Yourlawyer.com (Qui Tam News)

Tax Whistleblower Tips To IRS Skyrocket

Wed, 14 Oct 2009 00:00:00 -0700

Tax cheats beware! It looks like a 2006 law that increased monetary rewards for Federal tax whistleblowers is working. According to an Internal Revenue Service (IRS) report detailed by The New York Times, tips about suspected tax cheats owing at least $2 million have jumped more than tenfold.

According to the IRS Web site, its Whistleblower Office pays money to people who blow the whistle on persons who fail to pay the tax that they owe. If the IRS uses information provided by the whistleblower, it can award the whistleblower up to 30 percent of the additional tax, penalty and other amounts. Prior to 2006, whistleblower rewards were the sole discretion of the IRS, and could not exceed 15 percent of the money recovered.

The 2006 law provides for two types of awards. If the taxes, penalties, interest and other amounts in dispute exceed $2 million, and a few other qualifications are met, the IRS will pay 15 percent to 30 percent of the amount collected. If the case deals with an individual, his or her annual gross income must be more than $200,000, the IRS Web site says. Rewards are paid only after the taxes, penalties and interest are collected, which can take years.

According to The New York Times, in 2008 the IRS Whistleblower office received tips on 1,246 suspected tax dodgers who owed over $2 million each. In 2007, it only received 116 such tips. More than 200 tips involved over $10 million in unpaid taxes, while 64 involved amounts in excess of $100 million, the Times said. How much the IRS will actually collect is still up in the air however, as the agency is in the process of conducting audits and processing appeals.

Under the IRS Whistleblower law, informants are promised confidentiality, unless they are needed to testify in court. According to The New York Times, whistleblowers are not offered immunity and can also be prosecuted if they are party to a tax scam.

Justice Department Joins McKesson Whistleblower Lawsuit

Tue, 07 Oct 2008 00:00:00 -0700

The U.S. Justice Department has joined a whistleblower lawsuit filed against medical device supplier McKesson Corp. that charges the company paid illegal kickbacks and created a fake medical supply company in order to cheat Medicare. According to The Wall Street Journal, McKesson is one of the nation's largest suppliers of medical equipment, including feeding devices and oxygen supplies.

The case against McKesson was filed in federal court in Mississippi by a private citizen under the whistleblower provisions of the False Claims Act. The False Claims Act allows private citizens to sue on behalf of the U.S. government for alleged fraud by government contractors and to share in any money recovered.

Since whistleblower protections where added to the False Claims Act in 1986, the legislation has encouraged hundreds of people to expose wrongdoing that is a threat to public welfare. In fact, since 1986, almost $17 billion dollars have been returned to the U.S. Treasury in this way, and whistleblower rewards have exceed $2.5 billion.

According to The Wall Street Journal, the McKesson whistleblower lawsuit alleges that the company used its subsidiary, McKesson Medical-Surgical MediNet Inc., to make arrangements for its supplies to be used in nursing facilities owned by Beverly Enterprises Inc., now known as Golden Living. Allegedly, McKesson promised Beverly facilities that significant profits could be gained from making it appear to Medicare that it was Beverly, not McKesson or MediNet, that was supplying the equipment and supplies.

To facilitate the illegal transactions, MediNet set up and managed a phony medical equipment supplier, CSMS that appeared to be affiliated with Beverly. In exchange for referring sales to McKesson, Beverly kept millions of dollars in Medicare payments for services and supplies that were supplied by MediNet.

McKesson said it is cooperating with the Justice Department investigation, but believes the charges in the whistleblower lawsuit are "without merit." Golden Living said that it believes its medical-equipment supply company, CSMS, did nothing wrong.

Amerigroup Settles Medicaid Fraud Charges, Whistleblower Awarded $56.3 Million

Fri, 15 Aug 2008 00:00:00 -0700

Amerigroup will pay $225 million to settle charges of Medicaid fraud, the U.S. Justice Department said on Thursday. A former Amerigroup employee, Cleveland Tyson, who filed the original lawsuit against the company, will receive $56.3 million of the settlement under federal whistleblower law.

The agreement reached with both the Justice Department and Illinois state officials settles allegations that the Amerigroup's health plans illegally excluded pregnant women and unhealthy patients in the Illinois Medicaid plan. Medicaid is the state-federal health plan for the poor.

In 2002, Tyson filed a lawsuit against Amerigroup, revealing the insurer was overcharging the government tens of millions of dollars by turning away pregnant women and unhealthy patients who wanted to enroll in the company's Illinois Medicaid plan. That practice is illegal because Amerigroup was already being paid by both the federal government and the state of Illinois to insure anyone seeking to join its Medicaid plan, no matter how sick they were.

Tyson was able to provide key names of employees at Amerigroup who condoned the redlining of patients who cost too much to insure. Seeing the kind of proof Tyson had, the Department of Justices eventually signed on to the lawsuit.

In 2006, a jury agreed that Amerigroup had committed fraud. Amerigroup was slapped with a $334 million judgment. The company appealed the ruling, but says that now that a settlement has been reached, it will ask that the appeal be dismissed. In addition to the financial settlement, Amerigroup has also entered into a corporate integrity agreement with regulators, requiring it to implement new policies to prevent discrimination.

"A settlement of this magnitude sends the clear message that this office takes health care fraud very seriously," said Patrick Fitzgerald, the U.S. attorney for the northern district of Illinois, in a statement. "This case also illustrated the perils a defendant faces in taking a case such as this to trial."

Under federal whistleblower laws, Tyson was eligible for 15 percent to 25 percent of the total settlement. He was awarded the maximum amount because he was so crucial to the case, a federal prosecutor said.

Famvir Fraud Alleged in Novartis Whistleblower Lawsuit

Thu, 29 Nov 2007 00:00:00 -0800

The value of Famvir, a genital herpes treatment cold sores and shingles, was fraudently inflated by Novartis, charges an ex-employee of the company. Former Norvatis brand director Carol Shull alleged in her lawsuit-filed in New Jersey state court-that she was wrongfully terminated. Shull claimed she was fired this past March after complaining repeatedly for nearly two years about attempts by the drug maker to falsely overstate the value of Famvir on its books. The Swiss company Novartis acquired the drug for $1.6 billion back in 2000, but the lawsuit asserts that Novartis managers knew they overpaid and the investment would never be recovered. Official comment is pending from Novartis.

The attorney for the Novartis whistleblower states that as a direct result of her objection and refusal to participate in activities she believed were fraudulent and in violation of the law and public policy, Shull suffered retaliatory action by being wrongfully discharged.

Beginning in January 2005, Novartis managers advised Shull that she was to ensure Famvir's value through at least 2008-2010 and the global Famvir team developed what was called an impairment model. An impairment model refers to the difference between the current book value and future book value. To avoid impairment, or an abrupt drop in value, the future value of the drug was inflated via high predictions about future sales. Predictions were, in part, based on the inclusion of worthless clinical trials, each projecting tens of millions of dollars in future value expressed as net present value; further value was elevated utilizing extremely low generic erosion rates compared to industry standards. The lawsuit charges that by proceeding in this fashion, Novartis proactively concealed the impending impairment from shareholders and investors. Shull also claims Novartis created a 10-percent cushion in future value to prevent PriceWaterhouseCoopers, from digging deeper into the overall model and valuations.

According to the lawsuit, the clinical trials, which were designed to enhance Famvir value by several hundred million dollars, were never included in the impairment valuation, nor was a patent challenge by Teva Pharmaceuticals. Israel's Teva Pharmaceuticals launched a generic version of Famvir, this past September. The lawsuit also alleges that the global brand director stated that one of the trials was potentially valuable because its results could be used for off-label promotion of Famvir as a treatment to prevent genital herpes, as opposed to merely being a treatment. The lawsuit describes how Shull attempted, in a variety of ways, to convince Novartis executives to change how they reviewed Famvir valuation and to amend their processes. Novartis fired the brand director this past March and-two months ago-took a one-time charge of $250 million to $300 million for impairment of its Famvir assets after Teva launched a generic version. Famvir generated $166 million in US sales last year.

Although Novartis has kept silent about the suit stating it is company policy not to comment on pending litigation, a Novartis spokesman argues that termination of the brand director was lawfully terminated and that her termination was appropriate and fair. If Shull's allegations of wrongful termination are valid, the company could be hiding bad numbers from investors.

Toyota, General Motors Named in Whistleblower Lawsuit Charging Managers Tried to Cover Up Defective Cars

Wed, 21 Nov 2007 00:00:00 -0800

Toyota and General Motors have been named in a lawsuit that alleges that managers at a California auto plant ignored serious problems, including defective seatbelts and breaking systems, found in cars rolling off the facility’s assembly line. The plaintiff, a certified auditor at the plant, accuses her superiors of deleting or downgrading defects from her vehicle reports. The Toyota and General Motors whistleblower lawsuit also claims that managers retaliated against the employee when she objected.

Toyota and General Motors jointly operate New United Motor Manufacturing, Inc. (NUMMI) in California. Toyota and General Motors embarked on the NUMMI joint venture in 1984, and the California plant produces the Corolla subcompact, Tacoma pickup truck and the Pontiac vibe wagon. Toyota and General Motors claim that safety is one of the “core values” at NUMMI.

But if this whistleblower lawsuit is to be believed, the talk about “core values” is nothing more than marketing jargon. The plaintiff, a trained expert in spotting vehicle defects, claims that since 2005, her superiors at the Toyota and General Motors NUMMI plant regularly altered her vehicle reports to eliminate or downgrade instances of defects. Those defects included broken seat belts, bad headlight, poor braking systems, and steering wheel alignment problems.

The Toyota and General Motors lawsuit also alleges that when the employee complained about the managers’ actions, they retaliated against her. The plaintiff claims that she was demoted twice, accused of being “crazy and violent,” and was forced to undergo a mental fitness test. The lawsuit also says that a NUMMI manager threatened to fire her, and attempted to get the plant’s personnel department to do so. According to the Toyota and General Motors lawsuit, all of this was done in an attempt to “break” the whistleblower so that she would quit her job at NUMMI.

The lawsuit, which was filed on November 6 in the Alameda County Superior Court, is demanding unspecified damages from NUMMI, Toyota, Toyota in North America and General Motors for retaliation against a whistleblower and intentional inflection of emotional distress. According to the complaint against General Motors and Toyota, the plaintiff has been receiving medical treatment for stress, depression, fatigue, insomnia and panic attacks as a result of the poor treatment she was subjected to at NUMMI.

The Toyota and General Motors lawsuit comes at time when Toyota, once thought of as a paragon of reliability, has been plagued by quality problems. Last month, Consumer Reports said Toyota "is showing cracks in its armor" and will no longer get automatic recommendations from the magazine for new or redesigned vehicles. It also removed several Toyota vehicles from its recommended list because of quality issues. While Toyota is poised to overtake General Motors as the world's biggest automaker by sales as soon as this year, the company recalled 766,000 vehicles in the United States last year, up from 210,000 in 2003.

Texas Nuclear Weapon Facility Under Scrutiny

Thu, 21 Dec 2006 00:00:00 -0800

In a letter sent last week to Department of Energy Secretary Samuel Bodman, the Project on Government Oversight (POGO), a Washington, D.C.-based watchdog, cited a number of “serious safety problems” at Pantex, a nuclear weapons assembly facility near Amarillo, Texas, run by BWX Technologies. The source of their information was an anonymous letter from a group of Pantex whistleblowers who claim to have a combined 189 years of experience at the plant.

The employees’ letter contained a slew of complaints: degraded conditions, production pressures that create an environment where “risks are not completely understood and considered,” dangerously long hours for engineers and other employees, organizational oversight failures, and a “distracted” group of senior executives.

In their own letter to the DOE, POGO said they’ve confirmed “a number of the problems raised in the letter, including that there is widespread fatigue and overworking of production technicians who work on the warheads. As you know, safety at Pantex is paramount in the nuclear weapons complex because it is responsible for assembling and disassembling nuclear weapons.”

POGO also told the energy secretary the “excessive work hours are resulting from pressure by Pantex operator BWXT and the National Nuclear Security Administration to meet unrealistic production goals given the size of the workforce. In 2007, the disassembly production goals will increase by 50 percent. This is a recipe for disaster.”

There have been a number of safety issues during the past few years that have recently come to light. In 2004, a crack was found in a 1200-kiloton W56 warhead that was being disassembled. Technicians at Pantex attempted to repair the high explosive in haphazard fashion, resulting in a $124,000 fine for safety violations.

In March 2005, there was another potentially dangerous event that occurred during the disassembly of a different W56 warhead. Technicians were found to be using a defective tool. This past November, the DOE fined Pantex $110,000 for violations related to this incident--18 months after the fact. In assessing the fine, the DOE also revealed that an accidental nuclear detonation was a real possibility in this case.

BP closes some Alaska wells after allegations

Wed, 19 Jul 2006 00:00:00 -0700

Britain’s BP PLC is closing 12 oil wells on Alaska’s North Slope as a precaution after whistleblowers alleged more than 50 were leaking.

The wells were in the process of being shut down Tuesday, BP spokesman Darren Beaudo said.

The action came after workers told the Financial Times of London about the leaks, according to the newspaper, which first reported the shutdowns on its Web site.

Most of the shuttered wells were in Prudhoe Bay, Beaudo told The Associated Press.

The shutdowns come a month after BP confirmed it had received a subpoena from a U.S. grand jury investigating a massive oil leak in Alaska last year.

BP blamed the March 2005 incident at Prudhoe Bay, the largest-ever spill in Alaska’s North Slope region, on a small hole caused by corrosion in a pipeline. Up to 267,000 gallons were believed to have spilled onto the frozen ground about 250 miles above the Arctic Circle.

The 12 well shutdowns affect about 8,000 barrels a day out of the North Slope’s total daily production of about 800,000 barrels, Beaudo said.

BP plans on running integrity tests on the affected wells.

“If we reconfirm that they met those standards we will put them back on production,” he said.

Beaudo said BP was being cautious in addressing the leaks of a freeze protection material known as arctic ice pack. The material is usually crude oil or diesel fuel. A typical well has about 168 barrels of freeze protection material.

None of the leaked material had reached the Arctic tundra, Beaudo said.

“We decided in an abundance of caution to shut down and reconfigure the integrity of 12 operating North Slope wells,” he said. “We have no reason to believe that continued operation poses a risk to workers or the environment.”

Ten of the wells were in Prudhoe Bay, one was at Milne Point and another was at Northstar.

All but one of the wells was shut down by Tuesday. Beaudo said the remaining gas injector well at Northstar was somewhat more complicated to shut down and could take a couple of days.

Beaudo said BP had become aware recently that concerns were increasing about freeze material making its way into well cellars.

“We were made aware of anonymous concerns about spills to well cellars, as well as nonspecific safety concerns around working these wells,” Beaudo said.

He said the anonymous concerns were attributed to workers and a regulator.

The company will invite regulators from the Alaska Oil and Gas Conservation Commission and the Alaska Department of Conservation to observe the integrity tests, Beaudo said.

