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Whistleblower accuses DuPont of Failing to Report Environmental and Health Issues

A whistleblower lawsuit filed under the False Claims Act accuses DuPont of failing to report a chemical leak of cancer-causing gas from a plant in Louisiana, according to The Times-Picayune.

The Toxic Substances Control Act requires manufacturers, processors and distributors of chemical substances to report when a substance poses a substantial risk of injury to health or the environment. Failure to submit a report constitutes a violation of the law with a civil penalty of up to $25,000 for each day in violation.

The False Claims Act imposes civil liability for knowingly and improperly avoiding an obligation to pay money to the U.S. Government. This is known as a reverse false claims act case because it involves the avoidance of an obligation to pay rather than a wrongful payment by the federal government.

The leak of sulfur trioxide was reportedly ongoing for months. The chemical is used in the manufacturing process at the chemical plant, which is located near a residential neighborhood and school.

The lawsuit was filed by Jeffrey Simoneaux, a 22 year employee of DuPont working in the Burnside sulfuric acid plant. Simoneaux reported the leak to his superiors and says he lost out on a potential job opportunity at the company as a result.

Even though it isn’t the largest segment of cases under the False Claims Act, environmental fraud is not unusual. Past environmental lawsuits under the Federal False Claims Act have also involved false claims for payment by the U.S. Government for environmental cleanup and disposal of toxic waste.

States have also pursued false claims against companies recently for payments made in cleanup efforts. In February, Massachusetts settled a claim under the state version of the False Claims Act for false claims made by Shell Oil in the cleanup of contaminated gas stations. Shell sought and received payments from the Underground Storage Tank Petroleum Product Cleanup Fund even though insurance reimbursed Shell for the cost of the cleanup. They paid a total of $4 million to the state and cleanup fund in order to settle the case.

Young Law Group represents whistleblowers reporting fraud through the False Claims Act. If you would like a free, confidential consultation with an attorney at the Young Law Group regarding reporting fraud, please call 1-800-590-4116 or complete our contact form.

Posted on: 03 Apr 2014
Posted by: Eric Young

Fraud and Whistleblower News for Monday, March 31

The Supreme Court denied the cert petition in Nathan v. Takeda today. The petition questioned the Court of Appeals decision with regard to the Rule 9(b) heightened pleading requirement for fraud.

False Claims Act Against Bankrupt Companies – WSJ: Judge Gives $2.3 Billion Hawker Whistleblower Suit New Life
Whistleblowers can pursue their False Claims Act lawsuit against Hawker Beechcraft despite its bankruptcy, according to a ruling in federal court in New York. The whistleblowers alleged that the U.S. Navy and Air Force purchased more than 300 aircraft with defective parts from the company. They argued that the lawsuit was an intentional fraud and a debt to a domestic government unit that should not have been discharged. Last year, a bankruptcy judge ruled that liability from the lawsuit was extinguished by the Chapter 11 bankruptcy plan. Beechcraft was purchased by Textron following bankruptcy.

Currency Manipulation – Bloomberg: Swiss Antitrust Regulator Probes Eight Banks Over Alleged FX-Rigging
The Swiss Competition Commission, known as Weko, says it is investigating foreign exchange rate manipulation at UBS, Credit Suisse, JPMorgan Chase, Citibank, Barclays and a few other banks. At least a dozen regulators are now investigating collusion in currency trading.

Securities Fraud – CNBC: Years later, SEC fraud trial over Texas tycoons to start:
The Securities and Exchange Commission will start jury selection in New York today for the $550 million fraud trial of Samuel Wyly and the estate of his late brother, Charles Wyly. They are accused of committing securities fraud and insider trading. The SEC started investigating the Wyly brothers in 2005.

Medicaid Fraud – New York Times: Settlement in Medicaid Fraud Case Worries Health Providers
A New York Times article expresses concern that increased enforcement efforts against Medicaid providers might cause more doctors and medical practices to stop accepting Medicaid patients. The article cites a recent enforcement action against Carousel Pediatrics by the Office of Inspector General in the Texas Health and Human Services Commission. The percentage of physicians in Texas accepting Medicaid have declined substantially in the past ten years because of Medicaid rate cuts.

