Whistleblower Lawyer Brian Mahany’s Keynote at MENSA Annual Gathering 2017. Full Video and Transcript. Topics: Whistleblower Laws, False Claims Act, Whistleblower Rewards and Awards, SEC & IRS Whistleblower Programs and Rules & Realities for Whistleblowers.
Full Transcript of author Brian Mahany, founder of MahanyLaw, speaking at MENSA national convention while touring his book: Saints, Sinners & Heroes – Covert Ops in the Wars Against the C-Suite Mafia.
Transcript of the speech
We’re going to talk today about corporate whistleblowers.
Are they heroes, or are they snitches? And, before I begin, I want to first invite everyone here to ask questions. I love a lively debate. I’m successful if I walk out of this room after an hour and 15 minutes having learned something.
And, with this audience, I’m sure I will learn a lot.
I have to go through a little bit of history first on our whistleblower law so you understand it, and then I’m going to start telling stories about whistleblowers and open it up to debate and questions and comments.
So, when we talk about whistleblowers, and I’ve interviewed hundreds of whistleblowers for my book and I’ve represented dozens of whistleblowers in cases all over the United States – but you ask the public, “What’s a whistleblower?” and the number one answer is, “The government whistleblowers like Edward Snowden or Private Benjamin Manning, now Chelsea Manning.”
People think of those folks, people that are government employees that report misconduct or what they perceive to be misconduct by the government, and they either run to the press or they run to Wikileaks.
The number two answer that you get when you ask someone, “What’s a whistleblower?”, they’re what I call the “internal” whistleblowers. They’re the employment cases. I’m working at a company and Sally takes a two-hour lunch break and I’m upset at that, so I go to my boss and say, “Sally’s taking two hours for lunch. I only get 30 minutes.”
Inevitably, the whistleblower gets retaliated against or demoted or transferred, and they run to an employment lawyer. And, there are laws in all 50 states about whistleblower retaliation. But, there’s thousands and thousands of those claims every year.
Those are internal whistleblowers.
The biggest cases in the United States, some of the biggest cases in the United States, come from corporate whistleblowers, and that’s what I’m here to talk about today.
And, most of those corporate whistleblowers are unknown. These are people that report widespread fraud involving government funds or government programs. Probably the only two names that people in this room might recognize, corporate whistleblowers, would be:
Floyd Landis. Does anyone know who Floyd Landis is? Any hands? One. Okay.
Floyd Landis is…
If I said, “TeamUSA,” the “Tour de France,” the “US Cycling Team,” everyone is going to say, “Lance Armstrong.” And, immediately, after you think of Lance Armstrong, you think of doping. You think of performance enhancing drugs. And, for years and years and years, rumors were flying that the US Cycling Team was using performance enhancing drugs. And, not only did Lance Armstrong deny that, Lance Armstrong threatened to sue anybody, and actually did sue people, who accused him of doping.
And, then, one day, Lance Armstrong goes on TV. And, I don’t remember whether it was Oprah or a show like Oprah, and says, “Yes, I’ve been using performance enhancing drugs.”
And, I don’t think many people in the world were shocked at that point. But, why did he do that?
He did that because one of his teammates, Floyd Landis, went and filed a False Claims Act whistleblower case. We’re going to talk about what False Claims Act is. That’s the primary whistleblower law in the United States, and how you can report misconduct and get an award.
You can get paid for that information.
And, as the government was investigating, it became clear to Armstrong, he didn’t know who the whistleblower was. He knew it was a teammate. He knew the jig was up. And, he confessed and said, “Yes. I’ve been using steroids illegally.”
The other whistleblower that we probably have heard of in the corporate whistleblower arena is:
Harvey Markopolos, or Harry Markopolos. Does anybody remember that name? He was the whistleblower who went time and time and time again to the SEC, banging on their doors, saying, “Hey, SEC, Bernie Madoff is a Ponzi scheme.”
And, no one would listen to him. And, year after year after year, he would run to the SEC, and no one would listen to him.
But, those are probably the only two names. And, just looking at the show of hands around here, there’s only one person here who recognized the name “Markopolos.” Only one person here who recognized the name “Landis.”
And, the rest of the corporate whistleblowers, you would never know their names. You would never know their stories. But, they are behind some of the largest cases in the United States. They are behind some of the largest fraud recoveries and fraud prosecutions in the United States.
So, what we’re going to discuss today and, hopefully, we can debate a little bit today is, “Should we be paying whistleblowers?”
The United States is unique in the world in that we pay whistleblowers for information.
- Does paying whistleblowers discourage wrongdoing?
- Who are these people that blow the whistle?
- What motivates whistleblowers? Why do they do it?
- And, what’s the future of whistleblowers in the United States?
As the new Administration, is that changing anything, having the Republicans in charge of the House and the Senate and Presidency? Is that changing anything?
So, if you indulge me for 10 minutes, I’m going to go through the quick history of whistleblower laws in the United States.
So, our first whistleblower law in the United States comes in the year, 1777. The United States is one-year old, we’re fighting the British. Actually, in 1777, we were losing badly to the British. Two Naval officers go to the Secretary of the Navy and say, “Hey, we’re abusing British prisoners of war.”
And, those two officers get promptly demoted for blowing the whistle.
One of the members of the Continental Congress heard about this. That Congressman goes to Congress and says, “This isn’t right. We shouldn’t punish whistleblowers.” Back then, we don’t have the United States Code. Back then, Congress is passing special legislation. Each bill is a separate bill directed at a certain individual or certain problem. And, Congress passes the first whistleblower protection bill. And the year is 1777, and Congress says, “Hey, Naval officers who report misconduct by the Navy shouldn’t face retaliation.”
