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The False Claims Act in 2014: A Year in Review

red 2014 desk calendar dimensionalcanstock17590196.jpgAs a new year begins, it’s worth taking a look back at 2014 to see how the False Claims Act (FCA) has performed. Thanks to the brave actions of whistleblowers, the Justice Department was able to recover nearly $6 billion this year from FCA cases. This amazing sum was due largely to settlements with Bank of America and JPMorgan Chase, who were finally held accountable for selling mortgage-backed securities designed to blow up in investors’ faces–one of the primary causes of the 2008 financial crisis. Each action resulted in settlements of $17 billion and $13 billion, respectively, which never would have been recovered without the aid of whistleblowers capable of providing the Department of Justice with insider knowledge of the fraud.

While mortgage and housing fraud represented lion’s share of settlements this year at $3.1 billion, the Department of Justice also recovered $2.3 billion in health care fraud, which has remained a persistent issue over the past decade. Despite aggressive efforts to combat Medicaid and Medicare fraud, experts believe that approximately $6 billion in fraud and overcharging occurs annually. However, as the False Claims Act has become more effective at prosecuting such illegal practices, more whistleblowers have stepped forward, leading to record numbers of qui tam lawsuits, with approximately 700 having been filed this year alone.

These massive settlements have been criticized by some as excessive because they can result in windfall payments to successful whistleblowers, such as the three whistleblowers who received payouts of $170 million in connection with the Bank of America settlement. However, Attorney General Eric Holder has repeatedly supported the use of such payments to help encourage whistleblowers to come forward despite the risks they face, and hopes to continue or even expand these payments over the next several years.

The False Claims Act proved essential for taking down some of the biggest cases of white collar crime ever discovered in the United States. However, of all the parties involved, whistleblowers face the greatest risk. It takes a great deal of personal courage to “go against the grain” and report a crime, especially when everyone else has decided to look the other way. Whistleblowers are not always successful at protecting their anonymity, and are often fired in retaliation. Large rewards are therefore essential to help encourage whistleblowers to speak out.

Finally, one of the unintentional consequences of providing whistleblowers with increased rewards is that it also incentivizes lawyers to take their cases. Whistleblowers are not always believed when they describe how a seemingly-respectable business has been stealing taxpayer money for years, and many attorneys are reluctant to try and bring a difficult lawsuit against a powerful corporation. Furthermore, given that these types of cases can take many years to resolve, law firms need to know that their willingness to stand behind a whistleblower and fund the case will be rewarded. It may be popular to decry “ambulance-chasing lawyers,” but without these lawyers the government (and by extension, the taxpayer) would not have recovered nearly as much money.

2014 demonstrated that sometimes David really can beat Goliath, as “too big to fail” banks were finally held accountable for their actions. Unfortunately, we can only speculate how much fraud goes unreported. Let’s hope that 2015 will encourage more people to blow the whistle.