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Employee cries fraud, but IDX Systems says he should be fired

May 9, 2003 | Puget Sound Business Journal In a bitter dispute that involves allegations of billing fraud, retaliation and insubordination, a senior researcher at the Seattle office of IDX Systems Corp. is seeking whistle-blower protections under a little-noticed provision of the Sarbanes-Oxley Act.

The legal fight, which includes a sealed federal lawsuit over an $18 million government contract, highlights how the Sarbanes-

Oxley corporate-reform measure may complicate personnel disputes at public companies.

Dr. Mauricio Leon on May 5 asked the U.S. Department of Labor for whistle-blower protection under the Sarbanes-Oxley provision that protects public-company employees who provide evidence of corporate fraud, according to a copy of the complaint.

For its part, IDX Systems filed suit in U.S. District Court in Seattle on April 25, seeking assurance it can fire Leon without exposing itself to anticipated claims that the company violated whistle-blower protections and anti-discrimination laws.

In its lawsuit, the Burlington, Vt.,-based developer of medical software portrays Leon as a prickly malcontent who has disregarded his superiors, repeatedly threatened legal action and "failed to perform any meaningful work since at least January 1, 2003."

The dispute sprang out of IDX Systems' participation in the SAGE project, a program that is developing medical software and health-care guidelines with a three-year grant from the National Institute of Standards and Technology. The federal government is spending about $18 million on the research.

IDX Systems' partners on the SAGE project include Stanford University, the Mayo Clinic and the University of Nebraska Medical Center.

But Leon says that in February 2002 he found evidence that IDX Systems was engaged in "fraudulent and illegal activities" involving the SAGE project, according to the complaint he filed with the Labor Department. He says he took those concerns to his superiors.

Leon's complaint accuses his employer of overcharging and making false claims in a conspiratorial bid "to defraud the government and mislead their joint venture partners." The complaint did not elaborate.

According to IDX's own suit, Leon last year also filed in federal court in Seattle a sealed lawsuit known as a qui tam claim.

Such claims ask the Justice Department to investigate fraud allegations that involve government programs. The claims are supposed to be accompanied by supporting evidence.

The Justice Department must then investigate the allegations and decide whether prosecution is warranted. If federal prosecutors don't pursue the case, the person who filed the claim can sue on the government's behalf.

In either event, the claimant in a successful prosecution can get as much as 30 percent of the damages, with the rest going to the government.

Leon and his attorney, Ricardo Guarnero of Seattle, were unable to confirm or deny the existence of the qui tam claim, let alone disclose the substance of its allegations, because the document was filed under seal with the court.

IDX Systems said it is unaware of the substance of the claim, although the company surmised that the allegations resemble Leon's previous accusations. "IDX denies that any such allegations have any foundation in fact," the company said in its lawsuit against Leon.

Company spokeswoman Margo Happer said IDX Systems investigated Leon's allegations about the SAGE project and found no evidence of wrongdoing. The company has not had any other complaints about the project, and no other IDX System employees have sought whistle-blower protection, she said.

"We believe Dr. Leon's allegations are false and completely without merit," Happer said. "We believe that this action was brought in bad faith."

She also questioned whether Leon could get whistle-blower protection under Sarbanes-Oxley because IDX Systems has no evidence of securities fraud, and Leon's allegations about the SAGE project are immaterial to the company's future financial performance.

In an interview, Leon said the dispute has taken a toll on him personally. He is currently on unpaid administrative leave.

"The level of uncertainty is extremely high," he said. "The only thing I know is that I don't have income, and finding another job is going to be extremely hard."

Nonetheless, Leon said he is acting on principle. He is convinced that IDX Systems is squandering a research project that could advance science and reward the company's shareholders. "That's very sad," Leon said. "They just don't care."

For the moment, it's unclear how many employees have used the Sarbanes-Oxley Act for whistle-blower protection when they accuse their employers of wrongdoing, attorneys say. The law has been on the books less than a year.

"It's so early that it's impossible to know how many cases we're going to see," said Dan Thieme, managing shareholder of the Seattle office of Littler Mendelson PC, which specializes in advising employers on employment law.

Attorneys are expecting more whistle-blower claims, however. Fired employees have already accused three of Thieme's clients of retaliation under the Sarbanes-Oxley protections. Two of those employers were public companies, while the third was private.

Sarbanes-Oxley adds new laws protecting whistle-blowers, but similar protections are already sprinkled throughout the federal statutes, attorneys say.

Lawmakers created two new whistle-blower provisions with the Sarbanes-Oxley Act.

Leon is seeking protection under one provision, Section 806, that protects public-company employees who report evidence of fraud. A second provision, Section 1107, is more sweeping, prohibiting anyone from retaliating against whistleblowers who report suspected federal violations.

As a result, Section 1107 applies to public and private companies alike, said Bill Gleeson, an attorney at the Seattle office of Preston Gates & Ellis LLP. "This is an expansion," he said.

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