Nothing much happens on the whistleblower front until 1863, and for all you history majors out there, what’s going on in the world in 1863? Civil War. Correct. And, back in 1863, the United States government was broke. We were bankrupt. Every penny that we had was going into the war effort.
And, vendors, we call them “defense contractors” now. Back then, they were called “vendors.” Vendors are selling the Union Army gun powder that’s laced with sawdust. They’re selling the Union Army mules that are lame. They’re selling the Union Army wagons where the wheels fall off. And, they’re selling the Union Army wool uniforms that have moth holes in them.
General Grant goes to President Lincoln and says, “Hey, do something. We have guns that won’t fire because of bad gun powder. You have to prosecute these people. You have to do something.” And, we didn’t have a very big Justice Department back then. We didn’t have FBI agents and special agents with an alphabet soup of different federal agencies.
And, President Lincoln came up with a unique idea. He came up with the federal False Claims Act. It’s a law that’s still on the books today. And the federal False Claims Act is unique in that it empowers ordinary people. Anyone of us in this room, if we have inside information about fraud involving a federal program or federal funds, can file a lawsuit in the name of the United States.
So, if Sally, sitting in the third row, says, “I work for Acme Mules, and we’re selling bad mules to the government,” she can file a lawsuit.
It isn’t Sally versus Acme Mules. She can file that lawsuit, United States of America versus Acme Mules. And, she can prosecute that case and ultimately keep a percentage of the recovery.
So, overnight, Congress and President Lincoln empowered everyone in the country to become whistleblowers and bring fraud cases on behalf of the government. That law is still on the books today. Like everything political, sometimes that law gets watered down. Political wins change the law. It gets strengthened again. And, we’re in the midst this year, 2017, where a lot of us are wondering what’s going to happen to the whistleblower laws. I don’t think they’ll ever be repealed, but it’s an open question as to what will happen.
That same time, Civil War, in 1867, Congress passed a second law, and that law authorized the Secretary of the Treasury to pay such sums as necessary, and I’ll read the law, “for detecting and bringing to trial and punishment persons guilty of violating the Internal Revenue laws or conniving at the scene.” So, we had an IRS whistleblower law back then. We didn’t have an IRS back then. We had a Treasury Department. But we have an IRS whistleblower law. Unfortunately, the IRS and the Treasury Department never used that law. It wasn’t until more modern times when Congress beefed up that law in 2006.
So, we have those two laws back from the Civil War. And, then, much more recently, we have a whole slew of new whistleblower laws. 1980’s, we have the savings and loan crisis. We have hundreds of banks throughout the United States, many of them in the south, many of them in Texas.
They’re engaged in all kinds of wrongdoing, and they’re going out of business. And when a bank goes out of business, who’s left holding the bag? Taxpayers. The FDIC insures these accounts and, actually, if you have a large deposit, your account may only be insured back then for $100,000. So, if you have a million-dollar account, you’re out $900,000, and the FDIC pays you $100,000.
So, we passed a law called FIRREA, and FIRREA is just an acronym for the “Financial Institutions Reform, Recovery, and Enforcement Act.” Only Congress would come up with a name like that.
And that law penalizes a wide variety of misconduct, both by the bank itself and against other people who may defraud a bank. But Congress puts in a whistleblower provision that says, “If you report fraud involving a bank, you can earn an award up to $1.6 million.” What’s significant about that is, that’s in large part motivated, the award provision, by the FDIC.
The FDIC says to Congress, “Hey, we don’t want to be left holding the bag on all of these banks that go out of business because of misconduct. We want a whistleblower award provision so that people who work in these banks will come forward, they’ll report that misconduct and, look, we’ll pay them an award. We’ll pay them up to $1.6 million. It’s better than having to pay out hundreds of millions of dollars on bank guarantees and, by the way, we’ll take that $1.6 million from the wrongdoer so it doesn’t cost the taxpayers any money.”
So, that’s the first of the more recent whistleblower laws.
Right after that, we have the Bernie Madoff scandal. Our friend, Harry Markopolos, who goes every year to the SEC and says, “Hey, Bernie is a Ponzi schemer,” and they say, “Nah, go home. He can’t be. The guy is worth billions of dollars. He wouldn’t do anything wrong.” After that, Congress debates, and after all kinds of other misconduct on Wall Street, Congress debates the Wall Street Reform Act.
We call it Dodd-Frank and, there’s a whistleblower provision put in there specifically for SEC whistleblowers that say, “If you violate any type of securities law, you can earn an award.”
Congress in 2006 strengthens the IRS whistleblower program so that, today, it’s a real program that pays awards. It pays tens of millions of dollars every year in awards. And, most recently, last year, 2016, they passed a new whistleblower law that even my colleagues on the whistleblower bar haven’t heard of because it hasn’t been used yet.
We passed the Motor Vehicle Safety Whistleblower Law. And, somebody in the back of the room is nodding their head, so there’s at least one person in here who’s heard of that law.
What motivated that law?
Audience Member:
The ignition switch.
Brian Mahany:
The ignition switch. That was part of it. How many people have heard of Takata airbags?
So, Takata is the largest airbag manufacturer in the United States. They’re based in Japan, but they have facilities all over the world. They just went bankrupt, by the way, in June of this year, finally. But, Takata is making airbags, and they’ve known for years and years and years and years that their airbags are flawed. They’re using a propellant in those airbags.
The way an airbag works, you get in an accident, there’s a sensor in the bumper, it sends a signal to the airbag, there’s an explosive charge. That charge is designed to quickly inflate an airbag in microseconds so that your head doesn’t go through the windshield or, worse, that your whole body doesn’t sail out the car if you’re not wearing a seatbelt.