IRS Whistleblower Program – Pittsburgh Post-Gazette: Telling for Dollars: Tipsters get few payments in IRS program
The Pittsburgh Post-Gazette reported on the lack of rewards coming out of the IRS Whistleblower program. There have only been 38 recoveries from the 33,000 whistleblower tips the IRS received in the past five years. The IRS paid out $50 million in Fiscal Year 2013 according to the head of the IRS Whistleblower Office, although the majority of the payout went one whistleblower receiving a $38 million dollar award.

Posted on: 31 Mar 2014
Posted by: Eric Young

Government Receives $300 Million in Three Health Care Fraud Settlements

There have been a few notable settlements under the False Claims Act in the last month for those tracking fraud in the health care industry. Through the three lawsuits, the government has recovered more than $300 million.

Teva Pharmaceuticals and a subsidiary agreed to pay $27.6 million to resolve allegations it paid a Chicago doctor to switch to its generic clozapine, an anti-psychotic drug, rather than continue to prescribe Novartis’ Clozaril. The doctor became the largest prescriber in the country after signing a consulting agreement with Teva. The Anti-Kickback Statute prohibits payments to induce or reward the referral of business under Medicare and Medicaid.

Halifax Hospital will pay $85 million to settle claims it violated the False Claims Act and the Stark law when it billed Medicare for patients referred by nine doctors. The Stark law prohibits inappropriate financial arrangements between doctors and hospitals, including compensation for referrals. The Justice Department contended Halifax paid three neurosurgeons more than their fair market value. Halifax also provided an improper incentive bonus to six oncologists based on the value of work performed.

The settlement does not conclude the case against Halifax. The whistleblower lawsuit also alleges that the hospital unnecessarily admitted patients instead of treating them as outpatients. These allegations are set for trial in July.

At the end of February, Endo Pharmaceuticals agreed to pay $192.7 million to resolve allegations it engaged in off-label marketing of the prescription drug Liboderm. Liboderm was approved by the FDA only for the treatment of pain associated with a complication of shingles. Endo sales representatives were encouraged to suggest off-label uses of the product for other forms of pain and marketed the drug to physicians who were unlikely to see patients suffering from its approved indication, post-herpetic neuralgia pain.

Young Law Group represents health care whistleblowers reporting fraud through the False Claims Act. If you would like a free, confidential consultation with an attorney at the Young Law Group regarding reporting fraud, please call 1-800-590-4116 or complete our contact form.

Posted on: 11 Mar 2014
Posted by: Eric Young

Supreme Court Extends SOX Whistleblower Protections to Employees of Contractors

supremecourtThe Supreme Court issued a win for whistleblowers yesterday. In Lawson v. FMR LLC, 571 U.S. ____, slip op. (March 4, 2014), the Court held that the employees of privately held contractors and subcontractors reporting on a public company are protected by the whistleblower provisions of the Sarbanes-Oxley Act. At issue was 18 U.S.C. § 1514A, which protects “an employee” from adverse changes in the terms and conditions of their employment because they engaged in protected whistleblowing. A dispute had arisen about whether employees of third parties working for the public company, such as law firms and accounting companies, were also covered. Employees who work at a contractor or subcontractor of a public company can now be confident they are within the protected class when they report on misconduct at a public company which is within the scope of their employment. Justice Ginsburg’s majority opinion, however, leaves open the possibility that they will not be protected if they report on violations which are not within the scope of their contractor’s services for the public company.

The need for the Supreme Court decision arose from a difference of opinion between the Department of Labor’s Administrative Review Board in an unrelated case and the First Circuit’s decision in Lawson. On appeal, the First Circuit had held that the plaintiffs were not covered because SOX protections extended only to adverse employment actions against employees of the public company.

The plaintiffs in Lawson reported misconduct at a mutual fund. They did not work for the mutual fund, however. They were employees of a private company engaged by the mutual fund to provide it investment services. After they raised concerns, one was fired and the other suffered a series of adverse actions amounting to constructive discharge. Following the required filing with the Department of Labor, they brought a cause of action in federal court to seek remedies under § 1514A.