The commission is a state regulatory agency.

Messages left Tuesday night for Commissioner Cathy Foerster and DEC spokeswoman Linda Giguere were not immediately returned.

BP also will appoint an independent ombudsman to receive future concerns about BP operations, he said. That person should be in place in the next 60 days.

$150 Million GlaxoSmithKline Settlement Brings Whistleblowers $26 Million

Sat, 24 Sep 2005 00:00:00 -0700

Four whistleblowers from a pharmacy in Key West, Florida, are splitting $26 million of a $150 million settlement by international pharmaceutical giant GlaxoSmithKline, after the four partners exposed the drug company’s overcharging Medicare and Medicaid for two drugs used to treat cancer.

GlaxoSmithKline, a firm based in Philadelphia and London, which produces the antidepressant Wellbutrin, was accused of overpricing Zofran (1994-2002) and Kytril (1994-2000), two drugs commonly used to treat nausea in chemotherapy patients.

This case comes on the heals of several others in which pharmaceutical companies are being sued for discounting the prices of certain drugs to retailers, while charging more to the government’s Medicaid and Medicare programs.

The government maintains that drug manufacturers must charge Medicare and Medicaid programs the “average wholesale price.”

Back in the 1990s, the whistleblowers noticed irregularities in the pricing of Zofran and Kytril, used primarily to treat nausea in chemotherapy patients. They filed their lawsuit in 1995.

Most of Ven-a-Care's other cases also started in the 1990s and have been progressing slowly through the legal system. The accused drugmakers are tenaciously defending each action.

Under federal law, whistle-blower cases are filed anonymously, to protect the identity of the insiders who are complaining. Their identity only becomes public when the legal proceedings are well along.

Ven-A-Care's ongoing unsealed cases that are now out in public, include a massive federal case in Boston with 27 defendants, three cases in Florida with 10 defendants, and two in Texas with four defendants.

In essence, the members of Ven-a-care have become the government's “experts," testifying in court cases and before Congress.

Identifying instances of fraud has risen in recent years, as federal budgets for Medicare, the government health plan for the disabled and elderly, and Medicaid, the government health plan for the poor, have grown.

This is the fourth major case won by Ven-A-Care, a small pharmacy that specializes in chemotherapy infusions and other injectable drugs to critically-ill cancer and AIDS patients.

According to the pharmacy’s attorney, whistleblowers from Ven-A-Care have saved the government over $700 million.

In a statement issued by GlaxoSmithKline, the firm said that the government knew of its pricing practices for a while, but had not objected. Nevertheless, the firm said it has decided to settle the case, “without admitting any wrongdoing.”

Eisenhower Pays $8 Million in Whistleblower Case

Thu, 01 Sep 2005 00:00:00 -0700

Eisenhower Medical Center paid $8 million to the federal government on Monday to settle a "whistleblower" lawsuit, which alleged the Rancho Mirage hospital fraudulently overbilled Medicare and other federal health insurance programs from 1990 to 1998.

Eisenhower did not admit wrongdoing. Its president and chief executive officer, G. Aubrey Serfling, could not be reached for comment Wednesday, but the hospital released a statement that referred to the alleged practices as "overpayment" by the government rather than overbilling on its part.

"With the help of reimbursement experts advising both parties, Eisenhower Medical Center and the government were able to reach agreement on the amount of the overpayment, and Eisenhower is pleased that the matter was resolved appropriately," the statement said.

In 1998, Mark Razin filed the lawsuit under the False Claims Act, which allows individuals to file whistleblower or "qui tam" lawsuits against companies allegedly defrauding the government. It was filed under seal.

Razin was a consultant in the Newport Beach office of Healthcare Financial Advisors Inc.

"HFA was a consulting firm that was very aggressive in approaching hospital clients," Inman said.

In a press release, the United States Attorney's Office in Los Angeles, which negotiated the settlement, said the lawsuit claimed HFA assisted its clients in preparing two cost reports, "an inflated one that was submitted to Medicare and a second one, designed for internal use only, that more accurately reflected the amount of reimbursement the hospital should have received."

The California Department of Health and Human Services, Office of Inspector General and the Defense Criminal Investigative Service investigated the case.

"The settlement represents approximately double the damages," said Assistant United States Attorney Wendy Weiss in a phone interview from Los Angeles. "We hope we've had some impact on the industry."

HFA is now owned by Certus Corp.

"It mostly happened under HFA's watch," Inman said, noting search warrants were issued at a number of the company's locations after Certus took over.

Revised cost reports or "cost report reopenings" were a big part of HFA's business model, she said. "It was as if HFA approached you after you filed your tax return."

Through a contingency fee agreement, the company looked at past reimbursement claims to recover more money, and it got a big percentage of the "found money," Inman said.

With Eisenhower, HFA had filed cost reports and reopened filed returns, she said. "That's not a problem in and of itself."

The problem occurred when HFA allegedly overbilled on Eisenhower's Medicare cost reports from 1990 through 1998, according to the U.S. Attorney's Office in Los Angeles.

Those reports included "costs unrelated to patient care at the hospital," it stated. "The cost reports sought reimbursement for costs associated with an adult day care center, off-site clinics and a fundraising resale store, none of which are reimbursable by Medicare."

Eisenhower's statement noted the hospital "agreed to cooperate fully with the U.S. Attorney's Office, and Eisenhower provided all records associated with all cost reports."

The hospital added that the cost reports "had been routinely audited by the Centers for Medicare and Medicaid Services, the federal agency which oversees Medicare."

Razin filed the lawsuit in 1998 against Eisenhower and other hospitals that were clients of HFA. The Eisenhower case is the fourth settlement involving alleged cost-report fraud.

Houston, Texas-based St. Joseph's Hospital paid the federal government $1.5 million in 2002. Also that year, Lovelace Health System in Albuquerque, N.M., paid $24.5 million to the government. In 2004, Bakersfield-based HealthSouth Bakersfield Rehabilitation Hospital paid $736,410 to settle.

State of California Suing 39 Drug Makers for Inflating Drug Prices

Fri, 26 Aug 2005 00:00:00 -0700

According to California’s Attorney General, Bill Lockyer, the state’s Medicaid program was bilked out of hundreds of millions of dollars by drug makers that inflated their prices.

As the number of defendants in the federal lawsuit increased to 39, Lockyer has made it clear that he believes Medi-Cal, California’s health insurance program for the poor, elderly, and disabled was the victim of price gouging by these companies which provided false and misleading drug pricing information to the state.

By engaging in these practices and defrauding the state into paying inflated reimbursement rates, the drug companies created an artificial incentive for doctors and pharmacies to prescribe their products.

Under California’s False Claims Act, the companies could be liable for treble (triple) damages and penalties of up to $10,000 per false claim. This could expose each of the companies sued to liability awards of up to $40 million.

Several other states have already filed similar suits and they have been consolidated in the United States District Court in Boston. This litigation could also cause the federal government to step up its own ongoing investigations into the matter of price gouging.

All of this litigation stems from a 1998 whistleblower lawsuit filed by Ven-A-Care, a small pharmacy that alleged Medi-Cal had based its drug reimbursement rates on false and misleading (inflated) drug-pricing information provided by the pharmaceutical companies.

In 2003, the state intervened in the Ven-A-Care lawsuit and the case was removed from state court and consolidated with the federal litigation pending in Boston.

The companies being targeted by the lawsuit maintain that they did nothing wrong and were in full compliance with law and all applicable guidelines.

WHISTLEBLOWERS CLAIM BREAST IMPLANT MANUFACTURER ENGAGED IN COVER UP WITH RESPECT TO DEFECTS

Wed, 25 May 2005 00:00:00 -0700

Two former employees of Mentor Corp., a manufacturer of breast implants, have come forward with allegations that the company covered up evidence of high rupture rates and that workers would hide defective parts in the ceiling to avoid detection by their superiors.

These former employees claim that senior executives in the company told them to destroy reports detailing high rupture rates and that packaging for the implants was sometimes infested with fleas. The actual rupture rates far exceeded those reported to authorities according to one of the whistleblowers.

A criminal investigation of Mentor was closed in 2002 and recently the company won a recommendation from federal scientific advisors that it be permitted to resume sales of its implants under certain conditions.

Cover-Up of Defects at Mentor Alleged

Mon, 23 May 2005 00:00:00 -0700

Two former employees of breast-implant manufacturer Mentor Corp. alleged that the company covered up high rupture rates and that workers would hide defective parts in the ceiling because they were fearful that their bosses would find out.

The allegations are contained in a 2003 lawsuit against the Santa Barbara-based company, which recently won a recommendation from federal scientific advisors that the government let the company resume widespread sales of its devices under certain conditions. The suit was dismissed.

Sworn depositions by the two ex-employees, John C. Karjanis and Cynthia Fain, were first reported in the New York Times on Sunday. Excerpts were distributed by the woman who filed the lawsuit, Kim Hoffman of Springfield, Mo., and by the Command Trust Network, a group for women with breast implants.

Karjanis, who was manager of product evaluation from 1996 to 1998, alleged that some senior company executives told him to destroy reports detailing high rupture rates, saying they sought "an acceptable disposition of materials through fraudulent means."

He said packaging for the implants was sometimes infested with fleas, and workers on the factory floor would stash defective parts above ceiling tiles to hide them from superiors.

Fain, who was supervisor of the company's complaint unit in the mid-1990s, said in her deposition that Mentor underreported rupture rates and that she received 6,000 complaints of ruptured implants in each of her three years at the company, a level that was far more than Mentor told authorities about.

Josh Levine, Mentor's president and chief executive, did not address the specific accusations but told the New York Times in a written statement that a criminal investigation of Mentor by the Food and Drug Administration "included allegations from these two former employees." He added that the investigation began in 1998 and ended in 2002 "without any further action."

The 2003 lawsuit was brought by Hoffman, who said she suffered extreme fatigue and neurological problems from Mentor implants in the 1990s and had them removed.

"I tried to depose some of the people who knew of bad things," she said in an interview Sunday. She questioned why a regulatory panel would recently recommend that Mentor's devices be considered safe enough to expand sales under certain conditions, given the alleged history of misrepresentation.

"Where is the FDA?" Hoffman asked. "Why aren't they taking actions?"

The FDA could not be reached for comment Sunday.

For Some Whistle-Blowers, Big Risk Pays Off

Mon, 29 Nov 2004 00:00:00 -0800

After refusing to go along with his employer's phony bookkeeping, Jim Alderson was out of a job. Mr. Alderson sued for wrongful termination, but did not stop there. He also told the government it was being cheated.

Mr. Alderson got the government's thanks for helping it recover $1.7 billion in Medicare fraud by the nation's largest commercial hospital chain and a company it acquired. His share was in the tens of millions of dollars.

Mr. Alderson, 58, now owns houses in Plano, Tex., and Whitefish, Mont., drives a new Thunderbird and has established a charitable foundation with some of the money he received. But, blowing the whistle was no easy ride into the sunset.

"You risk everything when you do it," he said.

Mr. Alderson is among the beneficiaries of a law passed nearly two decades ago that encourages whistleblowers to come forward by promising them up to a quarter of the money recovered by the government.

Since its inception, the False Claims Act has generated $12 billion for the federal treasury and more than $1 billion for hundreds of whistle-blowers.

Whistle-blowers have been at the root of federal fraud cases against many well-known companies, including Tenet Healthcare, Lockheed Martin, TAP Pharmaceutical Products Inc. and Boeing.

Companies have been caught for many things, like selling defective parts for military aircraft and paying kickbacks to doctors for prescribing unneeded medicines and services and then overbilling Medicare and Medicaid.

"It's a very powerful law," said Patrick Burns, spokesman for Taxpayers Against Fraud, a consumer advocacy group. "You start pulling on a thread and a whole circus tent comes unraveled."

Another whistle-blower protection law, the Sarbanes-Oxley Act, covers fraud against publicly traded companies and is intended for those that destroy records, commit securities fraud or fail to report fraud to investors. The law emerged after the corporate financial and accounting scandals of 2002.

The laws protect whistle-blowers from being fired, but the False Claims Act has triple damages and gives whistle-blowers a reward.

Established in President Abraham Lincoln's time, the law was later gutted. But it was strengthened in 1986 to help identify contractors guilty of defrauding the government.

Senator Charles E. Grassley, an Iowa Republican who is chairman of the Senate Finance Committee, took the lead in modernizing the law.

"They are some of the greatest champions of the public's right to know," Mr. Grassley said of those who report fraud.

"Whistle-blowers shed light on why something is wrong, and their insights can help hold the bad actors responsible, fix problems and achieve reforms."

Charles Miller, a Justice Department spokesman, said the False Claims Act had been "highly effective in ferreting out individuals and companies that commit fraud."

Joe Gerstein and others blew the whistle on TAP Pharmaceutical Products Inc., which agreed to pay $875 million in 2001 to resolve criminal and civil charges in connection with its pricing and marketing of the cancer drug Lupron.

TAP offered Mr. Gerstein, of Weston, Mass., a former medical director of the Tufts University health plan, a $20,000 unrestricted research grant in return for keeping Lupron on the plan's list of preferred drugs.

Instead, Mr. Gerstein wore a wire so that the Federal Bureau of Investigation could tape record the bribe. Mr. Gerstein eventually filed a False Claims Act suit, which resulted in a $17 million reward to him and Tufts.

"I was scandalized," Mr. Gerstein said of the bribe. "I had a strong motivation to expose these inducements."

Mr. Alderson became a whistleblower after he was fired from his accounting job. His wrongful termination lawsuit grew into False Claims lawsuits against Columbia/HCA and Quorum Health Group Inc.

His legal fight began shortly after Quorum got a management contract with a hospital in Whitefish, Mont., where he was the chief financial officer. A higher-up told Mr. Alderson that Quorum kept two sets of records for Medicare reimbursements.

Unwilling to adapt to such an accounting practice, Mr. Alderson was fired by the hospital in 1990. But he kept pursuing his termination claim and discovered widespread fraud. The Justice Department got involved in 1998, and in two settlements since December 2000, the government has recovered $1.7 billion from HCA, formerly Columbia/HCA.

Mr. Alderson and John Schilling, a former reimbursement specialist for Columbia/HCA, split $100 million in one settlement. Mr. Alderson received about $20 million in another.

Government Settles Two Medicare Suits

Thu, 12 Aug 2004 00:00:00 -0700

Two insurers have settled civil Medicare fraud charges with the U.S. Attorney's office in Manhattan for $20.6 million, the government said Thursday.

Prosecutors said The Travelers Insurance Co., a life insurance unit of New York-based Citigroup Inc., and United Healthcare Insurance Co., a unit of UnitedHealth Group Inc. in Minnetonka, Minn., agreed to settle the case without admitting or denying wrongdoing.

Under the terms of the settlement, Travelers will pay $10.9 million, while United Healthcare will pay $9.7 million.

"The Travelers Insurance Co. decided to settle in order to avoid the distraction of further litigation, and denies any wrongdoing in the case," Travelers spokesman Bob Nolan said. "Today's settlement announcement closes a chapter on an issue that dates back almost a decade."