The problem is that, and Takata is using a cheap propellant that degrades over time. It especially degrades in high humidity and high heat. Think of Hollywood, Florida, and going outside. If you have a car with a Takata airbag, you’re in far more danger here than you are if you live in Nome, Alaska.
And, normally, when an explosive degrades, it becomes less powerful. The particular propellant that Takata is using has the opposite effect. It becomes more unstable, and it can become more explosive. So, you have an airbag that’s in a metal canister. You have this vinyl or plastic bag that’s designed with a small explosive charge to quickly inflate in microseconds and prevent you from going through the windshield.
The only problem is, if you have a car, the longer you drive that car in a high heat or high humidity area, with a Takata airbag or specific Takata airbags, that propellant degrades and becomes unstable and can explode. And, it explodes with such force that that metal canister becomes a hand grenade.
So, instead of the airbag saving your life, the airbag kills people. And, it has killed many.
Here’s the problem, and I’ll tell you this then off to the whistleblower law in a second. The problem is, the dealers can’t replace all of the airbags, so the National Highway Transportation Safety Administration says, at a report to Congress this year, that it will probably take until 2020 to replace all of the air bags.
So, there’s class action lawsuits going on now. Everybody’s suing the car manufacturers. You can’t sue Takata because they’ve gone under. They have so many claims against them.
There have been hundreds of fatalities and just horrendous injuries. Most of these injuries from the airbag is the shards from this canister becoming a grenade, going through the airbag so it doesn’t inflate, and winds up in your face, your carotid artery, your eyes. The injuries are just horrendous.
So, Congress said, “Hey, between the GM ignition switch and the Takata airbags, why don’t we come up with a whistleblower award program so that people that work in the auto industry, specifically, people who work for auto manufacturers, that’s like GM, or people who work for parts suppliers like Takata, can come forward, report a safety defect. It has to be tied to safety. And they can earn an award.”
And, the award doesn’t come from my tax dollars.
The award comes from whatever funds that the government can collect from the wrongdoer.
Would that law have saved hundreds of lives? Probably.
I saw a presentation two days ago here by a local Fort Lauderdale firm. Kelley & Uustal did a presentation, two of their partners, on these General Motors cars where the gas tanks were exploding. And, for $2.20, according to that presentation that I sat through on Thursday night, GM could have fixed this.
And there was an internal memo floating around from General Motors – I learned so much at that presentation – that they estimated, you know, probably 55 people die and we only have to pay out an average of $200,000 per dead body. It’s cheaper for us to just let people die, than to pay $2.20 to fix these gas tanks, these exploding gas tanks. So, I think if we had the Motor Vehicle Safety Whistleblower Law, probably we would not have so many dead bodies.
So, here are the questions. Should we be paying whistleblowers? The United States is the only country that I know of that does. Does paying whistleblowers discourage wrongdoing? Does it encourage more people to step forward? Who are these people that are whistleblowers? As I said, nobody hears their names, but in my mind, they’re heroes. What motivates them? What’s the future of whistleblowing?
I’ll start out with a current story. There’s so much fraud in our economy. There’s so much fraud around us. I don’t even have to look anymore.
When I was doing my book tour, after I wrote Saints, Sinners & Heroes last year, and I would go to different cities. My publicist would say, “Hey, you’re going to be on some Iowa TV station.” And, I would say, “Okay,” and I could find within five minutes on Google some recent horrendous fraud against the government in Iowa, or whatever state that I was going to.
Where are we right now? We’re in Broward County, Florida. I don’t even have to go back months or years. I can go to this week. So, here’s the Broward County story. I just use this because we’re right here. We’re in Broward County. So, Broward Health, used to be known as Broward North, after they got caught in so many scandals, Broward North said, “We’re going to change our name to Broward Health so that the public doesn’t associate us with massive fraud anymore.”
So, you’re smiling. You’re from Fort Lauderdale, correct? So, we have one person here that’s local. And, if I’m wrong on my facts, please step in and correct me.
Broward South is the 10th largest non-profit health system in the United States. It’s huge. Broward County is a big county. Most of the people in this county get their health care from one of the Broward hospitals or one of the affiliated medical practices. And, in 2016, just last year… I’m sorry, 2015, the federal government fined Broward Health… Now, mind you, this is a non-profit. It is a government agency, actually. So, you have the federal government fining a state government $69.5 million.
What did they do that warranted a fine of $69.5 million? And, remember, this is one government agency fining another. That doesn’t happen all that often.
They were paying kickbacks to physicians.
Why are kickbacks illegal? Congress says kickbacks are illegal because health care decisions should be based on the best needs of the patient, not who pays the biggest bribe or the biggest kickback. If I’m going to the doctor, I want to make sure that my doctor has my best interests in mind, not how much he’s making.
There was a group of physicians at Broward South that had entered into this illegal arrangement with the hospital, and said, “Hey, give us some money and we’ll admit all of our patients.” So, is this an economic crime? Yes, it is. There probably is more than that. If I go to my doctor, and I say I have a stomach ache, I expect my doctor’s going to say, “Take some Alka Seltzer, take some Pepto Bismol. If it’s not better in a day, come back and we may have to run some tests.”
You had a group of doctors, and I’m exaggerating a little bit, but you had a group of doctors saying, “Oh, my god, you need to be hospitalized. And, oh, by the way, Hospital, I just admitted another patient. Pay me more money.” They got caught, and they paid $69.5 million.