The Supreme Court looked initially to the language of the statute. Where Congress intended to limit protections in SOX to employees of the public company, it said so. The Court also struggled with how a contractor could take adverse actions and remedy discrimination against the public company employees before concluding the text was not limited to them.

Justice Ginsburg’s majority opinion also examined the legislative history. Congress recognized the role of outside professionals both in perpetrating shareholder fraud and in reporting it. Because of the importance of lawyers and accountants in Enron, the majority could not conclude Congress intended to exclude these professionals from protection against retaliation. As Congress investigated Enron, one of the things it found was retaliation by contractors against their own employees for flagging misconduct at Enron.

Justice Scalia, in an opinion concurring in principal part and concurring in the judgment, agreed with the reading of the text but rejected the use of the legislative history. Interestingly, Scalia, and presumably Justice Thomas, who joined in the concurrence, would not limit the protection of contractor and subcontractor employees to whistleblowing related to the role in which they were hired by the public company. The Solicitor General offered this contention as a limiting principle in oral argument and it was cited to in the majority opinion.

The Young Law Group helps whistleblowers report fraud and misconduct to the government through the SEC, CFTC and IRS whistleblower programs as well as the False Claims Act. If you would like to speak to Eric L. Young or another attorney at the Young Law Group about becoming a whistleblower, please call 1-800-590-4116 or complete our contact form.

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Posted on: 05 Mar 2014
Posted by: Eric Young

Tax Court Rules Whistleblower Reward is Ordinary Income

irsphotoDespite arguments from whistleblowers to the contrary, the government continues to demand whistleblowers pay taxes on money awarded under the False Claims Act as ordinary income.

On Monday, the United States Tax Court held in Patrick v. Commissioner, 142 T.C. No. 5 (2014) that a qui tam award does not qualify as capital gains. If the petitioner had been successful, tax liability would have been reduced from the ordinary income tax rate to the lower capital gains rate. The decision reaffirms an earlier opinion on the same issue. See Alderson v. United States, 686 F.3d 791 (9th Cir. 2012).

The Internal Revenue Code treats rewards as ordinary income similar to wages and salaries for the purpose of calculating tax liability. Treas. Reg. §1.61-2(a)(1). An award from a qui tam lawsuit is considered a reward included within gross income. Roco v. Commissioner, 121 T.C. 160, 164 (2003).

Petitioner argued a qui tam award is instead a “gain from the sale or exchange of a capital asset”. 26 U.S.C. § 1222(1), (3). The Tax Court analyzed both whether a “sale or exchange” occurred and whether it is a “capital asset.” It rejected both contentions.

The Tax Court disagreed with the argument that the government purchases information from the relator according to a contractual right established in the False Claims Act. The Petitioner analogized to the transfer of a trade secret which is considered a capital gain. However, the court rejected the notion there is a transfer of rights to the Government.

The Tax Court also declined to find the petitioner had a property right which would constitute a capital asset. Petitioner advanced the contention that relators have a property interest in the information they disclose to the Government. In rejecting the argument, the Court declined to consider the information the property of the relator because they did not demonstrate “a legal right to exclude others from use and enjoyment” of it.

The ruling reinforces the importance of seeking the advice of a qualified accountant or tax lawyer after receiving an award under whistleblower laws.

The Young Law Group helps whistleblowers report fraud and misconduct to the government through the SEC, CFTC and IRS whistleblower programs as well as the False Claims Act. If you would like to speak to Eric L. Young or another attorney at the Young Law Group about becoming a whistleblower, please call 1-800-590-4116 or complete our contact form.

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Posted on: 27 Feb 2014
Posted by: Eric Young

SEC Priorities for 2014 Include Reverse Churning and IRA Rollovers

retirementThe SEC released its annual Examination Priorities for the new year in January. Among the list are two practices which may steer investors to accounts with higher fees than are warranted by their investment goals and situation. Specifically, the SEC expressed concern that investors may be overpaying in fee-based accounts and IRA rollovers when lower cost options are available.

