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20Nov/100

Qui Tam and Big Oil, All Over Again

This post was written by Jack D. Howard

When it comes to classic whistleblower cases, oil always comes to the surface.

The recurring saga, alleged mismanagement, and waste, of the federal Minerals Management Service (MMS) revealed the recurring nature of oil oversight: and the frustrating, often ignored, role of whistleblowers.

In 2007, what was viewed as a vital internal reform effort against MMS, the Kerr-McGee jury verdict of $7.6M, was dismissed by the trial court. It took an agonizing, long year, but a federal court of appeals reversed the dismissal, and resurrected the award.

Ironically, but not at all unusual for a Qui Tam, the government was entitled to share equally with the whistle blower, Bobby Maxwell (a former MMS auditor). Ironic, since Maxwell had discovered a series of underpayments by the exploration company to MMS. After reporting the apparent underpayments to her MMS superiors, Maxwell’s complaints were apparently “deep sixed.” Evidence at trial suggested the total of Kerr-McGee’s underpayments in licensing, royalties, fees, and penalties might exceed $30 million.

Though not an apologist for the industry—let alone any certainty of avoiding the 2010 Gulf leak--- there is little doubt many experts see oil as being…between a rock and hard place, when it comes to harsh realities. Oil, expensive in its location, often prohibitive in its extraction, represents the drilling of human potential...and human exploitation: Niger Delta, Prudhoe Bay, California. All are viewed as pristine and natural bounties: and areas ripe for billions in payments to greedy government bureaucrats. But few people suspected, when Maxwell became a reluctant whistleblower, that many employees at MMS/Denver might be as open to graft as international oil cartels.

It is also remarkable, perhaps, to consider the revelations attendant to the Maxwell case were essentially ignored. Only when the top blew off the Deepwater Horizon platform were many of the reports aired by Maxwell’s whistle blowing revealed: employees accepting gifts, and even suggestions of improper liaisons (Reported by the Denver Post 09/11/2008).

The costs of forcing these resolutions to individual qui tam actions are high, in terms of oil market efficiency, as well. Kerr-McGee—after its losses in court—was absorbed by massive Anadarko Petroleum. Yet the problem goes much deeper than costs of whistle blowing. A study by the non-profit Common Dreams reported that MMS has cited thousands of oil spills in the last decade.

Source:
http://www.commondreams.org/headline/2010/06/11-2.

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25Oct/100

Whistleblower Actions: Citizens Motivated By Doing Right

This post was written by Jack D. Howard

In 2006, whistleblower rewards were significantly increased, and the Whistleblower Office created, when President Bush signed into law the Tax Relief and Health Care Law.

" If the Secretary proceeds with any administrative or judicial action based upon information brought to the Secretary’s attention by an individual, the individual shall receive as an award at least 15 percent but not more than 30 percent of the collected proceeds (including penalties, interest, additions to tax, and additional amounts resulting from the action), or from any settlement in response to such action... ."

There are interesting limitations, however, on this apparent government largess. The good news was the large increase in IRS whistleblower awards, from 15 to a possible 30% maximum. There were some compromises, however. For example, the whistleblower award is predicated upon a claim against someone whose annual income exceeds $200,000, AND when the total amount in taxes, penalties, and interest owed is more than $2,000,000. In fact, revisions to the whistleblower statute suggest there may be more limits than many whistleblowers anticipate.

Courts have recently weighed in on saying how low can attorney fees in whistle blowing go. The answer is...quiet a tweet: the First US Circuit Court of Appeals lowered an attorney's contingency-based recovery from $292,000 to $50,000. The court noted that government officials did the bulk of the work, and that the attorney was able to 'piggy back' on their efforts. Most importantly, the court reasoned the rationale of whistleblower laws was to protect and serve the interests of the public...and to a large extent, the whistle blower's interests in an award are indistinguishable.

"The whole purpose of the discretionary award to whistleblowers under this statute is to create incentives for the whistleblower to take risks that may disadvantage the whistleblower in his relationship to his employer....The amount of the fee that will be siphoned off by the lawyer significantly affects the size of that award and the power of the incentive. The court in administering this statute is obligated to ensure his excessive legal fees will not diminish the statutory incentive." Judge Dyk, U.S. v. Hawthorn, entered 10/18/2010.

The importance of any potential limitations, or even reductions in anticipated awards, is that whistleblowers, without adequately motivated legal counsel, frequently have no means to deal with the costly and career debilitating efforts to maintain a whistleblower case. Since first introduced in 1863, qui tam laws have routinely allowed up to 30% awards.