Did they learn? That was in 2015. They were defrauding the Medicare program. They didn’t learn.
Last year, 2016, the State of Florida hit them, which was even more amazing that a state agency hit another state agency, for $5.3 million for defrauding Medicaid, Medicaid being a state program. What were they doing? Any guesses? Kickbacks. Right after that, the hospital CEO, and this is tragic, shoots himself in the head and dies. We have no idea what other information he may have had, whether it’s related to the fraud investigations or not. There’s a private investigator according to a media report that said it was tied to fraud, but I don’t know and I’m not going to second guess why people do tragic things.
So, the $69.5 million, where does it go? That goes back to the federal government and, presumably, goes back into the Medicare program for taxpayers all over the United States. Wait, we’re taking out of my right pocket, if I’m this gentleman who lives in Broward County, we’re taking money out of his pocket to pay a fine to put in taxpayers’ pockets all over the country.
The second case, the Florida case, is just… I’m not saying it’s ridiculous. They had to be fined, but we’re fining a state agency to give money to another state agency.
Now, we have two Interim CEO’s. Both come into the hospital and say, “This place is just too dirty. We’re out of here. We’re gone. We’re not sticking around.” Notwithstanding that the pay is hundreds of thousands of dollars a year, they’re saying, “I don’t want this job.”
Governor Rick Scott, the Governor of Florida, appoints a woman by the name of Beverly Capasso to be on the Board. She’s a nurse. That’s not unusual. These community hospitals often have a wide range of people. They have physicians. They have other health care professionals. They have politicians. They have community leaders. You have a wide variety of people on the Board.
Beverly Capasso is friends with the hospital’s General Counsel. But, hey, this is politics. This is Florida. It’s not the end of the world. Just because you’re a friend of somebody affiliated with the hospital, doesn’t mean you’re not qualified. Nobody raises an eyebrow at that.
Several months later, however, Beverly gets nominated by the Board that she was just appointed to be the hospital’s CEO, Interim CEO. And they pay her a mere $655,000 a year. This is on May 9th, 2017. We’re not talking about ancient history.
And, she says, and I love the media reports, “We’re cleaning up this hospital. No more corruption.” I’m thinking, “Okay.”
The local newspaper here in Fort Lauderdale is the Sun Sentinel. Sun Sentinel carries this on May 9th. They carry all of the Board meetings, and they question this. They say, “Hey, you just nominated her and appointed her. No background check. No nothing. We don’t think this is right.” The Sun Sentinel runs an editorial saying, “You know, maybe she’s qualified. Maybe she isn’t. But you just can’t appoint one of your own and no background check, no nothing.” Little did they know that they were onto something.
Guess what happens in June? Last month. The end of June. It comes out that Beverly Capasso doesn’t really have a college degree. Well, she has a degree. She purchased it for $16,000, allegedly, from one of these diploma mills that the Feds say is a scam and has now been put out of business. And, for $16,000, you can get a degree, and they will give you credit for all your life experiences.
And, I don’t know, if I’m in a facility and I’m being treated by a nurse, I want to make sure that that person is really a nurse, that really graduated college, not one who has some phony degree that you pay $16,000 for.
Now, what does the hospital Board do? This is the hospital Board that renamed from Broward North to Broward Health, that announced that fraud was dead and gone. What did they do two weeks ago when they learned that one of their own, their now CEO, has a phony degree?
Nothing and I’m not surprised. She doesn’t step down. This is the person who’s eliminating fraud. She doesn’t step down. She says, “There’s no fraud.”
The Board member, and I’m using the Sun Sentinel’s coverage again, the Board member that’s in charge of human resources says, “What? It’s just a piece of paper.” That’s his quote. The Sun Sentinel interviews the lawyer for the Board, who’s apparently friends with this woman, and they say, “Is it true that you helped her get on the Board? Is it true?” They’re asking her all kinds of questions. What does the lawyer say? You’ll love this answer. “You have a constitutional right to a lawyer.”
So, how did all this come about? How did the $69.5 million fraud case come about? How did the $5.3 million fraud case come about? How did all of these allegations get brought to light?
They got brought to light by a whistleblower, a guy by the name of Michael Riley. Michael Riley is a physician. He worked at Broward Health, and he said, “This is wrong.” And, he went, and he filed the False Claims Act case.
There are 31 states that have their own state False Claims Act cases, so he filed one with the state. He filed one with the Feds. And, ultimately, he got the $12,045,000 award.
How do you report fraud to be eligible for a whistleblower reward?
Well, just about every state, and the Feds, of course, have hotlines. We have hotlines for everything. We have hotlines to report illegal dumping. We have hotlines to report defense contractor fraud. We have hotlines to report Medicaid fraud. We probably have hotlines now to report hotline fraud, for all I know.
And, those hotlines can pay you an award. The award is only $1,000 in most states. And, worse, in many instances, when you report something to a hotline, it’s never investigated. I’m going to give you a good example for that.
How many people have heard of Dr. Death? This got national press, more in the Midwest. Dr. Fareed Fatad, 2016. He was called the “Butcher of Detroit”. He was also called “Dr. Death.”
There’s several people here who have heard of him. He was an oncologist. He was treating people with cancer. Except, he was treating people that really didn’t have cancer.
He was using the most dangerous and highest dosages of chemo drugs possible, very often on healthy people, people that did not have cancer. He’s spending the rest of his life in prison. He now appealed his sentence, by the way, and said it was too harsh. Several people died as a result of treatment. Several more have permanent, life-long injuries.