A spokesman at UnitedHealth Group couldn't immediately be reached for comment.

The government had claimed that Travelers, between October 1988 and January 1995, inflated its cost reimbursements well above its actual expenditures under the Medicare program in order to obtain higher reimbursement and greater performance incentive payments.

Travelers served as the fiscal intermediary for Medicare programs in portions of Connecticut, Michigan and New York, the Medicare carrier for Connecticut, Minnesota, Mississippi and Virginia, the Railroad Retirement Board carrier nationwide and the Durable Medical Equipment carrier for Connecticut, Michigan and New York.

United Healthcare took over those contracts from Travelers in January 1995 and continued the improper billing practices through December 2000, prosecutors claimed.

The lawsuit was brought after a whistleblower came forward, the government said.

Gold Banc To Settle Lawsuit For $16M

Tue, 10 Aug 2004 00:00:00 -0700

Gold Banc Corp. has reached an agreement to settle a once-secret lawsuit for $16 million, but the pending sale of the company is still in question.

The Leawood, Kan.-based company, with nine Gold Bank branches in Manatee, Sarasota and Charlotte counties, said Monday the settlement will cost it more than $10 million after insurance coverage and a tax benefit.

But after restating its second-quarter earnings to reflect that cost, Gold said it may not hold the total equity stipulated for its sale.

Silver Acquisition Corp., a private investor group, also has told the bank that it wants to adjust the proposed purchase price of $672 million, or $16.60 per share.

Company President Mick Aslin said the lawsuit settlement "removes one of the uncertainties" for the sale, but the price and equity issues are unresolved.

"We recognize that one aspect of these discussions will be the possibility that the condition that we have at least $277 million in total equity at closing may not be satisfied," Aslin said.

The lawsuit was filed in October 2002 by an Oklahoma farmer who claimed Gold charged him excessive interest rates and fees on an agricultural loan.

The suit was sealed, and the bank didn't learn about it until June.

These "qui tam" lawsuits are filed on behalf of governmental agencies by whistleblowers who share in any damages and penalties.

The oral agreement to settle the suit for $16 million must still be approved by the U.S. Attorney General.

Gold's insurance will pay $2 million, and a tax benefit of $3.85 million for its deductible portion puts the charge to its earnings at $10.15 million, or 26 cents per share.

Legal fees to farmer Roger L. Ediger could be added later.

Gold has now slashed its second-quarter earnings to $309,000, or 1 cent per share, from the previously announced $10.46 million, or 27 cents per share.

In a filing with regulators, Gold noted that it could have been held liable for up to $30 million in damages, plus as much as $9 million in penalties, from the lawsuit.

The lawsuit claimed that Gold's banks in Kansas and Oklahoma charged higher rates and fees on loans subsidized through the federal Farm Service Agency.

The bank said it made 825 such loans and was paid $10 million on them from October 1996 through June. Many of the loans were made by banks before Gold acquired them, the company said.

Whistleblower To Get $300,000 In Settlement

Thu, 05 Aug 2004 00:00:00 -0700

A reported whistleblower will receive $300,000 as part of the federal government's $700,000 settlement with a former Bensalem mortgage company accused of submitting fraudulent claims to the government, authorities said.

Cynthia Santone-Smith, an ex-employee of Market Street Mortgage Corp., formerly of Tillman Drive, Bensalem, will receive the money under the settlement, the government said.

U.S. Attorney Patrick Meehan said Tuesday that Market Street Mortgage will pay the money to absolve the government against losses that could result from 83 government-insured mortgage loans worth more than $5 million.

The agreement ends a civil dispute that alleged the company submitted false and fraudulent claims to the Department of Housing and Urban Development and the Department of Veterans Affairs. The claims were to reimburse the company for losses incurred after people couldn't pay their mortgages and the company underwritten loans resulted in foreclosure.

Santone-Smith of Philadelphia was fired in 1999 after she raised concerns about some employees writing mortgages to disadvantaged clients mortgages that were doomed from the start, Santone-Smith's lawyer.

"My client was upset at the fraud she observed," Klein said. "She was happy to assist the government and bring this to their attention, but, as a result, she was ultimately fired."

Federal authorities said Market Street Mortgage eventually fired employees involved in the alleged fraud.

The company also closed the Bensalem office and then cooperated with the government's investigation, authorities said.

"We need to protect government programs against fraud. The more the government loses money because of fraud, the fewer people we can help buy homes," Meehan said in a statement.

People who take advantage of government-insured or guaranteed loans through HUD or the VA are those who would otherwise have difficulty obtaining mortgage loans from banks, according to the government.

Private mortgage lenders such as Market Street Mortgage do much of the work on the government's behalf, however.

The companies determine whether people qualify for the government-backed mortgages.

It's the government's claim that employees of Market Street Mortgage falsified documents such as employment records, credit references and earnings statements to make it appear that people were qualified for government programs.

When reality set in - the people couldn't pay their mortgages - the government reimbursed Market Street for its losses.

"This settlement not only reimburses the government for losses it has already incurred, it also protects the government from losses that may arise in the future," Meehan said.

Whistleblowers' Payday

Sat, 31 Jul 2004 00:00:00 -0700

Three whistleblowers are collectively $31 million richer thanks to Schering-Plough's agreement to plead guilty to criminal and civil charges it defrauded the Medicaid insurance program.

Their colossal payday will come out of a $345.5 million settlement the company's paying to the feds. Schering Plough, maker of Claritin, pleaded guilty to a federal criminal charge that it gave HMOs kickbacks, which lowered their drug prices, while charging Medicaid top dollar.

The whistleblowers, who were high level execs at a unit of Schering Plough, knew something was amiss when senior managers brushed aside a sexual harassment claim by a secretary.

One of the whistleblowers, Charles Alcorn, told managers his secretary complained about another exec harassing her physically and verbally. Alcorn said this exec had made similar advances to other secretaries.

"The company sought to protect" the exec who was allegedly harassing the secretary, Alcorn said. "There was a wall of secrecy around this entire fraudulent operation."

Indeed, the harasser had won the company's protection as an architect of the Medicaid scheme, Alcorn added.

Working with the Department of Justice, the whistleblowers sued the company in 1998 under the False Claims Act.

For several years, Alcorn, 40, continued to work for New Jersey-based Schering Plough, while providing information to help the government build its criminal and civil case.

During that time, the company tried unsuccessfully to pressure Alcorn and his fellow whistleblowers to approve documents that perpetuated the fraud.

For the whistleblowers, the settlement is not only a big payday, it ends a period of social isolation.

"When we refused to sign off, we were targeted and isolated," Alcorn said.

Another whistleblower, Beatrice Manning, 57, described a meeting with the U.S. attorney.

"My husband had just had surgery for a detached retina and was lying flat on his face for two weeks," said Manning. "I had to ask friends to stay with him [without any explanation] so I could go to Phili."

Alcorn is now in his second year of law school at Temple University in Pennsylvania. He wants to pursue health care litigation and patient advocacy.

Manning, meanwhile, is studying at a theological school and is specializing in business ethics.

A third whistleblower, Raymond Pironti, Jr., was on vacation and was unavailable for comment.

"I hope other people will come forward and that companies can't count on the compliance of their employees when they're doing outrageous profit-taking that's criminal," Manning said.

Both Manning and Alcorn offered some advice to would-be whistleblowers.

"I would advise someone who's thinking about being a whistleblower not to do it for the money," Alcorn said. "You won't last. It can take five to seven years" and the outcome isn't guaranteed.

The deals come as pharmaceutical companies receive increasing attention from prosecutors.

"There are literally millions of people affected on a daily basis by the cost of drugs," Patrick Meehan, U.S. attorney in eastern Pennsylvania told the Daily News. "People struggle on a day to day income to pay for these life sustaining drugs."

In the case of Schering Plough, the company figured out all kinds of clever ways to funnel money back to HMOs, including Cigna which was named in the settlement.

"Cigna has been cooperating with the investigation and doesn't expect any civil or criminal claims to be brought against it or any of its employees," a spokesman said.

At one point, Schering Plough paid a consultant $10,000 to provide research. The drug-maker then wanted to pay 10 times that price for that same piece of research from an HMO, said Manning.

Meanwhile, in a separate action, another drug-maker, Bristol-Myers Squibb, will pay $300 million to settle a securities class action suit accusing it of cooking its profits.

Doctor's Choice To Pay $1.4M Settlement

Thu, 22 Jul 2004 00:00:00 -0700

Doctor's Choice Medical Equipment of Largo Inc. agreed to pay $1.38 million to settle fraudulent billing allegations, according to Florida Attorney General Charlie Christ.

Christ said the company was accused of double-billing and submitting false claims for medical equipment sales to the Medicare and Medicaid programs.

Christ said an investigation by his office showed the alleged fraudulent billing occurred from January 1994 to December 1998.

Doctor's Choice was sold to new owners in 1999, who discovered some of the improper billing and reported it to the government. An employee also disclosed certain other improprieties and as a whistleblower, she will receive a share of the settlement, the attorney general said.

The U.S. Attorney's office recovered more than $608,000 for the Medicare program, while the state of Florida will receive more than $777,000 from the settlement. About $383,000 will be returned to the Medicaid program, and $54,000 will be paid to the whistleblower. The rest will be paid to state and federal authorities as a penalty, the attorney general said.

False Marketing Nets Pfizer A $430M Fine

Wed, 19 May 2004 00:00:00 -0700

In a settlement worked out between Pfizer and the United States Justice Department, the pharmaceutical company agreed to plead guilty to charges it illegally promoted non-approved uses for its anti-epilepsy drug Neurontin and pay $430 million in fines.

The government alleged that Warner-Lambert Corp., purchased by Pfizer in 2000, flew doctors to resorts and paid them huge fees to tout and prescribe the drug as a pain reliever, a cure for bipolar disorder, other psychiatric disorders and Lou Gherigs Disease when there was no indication the medicine had any effect at all on any of those maladies.

Neurontins sales had climbed from $97.5 million in 1995, when the false advertising began, to nearly $2.7 billion by 2003.

The settlement includes a $240 million criminal fine, the second-largest criminal fine imposed in a health-care fraud prosecution, according to the Justice Department. This illegal and fraudulent promotion scheme corrupted the information process relied upon by doctors in their medical decision-making, thereby putting patients at risk, Michael Sullivan, U.S. Attorney in Boston, Mass., said in a prepared statement.

David Franklin, the whistleblower in the case and a scientist in the Boston-based Parke-Davis division of Warner Lambert, reported the marketing abuses to authorities. He will receive $24.6 million as part of the settlement.

Franklin told the Associated Press what Pfizer did was standard operating procedure in the pharmaceutical business.

Under an agreement with prosecutors, Pfizer agreed to plead guilty to two counts of violating the Food, Drug and Cosmetic Act and pay a $240 million criminal fine.

Pfizer will also pay $152 million in civil damages for losses incurred by the Medicaid program and $38 million as part of a settlement with 50 state attorneys general.

New Jersey will receive $1.8 million, with $1.55 million going to its Medicaid program and the remainder to the Division of Consumer Affairs.

Pfizer spokesman Paul Fitzhenry blamed the violations on the Warner Lambert pre-buyout and said the advertising began eight years ago, well before Pfizer bought the company.

He added those practices are banned by the companys current ethics policy.

Pfizer is committed to compliance with all health-care laws and FDA requirements and to high ethical standards in all aspects of its business practices, the company said in a statement.

The case began in 1996, when Franklin filed a lawsuit against drug maker Parke-Davis, saying it used an illegal marketing plan to drive up Neurontin sales.

Franklins lawsuit alleged the companys publicity plan included paying doctors to sign off on ghostwritten articles about Neurontin and to prescribe the drug for various uses. The company offered the doctors trips to Florida, the 1996 Atlanta Olympics and Hawaii.

According to the Justice Department, one doctor received close to $308,000 to speak at conferences about the drug.

Neurontin was shown to be less effective than a placebo for treating bipolar disorder, but the company did not publish those findings and instead told doctors the drug was highly effective for treating the disorder, according to the lawsuit.

Franklin filed his lawsuit under the U.S. False Claims Act, which allows private citizens to sue on behalf of the government and receive a portion of awards in cases where companies are defrauding the government.

The settlement was the second- largest of its kind since TAP Pharmaceutical paid an $875 in 1999.

Pfizer Set To Cough Up $430M

Fri, 14 May 2004 00:00:00 -0700

David Franklin says it was worries about patients who may have been harmed that sustained him in an 8-year-fight against a giant drug maker that ended yesterday with a $430 million settlement.

Franklin, who spent four months as a liaison to doctors for Parke-Davis Inc. now owned by Pfizer, charged the company illegally promoted off-label uses for Neurontin, an epilepsy drug.

As a whistleblower, Franklin, 42, will get $26.6 million from the settlement.

Government prosecutors eventually took up the charge and yesterday announced the settlement, which includes a $240 criminal fine.

Massachusetts will get $8.3 million through the settlement.

According to Franklin, the company urged its representatives to give misleading and wrong information to doctors to encourage them to prescribe Neurontin for ailments it hadn't been approved to treat.

Pfizer officials said yesterday that the settlement pertains to practices of Parke-Davis before Pfizer bought its owner, Warner Lambert.

Doctors are allowed to prescribe drugs for uses that haven't been approved by the U.S. Food and Drug Administration. But companies can't promote those uses.

Franklin said he should have realized during his interview for the job that there was a problem. He was asked questions about how he would handle certain ethical situations that, in retrospect, were unusual, he said.

But he wanted to use his Ph.D. in microbiology in the pharmaceutical industry. He said he liked the idea of working with doctors to give them information to help their patients.

Franklin said the company told him to tell doctors that studies showed the drug could be used to treat such things as bi-polar disorders. In reality, the company had a study showing a placebo had outperformed Neurontin in treating bi-polar conditions.

Franklin said he figured out something was wrong when a doctor confronted him.

``I realized the company was deceiving me,'' Franklin said. ``I learned that I was paid to mislead physicians and put patients at risk. It was a situation I couldn't live with.''

Franklin, who now works for Boston Scientific, said there were times when he wanted to walk away from it all.

``All it took (to hang on) was the recognition that to this day patients are being injured by this kind of practice,'' he said.

Pfizer to Pay $420 Million in Illegal Marketing Case

Fri, 14 May 2004 00:00:00 -0700

Pfizer, the world's largest pharmaceutical company, pleaded guilty yesterday and agreed to pay $430 million to resolve criminal and civil charges that it paid doctors to prescribe its epilepsy drug, Neurontin, to patients with ailments that the drug was not federally approved to treat.

Of that settlement, $26.64 million will go to a former company adviser who brought a lawsuit under a federal "whistleblower" law.

The company encouraged doctors to use Neurontin in patients with bipolar disorder, a psychological condition, even though a study had shown that the medicine was no better than a placebo in treating the disorder. Other disorders for which the company illegally promoted Neurontin included Lou Gehrig's disease, attention deficit disorder, restless leg syndrome and drug and alcohol withdrawal seizures.