At the end of the process, however, government may always reduce a Whistleblower award the good old fashioned way: by collecting taxes on it. Happily, the IRS allows legal fees to be deducted. (Campbell v. Commissioner of Internal Revenue, January 21, 2010).

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Tagged as: Bush, healthcare, tax fraud No Comments

18Oct/100

TARP fraud uncovered: Bank CEO pleads guilty in New York City

This post was written by Jack D. Howard

The ironies of TARP — the Troubled Assets Relief Program---may take decades to be understood. In the same manner of most great American financial crises, from the days of railroad bribery and trust-busting to world war munitions graft... claims of rights and wrongs are usually obscure. The October 2010 conviction of a white collar TARP criminal, however, suggest the days of reckoning for TARP may not be as long in coming as is historically usual.

Acting with unusual speed, federal officials went from closing a prominent New York City bank (March 12, 2010) to arresting its CEO and President at his home (March 15, 2010). The president and CEO of New York's Park Avenue Bank, Charles J. Antonucci (59), this fall took a plea agreement with federal prosecutors. Antonucci admitted to taking more than $11 million illegally from TARP.

Antonucci's guilty plea was the conclusion of the first prosecution of misappropriated TARP funds.

As with TARP's national premises, Antonucci's offenses also crossed state lines...literally and figuratively. What remains shrouded, however, is the extent to which federal prosecutors will use their discretion to pursue a potential slew of unindicted co-conspirators. Count Three in the complaint gives an inkling to the potential breadth of this problem, given recent revelations into how high flying banks have cozied up with influential customers:

Antonucci accepted bribes from customers of the Bank, including but not limited to over $250,000 in cash bribes, free use of a customer's airplane, and free use of another customer's luxury automobile, in exchange for Antonucci's approval of various banking transactions. Indeed, on more than ten occasions in 2008 and 2009, Antonucci used a private plane owned by a co-conspirator ("CC-1") to fly to, among other places, Florida, Panama, Arizona (so that Antonucci could attend the Super Bowl), and Augusta, Georgia (so that Antonucci could attend the Masters Golf Tournament). All the while, Antonucci approved over $8 million in overdrafts on accounts for entities controlled by CC-1 at Park Avenue Bank.

One sophisticated and potentially aggressive component of the TARP program utilizes classic whistle blower techniques...meet the sleuth next door, SIGTARP. Though not a law enforcement agency, SITARP relies extensively on public input: and SIGTARP's inspector has shown a willingness to confront his peers at Treasury.

But critics have argued the enabling language of TARP may be as guilty as Antonucci. Though in Antonucci's case, obtaining a plea agreement was likely seen as being of the highest priority, subsequent prosecutions of TARP offenses may look toward fleshing out intent offenses under the legislation...making insider information, typically obtained best by whistle blowing, ever more vital. Whistle blowing for enforcing "intent" of TARP's vague regulation will complicate the tasks of those given the responsibility of managing the language. And the police powers under TARP are already vague.

"Residential or commercial mortgages and any securities, obligations, or other instruments that are based on or related to such mortgages, that in each case was originated or issued on or before March 14, 2008, the purchase of which the Treasury Secretary determines promotes financial market stability. And any other financial instrument that the Treasury Secretary, after consultation with the Chairman of the Board of Governors of the Federal Reserve System, determines the purchase of which is necessary to promote financial market stability, but only upon transmittal of such determination, in writing, to the appropriate committees of Congress."

The vagueness of TARP's language has led one important voice to attack the intention of TARP: and by implication, similar bailouts. According to Neil Barofsky, who serves as the Special Inspector General for TARP:

"Inadequate oversight and insufficient information about what companies are doing with the money leaves the program open to fraud, including conflicts of interest facing fund managers, collusion between participants and vulnerabilities to money laundering."

The Washington Post has reported (July 20, 2009) the Treasury Department refused to implement Barofsky's recommendations to Congress for TARP reform. Instead, Treasury official insist, tracking TARP funds to banks is akin to tracking "water poured into the ocean."

Source:
"TARP and the Acronym of Trouble: Good Rap, Bad Rap" http://www.examiner.com/law-enforcement-in-national/tarp-fraud-uncovered-bank-ceo-pleads-guilty-new-york-city

This article is brought to you by the QTT, the epicenter for whistleblowers and people interested in the False Claims Act, Qui Tam Provisions, and Medicare and Medicaid fraud. To discuss a potential case, please call Eric Young at 1 (800) 590-4116.

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