The False Claims Act: The Cost of Defrauding

One Friday afternoon when I was about 10 years old, I was watching The Koz Zone on Channel 32 (WFLD, the local Fox affiliate in Chicago). The program was hosted by Rich Koz (who may be better known to some Chicago-area UHF viewers as “Svengoolie”) and came on in between the afternoon line-up of animated shows like Tiny Toon Adventures. Every Friday, The Koz Zone would give out an award (a Koz Zone T-shirt) for the viewer who had sent in the best letter of the week. I was dismayed when Rich Koz announced that the T-shirt winner for that week was someone who claimed to have written an original poem entitled, “Homework! Oh, Homework!” As Koz read the poem, I confirmed that someone was being given a prize for ripping off Jack Prelutsky’s “Homework! Oh, Homework!” (from his The New Kid on the Block collection of poems). As I could not tolerate this “grave injustice,” I wrote in a letter to The Koz Zone to point out the fraud that had been perpetrated. Justice prevailed! The next Friday, I (along with 2 other kids who had also written in about the poem), was awarded best letter of the week and rewarded with my own Koz Zone T-shirt (which Rich Koz autographed for me shortly thereafter at the grand opening of the Warner Bros. store at Woodfield Mall).

“The Koz Zone” aired from 1989 to 1993

This is certainly not Daniel Ellsberg 2.0, but my childhood foray into blowing the whistle on what I perceived to be wrongdoing foreshadowed my current career as an attorney who has the privilege of representing courageous individuals who make tremendous sacrifices to blow the whistle on major fraud and corruption. Beyond reflecting upon my minor history as a whistleblower, I would also like to trace the roots of the False Claims Act–one of the primary tools that Loevy & Loevy uses in our cases brought with our whistleblower clients. The False Claims Act allows private-citizen whistleblowers (known as “relators”) to bring lawsuits (and collect damages and penalties) on behalf of the federal government against individuals or entities that have defrauded the government (at Loevy & Loevy, we also frequently bring suits under state and local versions of the False Claims Act).

The story of the False Claims Act and its evolution has largely run parallel to the history of the defense contracting industry. The False Claims Act is sometimes referred to as the “Lincoln Law” as it was passed during Abraham Lincoln’s presidency in response to the pervasive fraud being perpetrated by contractors supplying the Union Army during the Civil War. The original False Claims Act, passed by Congress on March 2, 1863, contained some of the key features which characterize the current version of the statute like a qui tam provision (qui tam is an abbreviation of the Latin phrase qui tam pro domino rege quam pro se ipso in hac parte sequitur, meaning “he who brings a case on behalf of our lord the King, as well as for himself”) which enables citizens to sue on behalf of the government and receive a share of the government’s recovery. Defendants were liable for double the damages they caused and a $2,000 civil penalty for each false claim for payment remitted to the government while relators were entitled to 50% of the government’s recovery. World War II saw a dilution of the False Claims Act as, after even considering repealing it, Congress decided instead to scale back the law by significantly decreasing the amount of the government’s recovery to which a relator was entitled and prohibiting qui tam suits from going forward if the government possessed any information about the fraud. The False Claims Act was rarely invoked over the course of the next 40 years. However, in the wake of the extensive build-up of military expenditures during the Reagan administration, high-profile stories of massive defense contractor fraud prompted Congress to modernize the statute in 1986. Among other things, the amended statute eliminated the prohibition of qui tam suits based on information possessed by the government, provided for treble damages and civil penalties of $5,000 to $10,000 per false claim submitted to the government, allowed for relators to be awarded between 15% and 30% of the government’s recovery, and instituted protections for relators who are retaliated against by their employers. Between 1987 and 2013, nearly $39 billion was recovered by the government through False Claims Act litigation, 70% (or over $27 billion) of which was from lawsuits brought by whistleblowers.

The history of the False Claims Act is still evolving, with significant amendments to the statute in 2009 and 2010 and periodic increases in the amount of fines per false claim. The False Claims Act has expanded beyond its defense contractor fraud roots to combat fraud in various arenas, and Loevy & Loevy and our whistleblower clients have been a part of this history as we have secured multi-million dollar recoveries for the government and our clients in False Claims Act litigation addressing frauds in industries and contexts ranging from defense contracting to health care to construction. We look forward to continuing to shape the history of the False Claims Act alongside our intrepid whistleblower clients.


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