Articles Posted in Whistleblower Cases

The Securities and Exchange Commission announced its largest-ever whistleblower awards,  $83 million combined going to three whistleblowers who helped the agency reach a $415 million settlement with  Bank of America Corp according to an SEC statement and a lawyer representing the whistleblowers. That 2016 settlement was the SEC’s second-biggest against a Wall Street bank. As part of the agreement, Bank of America resolved accusations that it misused customer cash and securities to generate profits, putting billions of dollars of customer assets at risk over a roughly six-year period.
The SEC, in keeping with its usual practice, didn’t specify Monday which settlement the whistleblower awards were connected to. But Jordan Thomas, a partner at Labaton Sucharow LLP who advises corporate whistleblowers, said he represented the three award recipients cited anonymously in the SEC announcement. Two recipients together were awarded roughly $50 million and another about $33 million.

Mr. Thomas confirmed that the whistleblowers provided original information to the SEC that helped the regulator in its investigation.An SEC spokesman declined to comment.


Toyobo Co. Ltd. of Japan and its American subsidiary, Toyobo U.S.A. Inc., f/k/a Toyobo America Inc. (collectively, Toyobo), have agreed to pay $66 million to resolve claims under the False Claims Act that they sold defective Zylon fiber used in bullet proof vests that the United States purchased for federal, state, local, and tribal law enforcement agencies, the Justice Department announced today.  The settlement resolves allegations that  Toyobo, the sole manufacturer of Zylon fiber, knew that Zylon degraded quickly in normal heat and humidity, and that this degradation rendered bullet proof vests containing Zylon unfit for use.  The United States further said that Toyobo nonetheless actively marketed Zylon fiber for bullet proof vests, published misleading degradation data that understated the degradation problem, and when Second Chance Body Armor recalled some of its Zylon-containing vests in late 2003, started a public relations campaign designed to influence other body armor manufacturers to keep selling Zylon-containing vests.  According to the United States, Toyobo’s actions delayed by several years the government’s efforts to determine the true extent of Zylon degradation.  Finally, in August 2005, the National Institute of Justice (NIJ) completed a study of Zylon-containing vests and found that more than 50 percent of used vests could not stop bullets that they had been certified to stop.  Thereafter, the NIJ decertified all Zylon-containing vests.

“This settlement sends a strong message to suppliers of products to the federal government that they must be truthful in their claims, particularly with regard to health and safety,” said Carol Fortine Ochoa, Inspector General of the General Services Administration.This settlement is part of a larger investigation undertaken by the Civil Division of the body armor industry’s use of Zylon in body armor.  The Civil Division previously recovered more than $66 million from 16 entities involved in the manufacture, distribution or sale of Zylon vests, including body armor manufacturers, weavers, international trading companies, and five individuals.  The settlement announced today brings the Division’s overall recoveries to over $132 million.  The United States still has lawsuits pending against Richard Davis, the former chief executive of Second Chance, and Honeywell International Inc.

The settlement announced today resolves allegations filed in two lawsuits, one brought by the United States and the other filed by Aaron Westrick, Ph.D., a law enforcement officer formerly employed by Second Chance who is now a Criminal Justice professor at Lake Superior University.  Dr. Westrick’s lawsuit was filed under the qui tam, or whistleblower, provisions of the False Claims Act, which permit private individuals to sue on behalf of the government for false claims and to share in any recovery.  The Act also allows the government to intervene and take over the action, as it did in 2005 in Dr. Westrick’s case.  Dr. Westrick will receive $5,775,000.

A California-based company  Nectar Sleep has agreed to stop making false claims that its Chinese-made mattresses

are assembled in the United States, under a settlement with the Federal Trade Commission.