Although doctors are free to prescribe any federally approved drug for whatever use they choose, pharmaceutical companies are not allowed to promote drugs for nonapproved purposes. Neurontin was initially approved to treat epileptic seizures in patients who had failed to improve using other treatments, but it has become one of the biggest-selling drugs in the world, with sales last year of $2.7 billion. Nearly 90 percent of the drug's sales continue to be for ailments for which the drug is not an approved treatment, according to recent surveys.

"This illegal and fraudulent promotion scheme corrupted the information process relied upon by doctors in their medical decision-making, thereby putting patients at risk," said the United States attorney in Boston, Michael Sullivan, in a statement yesterday.

Pfizer, in a statement yesterday, said that the illegal marketing had been conducted by Warner-Lambert before Pfizer acquired that company in 2000.

"Pfizer has cooperated fully with the government to resolve this matter, which did not involve Pfizer practices or employees," the company said.

Pfizer took a $427 million charge in January against its fourth-quarter 2003 earnings to pay for the expected settlement. The government calculated that the company's illegal promotions brought it $150 million in ill-gotten gains. A standard multiplier was used to come up with the $430 million fine.

The case is one of many undertaken in recent years by federal prosecutors in Boston and Philadelphia who are examining efforts by drug companies to market their drugs for unapproved uses and pay doctors for prescriptions. And while the pharmaceutical industry recently adopted voluntary guidelines that have eliminated many of the gifts and payments once routinely dispensed to doctors, the industry's aggressive promotions continue.

Companies continue to underwrite physician education seminars where unapproved uses of their drugs are discussed. They continue to hire advertising agencies to conduct clinical trials and ghostwriters to write up the studies for experts listed as authors. And they often hire physicians as consultants, arrangements that call into question a physician's independence in deciding what drugs to prescribe for patients.

Other companies that have been fined for drug marketing abuses include TAP Pharmaceuticals, which in 2001 paid $875 million the largest such fine so far. Last year, Bayer paid $257 million. Schering-Plough is currently under investigation for its sales practices.

While the agreement announced yesterday clears Pfizer of any further liability in the Neurontin matter, the government may still criminally charge former Warner-Lambert executives who concocted and approved the plans, according to the settlement. Documents in the case show that Warner-Lambert's illegal marketing activities were approved by some of the company's top executives.

The case had its origins in 1996 when Dr. David P. Franklin quit his job as a medical adviser to Warner-Lambert's sales staff, after realizing that he was being asked to promote Neurontin well beyond the condition for which federal drug regulators had approved it. Dr. Franklin filed a lawsuit under a Civil War-era whistleblower statute that allows private individuals to sue on behalf of the government, with the prospect of sharing in any financial awards.

In an interview, Dr. Franklin said that he often sat in doctors' waiting rooms with medical liaisons from other drug companies who were there to do exactly what he was doing - promote unapproved uses of medicines. "What we did was standard practice in the pharmaceutical industry," Dr. Franklin said.

And although he has been out of the pharmaceutical industry for eight years he is now a marketing executive with the medical device maker Boston Scientific he scoffed at the notion that things have changed much in drug marketing. "Ninety percent of Neurontin's sales are for patients for which there is no proof that the drug works," he said. "There's been an explosion of off-label drug use in the years since I left."

It is only after careful examinations of the results of expensive clinical trials that federal drug regulators approve treatments for specific medical conditions. While doctors can freely prescribe approved drugs for any treatment, drug companies must carefully restrict their communications about these so-called off-label uses, limiting themselves to handing out scientific articles, for example, or hiring experts to give lectures to physicians about the unapproved uses.

Warner-Lambert went beyond those strictures by flying doctors to Hawaii, the 1996 Olympics in Atlanta and Florida, paying them consulting fees and providing expensive dinners at which unapproved uses of Neurontin were discussed. The company also paid some doctors to allow sales representatives to sit with them as they saw patients.

The patient visits were the last straw for Dr. Franklin, he said. He recalled that the company distributed a voice mail message from a sales representative who described the day he had spent with a physician and his patients. "The sales representative said he explained to the physician with the patient right there on the table why Neurontin was the best possible medicine," Dr. Franklin said. "That's practicing medicine without a license."

These marketing practices, though, were extremely effective, according to internal company documents. Doctors who attended dinners given by the company to discuss unapproved uses of Neurontin wrote 70 percent more prescriptions for the drug than those who did not attend, one memorandum showed.

Generic versions of the drug could be introduced later this year. Pfizer is hoping to gain approval soon for a successor medicine called Lyrica, or pregabalin, as a treatment for epilepsy and neuropathic pain. Internal company documents show that Warner-Lambert executives decided against seeking approval from federal drug regulators for other uses of Neurontin for fear that generic versions would one day undercut sales of Lyrica.

Part of the government's rationale for bringing the case was that Warner-Lambert's marketing schemes led physicians to prescribe to Medicaid patients who should not have received the drug, costing federal and state governments millions of dollars. Of the $430 million fine, $106 million will go to the 50 states, which share with the federal government the costs of the Medicaid program.

Suit Says Insurer Wrongly Denied Disability Claims

Sat, 17 Apr 2004 00:00:00 -0700

A novel whistle-blower lawsuit filed in Los Angeles alleges that the nation's largest disability insurer, UnumProvident Corp., withheld benefit payments to meet financial targets.

Former Unum "customer care specialist" Linda Nee claims that she was fired 18 months ago after bringing reports of wrongdoing to the attention of her supervisors. She is joined in the suit by California consumer advocate John Metz.

They are believed to be the first to sue an insurance company under a whistle-blower-type law in the state's insurance code. Typically, insurance companies use the law to sue over fraudulent claims.

Although insurance companies have sued to recover money paid to fraud mills under the statute, "recently, cases started being brought against insurers," said Gary Cohen, general counsel for the California insurance commissioner's office.

Nee's suit alleges that Unum, a Chattanooga, Tenn.-based insurance conglomerate with a regional office in Glendale, engaged in a pattern of delaying, denying and terminating benefits without regard to the merits of the claims.

In order to meet monthly or quarterly financial targets, the suit alleges, Unum convened periodic "round-table" claims review meetings with claims handlers, doctors, nurses and other consultants to improperly deny benefits. The suit also accuses the company of delaying claims determinations in order to manipulate the setting of reserves and statements of the insurer's financial condition.

Unum had not yet been served with the suit, which was filed in July but not unsealed until Thursday in Los Angeles County Superior Court.

Company executives Friday denied the nature of its allegations. They also said Unum's record contradicted allegations that it engaged in a pattern of improper benefit denials.

Glenn Felton, a senior vice president and deputy general counsel for Unum, said Nee was fired for poor performance after repeated warnings. He added that Nee withdrew her claims filed with the U.S. Labor Department and the state of Maine that alleged she was fired in retaliation for reporting alleged misconduct at Unum.

The company has been hit with a series of multimillion-dollar awards by juries in California and other states in suits alleging that the company cheated policyholders out of disability benefits. Insurance commissioners across the country, including in California, are investigating similar complaints. Allegations in Nee's suit are similar to other cases filed against Unum.

Nee's suit was filed under seal, as required by law, to give the state insurance commissioner an opportunity to review the case and decide whether to prosecute it.

Ultimately, state Insurance Commissioner John Garamendi passed on the Unum suit, but not because of the merits of the case, Cohen said.

"We have not yet intervened in any of these types of cases," Cohen said. "We're looking at them."

Another reason Garamendi passed on the case, Cohen said, is that the Department of Insurance was well along with its own investigation into complaints about Unum's claims handling.

Unum is under fire in several states for allegedly taking advantage of a federal law that exempts employee benefits, such as disability insurance, from state regulation. Insurance lawyers say they believe that Unum has exploited the federal shield in its handling of employer-provided long-term disability coverage, and that the company has routinely cut off employee benefits to workers with heart disease, AIDS, Meniere's syndrome, Crohn's disease and other disabilities.

Although federal law prevents Garamendi from investigating disputes that involved claims for disability benefits obtained through employers, he pledged to investigate Unum's claims handling in policies bought by self-employed workers.

The Insurance Department has completed its Unum investigation, Cohen said, and is preparing to share its findings with the company and to take action, which could include imposing fines and other remedies.

"I am very interested, and the commissioner is very interested, in coming up with a resolution that really will prevent any problems we found from occurring in the future," Cohen said.

Former Worker: Officials Knew of Toxic Dust at Yucca Mountain

Fri, 30 Jan 2004 00:00:00 -0800

Workers at Yucca Mountain in the mid-1990s were exposed to toxic dusts for several years before the Energy Department established effective health protections, according to several former employees with lung ailments they blame on their work.

Whistle-blower Gene Griego told the Las Vegas Review-Journal for a Friday report that workers were at risk from the onset of tunnel operations in 1993 until Yucca managers improved ventilation and dust controls in 1996.

A stop-work order in August 1996 prompted the Energy Department to strengthen safety enforcement, project officials said.

The Energy Department acknowledged this month that some workers may have been exposed to silica, a dust that can limit lung capacity and lead to death.

Margaret Chu, director of the Office of Civilian Radioactive Waste Management, said measures now in place are protecting Yucca workers. About 140 work at the site.

Griego gathered documents suggesting the Energy Department knew about the dangers of airborne silica and other fibrous minerals disturbed during drilling. The Yucca Mountain tunnel is five miles long with a diameter of 25 feet.

Griego began airing complaints before the Energy Department announced Jan. 15 it would offer free silicosis screenings for current and former workers at the proposed nuclear waste burial site 90 miles northwest of Las Vegas.

Notifications are being sent to between 1,200 and 1,500 current and former Yucca Mountain workers, the department said.

Energy Department spokesman Allen Benson said Thursday that health protections were always in place but were not always fully enforced.

Sen. Harry Reid, D-Nev., on Thursday demanded Energy Secretary Spencer Abraham explain whether the department was aware of high levels of silica at the Yucca site before tunnel construction began and what steps were taken to protect workers.

It seems the Department of Energy has once again risked health and safety to push through the Yucca Mountain project. Reid said. They are trying to sell us a bill of goods that the project is safe, and meanwhile some of their own workers may have contracted a fatal illness from working at the site.

Griego said he has found 25 current or former workers who were diagnosed with silicosis or who have reported symptoms, such as coughing up blood.

Barbara Harris of Las Vegas said Thursday her son, Robert Harris, 49, worked at Yucca Mountain and died in May 2002 of a cancer that started in a lung. She declined to discuss details.

Jeff Dean, 41, was a conveyer operator from June 1995 to October 1998 and a drilling foreman at the Nevada Test Site. He was diagnosed with silicosis last March.

The workers were worried about the dust, he said, but they assured us the dust was within lab limits and your body gets acclimated to it.

Before working at Yucca Mountain, Dean drilled underground weapons tests cavities for Reynolds Electrical and Engineering at the Nevada Test Site. He acknowledged his lung problems could be related to that work.

Griego, 52, of North Las Vegas, said doctors have diagnosed his condition as chronic obstruction pulmonary disease.

He is not a smoker, and blames his condition on exposure to a mixture of airborne silica and components of a class of minerals called zeolites.

He said he wore a painters mask as protection against the dust at work, and said the use of water for dust control was limited because scientists feared it would disrupt experiments on how fluids travel through the cracks and pores of the mountain.

A 1991 Los Alamos study warned that dry drilling at Yucca Mountain posed health concerns because of high silica content in the rock and an abundance of zeolites whose inhalation may result in asbestos-like lung diseases.

Whistle-Blower Tells Story of Mutual Fund Scandal

Wed, 17 Dec 2003 00:00:00 -0800

Noreen Harrington is a reluctant hero. She never wanted to be identified as a whistle-blower. She never sought media attention. She just wanted to help her sister and the millions of other 401(k) plan investors who count on mutual funds to help them accumulate enough money to retire.

With that in mind, Harrington went to New York Attorney General Eliot Spitzer in June, offering information about trading irregularities at Canary Capital Partners, a hedge fund managed by her former employer, Stern Asset Management. She believed that institutional investors at hedge funds such as Canary Capital were capitalizing on special deals that penalized small investors.

Harrington's action sparked a mutual fund trading scandal that has rocked the industry and mushroomed beyond anything she ever imagined.

Since her first phone call to Spitzer's office, fraud charges have been filed against several firms and executives. Two traders have pleaded guilty, several CEOs have resigned and one company has been shut down. Mutual fund companies are re-examining their practices, and the Securities and Exchange Commission has proposed new regulations for overhauling the industry, which manages $7 trillion in assets for investors.

Harrington, 47, has watched all this unfold from the sidelines. But recently, she started to get calls from the press and knew it was only a matter of time before her name got out. She decided to come forward.

But Harrington doesn't believe the story should be about her or her former employer. "It should be about all the people in 401(k) plans," she says. "I felt this trading was affecting them."

Concern for one 401(k) plan investor in particular prompted her to go to Spitzer. "I came forward because my older sister, who is one of the hardest-working people I know, told me that she may never be able to retire."

Harrington looked at her sister's 401(k) plan statement and thought about what she had seen when she worked for Stern. "I couldn't live with the fact that people were stealing money from investors, and they didn't even know it," Harrington said during a phone interview Monday.

The trading irregularities that Harrington helped Spitzer's office uncover included late trading and market timing. Late trading is the illegal practice of buying and selling funds after the 4 p.m. market close but still getting the 4 p.m. price. Market timing involves frequent trading, often in international funds, to exploit "stale" prices due to time zone differences. It is legal but might violate a fund's rules, and typically gives market timers a profit at the expense of long-term shareholders.

The ongoing investigations have exposed how some fund companies enforced market-timing prohibitions for everyone except special investors who brought in lucrative management fees.

On Sept. 3, Spitzer announced that he and Canary had settled charges that it had engaged in illegal trading with several fund companies.

Though Harrington, a 20-year Wall Street veteran, triggered the investigation, she never worked for Canary. She joined Stern Asset Management in April 2001, working for a division that managed a pool of assets invested in hedge funds. She left in summer 2002.

While working at Stern, she heard about questionable trading at Canary. Harrington says she asked her boss, Edward Stern, to do something about it, but he rebuffed her. A lawyer for Stern did not return calls for comment. Canary is cooperating with Spitzer.

Harrington says she also ran up against Canary's special relationship with some mutual fund companies when co-workers came to her to complain about an underperforming mutual fund in their 401(k) plan.

Stern initially declined to dump the fund, responding that the fund company allowed him to market time its funds, Harrington says. Eventually, as complaints swelled, he switched it.

Harrington couldn't provide Spitzer with a lot of details about how Canary operated. "I didn't understand all of what they were doing," she says. "But I understood some of it. When I went to the attorney general's office, all I wanted to do was say, `You guys should look at this, and this is why.' "

Armed with her information, Spitzer's office started investigating. His staff learned about James Nesfield, a hedge fund consultant who was hired by Canary to recruit mutual fund companies that would let the hedge fund market time their funds. After Spitzer's office sent him a subpoena, he agreed to cooperate, a source with direct knowledge of the investigation says. That source says the office got even more information after it subpoenaed Andrew Goodwin, a trader at Canary Capital, and he agreed to help the investigators. Nesfield and Goodwin could not be reached for comment.

