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Top Ten State Fraud Recoveries of 2018

Posted  January 25, 2019

While 2018 saw many important federal settlements and whistleblower awards across a wide range of industries, state governments were equally busy rooting out fraud. In fact, in the last few years, recognizing the ever-growing need to hold businesses accountable for defrauding taxpayers, several states have passed their own false claims statutes modeled after the federal false claims act. These laws operate in a similar manner, allowing whistleblowers to bring qui tam actions on behalf of their state government. States also commonly have their own healthcare fraud and other consumer protection statutes modeled after federal program that serve as important enforcement tools. These were vital sources of recoveries in 2018.

For the first time, Constantine Cannon shines a light on the significant state action of this past year with a Top Ten List of State Fraud Recoveries. New York, California, and Texas lead the way with significant financial fraud and pharmaceutical recoveries, but actions by the Illinois and Maryland attorneys general also resulted in significant recovery for their respective states. Several settlements that cover all 50 states make the top of our list.

  1. Multi-state: Wells Fargo – Also featured in our top ten financial fraud list, repeat offender Wells Fargo reached a $575 million settlement with all 50 states and the District of Columbia to resolve allegations into the company’s practice of opening accounts for customers without authorization. The settlement was divided among the states.
  2. New York and Illinois: Mortgage fraud settlements with Royal Bank of Scotland and UBS – New York and Illinois secured settlements to resolve allegations surrounding the issuance, packaging, marketing, and sale of residential mortgage-backed securities (RMBS) leading up to the 2007-2008 financial crisis.  The Royal Bank of Scotland agreed to a settlement valued at $500 million with the State of New York, and a settlement valued at $20 million with the State of Illinois.  In addition, UBS agreed to a settlement with New York valued at $230 million.   The settlements included cash payments to the states as well as consumer relief for homeowners and communities.
  3. New York: Sprint – In a landmark case under the New York False Claims Act, Sprint Communications paid a record $330 million to resolve allegations that it failed to collect and pay $100 million in state and local taxes for wireless calling plans sold to New York customers. The whistleblower, who will receive nearly $63 million, filed the action in 2011, prompting a years-long investigation and enforcement action in conjunction with the New York State Department of Taxation and Finance.  In a clear demonstration of the significance of state enforcement efforts, this settlement also lands on our Top Ten Whistleblower Awards of 2018 and Top Ten Tax Recoveries of 2018.
  4. Multi-state:  LIBOR settlements with UBS and Citibank – Both Citibank and UBS settled claims with more than 40 states to resolve allegations that they fraudulently manipulated the LIBOR, an interest rate benchmark that impacts financial instrument pricing.  The undisclosed manipulation was alleged to inflate the prices that government entities paid for LIBOR-linked financial instruments.  Citibank will pay over $100 million, and UBS will pay $68 million.
  5. Multi-state: Uber Stories of data breaches have dominated the news for the past year. Indeed, since our Whistleblower Candidate of the Year Christopher Wylie blew the whistle on Cambridge Analytica, whistleblower reports on data breaches have nearly tripled. This past year, Uber reached a $148 million settlement in a multi-state investigation arising from a 2016 data breach exposed by hackers. The breach divulged the drivers’ license data of 600,000 drivers and other personal data from as many as 57 million customers. This settlement is the largest multi-state data breach settlement to date.
  6. Texas: AstraZeneca – In August of 2018, AstraZeneca agreed to pay Texas $110 million to settle allegations that the company misleadingly marketed two of its drugs in violation of the Texas Medicaid Fraud Prevention Act. The allegations focused on the company’s off-label marketing in 2010, when it was under a corporate integrity agreement. Former employees of AstraZeneca initiated the case under the whistleblower provisions of the Texas Medicaid Fraud Prevention Act.
  7. California: BP – California obtained a $102 million settlement from BP Energy Company to resolve allegations that it overcharged the State of California for natural gas that the State purchased under three successive contracts from March 2003 to August 2012. The contracts allowed the California Department of General Services to cap the price it would pay BP for specific volumes of gas. BP regularly quoted and charged the State of California prices that violated this cap and concealed its overpricing by providing false and misleading information. These acts constituted violations of the California False Claims Act.  Whistleblower Christopher Schroen received a reported $27 million, which also lands the BP settlement on our Top Ten Whistleblower Awards of 2018 list.
  8. Maryland: Computer Sciences Corporation – In a government contract fraud case, a state contractor to the Maryland Department of Health paid $81 million to resolve disputes in its obligation to develop and implement a new computer system for the State Medical Assistance Program, or Medicaid. The Department of Health awarded the contract to Computer Sciences Corporation (CSC) but within a year, the project was behind schedule. CSC refused to perform the required work without millions of dollars in additional State payments.
  9. Multi-state: PHH Mortgage Corporation – The New Jersey-based PHH Mortgage Corporation, the nation’s largest non-bank residential mortgage servicer, paid $45 million to all 50 states and the District of Columbia to resolve allegations that it had improperly serviced mortgage loans from January 1, 2009 through December 31, 2012. 
  10. New York: Bank of America Merrill Lynch – In a record-setting penalty under New York’s securities laws, Bank of America Merrill Lynch will pay $42 million to New York following an investigation into its electronic trading services and undisclosed agreements it had with electronic liquidity providers.

2018’s Top Ten State Recoveries, a first on this blog, shows how crucial state governments can be in rooting out fraud and protecting their consumers.

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Tagged in: Financial and Investment Fraud, Healthcare Fraud, Top 10,


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