Whistleblower News From The Inside — August 31, 2015
By the C|C Whistleblower Lawyer Team
$6 Million Settlement for Alleged Violations Related to Small Business Administration Loan Program – The Department of Justice announced that EDF Resource Capital Inc. and its CEO, Frank Dinsmore, have agreed to resolve allegations that they violated the False Claims Act and otherwise failed to remit payments owed to the Small Business Administration (SBA) under the 504 loan program, including but not limited to EDF’s failure to maintain adequate reserves under the loan program. Under the settlement agreement, EDF and Dinsmore have agreed to make payments and turn over certain assets to the United States for a total settlement of approximately $6 million. DOJ
7th Circuit Rules Whistleblower Award is Ordinary Income, not Capital Gain — A Wisconsin man who won a $7 million award for blowing the whistle on Medicare fraud lost a bid to treat that income as a capital gain on his income tax return. In Patrick v. Commissioner, issued on August 26, 2015, the 7th U.S. Circuit Court of Appeals upheld the IRS position that the payment is more akin to a reward or bounty for work done to reveal the fraud than a return on an investment, and that Craig Patrick and his wife must report the money as ordinary income, subject to a higher tax rate. Milwaukee J-S
PoleZero Corporation Agrees to Pay $2.8 Million to Resolve False Claims Act Allegations in Whistleblower Action — Department of Defense contractor PoleZero Corporation, owned by Dover Corporation since 2007, has agreed to pay the United States $2,800,000 to resolve allegations under the False Claims Act that the company caused false claims to be submitted to the Department of Air Force for communications equipment. Pole Zero is a subcontractor that provided radiofrequency filters (RF filters) and integrated co-site equipment (ICE) to the United States Air Force for use in its E-3 AWACS Aircraft program. The settlement agreement resolves allegations that from 2004-2013 Pole Zero knowingly provided RF filters and ICE equipment that failed to meet contractual specifications. The case was brought as a whistleblower action, and as part of the settlement, the whistleblower will receive $504,000. DOJ
Whistleblower awarded backpay and pension credits — A whistleblower and two former coworkers who supported her efforts have been awarded $630,000 in lost wages and damages after the Department of Labor won a consent judgment against the Cement Masons Southern California Trust Funds. Cheryle Robbins, who was director of the fund’s audit and collections department, reported what she believed was lawbreaking behavior by a trustee; when the fund found out about her involvement, they first placed her on administrative leave, then eliminated her position. BenefitsPro
SEC Halts California-Based Oil and Gas Investment Fraud — The Securities and Exchange Commission announced fraud charges and an emergency asset freeze to halt a California-based scheme involving purported investments in oil and gas projects. According to the SEC’s unsealed complaint, filed in federal court in Los Angeles, Harrison Schumacher and his two companies Quantum Energy LLC and Quaneco LLC allegedly raised approximately $12.3 million from more than 300 investors nationwide in connection with five offerings that were not registered with the SEC. For each of the offerings, Schumacher and Quantum diverted investor funds from the stated purpose of exploration and development of oil and gas resources to instead cover undisclosed corporate business overhead expenses and Schumacher’s compensation, commingling funds in Quantum’s operating accounts, which was then used to pay Schumacher’s lavish personal expenses including a Porsche. SEC
Meet the Private Watchdogs Who Police Financial Institutions — The Wall Street journal details how the use of so-called outside monitors to police financial institutions that have misbehaved has exploded in recent years, as authorities increasingly insist on them as a condition for not pursuing criminal or civil charges against companies. Banks and other companies frequently grumble about excessive prying by monitors, and about the seven or eight-figure bills they run up. Using the firing of the third monitor hired to keep an eye on Western Union in four years as an example, the Journal notes that the monitors themselves can be vulnerable if they clash with the companies they are supervising. WSJ
California State Auditor Issues Whistleblower Report — The California State Auditor released its annual report regarding the California Whistleblower Protection Act, under which it is empowered to investigate complaints that state agencies and employees have engaged in improper governmental activities. The whistleblower act defines an “improper governmental activity” as any action by a state agency or employee relating to state government that violates state or federal law, is wasteful, or involves gross misconduct, incompetence, or inefficiency. According to the report, over the past year the State Auditor received 1,207 reports, and conducted investigations in to violations of state law including failure to seek competitive bids, increase rental rates, properly dispose of surplus property, and adequately supervise. State Auditor