After Harrington left Stern, she spoke to more people in the industry and learned that trading irregularities were not limited to Canary. But she wasn't prepared for the barrage of revelations since then.

"I'm astounded," she says.

Harrington, who has worked for Goldman Sachs and Barclays Bank, plans to start a hedge fund. "Hopefully, I'll do the right thing by investors."

For months, she didn't tell anyone about her part in the investigation. Now she's fielding calls from friends and reporters.

She hates being called a whistle-blower. "If you stop on the side of the road and you help somebody that's in trouble, you're a good Samaritan," she says. "But if I try to reach out to help small investors I'm a whistle-blower."

Univ. of Ill. Settles Transplant Claims

Tue, 18 Nov 2003 00:00:00 -0800

The University of Illinois at Chicago paid more than $2.3 million Monday to settle a whistleblower suit that alleged fraud in its liver-transplant program, officials said.

The federal and state governments collected twice the actual damages under the settlement, which also funneled the maximum allowable under the law to a surgeon who became a whistleblower.

"This settlement for twice the actual damages sends a clear message to health care providers that they will be held accountable for defrauding government payment programs," U.S. Attorney Patrick J. Fitzgerald said.

Dr. Raymond Pollak and the state and federal governments accused the university of improperly diagnosing and hospitalizing certain patients in the late 1990s to make them eligible for transplants before they otherwise would be.

The alleged fraud placed those who were improperly diagnosed ahead of others who were waiting to receive new livers, federal officials said.

Under terms of the settlement, the University of Illinois at Chicago Medical Center must cooperate with government audits and inspections and report any violations it finds.

As part of the settlement, the U.S. Department of Health and Human Services office of the inspector general will not take any action to exclude UIC from Medicare, Medicaid or other federal health care programs, Fitzgerald's office announced.

The university issued a statement noting that it had admitted no liability as part of the settlement and that it "disputes all of the allegations and claims made in the government's complaint in the civil action."

"In order to avoid further delay, inconvenience and expense, we have reached a settlement agreement," the university said.

The school paid the government slightly more than $1 million on Monday under the agreement between federal officials and the University of Illinois Board of Trustees.

Pollak, a transplant surgeon who launched the whistleblower lawsuit in 1999, will receive about $250,000 of the amount that the university paid the federal government, officials said.

The university also paid about $751,000 to the State of Illinois and separately paid Pollak about $250,000 as part of the settlement.

The state and federal governments joined Pollak in his whistleblower suit. At the time it unveiled the suit in July, the federal government also announced it was settling similar claims against the University of Chicago for $115,000 and Northwestern Memorial for $23,587.

Illinois Attorney General Lisa Madigan issued a statement saying the medical center's actions were "legally and morally wrong."

"A hospital's desire to receive additional state and federal health care dollars should play no role in whether or not a patient is eligible for an organ transplant," she said.

Pollak was at one time head of the UIC Medical Center's transplant program. He was demoted and his pay was slashed after he complained about the way patients were being classified. He now teaches and is on staff at the university's Peoria medical center.

While the university settled the whistleblower claims the 52-year-old South Africa-born surgeon brought, there has been no settlement of legal claims that he was unfairly treated.

"We're pleased, but this is a partial settlement," Pollak attorney Robin Potter said Monday. "It covers only the fraud claims. None of the retaliation or the employment claims are resolved. We are urging the university and the taxpayers to right the whole wrong."

Federal officials have taken no position on the employment claims.

In the employment portion of the suit, which has been assigned to U.S. District Judge Harry D. Leinenweber, Pollak is seeking unspecified financial damages to compensate for lost salary. He also wants to be reinstated as head of the transplant unit at UIC Medical Center.

"The last part of this book still has to be written," Potter said. "Either we go before a jury or they do the right thing and they make Dr. Pollak whole."

Whistleblower Tells Students To Have Personal Integrity

Tue, 18 Nov 2003 00:00:00 -0800

The label of whistleblower is not flattering, Cynthia Cooper told accounting students Monday at Mississippi State University.

Cooper, the internal auditor credited with uncovering $3.85 billion of fraud at WorldCom, said whistleblowers often lose their jobs, their families and even face bankruptcy.

Cooper said she wasn't ostracized by people at WorldCom when she uncovered the company had listed line costs as a capital expense instead of an operating expense to make it look profitable when it was actually losing money.

"There is an invisible line, and when you step over it you will be labeled a whistleblower," she told several hundred accounting students who packed the Swalm Chemical Engineering Building auditorium.

Personal integrity should be the driving force in making the right moral decisions, said Cooper, vice president of internal audit at MCI the company's new name.

"Strive to be persons of honor and integrity," she said. "Do not allow yourself to be pressured ... Do what you know is right even if there may be a price to be paid."

While Cooper didn't face repercussions from the company, revealing the fraud hasn't come without personal challenges or costs to WorldCom.

Cooper's revelation forced WorldCom, which was based in Clinton at the time, into bankruptcy. Four former employees have pleaded guilty to accounting fraud and former chief financial officer Scott Sullivan faces a February trial for numerous counts of fraud in the accounting scandal that has since grown to $11 billion.

The fallout didn't end there.

"Thousands of our co-workers were laid off," Cooper said. "There are 55,000 honest, hard-working employees that were affected because of the actions of a few."

Most accounting functions that were performed in Clinton have been moved elsewhere, Cooper said.

The state of Oklahoma has also brought criminal charges of securities fraud against former Chief Executive Officer Bernie Ebbers, Sullivan, David Myers, Buford Yates, Betty Vinson and Troy Norman as well as the company.

Cooper said the recently enacted Sarbanes-Oxley act now protects people who are considered whistleblowers.

"It was added after the WorldCom debacle," said Cooper, who along with Sharron Watkins, a former vice president at Enron and FBI agent Coleen Rowley were named Time magazine's People of the Year for 2002.

Rowley wrote a memorandum saying information about Zacarias Moussaoui was ignored before the 9-11 terrorist attacks and Watkins exposed extensive false accounting at Enron, the energy trading company now in bankruptcy.

Sophomore accounting student Tanisha Jones of Magee found Cooper's first-hand experience helpful.

"You have to think about what is right," Jones said. "A lot of people are going to face problems at their jobs and it was important to have someone who has been there to tell us what they've been through."

That was the reason Danny P. Hollingsworth, director of the school of accountancy, wanted Cooper, who received her bachelor's degree in accountancy from MSU in 1986, and Glyn Smith, an audit manager in MCI's Internal Audit Department, to speak to the group.

"It is extremely important to constantly remind the students of their responsibilities," he said.

Hong Zhang, a graduate student from China, said she worked on a project in her fraud examination class that studied WorldCom.

"It is very important for there to be internal auditing," she said. "Every big company must have internal audits."

Cooper said the problems major corporations have had during the past two years are bringing about changes to help deter future problems.

Among areas of concern Cooper said, are the irrational exuberance of companies and passive boards of directors, which lead to an inadequate balance of power.

"Boards can't just rubber stamp what executives want," she said.

Other areas that need to be addressed are excessive executive compensation and loans to executives. Ebbers received a loan of more than $400 million from WorldCom. The board approved it so he wouldn't sell shares of stock to pay debts backed by the stock.

"A public company cannot and should not be piggy banks to executives," Cooper said.

While the internal controls are owned by the management of the company, Cooper said collusion by executives at the highest level can go undetected.

She is encouraging companies to have training on ethics and internal controls policies. Also, internal audit departments should have increased authority, be independent and be given the resources to do their jobs, Cooper said.

"And the internal auditor should report to the CEO not the CFO," she said. "Many, including myself, reported to the CFO."

Smith told the students that often people make decisions based on what they are told to do, because they are afraid they may lose their jobs.

"Mid-level managers are now in trouble all across the nation because of the decisions they made because their bosses, or the boss' boss is saying it's OK," Smith said. "Right now you are making decisions that will affect the choices you make when you get into corporate America.

"On a daily basis you should practice decision making," Smith told the students.

Whistleblower Tells Her Story In Washington

Mon, 10 Nov 2003 00:00:00 -0800

Sarah Grim, who raised questions about the bidding system at Florida's Agency for Health Care Administration (AHCA) in 2000, has the interest of the U.S. Senate Finance Committee.

The committee is interested in knowing if pressure from federal health care regulators led to Grim's contract as CEO not being renewed at the Missouri Patient Care Review Foundation (MOPRO).

A letter by Grim's attorney indicates that her whistleblowing in Florida or a case in Missouri may have irritated officials at the federal Centers for Medicare and Medicaid Services (CMS) and prompted questions to Grim's board about her qualifications.

A suit by Grim against MOPRO alleging improper termination was settled in September before a trial could commence. The settlement terms are sealed.

A deposition in that case says Grim wrote an e-mail critical of Ruben King-Shaw Jr., who had gone from being Florida's top health care regulator to a senior CMS executive.

Grim's allegations about a bidding process at AHCA, when King-Shaw was the agency leader, were the basis for The Business Journal's 23-part series, "Unhealthy Allegations."

In her wrongful dismissal suit, Grim alleged her firing was retaliation for telling the truth about criminal activities in the health care system.

Finance committee staffers are looking at leads involving CMS employees and the Florida and Missouri investigations.

"We have sent out document requests," said Emilia Disanto, a special counsel and chief investigative counsel for the Senate Finance Committee.

Disanto said she would not characterize the requests as an active investigation at this time. The committee had received some of the documents and staffers are assessing the contents and "poking at various things," she said.

A letter from Grim's attorney to Dean Zerbe, chief investigative council for the Senate Finance Committee, states Grim may have incurred the wrath of senior CMS officials for testifying in the Missouri case or exposing "possible criminal activity in Florida's state Agency for Health Care Administration."

Disanto would not comment on the scope of the document request, targets if any or when the exercise would be completed.

The office of U.S. Sen. Charles "Chuck" Grassley, R-Iowa, the chairman of the Senate Finance Committee, is interested in protecting whistleblowers who expose Medicare and Medicaid fraud. His office, Grim said, appears to be the moving force behind the document probe.

Grim is known in South Florida from her tenure as president of the South Florida Hospital and Healthcare Association from 1991 to 1993.

"When I was in Miami, someone threw a pipe bomb into my condo," she said. "I happened to be looking into an offshore insurance company that was missing $10 million."

She moved backed to Missouri, where she had been raised in Kirksville, a small town where her grandfather owned a hospital. After graduating from the University of Missouri, she worked as a lobbyist and reimbursement specialist for the Missouri Hospital Association. In 1984, she went to work for Baptist Medical Center in Kansas City.

Grim's testimony in the 1997 Baptist Medical Center kickback and fraud case resulted in four executives going to prison for 51 months and the U.S. government recovering $17 million, Kleiman's letter states.

"Although Ms. Grim left the hospital shortly after these deals were cut, she never forgot them. It was not until many years later, in 1997, that she was contacted by the FBI and asked what she knew about this scam," Kleiman letter states.

Grim initially thought her contract non-renewal at MOPRO was due to prolonged harassment springing from that case, but some MOPRO board members thought it might have stemmed from her whistleblowing acts in Florida, Kleiman's letter states.

In early 2000, when MOPRO's board asked her to seek additional oversight work outside Missouri, Grim looked to Florida and an upcoming Invitation To Negotiate (ITN) for a $25 million contract at AHCA.

Grim said MOPRO had been offered the contract if it paid a $1 million fee to two well-connected Florida lobbyists. One of the lobbyists told Grim his pull went "all the way to the top," Kleiman's letter states.

Shortly thereafter, the FBI started an investigation, called FL ITN. (The Miami FBI office refuses to say whether that investigation is closed or ongoing.)

Over the next few months, the bid was cancelled and the contract was ordered re-bid by AHCA executive director King-Shaw, who said lobbyists had no influence with his agency.

In a June 2000 interview with The Business Journal, King-Shaw said his agency had been cleared in an investigation by the agency's inspector general.

When The Business Journal asked for a copy of the investigation, King-Shaw said it was an "oral investigation." He said there were no notes, reports or lists of employees interviewed or questions asked. King-Shaw and his in-house counsel, Julie Gallagher, said the lobbyists were not questioned or interviewed.

After failed attempts to hire a new reviewer, the problem disappeared. A small item inserted by state Sen. Ron Silver, D-Miami, into an omnibus health care legislative bill in 2001 simply did away with any state-contracted peer review oversight of Medicaid funds.

That happened even though Florida is considered one of the epicenters nationally of Medicaid fraud because of its huge population of elderly residents.

AHCA was also reorganized and King-Shaw moved on to became COO in the renamed federal Centers for Medicare and Medicaid Services in July 2001. CMS oversees health care finance and oversight reviewers, among other things.

Board doesn't renew Grim's contract
MOPRO was one of those oversight reviewer companies. Grim's contract was not renewed in July 2001 after employees of CMS contacted MOPRO executives and board members to express their "concerns" about Grim, Kleiman's letter states. Just a few months earlier MOPRO had passed a CSM review with "flying colors."

Among those contacting MOPRO was Brenda Burton, a CMS regional official.

Earlier, Grim had sent Burton an e-mail critical of King-Shaw's federal appointment, a deposition by Burton in Grim's wrongful dismissal suit states. Burton said she shared the e-mail with a superior because it implied King-Shaw was corrupt.

King-Shaw said the Senate committee has not contacted him.

"Anything going on currently is probably just checking for confirmation that all issues were addressed," he said. "In my first two years at CMS, I recused myself on all issues related to Florida. I haven't heard from Miss Grim in probably two years."

After her contract was not renewed, Grim was unemployed for nine months, almost lost her home and had to take a job out of state which paid one-third of what she formerly earned, she said.

King-Shaw has had new roles this year.

On Jan. 16, The Business Journal reported he was leaving CMS to become senior adviser to the Secretary of the Treasury for health insurance policy. But on Feb. 5, King-Shaw was quoted in his CMS capacity in a press release by deNovis, a venture capital-backed software firm in Lexington, Mass. DeNovis announced a $50 million joint contract with IBM to help CMS design a better system to process Medicare claims.

"We've got the best minds in government, technology and health care working together to revolutionize our health care transaction system," King-Shaw said in the press release.

King-Shaw said he is now a strategic advisor to deNovis after serving as interim chairman earlier this year during its reorganization.

He still has Florida ties, too. In September, WellCare Health Plans of Tampa, which has about 500,000 members, announced King-Shaw had joined its board.

Plum Island Whistleblower Wins Suit

Wed, 05 Nov 2003 00:00:00 -0800

The Plum Island whistleblower, who was fired in June from Plum Island a day after reporting security and health concerns, was vindicated last week by the U.S. Department of Labor.

