Articles Posted in Whistleblower/Qui Tam

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The ousted founder and former CEO of Orion Energy Systems, Inc., cannot prevail in his federal whistleblowing claim against the company because his complaints to the board did not amount to whistleblowing under the Sarbanes-Oxley Act, the Seventh Circuit recently ruled in considering his appeal.

Neal V. founded Orion in 1996 and took the company public in 2007. His tenure became bumpy in 2012 when Neal asked Orion’s board to help cover the costs of his divorce.

Soon after, Neal and the board began to clash over multiple managerial and other issues, with Neal objecting to everything from excessive legal bills to unauthorized alcohol consumption by the board. The board refused his request to disclose these matters to shareholders, and Neal failed to report them in Orion’s quarterly and annual statements filed with the SEC.

As the conflict between Neal and the board over the running of the company escalated, the board discovered that about one-third of the $170,000 it had reimbursed him for his divorce expenses was unaccounted for. Neal blamed this on a fee dispute with his divorce attorney.

Consequently, the board removed Neal as CEO in September 2012 and renamed him “chairman emeritus.” Among the reasons it cited was high senior management turnover which it attributed to Neal’s “intimidating leadership style.”

Unhappy with his demotion, Neal announced his resignation, which triggered new disagreements over his severance package. Shortly before a board meeting convened to discuss Neal’s termination, he sent an email to the board reiterating his managerial complaints against them and accusing them of conspiring against him. Although he later characterized this email as a “complaint” pursuant to Orion’s whistleblower policy as well as Sarbanes-Oxley, it did not reference any official complaint filed with the SEC or other government entity, nor did it provide the board with new information or do anything except “simply rehash the numerous personal and professional grievances about which he had been complaining over the course of the past year,” in the words of the court. Continue reading

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Whether an airline employee can avail himself of state whistleblower protections currently depends on which federal circuit he finds himself in. He should hope not to be in the Eighth Circuit, which continues to find state whistleblower laws preempted by the federal Airline Deregulation Act (ADA), even where the employee reports serious safety violations (John A. Watson v. Air Methods Corp., No. 15-1900 (8th Cir. 2016)).

John W. was a flight paramedic for Air Methods Corp., which transports and provides in-flight medical care for patients being airlifted to hospitals. Air Methods is an “air carrier” for purposes of federal aviation regulations. John allegedly witnessed numerous federal safety violations by the flight crew, which he reported to Air Methods’ corporate office. After the company terminated his employment, he sued Air Methods in Missouri state court for wrongful discharge in violation of public policy, claiming he was fired for reporting illegal activity to his superiors.

Air Methods removed the case to federal court, then sought dismissal based on the Eighth Circuit’s holding in Botz v. Omni Air International, 286 F.3d 488 (8th Cir. 2002). In Botz, the appeals court ruled the ADA preempted a state wrongful discharge claim in a case where a flight attendant had refused to work a round-trip international flight that exceeded maximum crew working hours. The district court granted Air Methods’ motion and John appealed.

The crux of the Botz ruling was ADA’s express preemption clause, which supersedes state laws and regulations “related to a price, route, or service of an air carrier.” Quoting the U.S. Supreme Court in Morales v. Trans World Airlines, Inc., 504 U.S. 374 (1992), the court in the instant case wrote: “This section has a ‘broad preemptive purpose,’ precluding state laws ‘specifically addressed to the airline industry’ and generally applicable laws that indirectly relate to air carriers’ rates, routes, or services.” Continue reading

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A recent case in the Northern District of Illinois, Helfer v. Associated Anesthesiologists of Springfield (2016 WL 183501, addressed what a plaintiff must show to sustain a claim for retaliatory termination under the False Claims Act.

Donald H. was an anesthesiologist and partner at Associated Anesthesiologists of Springfield, Ltd. in Springfield, Ill., which provides anesthesia services for Memorial Medical Center. Donald’s employment agreement gave Associated the right to terminate him with 90 days’ notice.

Donald’s fellow partners had expressed their displeasure with him for taking it upon himself on several occasions to contact third parties, such as Memorial and the Internal Revenue Service, to discuss billing and other matters concerning Associated, without the authorization of the other partners. These communications had resulted in Associated being audited. Some time thereafter, in June 2009, Donald raised concerns with other partners and shareholders about Associated’s billing of Medicare. When his concerns went unresolved, he emailed the Center for Medicare & Medicaid Services directly, again without authorization from the partners. Continue reading

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A federal court in Illinois recently shot down an employer’s claim that having signed a HIPAA “privacy policy” deprived an employee of whistleblower protections.

In United States ex rel. Cieszynski et al. v. Lifewatch Services, Inc. (2016 WL 2771798), Matthew C. brought a qui tam action accusing his employer, LifeWatch Services Inc., of violating the False Claims Act by billing the government for heart monitoring services in violation of Medicare rules. Matthew had signed a confidentiality agreement when he was hired by LifeWatch in 2003, which prevented him from disclosing certain documents. Three years later he was asked to sign a “privacy policy” concerning HIPAA regulations.

