Background
On January 31, 2012, Congress and the Department of Justice celebrated the 25th anniversary of the 1986 amendments to the False Claims Act (FCA), 31 U.S.C. §§ 3729-3733. The FCA imposes liability on individuals and companies who defraud government programs. In 1986, sweeping changes were made to the FCA to reinvigorate its enforcement after Congress found rampant fraud by government contractors. The 1986 amendments enabled the federal government to seek three times the amount of damages it sustains.1 Further, the 1986 amendments “revised the statute’s qui tam, or whistleblower provisions to increase the incentives for whistleblowers to come forward with allegations of fraud.”2
Since the enactment of the 1986 amendments, FCA suits and recoveries have exploded. The federal government reports that FCA recoveries have topped $35 billion since 1987.3 The FCA is widely considered the fastest growing area of federal litigation and has been described as the “government’s most potent civil weapon in addressing fraud.”4
2012 – Record-Breaking Year for the False Claims Act
2012 was a record-breaking year as measured by the sheer number of cases brought under the FCA.5 The Department of Justice reported that more than 780 new FCA matters were initiated in 2012, setting a new record for the number of new FCA cases initiated in a year.6 In the past 10 years, new FCA filings have increased more than 183%.7 2012 was also record-breaking in terms of the recoveries obtained under the FCA. In 2012, total recoveries under the FCA exceeded $4.9 billion – a new record and a 162% increase from 2011.8
Health Care, Defense and Financial Services Industries
Historically, FCA claims have targeted the health care and defense industries, and 2012 was no exception. According to the Department of Justice, more than 55% of new matters were health care related, and 2012 health care related recoveries exceeded $3 billion.9 The number of new health care related FCA cases may continue to rise because of increased government health care expenditures. The defense industry finished in a distant second place in 2012 – approximately 8% of the new matters and $167 million in recoveries came from the defense industry.10
The Department of Justice report does not provide official statistics regarding the financial services industry.11 However, the Department of Justice and whistleblowers have focused on the financial services sector in the wake of the 2008 financial crisis. For example, on January 27, 2012, Attorney General Eric Holder announced the formation of the Residential Mortgage-Backed Securities (RMBS) Working Group to “identify, investigate, and prosecute instances of wrongdoing in the packaging, selling, and valuing of residential mortgage-backed securities.”12 The RMBS Working Group’s investigation will almost inevitably lead to an increase in FCA investigations and suits. In fact, the RMBS Working Group recently launched a website where whistleblowers can report fraud in the financial services industry.13 The website encourages whistleblowers to come forward by noting they may be eligible for a “substantial reward” under the FCA if they provide information that leads to a monetary recovery by the government.14 Along these same lines, in 2012, the Department of Justice, the Department of Housing and Urban Development, and 49 state attorneys general reached a $25 billion settlement with “the nation’s five largest mortgage servicers to address mortgage loan servicing and foreclosure abuses.”15 In the wake of the formation of the RMBS Working Group and the announcement of several high profile mortgage fraud investigations and settlements in 2012, the Department of Justice requested a $55 million increase in its 2013 budget to investigate and prosecute financial and mortgage crimes.16
Takeaways from 2012
A review of statistics from 2012 provides valuable lessons for conducting business in 2013:
- The health care industry is a traditional FCA target and this industry should expect continued FCA scrutiny because of increased government expenditures for health care.
- The defense industry may see a decline in new FCA matters as the United States devotes fewer resources to the conflicts in Iraq and Afghanistan. However, the defense industry is a traditional FCA target and government contractors must still take proactive steps to avoid billing or compliance issues that may lead to FCA liability.
- The financial services industry is likely the next “hot spot” for FCA scrutiny given the Department of Justice’s formation of the RMBS Working Group and increased focus on mortgage and other types of financial fraud.
- Companies should take internal reports of misconduct seriously. More than 83% of new FCA matters were brought by whistleblowers.17 Although whistleblowers have a great financial incentive to report alleged misconduct to the government, studies show that most whistleblowers report their conduct internally before going to the government.18 Implementing a compliance plan and conducting an internal investigation of internal reports of misconduct may defuse a FCA suit before it starts.
Parker Poe’s attorneys have substantial experience not only investigating and litigating FCA issues, but also interfacing with governmental authorities to facilitate successful resolution of a FCA matter. For more information, please contact Eric H. Cottrell and James C. Lesnett, Jr.
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1 See 31 U.S.C. § 3729 (a)(1)(G).
2 Press Release, Office of Pub. Affairs, U.S. Dept. of Justice, Justice Department Celebrates 25th Anniversary of False Claims Act Amendments of 1986 (Jan. 31, 2012), http://www.justice.gov./opa/pr/2012/January/12-ag-142.html.
3 See Fraud Statistics, U.S. Dept. of Justice (Oct. 24, 2012), http://www.justice.gov/civil/docs_forms/C-FRAUDS_FCA_Statistics.pdf.
4 Press Release, Office of Pub. Affairs, U.S. Dept. of Justice, Acting Assistant Attorney General Stuart F. Delery Speaks at the American Bar Association’s Ninth National Institute on the Civil False Claims Act and Qui Tam Enforcement (Jun. 7, 2012), http://www.justice.gov/iso/opa/civil/speeches/2012/civ-speech-1206071.html.
5 The federal government’s 2012 fiscal year began on October 1, 2011 and ended on September 30, 2012.
6 See id. at Note 3.
7 See id.
8 See id.
9 See id.
10 See id.
11 See id.
12 Press Release, Office of Pub. Affairs, U.S. Dept. of Justice, Attorney General Holder Speaks at the Announcement of the Financial Fraud Enforcement Task Force’s New Residential Mortgage-Backed Securities Working Group (Jan. 27, 2012), http://www.justice.gov/iso/opa/ag/speeches/2012/ag-speech-120127.html.
13 See http://www.stopfraud.gov//rmbs.html.
14 See id.
15 Press Release, Office of Pub. Affairs, U.S. Dept. of Justice, Federal Government and State Attorney General Reach $25 Billion Agreement with Five Largest Mortgage Servicers to Address Mortgage Loan Servicing and Foreclosure Abuses (Feb. 9, 2012), http://www.justice.gov/opa/pr/2012/February/12-ag-186.html.
16 Press Release, Office of Pub. Affairs, U.S. Dept. of Justice, Department of Justice FY 2013 Budget Request (Feb. 13, 2012), http://www.justice.gov/opa/pr/2012/February/12-ag-205.html.
17 See id. Note 3.
18 See Retaliation: When Whistleblowers Become Victims, A Supplemental Report of the 2011NBES, http://www.ethics.org/nbes/.