The main thing is it will help snowball other decisions in my favor, said Jim McCoy, the whistleblower. At its Manhattan office, the Occupational Safety and Health Administration of the Labor Department ruled that federal whistleblower laws protected him when private management contractor North Fork Services (formerly LB&B) fired him.

McCoy hopes the OSHA decision will have a positive impact on his case before the National Labor Relations Board, which will resume in early December, as well as his efforts to collect unemployment, which were foiled by North Fork Services on the basis of trumped-up charges of insubordination, McCoy said.

OSHA ordered North Fork Services to reinstate McCoy and to pay him more than $13,000 in back pay, $75,000 in compensatory damages, and more than $4,800 for job training expenses. The contractor also has to pay McCoys attorney about $13,000.

I dont know when or if Ill actually see the money, said McCoy. North Fork Services was given five days to appeal the decision, which it did.

As for the idea of returning to Plum Island, McCoy said he and his wife arent comfortable with the idea. Some people have suffered ramifications from his disclosures. McCoy is in Florida, looking for work in the air conditioning field. He recently went to school to get his AC license in the state.
The best we can hope for is a settlement and the knowledge that what I did was for the good of the workers and the community, he said. He said he was pleased that Plum Island will be run as a tighter ship and things wont get swept under the carpet anymore. The recent critical report by the General Accounting Office outlining security problems on the island was partly a result of his speaking out, and hes glad he did.

North Fork Services, which is under contract with the U.S. Department of Agriculture on Plum Island, will finish up its contract through the end of this year. At the beginning of next year, the Department of Homeland Security will install a new management contractor that would better meet its requirements.

Terror Threat

Since September 11 and the heightened threat of terrorism, the islands mission shifted. Security concerns on the island are paramount, as per the detailed GAO report. The report said security concerns heightened when the islands union, the International Union of Operating Engineers Local 30, went on strike last summer because of a dispute with North Fork Services over health benefits. The dramatic news this past summer that McCoy blew the whistle on security and health violations and was fired the next day poured fuel on an explosive situation.
At the time, Marc Hollander, DHS Acting Director on the island, sided with North Fork Services that McCoy was fired for cause. They said McCoy left his critical post in the chiller room for a long period of time without telling his supervisor.

McCoy said he spoke for about 20 minutes to a half hour with Hollander and a representative from Senator Hillary Clintons office, who was visiting on the island. He said he was on break, and besides, he routinely worked throughout the island without supervisors knowing his whereabouts.

The day he blew the whistle, McCoy was reassured by Hollander that he would not be fired for voicing his concerns. McCoy reported to work the next day, only to be terminated in what he described as a frightening and humiliating manner, including being threatened with his life by security staff.

Senator Hillary Clinton and Congressman Tim Bishop have both maintained that North Fork Services was trying to bust up the union and didnt bargain in good faith, causing dangerous labor conditions on the island.

30 Firms Face NASD Fund-Trading Probe

Wed, 29 Oct 2003 00:00:00 -0800

NASD, the securities industry's main regulator, is investigating more than 30 firms in connection with improper mutual fund trading, people familiar with the matter said Tuesday.

The investigations are part of an industry-wide review of mutual fund practices known as market timing and late trading. In the latest action to arise from the examination of the industry, federal and Massachusetts officials brought civil and administrative charges Tuesday against mutual fund giant Putnam Investments, alleging for the first time that fund executives had profited personally from such practices.

Securities industry sources also confirmed a Bloomberg News report that the New York Stock Exchange has begun asking members for information about fund trading.

The focus on industry practices began when Eliot L. Spitzer, the attorney general of New York state, disclosed Sept. 3 that four mutual fund companies had made secret deals allowing a New Jersey hedge fund to make rapid-fire trades that siphoned profits from ordinary investors.

Between them, NASD and the Securities and Exchange Commission have demanded information from nearly 250 mutual fund companies and broker-dealers about after-hours trading, which is illegal, and market timing, a short-term trading strategy that exploits time differences and stale prices, particularly in international funds. Timing is not illegal, but most funds say they discourage it because it can cut into overall returns.

More than half of the 88 mutual fund families surveyed by the SEC acknowledged that they allowed some investors to engage in timing, an official there said. The 30-plus investigations at NASD may only be a first wave, a source said.

In the case against Putnam, a unit of Marsh & McLennan Cos., the Massachusetts secretary of the commonwealth, William Francis Galvin, alleged in court papers that six of the firm's executives, including four portfolio managers, made improper short-term trades, and that the firm failed to stop them.

"Mutual funds are really the investments of Ma and Pa and the kiddie, too," Galvin said. "Having a mutual fund industry you can't trust is unacceptable."

Galvin said a whistle-blower came to his office in September with allegations that Putnam was allowing market timing by members of a union that had its 401(k) plan with Putnam. The Boston Globe reported that the whistle-blower, Peter Scannell, had gone to the SEC in March but that the commission's Boston staff never got back to him. Scannell did not return a phone call seeking comment.

SEC enforcement director Stephen M. Cutler said yesterday that the commission was examining how it handled Scannell's approach. Cutler said he was contacted by a second whistle-blower who alerted him to alleged personal trading by Putnam executives.

Yesterday, the SEC filed civil actions alleging that two former Putnam portfolio managers had committed securities fraud by timing the funds they managed. The SEC also alleged that the firm committed fraud by failing to disclose the trading by insiders. The trading started in 1998 and continued through this year, according to the complaints.

Putnam said in a statement that it had done an independent review and put all the individuals named in the complaints on leave.

"We believe Putnam did not act fraudulently. Putnam did not receive any financial benefit" from the trading," the firm said. "Unfortunately our systems and controls were not perfect. We wish they had been."

More Workers Blow The Whistle

Thu, 07 Aug 2003 00:00:00 -0700

Few things can be more agonizing than discovering wrongdoing at work. Keeping quiet can harm others and spawn guilty feelings. Reporting it can mean professional ruin. In a shift, more Americans are choosing the latter course.

Whistle-blowing is on the rise, thanks to high-profile insiders who have gone public with sordid details of corporate corruption, and a new law that offers increased protection for those who report suspected abuses on the job.

Some experts say the new protections fall short, and that whistle-blowers will continue paying far too high a price for their honesty. Meanwhile, increased focus on the issue has brought to light some intriguing similarities among whistle-blowers, who otherwise span racial, religious and economic divisions.

James Krutchen of Robbinsdale joined the swelling ranks of whistle-blowers recently when he alleged that his former employer, Onvoy Inc. of St. Louis Park, colluded with MCI to cheat AT&T of access fees on long-distance calls.

Onvoy has denied Krutchen's allegations. Krutchen, speaking through his attorney, declined to comment publicly.

Krutchen's case, like most, is complicated and it is not known whether his allegations have merit. But the controversy and mud-slinging that have enveloped him in the aftermath of his claims is typical.

Yet despite what Krutchen and others go through, people seem compelled to speak up.

Whistle-blowing is up sharply, according to the Government Accountability Project, a 26-year-old nonprofit group that helps whistle-blowers in corporations and government. In 1999, the organization handled 80 cases; in the first seven months of 2003, it dealt with 230.

Popular culture

Whistle-blowing entered popular culture and politics along with the rising mistrust of government during the Vietnam War and Watergate eras. The Whistle-blowers Protection Act of 1978 granted protection to federal government workers reporting suspect practices, and established whistle-blower hot lines at federal agencies.

A number of late 20th-century films were derived from true stories of whistle-blowers. The movie "Silkwood" told the story of a whistle-blower at a nuclear power plant; "Marie" was about a woman reporting prison corruption; "Serpico" was about a police officer who uncovers vast corruption on the force; and in "The Insider," a tobacco company executive revealed efforts to manipulate nicotine levels to hook people on cigarettes.

Then came the aftermath of Sept. 11, 2001. Minneapolis FBI agent Coleen Rowley publicly pointed up the agency's failure to detect warning signs of the terrorist attacks. More recently, Sherron Watkins of Enron and Cynthia Cooper of WorldCom played key roles in revealing financial abuses at their companies.

Efforts to increase corporate accountability resulted in government making it easier on whistle-blowers with the Public Company Accounting and Investor Protection Act of 2002, otherwise known as Sarbanes-Oxley. Whistle-blower provisions in the law protect employees of publicly traded companies who seek to report suspected irregularities. The act requires companies to establish ways for workers to report suspected wrongdoing anonymously, and makes a potential criminal offense of firing, demoting or harassing them. In addition, the law requires attorneys for public companies to report suspected misdeeds.

Some experts in the field are optimistic that Sarbanes-Oxley will bring the most favorable climate for whistle-blowers in history.

"There's a cultural shift going on today that encourages and ennobles the whistle-blower," said Roberta Ann Johnson, professor of politics at the University of San Francisco and author of a new book, "Whistle-blowing: When It Works and Why."

Unfinished revolution

Louis Clark, executive director of the Government Accountability Project, said Sarbanes-Oxley amounts to nothing less than a "revolution in corporate free speech."

Nonetheless, Clark has some reservations about the effective implementation of the law. Claims must be filed with the Department of Labor within 90 days of an alleged retaliation against a whistle-blower. Clark says that time frame is unrealistically short. In addition, he said, unfair regulations are being proposed that would limit Sarbanes-Oxley protections to people deemed a "security risk."

A lot of people are taking issue with provisions of Sarbanes-Oxley, said Robert Hennessey, an attorney with Minneapolis firm Lindquist & Vennum who has handled whistle-blower cases. "They say it's gone way too far, that it's ill-conceived. There is a huge controversy going on over its requirement that attorneys blow the whistle." As far as the law's ability to clean up corporations, he said, "The jury's still out."

"There have always been outbreaks of corporate malfeasance," said David McGowan, associate professor of law at the University of Minnesota. He pointed to the Drexel Burnham Lambert scandal of in the late '80s, the savings and loans crisis of the '90s, and most recently wrongdoing by telecommunications firms.

McGowan says he does not believe Sarbanes-Oxley will prevent further scandals. "If you could stop people from committing fraud by passing a law, there wouldn't be any fraud," he said.

With or without Sarbanes-Oxley and whistle-blower heroes in the news, people who have been through it insist that in the end, no good deed goes unpunished.

"Human nature's not going to change much," said Gregg Corwin, a St. Louis Park attorney who's handled numerous whistle-blowing cases.

"The papers never talk about what happens to the whistle-blower afterward," he said. "It's very good at the beginning. These stories are sexy for the newspapers, who print it up and you're a media star for a day or so. But if you win, you will only get back-pay damages and attorneys' fees.

"Then you go out and look for work, but you've had all this publicity. Who wants to hire a whistle-blower?"

If, as Corwin says, whistle-blowers get fired, blackballed, traumatized and worse, what makes people do it?

Profiles in principles

The Government Accountability Project's Louis Clark says whistle-blowers come from all religious, ethnic and racial backgrounds, and with all different levels of education and career experience. What unites them, he said, are moral and professional standards.

"They have an inability to separate morality according to their circumstances," he said. "They have the same moral concerns within the family, the workplace, the church, the community group. They don't differentiate. They have personal, moral, ethical stands across the board. They don't plug it in and plug it out.

"A second pattern is that they tend to be the hardest-working people. They are precise, sometimes perfectionist. They have a difficult time accepting other people doing sloppy work around them."

Of course, some whistle-blowers give the breed a bad name. One well-known example is Mark Whitacre, the whistle-blowing executive at Archer Daniels Midland Co. who was later found to have embezzled $9 million from the company.

"Any time you have a remedial measure, there's going to be some people who take advantage of it," Clark said. "But that is no reason to deny the benefits of those rights to the 99 percent of people who are acting in good faith."

Anyone who doubts the importance of whistle-blowing protections in America should consider how bleak things are elsewhere, said the University of San Francisco's Johnson.

"We are actually exporting it to other countries," she said. The U.S. State and Commerce departments are involved in projects to teach other countries, especially in the former Soviet bloc, about how protecting whistle-blowers can help them address systemic problems.

Indeed, representatives of 80 different countries have consulted with the Government Accountability Project over the past two years to seek help rooting out abuses, Clark said.

"The only way to stop corruption," Johnson said, "is to make sure the person reporting it doesn't get fired or killed."

Self-Described PSC Whistleblower, To Get Civil Service Hearing

Tue, 05 Aug 2003 00:00:00 -0700

An ex-Public Service Commission employee who says he was fired for exposing ethics problems at the agency comes before the state Civil Service Commission Wednesday.

Harold Lasserre, Jr. an 11-year commission employee, says in court documents he was fired because of his "cooperation with agencies investigating wrongdoing at the Public Service Commission." Those agencies included the Legislative Auditor, FBI, U.S. Attorney's Office, and the Internal Revenue Service, Lasserre says.

The PSC disputes Lasserre's claim, saying he was let go for travel expense fraud failing to reimburse the PSC for a charge that was ultimately credited back to him.

Lasserre, in turn, claims he was pressured by PSC secretary Lawrence "Tubby" St. Blanc to doctor statistics in order to justify salary increases for Mississippi river pilots. The pilots' high salaries $330,00 per year have been controversial.

The PSC received a scathing review from the Legislative Auditor last spring which suggested lax oversight of the utility companies that make up its principal purview.

Last week, another auditor's report pointed to St. Blanc as the recipient of thousands of dollars worth of free meals from companies regulated by the PSC.

At Wednesday's hearing, a Civil Service Commission referee could either let the firing stand, or give Lasserre his job back.

The former economics division supervisor is also pursuing his claims against the PSC in Baton Rouge civil district court.

Northrop Grumman Settles Heritage TRW Lawsuit

Mon, 09 Jun 2003 00:00:00 -0700

Northrop Grumman Corporation agreed to settle a joint complaint filed by a former TRW Inc. employee and the U.S. Department of Justice under the qui tam provisions of the civil False Claims Act.

The company said it will pay approximately $111 million to settle claims that TRW, acquired by Northrop Grumman in December 2002, misclassified various costs and improperly charged those costs to certain of its federal contracts. The suits were originally filed under seal in 1994 and 1995 in the U.S. District Court for the Central District of California.

The company expressly denied any liability for violating the False Claims Act and has agreed to settle this matter, allowing management to focus on the excellent business prospects for the heritage TRW businesses and the entire Northrop Grumman enterprise.

Northrop Grumman said the settlement amount was contemplated in the company's acquisition of TRW. The company continues to expect 2003 earnings per share of $3.80 to $4.20. Although cash from operations will be affected by the settlement, the company still expects 2003 cash from operations of $1.1 billion to $1.3 billion, excluding the $1.0 billion B-2 tax payment.

Northrop Grumman Corporation is a $25 billion global defense company, headquartered in Los Angeles, Calif. Northrop Grumman provides technologically advanced, innovative products, services and solutions in systems integration, defense electronics, information technology, advanced aircraft, shipbuilding and space technology. With approximately 120,000 employees and operations in all 50 states and 25 countries, Northrop Grumman serves U.S. and international military, government and commercial customers.

