C) Upon a showing by the Government that unrestricted participation during the course of the litigation by the person initiating the action would interfere with or unduly delay the Government's prosecution of the case, or would be repetitious, irrelevant, or for purposes of harassment, the court may, in its discretion, impose limitations on the person's participation, such as—
(i) limiting the number of witnesses the person may call;
(ii) limiting the length of the testimony of such witnesses;
(iii) limiting the person's cross-examination of witnesses; or
(iv) otherwise limiting the participation by the person in the litigation.
(D) Upon a showing by the defendant that unrestricted participation during the course of the litigation by the person initiating the action would be for purposes of harassment or would cause the defendant undue burden or unnecessary expense, the court may limit the participation by the person in the litigation.
(3) If the Government elects not to proceed with the action, the person who initiated the action shall have the right to conduct the action. If the Government so requests, it shall be served with copies of all pleadings filed in the action and shall be supplied with copies of all deposition transcripts (at the Government's expense). When a person proceeds with the action, the court, without limiting the status and rights of the person initiating the action, may nevertheless permit the Government to intervene at a later date upon a showing of good cause.
(4) Whether or not the Government proceeds with the action, upon a showing by the Government that certain actions of discovery by the person initiating the action would interfere with the Government's investigation or prosecution of a criminal or civil matter arising out of the same facts, the court may stay such discovery for a period of not more than 60 days. Such a showing shall be conducted in camera. The court may extend the 60-day period upon a further showing in camera that the Government has pursued the criminal or civil investigation or proceedings with reasonable diligence and any proposed discovery in the civil action will interfere with the ongoing criminal or civil investigation or proceedings.
(5) Notwithstanding subsection (b), the Government may elect to pursue its claim through any alternate remedy available to the Government, including any administrative proceeding to determine a civil money penalty. If any such alternate remedy is pursued in another proceeding, the person initiating the action shall have the same rights in such proceeding as such person would have had if the action had continued under this section. Any finding of fact or conclusion of law made in such other proceeding that has become final shall be conclusive on all parties to an action under this section. For purposes of the preceding sentence, a finding or conclusion is final if it has been finally determined on appeal to the appropriate court of the United States, if all time for filing such an appeal with respect to the finding or conclusion has expired, or if the finding or conclusion is not subject to judicial review.
(d) Award to qui tam plaintiff.—
(1) If the Government proceeds with an action brought by a person under subsection (b), such person shall, subject to the second sentence of this paragraph, receive at least 15 percent but not more than 25 percent of the proceeds of the action or settlement of the claim, depending upon the extent to which the person substantially contributed to the prosecution of the action. Where the action is one which the court finds to be based primarily on disclosures of specific information (other than information provided by the person bringing the action) relating to allegations or transactions in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation, or from the news media, the court may award such sums as it considers appropriate, but in no case more than 10 percent of the proceeds, taking into account the significance of the information and the role of the person bringing the action in advancing the case to litigation. Any payment to a person under the first or second sentence of this paragraph shall be made from the proceeds. Any such person shall also receive an amount for reasonable expenses which the court finds to have been necessarily incurred, plus reasonable attorneys' fees and costs. All such expenses, fees, and costs shall be awarded against the defendant.
(2) If the Government does not proceed with an action under this section, the person bringing the action or settling the claim shall receive an amount which the court decides is reasonable for collecting the civil penalty and damages. The amount shall be not less than 25 percent and not more than 30 percent of the proceeds of the action or settlement and shall be paid out of such proceeds. Such person shall also receive an amount for reasonable expenses which the court finds to have been necessarily incurred, plus reasonable attorneys' fees and costs. All such expenses, fees, and costs shall be awarded against the defendant.
(3) Whether or not the Government proceeds with the action, if the court finds that the action was brought by a person who planned and initiated the violation of section 3729 upon which the action was brought, then the court may, to the extent the court considers appropriate, reduce the share of the proceeds of the action which the person would otherwise receive under paragraph (1) or (2) of this subsection, taking into account the role of that person in advancing the case to litigation and any relevant circumstances pertaining to the violation. If the person bringing the action is convicted of criminal conduct arising from his or her role in the violation of section 3729, that person shall be dismissed from the civil action and shall not receive any share of the proceeds of the action. Such dismissal shall not prejudice the right of the United States to continue the action, represented by the Department of Justice.
(4) If the Government does not proceed with the action and the person bringing the action conducts the action, the court may award to the defendant its reasonable attorneys' fees and expenses if the defendant prevails in the action and the court finds that the claim of the person bringing the action was clearly frivolous, clearly vexatious, or brought primarily for purposes of harassment.
(e) Certain Actions Barred.—
(1) No court shall have jurisdiction over an action brought by a former or present member of the armed forces under subsection (b) of this section against a member of the armed forces arising out of such person's service in the armed forces.
(A) No court shall have jurisdiction over an action brought under subsection (b) against a Member of Congress, a member of the judiciary, or a senior executive branch official if the action is based on evidence or information known to the Government when the action was brought.
(B) For purposes of this paragraph, “senior executive branch official” means any officer or employee listed in paragraphs (1) through (8) of section 101(f) of the Ethics in Government Act of 1978 (5 U.S.C. App.).
(3) In no event may a person bring an action under subsection (b) which is based upon allegations or transactions which are the subject of a civil suit or an administrative civil money penalty proceeding in which the Government is already a party.
(A) The court shall dismiss an action or claim under this section, unless opposed by the Government, if substantially the same allegations or transactions as alleged in the action or claim were publicly disclosed–
(i) in a Federal criminal, civil, or administrative hearing in which the Government or its agent is a party;
(ii) in a congressional, Government Accountability Office, or other Federal report, hearing, audit, or investigation; or
(iii) from the news media,
unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.
(B) For purposes of this paragraph, “original source” means an individual who either (i) prior to a public disclosure under subsection (e)(4)(a), has voluntarily disclosed to the Government the information on which allegations or transactions in a claim are based, or (2) who has knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions, and who has voluntarily provided the information to the Government before filing an action under this section.
(f) Government not liable for certain expenses.—The Government is not liable for expenses which a person incurs in bringing an action under this section.
(g) Fees and expenses to prevailing defendant.—In civil actions brought under this section by the United States, the provisions of section 2412(d) of title 28 shall apply.
(h) Relief from retaliatory actions.—
(1) In general.—Any employee, contractor, or agent shall be entitled to all relief necessary to make that employee, contractor, or agent whole, if that employee, contractor, or agent is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment because of lawful acts done by the employee, contractor, agent or associated others in furtherance of an action under this section or other efforts to stop 1 or more violations of this subchapter.
(2) Relief.—Relief under paragraph (1) shall include reinstatement with the same seniority status that employee, contractor, or agent would have had but for the discrimination, 2 times the amount of back pay, interest on the back pay, and compensation for any special damages sustained as a result of the discrimination, including litigation costs and reasonable attorneys' fees. An action under this subsection may be brought in the appropriate district court of the United States for the relief provided in this subsection.
(3) Limitation on bringing civil action.—A civil action under this subsection may not be brought more than 3 years after the date when the retaliation occurred.