from Third Quarter 2009
Corporate Board Member
by John Greenwald
A law designed to stop contractors from selling sawdust-adulterated gunpowder to the Union Army during the Civil War is being used by employees and others to bring false-claim—or “qui tam”—complaints against contractors suspected of bilking Uncle Sam. Federal prosecutors often join such suits, and whistleblowers can receive up to 30% of the amount recovered.
Lawsuits launched by whistleblowers under the False Claims Act of 1863, sometimes known as the Lincoln Law after the 16th president, recovered some $10 billion for the government from 2001 through 2008, and this year is a busy one too. Consider some of April’s bumper crop:
- Quest Diagnostics Inc. agreed to pay $302 million after a subsidiary admitted that it had sold medical test kits whose inaccurate readings put hundreds of thousands of dialysis patients at risk. This stuck Medicare and other federal programs with the bill for bum tests and the treatments based on them. The subsidiary pleaded guilty in the case, which was begun by the head of a competing company who first sent thousands of e-mails warning regulators and health-care providers that the Quest kit’s test results could lead to harmful drug treatment and unnecessary surgery. The whistleblower reaped $45 million before taxes and attorneys’ fees as his share of the settlement.
- Aerospace giant Northrop Grumman Corp. and a subsidiary agreed to a $325 million settlement of a lawsuit charging that the unit had sold defective satellite parts to the government. The whistleblower, who worked for an outfit that tested the parts, got $48.75 million for pointing out the problem.
- NetApp Inc., a data-management company, paid $128 million plus interest to resolve allegations that it had sold hardware and software to Uncle Sam for more than it charged commercial customers. The former employee who blew the whistle received $19.2 million.
Attorney Erika Kelton, who represented the Quest Diagnostics whistleblower, says strong hotline programs might help prevent such suits. “I always advise companies to take their compliance programs seriously,” says Kelton, a partner in the law firm Phillips & Cohen in Washington, D.C., which specializes in these cases. “People are very loyal, and a good compliance program can capture a potential whistleblower’s instinct of loyalty. And if people are listened to, they are not going to come to me.”
Related articles:
Listen to Your Whistleblowers
Whistleblowers Get Little Protection— Despite Sarbanes-Oxley