U.S. Backs Whistleblower In Drug Lawsuit

Wed, 28 May 2003 00:00:00 -0700

The U.S. government is supporting a whistleblower who sued Pfizer and its subsidiary Parke-Davis, saying evidence backs his claim that the drug maker illegally marketed the epilepsy drug Neurontin and offered lavish kickbacks to doctors.

U.S. Attorney Michael Sullivan has filed a "statement of interest" in Dr. David Franklin's civil lawsuit in federal court, arguing against the pharmaceutical company's motion to have the lawsuit thrown out on summary judgment.

"The evidence in this case supports a finding that Defendants engaged in a fraudulent scheme, involving many false statements to doctors and the United States Food and Drug Administration advanced by payment of illegal kickbacks," Sullivan wrote in documents filed Friday.

Pfizer merged with Warner-Lambert and its Parke-Davis division three years ago. A company spokesman said Pfizer employees do not promote drugs for non-approved uses.

"These activities allegedly took place a number of years ago, well before we merged with Warner-Lambert," spokesman Andy McCormick said. He declined to comment on Franklin's specific allegations and said Pfizer's attorneys would file a reply next week.

The case concerns "off-label" use, or prescribing drugs for ailments other than those approved by the FDA, of Neurontin.

Federal law allows doctors to prescribe drugs in any way they believe will best help patients, but forbids companies from promoting drugs for conditions that are not approved by the FDA.

Franklin, who worked for Warner-Lambert, the former parent company of Parke-Davis, claims in his lawsuit filed in 1996 that the company gave financial incentives to hundreds of doctors to prescribe Neurontin for non-approved uses.

Internal company memos outline plans for promoting the drug for bipolar disorder, social phobias, panic disorder, and neuropathic pain in journals and medical conferences, rather than seeking FDA approval.

In Friday's filing, Sullivan said Franklin had documented the company's kickback schemes for physicians who prescribe Neurontin for off-label uses, such as a 1996 meeting in Atlanta where doctors were given tickets to the Olympics, meals, and use of a spa.

He also says doctors were given a three-day trip to Palm Beach, Fla., cash payments and yacht trips, and were afterward tracked by Parke-Davis to see if the perks had an impact on their prescriptions. Another 1997 junket to Puerto Rico offered cash, meals and airfare.

"(The U.S.) has a keen interested in the development of the law in this area and in the correct application of that law in this case and similar cases pending in several courts," Sullivan wrote.

Christina Sterling, a spokeswoman for the U.S. Attorney's office, declined to comment.

Whistle-Blower?

Fri, 09 May 2003 00:00:00 -0700

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.

Whistle Blower Wins Lawsuit

Fri, 04 Apr 2003 00:00:00 -0800

Donna Trueblood worked on the "drum crew" at the WTI hazardous waste incinerator in East Liverpool, Ohio, not beating music time but keeping track of barrels of incoming waste.

In February 2002, Trueblood told the Ohio Environmental Protection Agency that her employer, VonRoll America, was accepting hazardous wastes it was not permitted to incinerate and storing drums of chemical waste on a parking lot at the adjacent Heritage Environmental Services, a separate waste transfer facility that has an ownership interest in the incinerator.

VonRoll fired Trueblood in October 2002 for, it said, exceeding her sick day limit. But federal Administrative Law Judge Richard Morgan ruled last week that she was unlawfully terminated for blowing the whistle on those illegal waste handling practices.

Morgan's 60-page decision scolds VonRoll for concocting a story to cover up Trueblood's termination, and awards her $50,000 for back pay and $125,000 in exemplary damages.

He also ordered WTI to reinstate her to her job, but added that her return to work would be a "terrible mistake" and urged the company and Trueblood to reach a different, mutually acceptable settlement.

VonRoll has filed notice that it will appeal the ruling to the U.S. Department of Labor's Administrative Review Board in Washington, D.C.

Raymond Wayne, a WTI spokesman, said it is the company's policy not to comment on pending cases or appeals. He said any action on Trueblood's reinstatement is on hold pending the outcome of the appeal.

Richard Renner, Trueblood's attorney, said he contacted the company last Friday about her reinstatement but has had no response. He said provisions of the federal Energy Reorganization Act require that Trueblood be reinstated and given back pay even though the appeal is pending.

"She can't wait forever. She's about to lose her home in East Liverpool and she's flat run out of money," Renner said. "She's really suffered for taking the stand that she did."

The WTI incinerator, in East Liverpool's poor East End neighborhood along the Ohio River, 30 miles west of Pittsburgh, has been a lightning rod for safety and health concerns since plans for its construction were announced in the early 1980s. Despite strong opposition, the $140 million incinerator was built 400 yards from an elementary school and finally opened in 1993.

Incinerator opponents have seized on the waste handling irregularities reported by Trueblood as confirming their fears about dangerous practices at the incinerator that operates seven days a week, 24 hours a day, burning 60,000 tons of hazardous waste a year.

Trueblood, worked in the waste industry since 1991 in her home state of Louisiana, as well as in Texas, Iowa and California before getting a job at WTI in 1998. She said she doesn't share the concerns of the incinerator opponents, as long as the business operates by the rules.

"Incineration for the types of waste WTI handles is the best technology we have," Trueblood, 39, said. "Some of the WTI waste is 'two-stepper' stuff, meaning if you get a whiff of it you can take two steps and you're gone. I can't see landfilling that kind of stuff, but I believe they could handle it better."

Trueblood said the initial complaint to the U.S. Environmental Protection Agency and the Ohio EPA about WTI's waste handling irregularities came from another person at the facility, but when the agencies contacted her at home she told them what she knew.

She told the agencies that WTI was storing hazardous wastes off-site at Heritage Environmental open-air parking lot and had accepted shipments of bromoform and 100 percent benzene that it did not have a permit to incinerate.

She said the waste handling irregularities happened on "multiple occasions," but she documented only one occasion for the investigating agencies.

Benzene is a widely used industrial chemical and a known human carcinogen.

Bromoform was used in the past as a solvent and flame retardant, or to make other chemicals. It is now used mainly as a laboratory reagent. Overexposure affects the central nervous system causing unconsciousness, loss of reflexes, shallow breathing, erratic heart rate, and respiratory failure.

Whistleblowers Can Target Local Government

Mon, 10 Mar 2003 00:00:00 -0800

The Supreme Court ruled unanimously Monday that whistleblower suits alleging fraud against the government can be filed against local governments.

The case involves a whistleblower who alleged that Cook County, Ill., officials filed false statements to obtain federal drug abuse funds for a Chicago area hospital.

The federal False Claims Act targets any "person" who knowingly presents a false bill in order to get reimbursement from the government. Violators are liable for a civil penalty, triple damages and costs.

Although the attorney general may file suit under the FCA, a private individual may also sue under the law's "qui tam" or whistleblower provisions.

The individual, called a "relator," must tell the Justice Department of his or her intentions and must keep the process under seal until the government decides whether it wants to join the suit. If the suit is successful, the relator can get up to 30 percent of the money recovered, plus expenses.

In Monday's case, the fraud allegedly involved a $5 million grant from the National Institute of Drug Abuse to Cook County Hospital. The grant was for a treatment program for pregnant drug addicts.

Administration of the study was later transferred to a non-profit research organization, Hektoen Institute for Medical Research, which was affiliated with the hospital.

The program was run from 1993 until 1995 by Dr. Janet Chandler. In 1997, Chandler filed a whistleblower suit under the FCA claiming that the county and the institute had submitted false statements to the government in order to get the grant.

Besides violating the grant's conditions, Chandler said, the county and organization had failed to comply with regulations on human-subject research and submitted false reports of what she called "ghost" non-existent research subjects.

Chandler said she was fired for reporting the alleged fraud to doctors at the hospital and the granting agency.

The Justice Department declined to participate in the suit, but the process continued. The county asked a judge to dismiss the claims against it, in part, because it is not a "person" under the meaning of the act.

Eventually, a federal appeals court ruled that the county is a "person" for the purposes of the act, but could not be subjected to triple damages.

Monday, the Supreme Court upheld the appeals court.

Writing for the full Supreme Court, Justice David Souter noted that when the FCA was passed in 1863 "municipal corporations and private ones were simply two species of 'body politic and corporate,' treated alike in terms of their legal status as persons capable of suing and being sued."

Nothing had changed since then, despite amendments to the law in 1986, he added.

"The term 'person' in (the relevant section of the law) included local governments in 1863 and nothing in the 1863 amendments redefined it."

Sharp Will Pay $6.2 Million To Settle Whistle-Blower Suit

Fri, 07 Mar 2003 00:00:00 -0800

Sharp Memorial Hospital will pay the federal government $6.2 million to settle an employee's claim that it defrauded Medicare in the 1990s by misrepresenting costs involved in its heart-and kidney-transplant programs, the U.S. Attorney's Office said yesterday.

Judith A. King, Sharp's heart transplant coordinator, alleged in a civil suit that the hospital had billed Medicare for expenses that weren't incurred or didn't involve organ acquisition or transplant services between 1991 and 1999.

Having filed the suit as a whistle-blower under the federal False Claims Act, King will receive 20 percent, or $1.24 million of what the government recovers from Sharp. After paying her attorney and taxes, King said she will get about $300,000.

The settlement was negotiated with Sharp and its parent, the San Diego Hospital Association, and was announced by San Diego U.S. Attorney Carol C. Lam and the Department of Justice.

"Ensuring the integrity of Medicare and other health-care programs is an extremely important priority in this district," Lam said. "Health-care providers can and will be held accountable if they engage in improper billing practices."

The misrepresented costs included employee salaries, medical director fees, laboratory charges and square footage that were not incurred or used for organ acquisition activities and thus did not qualify for reimbursement, said a statement from Lam's office.

In reaching the settlement, Sharp officials admitted no wrongdoing. In a statement, Michael W. Murphy, Sharp president and chief executive officer, said Sharp "acknowledges certain errors were made in the preparation of the cost reports.

"However, we believe there was an honest difference of interpretation or application of complex regulations and reimbursement rules. There was never any intent to seek inappropriate reimbursement from the government, and Sharp is pleased to resolve this matter."

The settlement with the government includes a five-year "Corporate Integrity Agreement" that requires Sharp to "promote compliance" with federal laws through training, education and independent review of billing, annual reports and cost-reporting practices.

King, 47, who continues as transplant coordinator at Sharp, said yesterday she "regrets any negative light that will be cast on the programs." Her decision to become a whistle-blower was "about personal integrity. I did this on principle."

She said she became suspicious about Sharp's billing practices in the mid-1990s when she asked to move the heart transplant offices away from the kidney transplant program and closer to the cardiology department.

She was told to stop trying, she recalled, because higher Medicare reimbursement could be collected if her office stayed near the kidney program, which performed more transplants than the heart program.

During the period in question, Sharp doctors and staff performed 617 kidney transplants and 212 heart transplants.

King said she then noticed inconsistencies in how staff time was being spent and recorded. For example, staff members' time that was worked after a transplant was being logged as pre-transplant time so that higher amounts could be billed to Medicare, she said.

"It became my view that organ acquisition was becoming a slush fund because it was easy to shift costs not related to the organ-transplant program and get them reimbursed," she said.

King's lawsuit, filed three years ago, was unsealed yesterday. As a condition of the settlement, it will be dismissed.

One of King's allegations was that Sharp created medical directorships for physicians as "financial inducements" for patient referrals to the organ-transplant centers, a violation of Medicare's anti-kickback statute.

As an example, she cited Drs. Robert Mendez and Raphael Mendez, who direct transplant programs at St. Vincent Medical Center in Los Angeles and were named as officials at Sharp's transplant program in 1990. Although they were paid $175,000 each per year, they visited Sharp only twice a month for a half a day.

"Some of Mendez's patients at St. Vincent's were double-listed at Sharp, and many of the Sharp transplant patients came from the St. Vincent's program," King's lawsuit said. "Mendez also refers to Sharp his international patients who are charged on a cash basis for the transplant."

Contacted yesterday in Los Angeles, Dr. Raphael Mendez said he was unaware of the lawsuit or the settlement and referred inquiries back to Sharp. He said his brother was out of town and could not comment.

Sharp spokesman Gustavo Friederichsen said the government "did not express concerns with the terms and conditions of our medical director agreements. The focus of their investigation was on cost allocation."

Describing her case yesterday, King, a registered nurse at Sharp for 21 years, at one point broke into tears. She said attempts to correct the situation before she filed suit fell flat.

She sued under the qui tam portion of the federal False Claims Act, which allows private people who suspect fraud to sue on behalf of the United States. If the government recovers money, the whistle-blower receives a negotiated percentage. The law protects whistle-blowers against retaliation.

She said that when federal investigators told her how much money was at stake, she was shocked.

"One thing I want to make clear," she said. "The physicians and staff had nothing to do with this. It was the executives at Sharp who had to know. It was their job to know."

Murphy said Sharp was settling the case to "continue providing quality health care without being distracted by lengthy litigation." He stressed that none of the issues affected quality of care.

Friederichsen said the payment will not come from areas affecting patient care and that an amount for a possible settlement was set aside in last year's budget.

The case against Sharp is the latest in a series of whistle-blower-lawsuit settlements in recent years that have resulted in large repayments by local hospitals, including Sharp Healthcare, Scripps Health and UCSD Medical Center.

Disney Settles $20M 'Whistle-Blower' Suit

Tue, 21 Jan 2003 00:00:00 -0800

Walt Disney Co. has settled a $20 million "whistle-blower" lawsuit brought by a former executive who says she was fired for refusing to help the company allegedly cheat the IRS.

The case, scheduled to go to trial Jan. 27, was settled late last week, the Los Angeles Times reported Monday. The terms were not disclosed.

In her March 2001 suit, Judy Denenholz said she was wrongfully terminated after a series of clashes with the company's chief lawyer. Disney general counsel Louis Meisinger allegedly was angered by her refusal to sign off on Disney's response to an IRS audit.

Denenholz, who was senior vice president of the company's worldwide anti-piracy division, claimed that Disney had substantially understated what it owed the IRS.

In response to the suit, Disney said it had investigated the allegations leveled by Denenholz and found them to be "shameful and untrue."

Meisinger announced Wednesday that he would be leaving the company to serve as an adviser to a Los Angeles law firm and would continue to be a consultant to Disney.

A Disney executive speaking on condition of anonymity told the Times that there was no connection between Meisinger's departure and the case settlement.

The IRS audit focused on how Disney was accounting for taxes stemming from legal and professional expenses incurred in copyright and trademark lawsuits for 1993, 1994 and 1995.

Denenholz said her bosses were angered when she refused to approve a statement to the IRS indicating that Disney owed back taxes of $676,000. She believed the company was omitting millions of dollars in legal expenses.

Soon after, in January 2000, Meisinger told Denenholz her services were no longer needed, according to the suit, ending a nearly 20-year career at Disney.

She sued under the state's labor code that protects a whistle-blower from retaliation by his or her employer. In the suit, Denenholz also accused another former colleague and Disney attorney of sexual harassment.