One person’s bones are so decayed that they have all kinds of broken limbs, and they can’t be fixed. One person lost all of their teeth permanently. And, he took away people’s hope. I’m happy one day, and I got a stomach ache. I go in, and I see Dr. Fatad, and the next thing I know I have Stage IV cancer and, oh my god, we’ve got to give you all this chemo.
He destroyed lives. Dozens of lives. Why?
Because he was getting Medicare reimbursement.
So, what does this have to do with calling a hotline?
The first whistleblower who reported this was a nurse who worked in his office. She worked in his office for less than a half a day. She went to work in the morning, and said, “Oh, my god,” and left, and called the state hotline.
The state hotline, like in most states, Florida in particular, gets thousands and thousands and thousands of calls a year. And, there’s just not enough staff to investigate them. It’s sad. I can’t remember how many months, but I know it was months and months and months. Maybe years, just in the queue waiting to be investigated.
But she wanted to do the right thing. She’s a nurse, and we have a hotline number. I’m going to call the State of Michigan. I’m going to report this to the hotline and say, “Dr. Fatad is treating people for cancer who don’t have cancer.”
What ultimately happened is, a second whistleblower came forward, a physician, who filed a False Claims Act case. The U. S. Attorney’s office saw this, recognized that they had to do something immediately. The law gives them 60 days to investigate, and courts routinely sign orders giving the government six months or a year to investigate. They arrested him within one week. They sent the FBI out, and they took this guy off the street. He’s now convicted. He’s now in prison. He will never get out for the rest of his life.
For all practical purposes, he’s not getting out. Now, the physician who filed the False Claims Act will never get a reward for that because all of the money is going to the victims, obviously, that the government wisely, to the extent there’s restitution, is trying to get it in the victims’ hands. The whistleblower doesn’t get the award.
I don’t think that physician cares. He just wanted to take this monster off the street.
So, to answer your question, “Why file a False Claims Act,” or “Why use that cumbersome procedure where you have to file a lawsuit, under seal, in court?” You do that because those cases go to the top of the list. When those get filed, the government has to investigate those, and they have to investigate them immediately. You go to the hotline numbers, it’s just one in a thousand, or one in ten thousand. And, it can sit there for months and months and months and months.
Taking a personal aside here. In one of my many past lives, I was a state Revenue Commissioner. When I was Revenue Commissioner, we didn’t do anything with the whistleblower program back then.
But, we would get tips all the time, and most of those tips were from pissed off employees or jilted lovers or ex-spouses that say, “My boss fired me, and he is not paying taxes,” or “My ex-wife has a business on the side, and she’s charging cash and…”
We’d just get thousands of these things. Thousands.
There’s no one to investigate all of them.
You file a False Claims Act complaint, there were only several hundred filed in the entire United States last year, and those go to the top of the pile.
Audience Member:
Where can we get your book?
Brian Mahany:
The book is right outside the door. Another question?
Audience member:
Can a participant in the wrongdoing get a whistleblower award?
Brian Mahany:
I’ll repeat the question. “Can a participant in the wrong doing get an award?”
The largest award in the United States that I know of was $104 million, and that was paid to a gentleman by the name of Bradley Birkenfeld.
I interviewed Bradley over two days in Miami for my book. Fascinating guy. He was a manager. Not a top manager, but a manager at UBS Bank. UBS Bank was the Swiss bank that was helping wealthy Americans hide their money from Uncle Sam. They were helping the wealthy Americans engage in tax evasion. USB denied that at first, but, ultimately, they entered into a deferred prosecution agreement, so they essentially said, “Yeah, we probably knew that people were evading taxes,” and, “Oh, yeah, we’ll pay it.” $800 million fine.
Bradley was engaged in this, and he went to the IRS. He reported the fraud. He was one of the first whistleblowers under the new IRS whistleblower program. And, for reporting the fraud, he was promptly arrested. And, he was sent to prison for 36 months. He only did 32. He got out four months early with good time. And, when he got out of prison, he had a $104 million check waiting for him, by the way. And, I don’t know about you, but I don’t know what I would do if somebody said, “Will you go to prison for 32 months, and I’ll give you $104 million?” By the way, it’s a cap. It’s not the super max you’re going to. And, that set off a huge, huge debate, nationally. This is one of those rare occasions when the federal government was not speaking with one voice.
The Justice Department is telling the judge, “You need to send Bradley to prison. We got to send a message that if you help Americans evade taxes, you’re going to the Gray Bar Hotel.”
The IRS stood up against the Justice Department. The Chief Counsel of the IRS sent a sentencing letter to the judge saying, “Don’t listen to the Justice Department. We run the IRS whistleblower program. We want people to come into compliance. You know, he did wrong. Give him probation. Don’t send this guy to jail. We’ll never have people come forward because, often, the people with the best information are the people violating the law.”
The SEC broke ranks with the Justice Department. They had their brand new whistleblower program, and they said, “Do what the IRS says. Don’t do what the Justice Department says.” Even the Justice Department said, “Give Bradley 12 months.” But the judge in that case shocked everyone and gave Bradley 36 months.
Audience Member:
Why….?
Brian Mahany:
The judge?
Audience Member:
Yeah.
Brian Mahany:
He just said, “Look, you’re helping people evade taxes. I don’t care that there’s a whistleblower award program. You broke the law. You came forward, so I’m giving you a lighter sentence.”