Reverse Churning Possible at Financial Institutions

Fee-based accounts were initially developed in response to concerns about churning. Traditional accounts were commission-based, imposing a fee in order to conduct transactions. Brokers were incentivized to encourage trading even when it was not appropriate for the client’s investment strategy. However, issues with fee-based accounts cropped up shortly after they were implemented and drew attention from regulators.

Raymond James was fined by the National Association of Securities Dealers in 2005 for its fee based accounts. Raymond James converted nearly 3,000 accounts which had not made a trade for more than one year into fee-based accounts. Raymond James also didn’t monitor accounts to determine whether they were still appropriate for the program. Brokerage accounts where the customer stopped trading continued to be charged on a fee-based model.

UBS was sued by the New York attorney general’s office in 2007 for steering inappropriate customers into a fee-based account called InsightOne. UBS failed to screen the accounts to exclude investors with minimal trading activity, high cash levels and no-load mutual funds. Once it did implement guidelines for appropriate accounts, it allowed brokers to circumvent them. UBS settled the lawsuit for $23.3 million in 2007.

The SEC has expressed concern that this conduct may be happening again. It is known as reverse churning, which involves charging a fee for investment services that is not warranted by the activity or investment goals of the client. It may be seen in wrap fee programs, where a client is charged a fixed fee for investment advice and trade execution.

Sales and Marketing of IRA Rollovers Also Questioned

There have been a number of major news stories regarding retirement investments in the past two months. One which may have gotten lost in the shuffle is the regulatory scrutiny of sales and marketing practices of financial institutions running 401(k) plans and IRAs. When employees leave their employer, they have a number of options for the funds in their employer’s 401(k) plan. But the vast majority of the money is converted into an IRA at financial institutions.

This trend has drawn the attention of regulators. Both FINRA and the SEC listed IRA rollovers as a priority for 2014. Although consumer preference for rollover to IRA programs at financial institutions may be the result of current rules making rollover easier, there is concern it has been exacerbated by financial institution marketing favoring their own IRA program.

A GAO report issued in March 2013 found plan service providers were recommending plan participants roll over to an IRA. The GAO expressed concern about the potential conflict of interest and found it difficult to get the information necessary to make an informed decision about rolling over a 401(k).

If a financial institution is engaged in reverse churning or deceptively marketing their IRA, it violates the nation’s securities laws. Whistleblowers can play an important role in stopping these practices by reporting them to the SEC through the whistleblower program. In addition to the satisfaction of putting an end to the securities fraud, eligible whistleblowers are entitled to share in the recovery by the SEC.

The Young Law Group helps whistleblowers report fraud and securities law violations to the SEC. If you would like to speak to Eric L. Young or another attorney at the Young Law Group about the SEC Whistleblower program, please call 1-800-590-4116 or complete our contact form.

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Posted on: 26 Feb 2014
Posted by: Eric Young

The Top 12 Tax Scams in 2014

P1000239 copyThe IRS just released its annual list of the Dirty Dozen tax scams to watch out for this year.  The list identifies fraud the IRS sees against both the government and taxpayers.

Here is the list:

1. Identity Theft

Identity theft topped the list of tax schemes again in 2014. It made its first appearance on the list in 2011 and has been number one since 2012. The IRS has warned taxpayers heavily about the growing problem this tax season.

Tax identity theft occurs when an individual uses your personal information to file a return on your behalf without your authorization. If the IRS doesn’t recognize the return as fraudulent, they may end up paying out a refund to the individual committing fraud rather than you. When you later file your return, the IRS will deny it as a duplicate return. It may take months for the IRS to sort out the problem and issue the tax return to the correct individual.

The IRS denies millions of suspicious returns every year, but a significant amount still slip through. An audit by the Treasury Inspector General for Tax Administration found 1.1 million potentially fraudulent returns processed in 2011 for a suspected loss of $3.6 billion.

2. Pervasive Telephone Scams

This fraud is new to the list in 2014. Scam artists are making fake phone calls on behalf of the IRS in order to steal identities and financial information. They may replicate the IRS number on your caller ID or give out a fake badge number to identify themselves. You may also receive a follow up email. The IRS advises you to call the IRS number to pay tax obligations and report the call if it is suspicious.