In a counterclaim, LifeWatch alleged that Matthew breached his employment contract when he accessed certain confidential information and HIPAA-protected materials that he did not need to carry out his job duties, and that he disclosed the information to “third parties outside LifeWatch,” presumably the government and his own attorney, to support his allegations. Continue reading

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Employees who notice something illegal or immoral going on at work are often made to choose between their conscience and their jobs. The Dodd-Frank Wall Street reform act prohibits employers from retaliating against whistleblowers (those who bring illegal practices to the attention of a regulatory authority), but in practice, these laws rarely have any effect.

An example of this is the case of Johnny Burris. Mr. Burris worked as a broker for JPMorgan’s office in Sun City West, Arizona as a top producing broker and earned glowing performance reviews, at least for his first few years of employment there.

Most of Mr. Burris’s clients consisted of retirees who knew very little about the complicated financial markets, so Mr. Burris considered it part of his job to avoid any investment products which might be unsuitable for his clients, expensive, and/or underperforming. Some of these investment products that Mr. Burris considered allegedly unsuitable included products that JPMorgan offered, and his refusal to promote them to his clients started to draw some criticism from his superiors. Continue reading

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A lot of people lost money in the recent economic downturn. Stocks plummeted, 401K accounts shrank overnight, and for most people, there was nothing that could have been done to prevent it. In some instances, though, an investor’s loss was a direct result of negligence or fraud on the part of the company that was supposed to be protecting their money.

According to the Securities and Exchange Commission (S.E.C.) that is exactly what allegedly happened to investors who trusted their money to MassMutual Financial Group, an insurance company based in Springfield, Massachusetts. Bill Lloyd worked for MassMutual for 22 years and allegedly had a reputation for being a straight arrow. Unlike the stereotypical agent who is interested only in making money for himself, Lloyd truly cared about his customers. As a result, when he encountered a situation in which his customers were allegedly getting ripped off, Lloyd could not let it slide.

In 2007, when money was gushing into variable annuities, MassMutual added two income guarantees: Guaranteed Income Benefit Plus 6 and Guaranteed Income Benefit Plus 5. The idea behind these products was that they would guarantee that the annuity income stream would grow to a predetermined cap regardless of how the investment itself performed.

When the investors retired, they could take six percent (or five percent, depending on which product they bought) of the cap for as long as they wanted or until it ran out of money, and still be able to annuitize it at some point. In theory, the money would never run out, and that is how agents like Lloyd were allegedly told to sell the product to customers. Before long, investors had put $2.5 billion into these products.

In 2008 it allegedly became evident that the products did not work they way customers had been told they would work. As a result of the market’s fall, it was according to Lloyd all but certain that thousands of customers were going to run through their income stream within seven or eight years of withdrawing the money. Continue reading

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In 2010, the Securities and Exchange Commission (SEC) enacted a law which encourages people in the know to “blow the whistle” on people or companies who are stealing from or cheating the government. The SEC rewards successful “whistleblowers” with up to 30% of sanctions collected by the agency.

Recently, an attorney has asked the agency to intervene in a legal battle between the attorney and his former employer. David Danon worked for Vanguard from 2008 to 2013, and according to Vanguard, sent company records to his home email address while he was employed by the company and “at the end of his employment”.

In May 2013, one month before leaving Vanguard, Danon filed an SEC whistleblower lawsuit against his employer and another lawsuit in New York state court. Danon alleges that Vanguard has been operating an illegal tax shelter for almost 40 years. According to the complaint, the company has avoided paying $1 billion in U.S. federal income taxes and at least $20 million in New York state taxes. The company allegedly accomplished this by providing services to the mutual funds it runs at prices that allow it to avoid federal and state income taxes.

Vanguard insists that the case is without merit and has said that it intends to defend itself in the courts. The company sent a letter to Danon after the filing of the lawsuit, saying that, “Vanguard intends to take all necessary and appropriate steps to protect its interests “. It also stated that Vanguard “reserves all of its rights to seek legal redress” if Danon fails to return the company’s documents immediately. Continue reading

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Johnson & Johnson and its subsidiaries have agreed on Monday to pay over $2.2 billion to resolve criminal and civil allegations of promoting prescription drugs for uses not approved as safe and effective by the Food and Drug Administration – which was first brought to light by a Chicago-area whistle-blower.

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A wise philanthropist is a cautious philanthropist. Many people already know to check a few reputable websites before deciding whether or not to donate money to a particular organization. However, some charities are better than others at making sure that the majority of the funds they receive truly benefit the people and causes they are meant to help. If a charity fails to properly appropriate funds from the government, the repercussions can be particularly expensive.