But I don’t think that is lighter, because I know other people who haven’t come forward who have gotten lesser sentences. That’s when we first started prosecuting people for helping wealthy Americans evade taxes. We had this law on the books since the 1960’s. We didn’t really do anything with it until 2006, 2007, when the economy melted down. The program takes less than 1%. Since 2007… Congress passed a new law in 2006. It didn’t go into effect until 2007. Now the IRS is required to keep statistics. They’re required to report to Congress. They take less than 1% of the cases referred to them, and I think it’s far less than 1%. It’s a fraction, a small fraction of 1%. And the cases that do get investigated tend to be the ones with solid proof and evidence and they’re built by insiders. They’re built usually by a CFO or an accountant within a company that has access to documents, access to accounts, access to emails. The IRS just doesn’t have enough personnel to investigate every case that comes in to the whistleblower office.
With the False Claims Act, the federal government takes 20% of the cases. Why do they take 20%, and what happens when they don’t take a case?
The False Claims Act. That’s the 1863 Civil War law. It’s also called the Lincoln’s Law because of President Abraham Lincoln. We have a private right of action.
So, if the government declines that, I, as a private lawyer, can keep right on going with that case. All of the other whistleblower programs, including the IRS whistleblower program, the SEC, FIRREA, if the government doesn’t take the case, it’s over. There’s no appeal. You can’t say, “I want you to go audit. I’ll do the audit myself.” It’s over. It’s dead.
Under the False Claims Act, we can prosecute it privately. So, the IRS case, they don’t take very many, and usually, you are correct, when they take it, it’s a pretty solid case. And, if the IRS takes it, it’s probably going to be a conviction or an award at the end of it.
We have these cases going on all over the place, and one of the things I found when representing whistleblowers, and talking to hundreds of other whistleblowers, is that most of these people aren’t motivated by the money.
Most, the overwhelming majority, reported it internally first. So, when they see wrongdoing, they go tell their boss, “Hey, you’re paying kickbacks to Dr. Smith,” or they run to the Medical Director and say, “Hey, Dr. Jones is performing unnecessary cardiac catheterizations.” That was what was taking place at Miami South.
You think Broward North was bad in just putting people in the hospital, one county below us, and this is December 2016. I’m not going back into ancient history. So, we have Broward North.
Of course, we have to have Miami South. And, in Miami South, another non-profit, by the way, the federal government hit them for $12 million in December of last year. What was Miami South doing?
They had a doctor there who was just cutting people open and putting in pacemakers. They didn’t need pacemakers. They were medically unnecessary. You can go after the license of the doctor, but the federal government said, “No, Hospital, you knew this was going on, and you were making money from this every time he used your surgical suite, every time that he put a patient in one of your beds, every time he admitted a patient, you were making money. You turned a blind eye.”
For seven years this went on. The investigation ultimately revealed that many employees within the hospital reported it internally, including two physicians. Those two physicians ultimately got disgusted and filed a False Claims Act case. The case got resolved in December. $12 million. The two doctors split an award of $2.5 million, so each got about $1.25 million.
With physicians in False Claims Act cases. I will tell you that… I won’t say their medical career is done, but they’re going to have a very difficult time getting credentialed in a hospital. So, there are anti-retaliation laws, and they can continue working in the same hospital, but who wants to work there when the administration hates your guts? They’re going to do everything in their power to make you miserable. It doesn’t matter that they’re a non-profit. They’re going to make your life miserable.
There are serial whistleblowers, so good point. We’ll talk about that in a second. There are professional whistleblowers, few and far between, but the doctors that I represented, a physician, successful whistleblower in a southern state. He liked living in the deep, deep, south. He liked the climate. I don’t particularly like this climate, but love the heat and humidity. Hopefully, he didn’t have a car with a Takata airbag. He was successful. Got an award. I don’t even remember how much it was. It wasn’t much. It was either $1 million or $2 million.
Now, for people in this room, that sounds like a lot. But, if you’re a physician making $400,000 a year, that’s a couple years’ salary. He could not find a job around here after that. He is now, or the last time I talked to him, on the Canadian border, outside Glacier National Park in Montana working for the Indian Health Service. And, he said, “Brian, it’s beautiful here (pause) two months a year. And, by the way, I am making 25% of what I was making before.”
You know, he’s a dedicated physician. He likes helping locals. He likes doing what he’s doing but he’s not getting paid what he got paid because he couldn’t find anybody around here who would credential him. So, most people aren’t motivated by the money when they blow the whistle, but I have found that you need to pay them the money in order to get them to not internally report anymore, but to go outside and report to an agency.
Let me tell you about the Air Force. How many people saw that video in April of Dr. David Dao being dragged down the aisle of that United Airlines flight? That went viral on YouTube. Here’s this doctor, bloodied up, being dragged down, saying “I don’t want to give up my seat.” Everybody knows that story.
Do you know what happened the week before in a federal court room in South Carolina with United Airlines? This is a story that nobody hears. So, the U.S. Air Force has 200 C-17 Globemaster aircraft. Those are those huge, huge cargo planes that fly tents around and heavy machinery and what not.
So, the Air Force doesn’t maintain the jet engines on them. They contracted with Boeing. Boeing built them. Boeing said, “We’re just going to make some money out of this. We’re going to subcontract that to Pratt and Whitney. After all, they made the engines.” Pratt and Whitney said, “We’ll make some money off of this, too, and we’re going to sub-sub-contract it to United Airlines. United Airlines has the sub-sub-contract to maintain the jet engines on the C-17 Globemasters.
And, there is an individual, I think his name is David Smith. It’s not my case. This case is unsealed now. David has worked, for 20 years I believe, as a senior technician for United Airlines. What does he do? He fixes engines on the C-17 Globemasters. And, he filed a False Claims Act complaint in South Carolina saying, “Hey, we’re recycling used parts.” Now, having had my own aviation case in the past, I have a little…. One of the cool things about being a whistleblower lawyer is, you learn about everything. So, if you have a whistleblower that’s in aviation, you learn about jet engine parts. If you have a whistleblower that’s an oncologist, you learn about cancer drugs. You learn all these different areas of law.