3. Phishing

Individuals are still sending fake emails and advertising fake websites in order to learn key financial information about you, such as your social security number or credit card information. If you fall for the scam, they use it to commit identity theft or financial theft. Phishing was the top problem on the Dirty Dozen list in 2009.

4. False Promises of “Free Money” from Inflated Returns

Scammers are soliciting tax return business with the promise of hefty tax refunds. Taxpayers then pay them for bad advice as the scammers often file false claims for rebates or tax credits.

5. Return Preparer Fraud

Although most tax professionals are honest individuals, some aren’t. The National Consumer Law Center says there are “more regulatory requirements for hairdressers than tax preparers” in 46 states. Unscrupulous return preparers will commit refund fraud, submitting fake returns to the IRS or pocketing the refund of clients. This led the 2010 list of tax fraud.

6. Hiding Income Offshore

Offshore tax evasion continues despite high profile prosecutions and the IRS Offshore Voluntary Disclosure Program. U.S. citizens must pay U.S. taxes on income earned overseas. Taxpayers who have financial accounts overseas are also subject to reporting and disclosure requirements. Nevertheless, individuals continue to use offshore accounts and foreign trusts to avoid their tax obligations. Unreported overseas income was the top fraud on the list in 2011.

7. Impersonation of Charitable Organizations

Scam artists impersonate charities to collect money or financial information from unsuspecting taxpayers.

8. False Income, Expenses or Exemptions

Taxpayers are still filing excessive claims for the fuel tax credit and claiming extra income to maximize the Earned Income Tax Credit.

9. Frivolous Arguments

The IRS has a list of frivolous positions which taxpayers have erroneously claimed in order to avoid tax obligations. These arguments have been reject by courts and their use by taxpayers is subject to additional penalties.

10. Falsely Claiming Zero Wages or Using False Form 1099

Taxpayers are fraudulently filing a corrected Form 1099 or Form 4852 (Substitute Form W-2) in order to reduce their taxable income.

11. Abusive Tax Structures

Tax scheme promoters often hype the creation of multiple entities in order to obscure income and ownership of assets and avoid tax obligations through multi-layer transactions.

12. Misuse of Trusts

Although trusts are often used legitimately for tax and estate planning, the IRS also sees improper trusts used to illegitimately avoid tax obligations. Private annuity trusts and foreign trusts are identified by the IRS as two examples increasingly used incorrectly.

Learn more about these scams from the IRS report.

The Young Law Group represents individuals reporting tax fraud to the IRS whistleblower program. If you would like a free, confidential legal consultation about becoming a tax whistleblower, please call 1-800-590-4116 or fill out the contact form to speak to Eric or another attorney at the Young Law Group.

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Posted on: 21 Feb 2014
Posted by: Eric Young

U.S. Businesses Discover Less Fraud Through Internal Efforts

magnifyingCorporations have put millions of dollars into compliance programs in order to detect fraud and employee misconduct internally. A new survey from PricewaterhouseCoopers, however, provides some statistics calling into question the results of those efforts. U.S. organizations learned of 32 percent of fraud by external measures or accident in the past two years, according to the US Supplement to PwC’s 2014 Global Economic Crime Survey. The number is up sharply from the 2011 report, when 85 percent of fraud was discovered through internal mechanisms.

The trend may have been strengthened by government whistleblower programs. The PwC survey also provided an early look into the effect of Dodd-Frank on internal whistleblower reports, which began in 2011. “Since 2011, there has been an observed inverse relationship between whistle-blowers and law enforcement; fraud being reported by whistle-blowing declined whereas fraud being reported to law enforcement has increased.” Incentives from the government may have led employees to forgo internal reporting, according to PwC.

The survey doesn’t attempt to reconcile its conclusion with the evidence found in the National Business Ethics Survey (NBES). It found most employees still attempt internal reporting first. According to the NBES, “only 20 percent of reporters ever choose to tell someone outside of their company, the same percentage as in NBES 2011.”