According to the FTC’s complaint, Nectar Brand LLC claimed in promotional materials that its mattresses were “Designed

Due to Chinese imports of honey, this popular product is one of the most tainted foods entering the United States. China has set up a network of honey companies to the tune of billions in profit in honey counterfeiting.In 2001, the U.S. saw that China was dumping in the American market and Chinese honey with a major tariff — $1.20 per pound. the Chinese honey was, and is, “dirty.” The Chinese honey was found to be adulterated with harmful antibiotics, lead, molasses, fructose, farm chemicals, or whatever masking agent the Chinese will think up next. Yet Chinese honey is still on American grocery shelves and doesn’t appear to be going away anytime soon. In order to evade the tariff, China sends its honey to a long list of Asian countries (particularly India) not subject to the U.S. import penalty. The Chinese honey is then given fake labels and point-of-origin documents, routinely repackaged and mixed with other honey, loaded on containers, and dropped into the U.S. market. The chop shop approach often results in ultra-filtrated honey: Pollen traces are literally removed, making the honey untraceable. But the process also leaves the honey devoid of color and taste. Solution? The chop shops just stir in extra honey made in India or Vietnam.

Texas A&M’s Vaughn Bryant, studied 60 honey samples from major retailers across 10 different states in 2011. His  showed that three-quarters of the honey samples had undergone the ultra-filtration process.The FDA has often appeared helpless because there is so much food imported into the United States.

In 2006, the U.S. government prosecuted the Alfred L. Wolff (ALW) company for illegal honey imports; ALW is a major food corporation headquartered in Germany. According to a 44-count indictment of the firm, over 2004-06, it laundered over 2 million pounds — 900 tonnes — of Chinese honey through India, evading nearly $80 million in duties.

The National Safety Council reports the likelihood of dying in preventable accidents is on the rise. The most startling increases include motor vehicle crashes and deaths caused by opioid overdoses. Every 10 minutes in the U.S. three people are killed. Preventable household injuries are now the third leading cause of death.  Fatal injury with accidental and unintentional causes has risen to one in 25. A staggering increase from one in 30 which was reported in 2004, according to the NSC.

Preventable Household Deaths and Injury

 The NSC cited 161,374 lives lost from these injuries alone in 2016. This statistic is almost as high as those for heart disease and cancer. If the injuries are not fatal, however, that leaves 847 people that could have serious injuries due to those car crashes, as well as a litany of other preventable common household accidents. The most common accidental causes of death include: a fall (odds are one in 119), dying in a fire (odds are one in 1,506) and choking on food (odds are one in 3,138).

Deloitte Touch will pay $150 million to resolve a case taken by the US Department of Justice alleging that it failed to detect a long-running fraud by a former mortgage broker. The case relates to Deloitte’s role in the 2009 collapse of Taylor, Bean & Whitaker (TBW), a mortgage originator. Lee Farkas, TBW’s founder, and chairman skimmed millions of dollars to buy a private jet, vacation homes and vintage cars, was jailed in 2011 for 30 years. Several other senior executives at TBW and Colonial Bank, a $26bn-in-assets lender which supplied TBW with loans, were sentenced to long stretches in prison.  Deloitte was TBW’s independent outside auditor from 2002 until 2008, during which time it signed off on financial statements that were “materially false and misleading”, the DoJ said. TBW’s fraud involved the sale of fictitious or double-pledged home loans. These caused losses on the government-backed mortgage insurer, the Federal Housing Administration.

When auditors fail to exercise their professional judgment . . . there will be consequences Chad Readler, acting assistant attorney general for the justice department’s civil division  Deloitte said: “Members of [TBW] management, including its CEO, were convicted of engaging in a complex, collusive fraud with a counterparty bank specifically aimed at misleading our organization and investors. Deloitte & Touche is deeply committed to the highest standards of professionalism, and we stand behind this work that dates back over a decade. Nonetheless, we are pleased to have resolved this matter to avoid the risk and uncertainty of protracted litigation.”

In a similar case, a US federal judge ruled last month that PwC should have done more to avert the collapse of Colonial. Damages are due to be assessed next month. When Colonial failed a few days after TBW, there was a $2.8bn cost for the Federal Deposit Insurance Corporation, which sued PwC.