And, I know that jet engine parts operate at extremely high temperatures at extremely fast RPM’s, and rather than wait till they break with catastrophic disastrous results, they replace these things periodically. And, they have everything on a timeline.
So, after 100 hours, this part, this gear, comes out, and we replace it. So, Technician A takes the old part and throws it in the dumpster. Smith files a False Claims Act saying, “Yeah, my boss said, ‘That’s not garbage. That’s gold.’” That’s the exact quote. “That’s not garbage. That’s gold.” Takes it out of the dumpster, cleans it up, polishes it up. Charges the Air Force a gazillion dollars for this part, puts it right back on the plane.
That case is still pending. It’s not my case. I don’t know whether it’s true or not true. I tend to believe the gentleman who filed this case. I’m not throwing United Airlines under the bus. But, if it’s true, somebody deserves to go to jail for that.
But, these cases are brought by concerned people. Like the gentleman in the middle here who said, “Hey, I got out of the Air Force, and I went to work for a company. I just quit.” That happens a lot. And, some people report it internally until they’re blue in the face, and then quit. Some people report it internally until they’re blue in the face, and then they suffer retaliation.
Then, they find an employment lawyer, and the employment lawyer calls me up and says, “Hey, Brian, you’ve got to talk to this gentleman right here.” That’s how these cases whistleblower get brought.
Audience Member:
Do you need a lawyer to file a False Claims Act lawsuit and whistleblower award claim?
Brian Mahany:
You do, and this will probably offend some of the lawyers in here. Notwithstanding all your Constitutional rights, the courts have said, “If you want to file a False Claims Act, you have to have a lawyer.”
So, if I’m charged with a crime, I can hire Mr. Pattis, the criminal lawyer here, or I can just say, “Let’s pretend I’m not a lawyer.” I can say, “I want to represent myself. I have a Sixth Amendment right. I want to represent myself.” I’d be a fool to do that. If you’re sued in Small Claims Court, you can defend yourself. If you’re being evicted or filing an eviction, you can do that.
But, in some civil cases, the courts have said, “You need a lawyer.” And, they have said you need a lawyer if you’re a corporation filing a lawsuit. They said corporations can’t represent themselves. They have to have a lawyer. And in False Claims Act. Why in a False Claims Act? Because that case is United States of America versus… It’s not… What’s your first name?
Audience member:
Beverly…
Brian Mahany:
It’s not Beverly versus Evil Giant Corporation. It’s United States of America versus Evil Giant Corporation. And the courts have said, “To file that case in the name of the government, you have to have a lawyer.”
We have. We have also dealt with SEC cases. The SEC cases are a lot like the IRS cases. They are “file and forget.” You get no feedback at all. You file this case. You fly to Washington, D.C. You lobby, lobby, lobby. You act like Harry Markopolos, and bang on the door and say, “Do something. Do something. Do something.”
But, they say, “Brian, we can’t tell you anything. We’ve got it. We’re looking at it.” And, the only thing you can do is lobby. You get no feedback. You get no information. They can’t tell you what’s happening. And, if they decline to prosecute, you can’t pick it up.
So, have I handled them? Yes. It’s frustrating, like the IRS. They take less than 1%. The good news with the SEC is, if you look at their statistics over the last couple of years, it’s actually going up.
You have to have inside, or what the government calls, or what the statute calls, “original source information.” So, what does that mean? That means, if your wife’s cousin’s third nephew once removed brother told you that XYZ Bank is doing something illegal, you’re not the original source of that information. So, 99% of the time, it’s employees.
Have patients brought False Claims Act cases? They have. Have outsiders? They have. Usually, if it’s an outsider, it’s a consultant or somebody that had access to records or documents. And, it happens more than once. So, anybody can make a mistake.
Lawyers make mistakes. I make mistakes. I don’t know what you do for a living. I presume that everybody here has made mistakes in their career. Government is not going to typically take a patient case, nor am I going to take a patient case, unless I have some other information. If I have several patients, if the patient has in your situation, interviewed other employees of the practice. I mean, it hasn’t happened to me yet, but I can envision a situation where it has happened.
A great question, and I have probably 10 pages of notes. I’m on Page 4, and I’ve already gotten the signal that we have 10 minutes to wrap up. So, let me try to answer these questions in rapid form.
If the government takes the False Claims Act case, you can expect between 15% and 25% of whatever the government recovers. And, since the government is entitled to “treble” damages or triple damages, and since the government is entitled to a penalty or a fine of up to $20,000 per False Claims Act violation. That’s a False Claim, a bill, an invoice to the government where somebody’s billing the government and saying, “Hey, I’ve complied with all these Medicare regulations. Pay me for this patient.”
The awards can quickly, quickly add up, especially with the triple damages. The Justice Department determines what that award is going to be. You have a right to have a hearing. And, there’s a whole formula. How valuable is your information? Were you the first to file? Generally, only the first person to file gets an award.
I had a Bank of America case that was the largest, was, past tense, largest civil recovery in U. S. history – $16.67 billion. We got pushed out of first place by Deepwater Horizon, unfortunately. Now, I can say, “We’re Number Two,” and try harder, I guess. But, we’re not Number One anymore.
That was three whistleblowers. And, you say, “Well, if it’s first to file, how did that happen?” One was an employee of Fannie Mae. Going to this gentleman’s question, “Do you have to be an employee?” No. It was an employee of Fannie Mae who said, “I have all this inside information.”