Also in contrast to the NBES, which reported fraud at historic lows, the PwC survey found fraud increasing at those U.S. organizations reporting fraud. The two areas where the survey revealed fraud growth were accounting fraud and bribery/corruption. PwC assigned the blame for rising corruption on U.S. organizations expanding internationally into high-risk countries in order to pursue economic opportunities. The growth in these two areas provides further support for the prospect of growth in investigations and enforcement under the Foreign Corrupt Practices Act in 2014.

The Young Law Group represents whistleblowers reporting to the DOJ, IRS, SEC and CFTC through their whistleblower programs and the False Claims Act. If you would like a free, confidential consultation with an attorney at the Young Law Group regarding a potential claim, please call 1-800-590-4116 or fill out our contact form.

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Posted on: 20 Feb 2014
Posted by: Eric Young

Lesson From Fifth Circuit: Don’t Delay Filing Your False Claims Act Lawsuit

hourglassIt may be tempting to report misconduct to the government outside of the formal procedures provided by whistleblower laws. It would be comparatively easy for a whistleblower to send the government a fraud report through a letter, email or hotline without legal representation as soon as they discover it. Two whistleblowers were unfortunately denied a share of the government’s recovery by the Fifth Circuit on Friday in U.S. ex rel. Babalola v. Sharma, No. 13-20182, slip op. (5th Cir. Feb. 14, 2014) because they did.

The relators discovered Medicare and Medicaid fraud at the medical clinics where they were employed. They submitted an anonymous letter to various government agencies detailing the crime in 2007. The Government investigated and the Defendants pleaded guilty to criminal charges in 2010. The Defendants were ordered to pay $43 million to Medicare, Medicaid and private insurers as restitution in 2011. The award was later reduced to $37 million.

During the appeal, the relators filed their qui tam lawsuit under the False Claims Act in November 2011. On a motion for partial summary judgment, the Government sought to deny the relators a share of the proceeds from the criminal prosecution. The District Court agreed with the Government.

The False Claims Act provides for recovery by a relator even if they have previously disclosed the fraud to the government. It requires the dismissal of lawsuits based on publicly disclosed information unless the relator is the “original source” of the information. 31 U.S.C. § 3730(e)(4)(A). An individual is the original source if they “voluntarily disclosed to the Government the information on which allegations or transactions in a claim are based” prior to the public disclosure. 31 U.S.C. § 3730(e)(4)(B). This rule encourages whistleblowers to come forward early and report fraud to the Government.

However, in their specific case, the whistleblowers delayed filing a complaint under the False Claims Act until the Government had already received an award for restitution in the criminal proceedings. When the Department of Justice declined to intervene in their action, the relators sought to have the criminal proceeding considered an “alternate remedy” under § 3730(c)(5).

Section 3730(c)(5) permits the Government to pursue an alternate remedy to the relator’s civil suit under the False Claims Act. “Notwithstanding subsection (b), the Government may elect to pursue its claim through any alternate remedy available to the Government, including any administrative proceeding to determine a civil monetary penalty.” 31 U.S.C. § 3730(c)(5). However, if the Government does pursue an alternate remedy, the relator is entitled to share in the proceeds as if it had been recovered through their False Claims Act lawsuit. “If any such alternate remedy is pursued in another proceeding, the person initiating the action shall have the same rights in such proceeding as such person would have had if the action had continued under this section.” Id.

The Fifth Circuit agreed with the Department of Justice and the District Court. The criminal prosecution was not an alternate remedy because it was filed prior to the qui tam action. The Court of Appeals reasoned, from the text of the statute and the definition of the word alternate, that the qui tam proceeding must exist in order for the government to elect an alternate remedy to it. Babalola, slip op. at 7. As the relators did not file their complaint until after the Government pursued the criminal prosecution, they were not entitled to recover a portion of the proceeds as an alternate remedy.

If, instead of sending the anonymous letter to the government, the whistleblowers had filed a lawsuit under the False Claims Act, they may have been entitled to recover a portion of the funds. See United States v. Bisig, 2005 WL 3532554 (S.D. Ind. Dec. 21, 2005)(criminal prosecution is an alternative remedy under the False Claims Act). As it stands now, the whistleblowers will need to continue their lawsuit under the False Claims Act in order to earn their whistleblower reward.

The concurring opinion by Judge James Dennis points out how this result is at odds with a central goal of the False Claims Act.

