False Claims Lawsuits
The False Claims Act, passed in 1863, is also known as the "Lincoln Law," because it was written by a Civil War-era Congress after being ripped off by profiteering Union contractors [source: DOJ]. The original law was crafted to punish contractors who knowingly submitted false invoices to the government for goods and services. The law was greatly expanded in 1986 to cover any number of fraud cases that directly or indirectly involve government interests. Since 1987, the federal government has recovered more than $40 billion through civil false claims lawsuits [source: TAF Education Fund].
False claims trials are essentially fraud cases. Under civil law, fraud can be difficult to prove, because it has many components:
- Not only must the perpetrator make a false claim, but he or she must know that the claim is false
- The claim must be made knowing that the victim will rely on that information to make a decision
- The victim must suffer damages from making that decision [source: ACFE]
In a criminal fraud case, on the other hand, the government only has to prove that the perpetrator tried to defraud the victim, regardless of whether he or she succeeded [source: ACFE].
Here are some examples of situations in which the U.S. government could sue in civil court for false claims:
- A defense contractor reports false test results on the performance of its armed personnel carriers, and the malfunctioning vehicles cost the U.S. Army millions in repairs
- A hospital files millions of dollars in Medicare claims for unnecessary or nonexistent medical services
- A research lab that received grant money from the National Science Foundation uses the money to pay for an employee trip to Disney World [source: TAF Education Fund]
A popular provision of the False Claims Act is something called qui tam, better known as the "whistleblower" law. A whistleblower is an employee of a company who comes forward with proof of the company's fraudulent activities. Under the qui tam provision, a whistleblower sues the company on behalf of the federal government [source: TAF Education Fund]. If the company is found guilty, both the whistleblower and the government receive damages.
In 2012, British drugmaker GlaxoSmithKline paid the U.S. government $3 billion in a combined criminal and civil case instigated by six whistleblowers [source: Thomas]. Also in 2012, the DOJ sued Bank of America thanks to information from a whistleblower who detailed how the bank lied about the risk of mortgages it sold to investors, including the government-owned Fannie Mae and Freddie Mac [source: Stempel].
For lots more information about lawsuits and legal controversies, check out the related HowStuffWorks articles below.
Author's Note: How can the U.S. government sue a business?
Human nature is sad, sad thing. It has been proven time and time again that if left to our own devices, we will lie, cheat, steal, and -- yes -- kill our way to wealth, success and fame, if we think we won't get caught. That's why functioning societies have laws, both criminal and civil, to not only discourage us from robbing and killing, but encourage us to treat each other honestly and fairly. There is a heated political argument over the economic costs of government regulation. Does regulation squelch risk-taking and innovation? Does compliance with regulations sap profits from companies that could be hiring more workers? Or do rules and regulations keep human nature in check, and prevent us from inflicting damage on each other -- economic and otherwise -- that doesn't appear on an earnings report?
- Association of Certified Fraud Examiners. "The Fraud Trial" [accessed November 1, 2012] http://www.acfe.com/uploadedFiles/Shared_Content/Products/Self-Study_CPE/Fraud-Trial-2011-Chapter-Excerpt.pdf
- Catan, Thomas; and Ante, Spencer E. The Wall Street Journal. "U.S. Sues to Stop AT&T Deal." September 1, 2011 http://online.wsj.com/article/SB10001424053111904716604576542373831069388.html
- Federal Trade Commission. "About the Bureau of Consumer Protection" [accessed November 1, 2011 http://www.ftc.gov/bcp/about.shtm
- Law Information Institute. Cornell University Law School. "Punitive Damages" [accessed November 1, 2012] http://www.law.cornell.edu/wex/punitive_damages
- Mills, Elinor. CNET. "FTC sues Wyndham hotels over data breaches." June 26, 2012 http://news.cnet.com/8301-1009_3-57460551-83/ftc-sues-wyndham-hotels-over-data-breaches/
- Newkirk, Thomas C. U.S. Securities and Exchange Commission. "Insider Trading: A U.S. Perspective." September 19, 1998 http://www.sec.gov/news/speech/speecharchive/1998/spch221.htm
- Stempel, Jonathan. Reuters. "U.S. sues Bank of America over 'Hustle' mortgage fraud." October 24, 2012 http://www.reuters.com/article/2012/10/24/us-bankofamerica-fraud-lawsuit-idUSBRE89N17120121024/
- Taxpayers Against Fraud Education Fund. "Top Fraud Cases" [accessed November 1, 2012] http://www.taf.org/fraud-cases
- Taxpayers Against Fraud Education Fund. "Frequently Asked Questions" [accessed November 1, 2012] http://www.taf.org/resource/fca/faq
- Thomas, Katie; and Schmidt, Michael S. The New York Times. "Glaxo Agrees to Pay $3 Billion in Fraud Settlement." July 2, 2012 http://www.nytimes.com/2012/07/03/business/glaxosmithkline-agrees-to-pay-3-billion-in-fraud-settlement.html?pagewanted=all
- Thompson, Larry D. Department of Justice. "Principles of Federal Prosecution of Business Organizations." January 20, 2003 http://www.justice.gov/dag/cftf/corporate_guidelines.htm
- U.S. Department of Justice. "Antitrust Enforcement and the Consumer" [accessed November 1, 2012] http://www.justice.gov/atr/public/div_stats/antitrust-enfor-consumer.pdf
- U.S. Department of Justice. "The False Claims Act: A Primer" [accessed November 1, 2012] http://www.justice.gov/civil/docs_forms/C-FRAUDS_FCA_Primer.pdf