The other was a line employee, Bob Madsen. He was an appraiser. You go to buy a house and you sign a contract to buy a house for $400,000. Bob is the front-line employee who trudges out in his beat up pick-up truck and goes out there and looks at the land and looks at the house and says, “Yeah. It’s worth $400,” or, “No. It’s only worth $300.” Or, whatever the case may be.
And, his case was, “We’re getting pressured…” This was during the Go-go years, 2006, 2007… “We’re getting pressured by management. I don’t care what the house is worth, you’re going to appraise it for the value of that mortgage.” So, Madsen says, “I go see a house that’s falling apart. It’s worth $200,000. They’re buying it for $400, and I’m being told, ‘If you want to stay in this industry, if you want a job, you’re going to raise that appraisal to $400,000.’”
And, the third whistleblower, on the furthest end of the spectrum from Bob Madsen, you have Shareef Abdou. Shareef is a Senior Vice President. He’s up in the ivory tower at Bank of America. He is the guy in charge of the unit that’s packaging all of these toxic mortgages and selling them.
So, you have three people, three different walks of life, but they all had one thing in common. They all said, “This is illegal. I’m not going to do this. I’m not going to participate in this.” So, it’s usually the first to file unless people have different information. In that case, the award was 16%. Now, if you’re saying, “Well, wait. They got 16% of $16 billion.” They didn’t, but the government did. It was a negotiated process.
I’ll just tell one more story, then, since we have no other questions. And, there’s just so many things we could talk about. We heard about the gentleman from the Air Force. We’ll talk a little bit about defense contractors.
So, three weeks ago, I got to meet the Special Inspector General for Afghanistan Reconstruction. How many people knew we had an agency called “SIGAR”, Special Inspector General for Afghanistan Reconstruction? I actually did. I met this guy, and this guy has been in government service for 46 years.
He’s almost 70 years old, and he’s running around Afghanistan having to wear 40 pounds of body armor and a helmet in an armed convoy whenever he goes to investigate anything. I don’t know about you, but when I turn 70, I’m not running around Afghanistan, getting shot at.
He loves his job. So, we were talking. I had a case two years ago in Pakistan. Unfortunately, one of the bad neighborhoods of Pakistan. I’m not sure if there’s good neighborhoods anymore in Pakistan, where a U.S. company was building a hospital. And, this is part of our State Department’s foreign aid process, the aid program. And, we were doing this ostensibly to help an underserved population of poor Pakistani folks in an area, mountainous area, where the Taliban is known to be quite active.
And, we decided we’d build a hospital. Whether that was a wise use of our money, bad use of our money. That’s a political question. We built this hospital. The superintendent of that project is a Pakistani. As honest as the day is long, he came forward and said, “Hey, you want to see what we built. This, nothing works.” We didn’t build anything to spec. But, we knew we didn’t build anything to spec. We filed that. The Justice Department said, “All right. We’ll investigate this.”
And, every time they had to send out investigators, they had to get an armed convoy. They had to put them in the 40 pounds of flak jackets and helmets and helicopter support, and Humvees, and the whole nine yards to go out there and investigate.
And, the Justice Department came back and said, “You’re right. But, we’re not going to take this case. We can’t get witnesses. It’s like being in an Inner-City neighborhood where everybody says, ‘I didn’t see anything.’” Nobody would cooperate. Nobody would say anything, because they know that the nice FBI agent from Washington, D.C. is going to get back on her chopper and fly out of there, and they have to live there. And, no one would take it. I had the right to prosecute that case. I didn’t. I don’t have the ability…
If the federal government can’t prosecute a case in the mountains of Pakistan, there’s no way that Brian Mahany, out of Milwaukee, Wisconsin, is going to. I don’t have Apache helicopters and Humvees. And, there’s nothing that we could do. They happen all the time. So, talking to the Special Inspector General for Afghanistan, he just issued a report. Guess what we built in Afghanistan for the Afghanistani people? We built them a gas station. Guess how much we paid for the gas station? $43 million. Guess what they have at this gas station?
It sells CNG. Why does it sell CNG? Because some liberal do-gooder decided that we should be environmentally friendly and help the Afghanis with CNG. There’s one problem. There’s no CNG vehicles in Afghanistan.
So, I’m saying, “Well, okay, so I get this. How is that a False Claim?” He said, “Well, Brian, you have the political insanity.” He’s politically correct. He didn’t call it “politically insanity.” I’m calling it “political insanity.” Plus, you have just massive overbilling. These gas stations should cost $500,000 to build. This one cost $43 million to build.
It goes on everywhere. That was not a whistleblower case, by the way. That was one that the government, on its own, decided that, “This is just too good to pass up. We can’t ignore this one, but…” She has an interest in becoming a fraud examiner and getting in that field, but somebody who else is in the field told of people being killed. I have not heard that happen in the United States.
We do have one case right now that involves organized crime. We’ve contacted the Justice Department, and we’re trying to make some sort of arrangements for that whistleblower. Thankfully, it’s not a huge problem in the United States. I’m not going to stand up here and blow smoke and say it’s never happened. We’re probably one of the largest whistleblower firms around, and I have not heard of it happening to any of our clients.
We have one client who has had some threats, and I think that’s more the boss running around the office saying, “If I find out who that damn whistleblower is, I’m going to chop their head off.” You have to take that seriously. If the guy says, “I know organized crime people. I know mob people.” Is it true? I don’t know. We take every threat against the client seriously. The Justice Department takes them very seriously. No one will come forward if whistleblowers start dying. I have not heard of that happening.
I’m happy to answer questions outside. Thank you so much for spending your time with me.