A common cause for charity is cancer treatment and research. A recent whistleblower lawsuit has revealed that even the government must be mindful of who it donates money to. The lawsuit which involves allegations of misappropriation of funds for cancer research has been settled for $2.93 million. The defendant was Northwestern University and the funds provided by the government were allegedly misused by Dr. Charles Bennett. Bennett, worked for Northwestern University as a principal researcher in studies that sought to better understand rare diseases and to develop systems to better identify when cancer drugs have bad side effects. He reaped wide acclaim for his work in this research but, as he did so, he was also allegedly incurring high personal expenses and using cancer research funds to finance them.

Bennett and his wife allegedly took trips for pleasure and then billed the flight, hotel, and meal costs to the National Institutes for Health, claiming that it was all part of his cancer-fighting work. Bennett also allegedly submitted phony bills for his work from 2003 to 2010 while he was working on numerous grants that provided more than $8 million for research. Some of the travel allegedly occurred on a “near weekly basis, and in some cases incurred expenses that were highly excessive” according to the lawsuit. Moreover, Bennett allegedly used whatever grant money was left over at the end of funding periods to fund his salary.

The lawsuit was brought by Melissa Theis under seal as a whistleblower lawsuit in 2009. Theis began working as a temp at Northwestern’s Feinberg School of Medicine in November 2007 as a purchasing coordinator before she was hired full time by the university. Theis said she first suspected something when she noticed red flags in the invoices and reimbursement requests “almost immediately” after she began working there.

In September 2008, Theis says she discussed her concerns with her supervisor and an accounting services unit at the University. However, according to the lawsuit, “Northwestern refused to seriously address the issues she had brought.” Theis quit her position with the University in 2008 and filed her whistleblower lawsuit in 2009. After she filed her lawsuit, federal investigators from the U.S. Department of Health and Human Services, the FBI, the NIH, and the U.S. Attorney’s office conducted an investigation into Theis’s allegations.

The lawsuit alleged that the University did not have sufficient controls in place to detect or prevent inappropriate spending.

The University has not admitted to any wrongdoing as part of the settlement.
Although the University has agreed to settle with the government, there are still claims against Bennett and the head of the University’s Lurie Comprehensive Cancer Center, Dr. Steven Rosen, which have yet to be settled. The whistleblower lawsuit is a civil proceeding to obtain a refund of government monies allegedly misappropriated. The whistleblower receives a percentage of the recovery or settlement.

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Lance Armstrong caused an international sensation when he finally admitted to using performance enhancing drugs while competing in the Tour de France. Floyd Landis, Armstrong’s ex-teammate, who has also confessed to doping, filed a whistleblower lawsuit in Washington D.C. against Armstrong in 2010. The lawsuit alleges that Armstrong defrauded the American government, which sponsored Armstrong in his races. Now the U.S. Justice Department has joined the legal battle.

Landis filed his case under the False Claims Act which givens private citizens a financial incentive to file suit on the government’s behalf against individuals and entities who they know are cheating the government. Whistleblower cases are first filed “under seal” which means that they are not initially announced to the public. This gives the government an opportunity to investigate the allegations before deciding whether or not to join the case. The Justice Department has recently announced that it is intervening in the lawsuit against Armstrong and other named defendants. This has greatly increased Landis’s chances of success because the government normally only joins lawsuits that it thinks it can win.

Violators of the False Claims Act are liable for up to three times the damages plus an additional $5,500 to $11,000 for each false claim. U.S. Attorney Ronald C. Machen Jr. has said that Armstrong and his associates “took more than $30 millions from the U.S. Postal Service based on their contractual promise to play fair and abide by the rules.” The amount the government might be able to recover in a court of law amounts to between $90 million and $100 million. If they win, Landis, as the plaintiff who first filed the case, can collect up to one-third of that money.

According to media reports, Armstrong offered $5 million to settle the case, but the government wanted at least $10 million. News reports have also said that Armstrong wants immunity from criminal charges as part of his settlement with the U.S. Postal Service. The government does not appear to have offered that as part of the deal.

However, it is not uncommon for settlement negotiations to restart, even as the two teams are preparing for trial. Most civil cases are resolved before trial and the government’s involvement in the case will no doubt put pressure on the defendants to settle.

Armstrong’s attorneys have argued that the U.S. Postal Service made more money off of its sponsorship of Armstrong than it ever paid to Armstrong and his team. However, this is irrelevant to the matter of whether or not Armstrong broke the law. If Armstrong and his teammates received $30 million from the U.S. government by promising to follow the anti-doping rules and broke that promise, then they are liable for having broken their word, regardless of how much money the U.S. postal service gained. Machen’s lawsuit also alleges that the U.S. Postal Service continues to suffer by being associated with Armstrong and his team. The U.S. government can use this to show that they have suffered much more in damages than the initial $30 million paid to Armstrong and his team.

Armstrong is arguing that the U.S. Postal Service should have known that he was taking performance enhancing drugs because of the allegations at the time and an investigation conducted by French police. However, Armstrong, the teams lead rider, was vehemently denying the allegations all the time that he was under investigation.

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