Disney has said Denenholz was not fired, only that her contract was not renewed after it expired and that her allegations were baseless.

Hospitals Accused of Improper Charges

Wed, 15 Jan 2003 00:00:00 -0800

The Justice Department has joined whistle-blower lawsuits accusing two hospitals of improperly charging Medicare millions of dollars for procedures involving unproven cardiac devices.

The department said Wednesday that the devices used by Johns Hopkins Hospital of Baltimore and Methodist Hospitals of Memphis, Tenn., between 1986 and 1995 were not eligible for coverage because they were experimental and had not been proven safe and effective by the Food and Drug Administration.

The procedures involved cardiac defibrillators, pacemakers and angioplasty devices, the department said.

"The hospitals are using these devices lawfully," said Justice Department spokesman Charles Miller, "but Medicare does not allow experimental devices to be billed."

The lawsuits were originally filed under the False Claims Act, which permits private citizens to sue on behalf of the government and share in any amount recovered. The government intervened in both cases in August and filed its own complaints in December.

The cases remained under seal until recently, the Justice Department said.

In statements released Wednesday, Johns Hopkins and Methodist Hospitals said they acted properly.

"The patients received the best available care, and the billing to the government was appropriate," Johns Hopkins spokesman Gary Stephenson said.

Methodist Hospitals administrator Cecelia Sawyer said most of the devices involved "were second- and third-generation models of models which the FDA had already approved." All patients signed consent forms to use the devices, she added.

Ray Shepard, an attorney representing Hopkins, said the government's claims stem from a 1986 Medicare instruction, rescinded in 1995, that said the program would not cover devices not approved by the FDA.

Shepard said the policy was issued without proper notice and created a double standard for Medicare patients. "The rest of the population could receive these devices and in most cases have their insurance pay for them; but the policy would have denied Medicare patients state-of-the-art technology," he said.

Federal prosecutors have already reached settlements with 31 hospitals in related lawsuits for a total of $42 million and are completing settlements with several other hospitals, the Justice Department said.

Last week, the Justice Department sued Tenet Healthcare for up to $323 million, accusing the nation's second-largest hospital chain of overcharging Medicare for certain procedures to inflate its revenue.

GM Worker Sues Under Whistleblower Law

Mon, 13 Jan 2003 00:00:00 -0800

A General Motors Corp. employee has sued the world's No. 1 automaker under Michigan's Whistleblowers' Protection Act, saying he was blackballed after he threatened to report vehicle safety defects.

Courtland T. Kelley, 40, said in the lawsuit that as manager of an internal auditing program to test vehicle safety, he found problems with fuel-line systems.

In court papers, Kelley said he believes the problems could cause cars to spew out fuel and kill or injure drivers, passengers and pedestrians.

"His primary objective is to get defective vehicles off the road and protect public safety," Kelley's attorney, Rose Goff, told The Detroit News for a Monday story.

Kelley, who filed the lawsuit Thursday, said he repeatedly notified higher management of the problem but was ignored.

GM spokesman Gerry Holmes said Friday that the company had not been notified of the lawsuit and had no comment on it.

Kelley reported his findings to the National Highway Traffic Safety Administration in December, Goff said. NHTSA spokeswoman Liz Neblett said it was unclear whether the agency will investigate.

According to the lawsuit, Kelley was demoted on Jan. 2, 2002. His auditing program was discontinued, he contends, because he had threatened to contact the federal agency about the defects.

Kelley is employed at the GM Tech Center in Warren but does not have a title or permanent assignment. He said he has been denied access to internal computer files, such as the ones he helped create that describe the safety concerns.

Michigan adopted the Whistleblowers' Protection Act in 1980 to protect workers who report illegal or unethical conduct by employers.

Group: Whistle-Blowers Need Protection

Mon, 23 Dec 2002 00:00:00 -0800

Whistle-blowers need greater legal protection from employer retaliation, a whistle-blowers advocacy group said Monday.

The Washington-based National Whistleblower Center asked President Bush to introduce comprehensive legislation that would protect whistle-blowers who report workplace corruption from employer retaliation, such as on-the-job harassment or unfair discipline.

This week, Time magazine selected as its Persons of the Year three women whose reports of misdeeds in their organizations caused headlines and major demands for reform during 2002. Two of the women, Sherron Watkins and Cynthia Cooper, worked for corporations. The third, Coleen Rowley, is an FBI agent.

At least 18 sectors of the economy still lack whistle-blower protection, including the health care industry, the food-safety sector and the pharmaceutical industry, the National Whistleblower Center said in a letter. The nonprofit group lobbies for whistle-blower rights and has represented terminated employees in several high-profile legal cases.

Even employees reporting financial misconduct at publicly traded companies had no legal protection until last year, after Watkins and Cooper exposed corporate transgressions at Enron Corp. and WorldCom Inc.

"The ineffective, deficient and patchwork nature of prior attempts to protect whistle-blowers must finally give way to passage of a National Whistle-blower Protection Act," the group's letter said.

Whistleblower Lawsuit Allowed, State Court Rules

Thu, 16 May 2002 00:00:00 -0700

A former affirmative action officer who was fired after claiming the city was engaging in discriminatory practices can sue the city as a whistleblower, a state appeals court ruled Wednesday.

The ruling revives a lawsuit filed by Deborah Rice-Lamar, the affirmative action officer whose reports of discrimination were a precursor to Fort Lauderdale's troubles with the issue. Rice-Lamar claimed she was fired in 1996 because she was trying to expose racial discrimination problems in city government.

She sued in federal court, alleging discrimination was the reason she was dismissed from her job. When she lost that case, she went to state court and claimed her firing was retaliatory.

In 2000, Broward Circuit Judge W. Herbert Moriarty dismissed the whistleblower lawsuit, concluding that the issues had already been dealt with in the federal discrimination suit.

The 4th District Court of Appeal disagreed in its opinion released Wednesday.

"The fact that the federal court determined that she was terminated for insubordination has no bearing on whether she was retaliated against for her disclosure of alleged discriminatory practices by the city," the ruling states. "Accordingly, summary judgment ... was not proper."

Rice-Lamar's lawyer, Reginald Clyne, hailed the ruling as a blow to the city.

"The only case the city has won was this one," said Clyne, who represents several other current and former employees with discrimination complaints against the city. "And now they just lost it."

Clyne expects to be back in court soon to resume the lawsuit.

In a statement issued Wednesday evening, the city said it thinks the appeals court ruling is "legally incorrect" and that it is reviewing its options for additional appellate review. The city also noted that the 4th DCA decision has no impact on the federal court finding that no discrimination occurred and Lamar was fired for insubordination.

Pfizer Working With Federal Prosecutors in Probe of Drug Marketing

Thu, 14 Mar 2002 00:00:00 -0800

Pfizer Inc. (PFE) confirmed that the world's largest drug maker is working with federal prosecutors in the investigation into the marketing practices of epilepsy drug Neurontin of its acquired company Warner-Lambert Co .

"We are working with the government," said spokeswoman Mariann Caprino. However, "we are not aware of any credible evidence that Warner-Lambert made any false claims about Neurontin."

The New York drug giant's stance rebuts allegations made by a whistleblower and former Warner-Lambert employee, David Franklin, who filed a lawsuit in 1996.

According to published reports, the whistleblower lawsuit alleged Warner- Lambert aggressively promoted Neurontin to physicians for various medical conditions that the drug hadn't been approved. The Food and Drug Administration (news - web sites) approved the drug as a treatment for epilepsy, and last year, the drug maker filed for approval of Neurontin as a treatment for neuropathic pain.

Under the law, physicians can prescribe drugs for uses that the FDA hasn't approved, but a pharmaceutical company is forbidden from promoting or marketing the drug in those unapproved ways.

"The suit is six-years old ... and much of it has not come to fruition," Ms. Caprino said, adding that the original whistleblower complaint contained numerous claims, which have been either dismissed or withdrawn.

The U.S. Attorney's Office in Boston is said to be conducting a criminal and civil investigation into the marketing of Neurontin.

Federal prosecutors in Boston continues to monitor the civil case brought by Mr. Franklin, but no decision has been made to intervene in the lawsuit, said U.S. Attorney's Office spokeswoman Samantha Martin. She wouldn't confirm or deny any criminal investigation into Warner-Lambert's activities.

Mr. Franklin sued Warner-Lambert's Parke-Davis unit on behalf of the government in a qui tam action, which allows a private person to sue for a penalty that the government would receive. He had asked the federal court to seal the complaint and any written disclosures.

The federal government had 60 days to join Mr. Franklin's plight, and while it mulled over its decision to intervene in the case -- which alleged a fraudulent scheme to promote Neurontin and submission of false claims to the government -- the deadline to join was extended and the case remained sealed.

The seal was lifted in December 1999 and litigation began in earnest, but without the involvement by the federal prosecutors. The government chose to participate as friend of the court and reserved the right to intervene at a later point.

U.S. District Judge Patti Saris in June rejected some of the claims against Warner-Lambert, but didn't dismiss the case in its entirety. She let stand the allegation that a fraudulent scheme aggressively promoting Neurontin caused the submission of false claims to the government.

Mr. Franklin tried to amend his lawsuit and sue Warner-Lambert on further grounds of fraud, but the judge last month blocked the request. He alleged Warner-Lambert caused the submission of false claims by paying kickbacks to physicians who wrote prescriptions submitted for reimbursement from state and federal Medicaid agencies.

Pfizer has said it doesn't expect the lawsuit to have a significant affect on its finances. Some analysts agree, saying that even if Warner-Lambert is held liable for fraud civilly or criminally, Pfizer could withstand the hit.

"If there is a finding of something illegal, Pfizer will endure a fine, but it would not be sufficient enough to impact financials of any calendar year," said Lehman Brothers analyst Trevor Polischuk.

In 2001, the drug maker earned $7.79 billion, or $1.22 a share, on revenue of $32.26 billion. Neurontin, which is patent protected until 2017, had $1.75 billion in sales, of which analysts predict a significant portion were for off- label uses.

Mr. Polischuk admitted that if Pfizer profited egregiously from sales of Neurontin in uses that lacked any clinical benefit, the blow would affect the drug maker's performance. "I don't see that situation coming to fruition because the clinical evidence overwhelmingly supports these [off-label] indications," he added.

Pfizer has used some of that supporting evidence to file for approval of Neurontin as a treatment of neuropathic pain. The filing was made in August and the company is awaiting a FDA decision.

QUI TAM IN THE HEALTH CARE INDUSTRY

Sun, 07 Mar 1999 00:00:00 -0800

I. Kickbacks And False Certifications

A growing number of Qui Tam cases are based on violations of kickback statutes aimed at health care referrals. Some Qui Tam prosecutions are based on violations of the Medicare and Medicaid Anti-kickback statute ("MMA"), 42 U.S.C. 1320a-7b(b). These cases are premised on the theory that violations of the MMA taint claims submitted under Medicare and Medicaid reimbursement statutes, and thereby violate the FCA. Courts in the past have held that payment or receipt of remuneration of any kind will violate the MMA if any purpose for the payment is inducement or compensation for referrals for program-reimbursable items or services.

Case law under the FCA provides support for the theory that kickbacks taint subsequent claims for payment submitted to the government. In a non-health care context, the government has successfully argued that claims tainted by rigged bids are "false claims" on a theory akin to fraudulent inducement using a presumptively higher, noncompetitive price. Not all "tainted" claims are held to be false claims, however, because the significance of illegal conduct turns on the representations made in connection with the submission of the claim. Using this "tainted claim" theory, qui tam relators have successfully used the FCA as a remedy for MMA violations, without regard to the fact that services were rendered as billed or for the necessity or quality of the services rendered. See, e.g., United States ex rel. Roy v. Anthony, 1994 U.S. Dist. LEXIS 9768 (S.D. Ohio 1994).

In United States ex rel. Pogue v. American Healthcorp, Inc., 914 F. Supp. 1507 (M.D. Tenn. January 5, 1996), for example, a former employee of the defendant alleged that the defendant violated the MMA by paying physicians for referrals and that claims for services rendered as a result of those referrals were false because they asserted an "implied certification" of compliance "with all statutes, rules, and regulations governing the Medicare Act, including the [MMA] and self-referral Statutes." Reconsidering an earlier order dismissing the case, the court observed: "a recent trend of cases appear to support Pogue's proposition that a violation of [the MMA] and self-referral laws also constitutes a violation of the [FCA]." Noting that the government need not prove actual loss to recover penalties under the FCA, the court held: "Pogue may bring his claim under the [FCA] only if he can show that Defendants engaged in the fraudulent conduct with the purpose of inducing payment from the government [to which they would not otherwise have been entitled]."

The Pogue court thus applied a tainted claim theory, but emphasized that the relator must show that the defendant knowingly violated the underlying law or regulation and nevertheless certified compliance with the law for the purpose of inducing a payment.

II. Increased Qui Tam Exposure for Teaching Hospitals

Recent press reports indicate that a Qui Tam action filed in May 1996 against the University of California's several teaching hospitals, is premised upon allegations very similar to those which the government first prosecuted in 1995 against teaching physicians at the University of Pennsylvania. The allegations against the University of Pennsylvania also are now the subject of a nationwide audit campaign that the Department of Health and Human Services IG announced in March, 1996.

Qui Tam Lawsuit Whistleblower Attorney

Sun, 07 Mar 1999 00:00:00 -0800

Qui Tam

Qui Tam or Whistle-Blower laws have existed in Western cultures for over 600 years. One of the first examples of Qui Tam legislation can be traced back to the Civil War, when Congressional hearings disclosed widespread instances of military contractor fraud that included defective products, substitution of inferior material, and illegal price gouging of the Union Army.

At the urging of Abraham Lincoln, Congress enacted the Civil False Claims Act, including Qui Tam provisions, as a tool to fight fraud. Between 1863 and 1986 the law was seldom used. As a result of 1986 amendments, Qui Tam actions have increased dramatically and have been the most effective and successful means of combating procurement and program fraud. Since 1986, Qui Tam recoveries have exceeded $1 billion with most of the successes involving fraud in Defense and Health Care programs.

The False Claims Act states that whistle-blowers be rewarded with a percentage of the money that the government recovers as a result of their Qui Tam lawsuits. This provision helps encourage people to assist the government in reducing Medicare fraud; defense fraud and other kinds of fraud despite the effect whistle-blowing might have on their jobs and personal lives.

Under the False Claims Act the government may recover up to three times the amount of money it lost as a result of the defendant's fraud. The whistle-blower's share is calculated based upon the amount the government recovers, not the actual losses.

A number of factors determine how much money a whistle-blower will receive if the government is able to recover money from the defendant. If the government joins the case, the whistle-blower is entitled to at least 15 percent but not more than 25 percent of what the government recovers.

If the government declines to join the case and the whistle-blower continues with a suit against the defendant, the whistle-blower is entitled to at least 25 percent but not more than 30 percent of the money the government recovers.

If you are a current or former employee and have information on any illegal activities, please fill out the form at the right for a free case evaluation by a qualified attorney.