Babalola and Adetunmbi could have withheld their information and allowed the fraud to continue while they searched for an authority to represent their interests in a qui tam suit. But they did not — they took the path of the Good Samaritan and without delay provided the government with the evidence needed to purse the defrauders …. For all their efforts, Babalola and Adetunmbi received nothing. Had Babalola and Adetunmbi first filed their qui tam suit before providing their information to the government, then they would have been entitled, under § 3730(d)(1), to an award of between fifteen to thirty percent of the government’s proceeds.

Babalola, slip op. at 15-16 (Dennis, J., concurring).

The Young Law Group represents whistleblowers in litigation under the False Claims Act. If you would like a free, confidential consultation with an attorney at the Young Law Group regarding a potential claim, please call 1-800-590-4116.

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Posted on: 19 Feb 2014
Posted by: Eric Young

FDA Examines Drug Quality from Overseas Facilities.

pillsThe United States Food and Drug Administration has stepped up enforcement efforts against overseas exporters of drugs to the U.S. in light of recent reports of drug quality and manufacturing issues. Facilities in India, the second largest exporter of prescription and over-the-counter drugs, have been under especially heavy scrutiny.

Last year, Ranbaxy Laboratories paid $500 million to resolve civil and criminal actions for improper manufacturing, storage and testing of generic drugs. Dinesh Thakur, a former Director & Global Head of Research Information & Portfolio Management at Ranbaxy, reported the misconduct at Ranbaxy and received $48 million from the government as a whistleblower.

Ranbaxy was the largest drug manufacturer in India by revenue. Drugs from two of its facilities were banned by the FDA in 2008. Two more overseas facilities operated by Ranbaxy were banned more recently, in September 2013 and January 2014. The most recent inspection of the Toansa facility found staff retesting active pharmaceutical ingredients after they failed quality tests.

Indian drug maker Wockhardt has also had imports from two manufacturing plants suspended by the FDA in the last year, according to Bloomberg. The FDA discovered issues with quality testing at the facilities, located in Chikalthana and Waluj, during inspections.

In addition to quality testing concerns, counterfeiting has also been a major issue. Counterfeit drugs often don’t contain the active pharmaceutical ingredients which provide medical benefits to patients from the drug’s consumption. China is believed to be a large source of counterfeits but the FDA has had difficulty inspecting facilities there in the past.

Quality concerns overseas are troubling because the majority of drugs consumed in the United States now have some foreign component. Nearly 80% have active pharmaceutical ingredients from foreign countries, usually China or India, and nearly 40% are manufactured outside of the United States. The percentage is even higher when name brand prescription drugs are excluded. More than forty percent of OTC and generic pharmaceuticals are made in India.

Problems with overseas manufacturing may have developed because of disparities between domestic and foreign inspection rates. The FDA conducts strict inspections of drug manufacturing facilities in the United States every two years and has authority to conduct surprise inspections. In 2011, a GAO study found foreign drug manufacturers were inspected far less frequently. They estimated that overseas facilities were inspected once every ten years. As a result, Congress passed legislation to give the FDA broader authority to conduct inspections of drug facilities overseas. If they are refused entry for an inspection, the FDA can now block entry of drugs from the facility into the United States.

The FDA is also establishing an Office of Pharmaceutical Quality to improve the detection of quality issues in brand name, generic and over-the-counter drugs. The office will be focused on enforcing existing requirements and will not impose new quality restrictions. The interim director of the office is Janet Woodcock, director of the Center for Drug Evaluation and Research at the FDA.

These problems have also come to the attention of Congress. There is a Congressional hearing set for February 26th in order to further investigate substandard generic drugs from overseas. Cleveland Clinic doctor Harry Lever, among others, will testify about his experience with cardiology drugs manufactured in India.

The Young Law Group represents whistleblowers bringing forth claims of health care fraud under the False Claims Act. If you wish to report evidence of drug quality problems at a pharmaceutical manufacturer in the United States or abroad, please call 1-800-590-4116 or fill out the contact form for a free, confidential consultation.

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Posted on: 18 Feb 2014
Posted by: Eric Young
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