 Massachusetts whistleblower case

VA physician Dr. Sarah Kemble,  Chief of Medicine for the U.S. Department of Veterans Affairs for the central and western Massachusetts region revealed on her deathbed that the medical care for veterans at the Northampton Medical Center is substandard, especially regarding psychiatric care. Dr. Kemble wrote a 23-page affidavit revealing the inside information give days before she died of cancer in December. The VA’s Office of Accountability and Whistleblower Protection has is now investigating.

The Northampton Medical Center advertises itself as a 24-7 urgent care hospital but, according to the affidavit, this is not true and in addition, there are no lab service, radiology, clinical pharmacist or appropriate psychiatric service available during nights or weekends.

j-300x198Steven M. Butcher, 39, owner of MedMax LLC, which provided marketing services for compounded medications, pleaded guilty before U.S. District Judge John Michael Vazquez in Newark federal Court for conspiracy to commit healthcare fraud and violate the Anti-Kickback Statute.

Butcher used his company, MedMax,  to convince people to obtain unneeded compound medications and then bill the costs to various private and federal healthcare insurance plans.  MedMax was a marketing company for compound medications.  Butcher also paid several kickbacks from 2014 to 2015 for many individuals to fraudulently bill a health care benefit program that primarily serviced military families, called TRICARE, for unnecessary compound medications.

Compounded pharmacies prepare personalized medications based on specific prescriptions that include instructions for exact strength and dosage.

The Brattleboro Memorial Hospital will $1,655,000 to the United States and the state of Vermont  to settle claims that it “knowingly”  presented “false claims for payment to Medicare and Medicaid.” The U.S. Attorney’s Office alleged that between January 2012 through September 2014, “BMH knowingly submitted or caused to be submitted a number of outpatient laboratory claims lacking documentation necessary to support reimbursement by Medicare and Medicaid.” According to a press release, a whistleblower Amy Beth Main filed a complaint against the hospital under the federal False Claims Act. Qui tam lawsuits are a type of whistleblower lawsuit that rewards whistleblowers in successful cases where the government recovers funds lost to fraud. According to Norman Watts, of Watts Law Firm, in Woodstock, Main will receive between 15 and 20 percent of the settlement, from which he will recover his attorney fees. Ms. Main worked for the hospital in an administrative role in the financial services department.

The case was investigated by the United States Attorney’s Office for the District of Vermont, with assistance from the Office of the Inspector General of the Department of Health and Human Services, and by the Medicaid Fraud and Residential Abuse Unit of the Vermont Attorney General’s Office.

According to a company filing, the Internal Revenue Service says that Caterpillar Inc. owes the United States Government back taxes and penalties in the amount of about $2.3 billion.  Caterpillar does not agree and says it will continue to vigorously oppose the IRS position. The tax liabilities stem from Caterpillar’s offshore tax strategy and has been steadily increasing while the IRS completes audits of the company’s income tax filings dating back to 2007,  some issues carrying back to 2005. The offshore tax which Caterpillar started in 2000 uses a comprehensive accounting of its structure which was first revealed by a Caterpillar tax specialist who became a whistleblower claiming that the company retaliated against him for insisting the tax strategy had problems. A U.S. Senate subcommittee investigation that labeled the tax maneuver an abusive corporate tax shelter.

The tax strategy involved the company’s  parts business and a Swiss subsidiary. Profits for the parts sales were recorded in Switzerland — and taxed at a lower negotiated rate than in the United States even though nearly all parts operations remained in the United States.  The Swiss subsidiary at the center of the tax strategy also featured prominently in a different investigation that dramatically unveiled itself for the public in the spring of 2017.

The case then went to the U.S. District Court for the Central District of Illinois. In March of last year,  federal agents simultaneously raided Caterpillar’s global headquarters in Peoria and facilities in Morton and East Peoria to seize documents and information regarding parts sales, export controls and money transfers between the parent company and overseas subsidiaries, among other items — all with a particular focus on the Swiss subsidiary.