The Federal False Claims Act: Knowing Is Half the Battle

The False Claims Act, or FCA, is the Federal statute under which fraud against the US Government is prosecuted.

The FCA was first enacted during the Civil War in order to combat defense contractor fraud. Since then, it has been amended and updated a number of times to ensure applicability to additional forms of fraud arising from not only government contracts but also the healthcare and pharmaceutical industries, as well as others.

Significantly, the False Claims Act allows for what are called qui tam suits to enforce its provisions.

A qui tam suit is one brought by a private individual in complaint of an act that is injurious or damaging to the government.

An individual who files a successful complaint under the FCA is entitled to a percentage of the resulting damages award or settlement amount.

Who Can Be Prosecuted under the False Claims Act?

Pursuant to 11 U.S.C. § 1379, a prosecution under the FCA can be made where a person knowingly:

  • Presents or causes to be presented a false or fraudulent claim for payment or approval;
  • Makes, uses, or causes to be made or used a false record or statement material to a false or fraudulent claim;
  • Has possession, custody, or control of property or money used by the Government and delivers less than all of that property or money to the Government;
  • Delivers, with intent to defraud, a document certifying receipt of property used by the Government without completely knowing that the information certified is true;
  • Buys public property from an officer or employee who may not legally sell such property;
  • Uses or causes to be used a false statement to the Government in connection with an obligation to pay or transmit money or property to the Government;
  • Conceals or improperly avoids or decreases an obligation to pay money to the Government;
  • Conspires with others to commit any of the above acts.

In other words, generally speaking, lying in connection with a claim for payment from the Government, a debt owed to the Government, or shorting a delivery to the Government may trip over the False Claims Act.

For purposes of the FCA, a person commits the above acts knowingly when that person has actual knowledge of the information in question and acts in deliberate ignorance of the truth or falsity of the information or acts in reckless disregard of the information’s truth or falsity.

A judgment under the FCA will incur a civil penalty of $5,000-$10,000, the costs of the action—including attorney’s fees—and a penalty of 3 times the amount of damages sustained by the Government.

Private Civil Actions for False Claims Act Violations

The U.S. Attorney General can initiate a civil action under the False Claims Act.

Under the FCA, private individuals may also file qui tam civil actions on behalf of the U.S. Government.

Once filed, the action can only be dismissed if the Attorney General and the court itself consent in writing, along with their reasons for doing so.

The initial complaint is held in camera for 60 days from filing. This means that it remains under seal and is not served on the defendant until the court orders it to be served.

Within that 60-day span of time, the Government must decide whether to proceed with the action itself or not.

If it does not, the individual bringing the action will retain the right to proceed on his or her own.

No other party has the right to intervene in or bring any new claim based on the same underlying (alleged) facts.

Individual Awards from False Claims Act Violation Suits

What’s in it for a private individual bringing a False Claims Act action?

If the Government proceeds with the action, the individual who introduced it will receive 15-25% of the proceeds of the claim.

The benefit will vary depending on the extent of the individual’s involvement, overall.

If the action is primarily based on a disclosure of information (i.e., a whistleblower action), the court will award an amount in its discretion but not more than 10% of the proceeds.

If the Government does not proceed with the action, the individual bringing the FCA claim will receive 25-30% of the amount of the proceeds or settlement.

A court may reduce the individual claimant’s proceeds if that individual planned or initiated the FCA violation to begin with.

Likewise, if that individual is convicted of criminal conduct in relation to the FCA violation, he or she will be dismissed from the action entirely.

Where Private FCA Actions Are Unavailable

Former or present members of the armed forces cannot bring False Claims Act actions against another member of the armed forces if the underlying act arose from that person’s service.

FCA actions may also not be brought against members of Congress, members of the judiciary, or senior Executive Branch officials if the action is based on information already known by the Government at the time it is brought.

If the underlying facts of the alleged FCA violation are already the subject of a civil or administrative suit in which the Government is a party, a private individual will also be unable to initiate an action.

Finally, if substantially the same allegations were made in a Federal criminal, civil, or administrative suit in which the Government is a party, the court will dismiss a private FCA action.

Likewise, the court will dismiss private FCA actions where the same allegations have already been disclosed in a Congressional, GAO, or other Federal report, hearing, audit, or investigation, or if already disclosed by the media.

False Claims Act Statute of Limitations & Evidentiary Standard

An FCA action must be brought within 6 years of the date of the underlying violation.

It may not be brought more than 3 years after the date on which the underlying facts become to known by any U.S. official with the duty to act under such circumstances.

However, it may also not be brought more than 10 years after the date of the underlying violation—whichever date comes latest.

When the Government does elect to proceed with the action, it must prove all of the elements of the cause of action by a preponderance of the evidence.

This is a standard requiring less certainty from a judge or jury than does the “beyond a reasonable doubt” standard required in criminal prosecutions.

If the suit is successful, the defendant will be estopped from denying any element of the claim in any later action.

False Claims Act Jurisdiction

An FCA action may be brought in any judicial district in which the defendant (or any 1 of multiple defendants) resides or transacts business.

A subpoena requiring the attendance of a witness at a trial or hearing in a False Claims Act matter can be served anywhere in the United States.

The Federal district courts likewise have jurisdiction over FCA actions brought under state law or for the recovery of funds paid by a state or local government.

Legal Representation of Witnesses, Subjects, and Targets in False Claims Act Investigation; Parallel Civil and Criminal Investigations

False Claims Act investigations are conducted by the civil divisions of the various U.S. Attorney’s Offices assisted by the FBI or other law enforcement agencies.  The investigators will interview relevant witnesses and review documents.

If investigators contact you by phone or mail in connection with a False Claims Act Investigation, contact counsel right away.  We can help investigate your status in the investigation and decide if it is in your interest to talk to government agents.

If you are involved in a FCA investigation, you should be a aware that investigation could result in a referral for prosecution for health care fraud or other criminal investigations.  An attorney with experience in both white collar criminal defense and FCA cases can advise you on this aspect of the investigation.

It is possible to arrive at a settlement of an FCA investigation that can avoid criminal charges and limit your exposure to financial penalties.  Although, as stated above, FCA claims can carry treble damages, the U.S. attorney’s office is often willing to settle for much less than this.  Your attorney can help you investigate all possibilities for resolving the investigation as favorably as possible.

If you believe you are implicated in an FCA investigation, contact one of our attorneys for a consultation.

 

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