Bill Would Pay Whistle-Blowers Who Expose Fraud

Whistle-blowers who expose contractors that are defrauding the city could be entitled to substantial payouts under a bill that both the Bloomberg administration and the City Council support.Modeled after a Lincoln-era federal law and expected to be enacted soon, the city’s False Claims Act would give private citizens the right to sue a contractor on behalf of the city and, if successful, take home a portion of the damages.Council Member David Yassky, its lead sponsor, estimated yesterday that the legislation would produce total damages for the city of $30 million in the first year and even more in the future.“It will save the city taxpayers tens of millions of dollars a year,” Mr. Yassky, a Democrat who represents parts of Brooklyn, said. “Every jurisdiction that has this bill has seen huge savings to the taxpayers, because it gives whistleblowers an incentive to not just report fraud but to go out and actually build a case against people who are defrauding the city.”The bill is expected to win approval today from the council’s Governmental Operations Committee. The sort of swindle it is intended to bring to light could involve anything from a construction crew’s substitution of a cheaper cement for a higher-quality type the city is paying for, to a health-care clinic’s charging for procedures it never performed.Late last year, two former employees of the private-security firm Custer Battles invoked the federal law. They accused the firm, which had more than $100 million worth of contracts to provide services in Iraq, of cheating the American government out of millions of dollars by marking up the prices on meals, electricity, and even cooking pots.The city law would work in much the same way.The city Law Department would act as a clearinghouse to review cases. It could opt to take on the case itself, allow the petitioners to go to court on its behalf, or terminate the suit, under some circumstances, if it interferes with a city investigation or interrupts city services.If the case moves forward, the whistleblower could be entitled to up to 30% of the triple damages the city is awarded. The percentage hinges on a couple of factors. If the city takes on the suit, the whistle-blower can make between 10% and 25%. That range gets bumped up five percentage points on both ends if the petitioner litigates the case and takes on the financial burden alone. A judge would rule on the final amount.A New Yorker whose suit yields $10 million, say, could get up to $3 million by handling the case without the city’s legal support.“What the False Claims Act does is it creates citizen deputies,” a spokesman for the private group Taxpayers Against Fraud, Patrick Burns, said. “It creates a posse. In the Old West, when the sheriff was outgunned and outmanned, he got a posse of good, honest citizens to go round up the troublemakers. That’s what this is.”An original version of the bill was approved unanimously by the council but was vetoed by Mayor Bloomberg in March. The administration said the legislation would not give it enough say in blocking baseless suits. The new version gives it wider latitude in that area.The chief of the legal-counsel division in the city’s Law Department, Stephen Louis, who is scheduled to testify in favor of the new bill today, said the measure would be a valuable asset.“It will allow us to pursue fraud aggressively,” Mr. Louis said during a phone interview Friday. “It’s a new tool for us, and it has the potential to bring a lot of new information.”A senior lawyer for Fried, Frank, Harris, Shriver & Jacobson, Beth McClain, said that while the new version was an improvement over the original, she still had concerns, particularly with penalties that companies have to pay for each false bill they send off to the city.“If a contractor submits a thousand claims with a $1 overcharge, it could be subject to $15 million in penalties for a $1,000 overcharge. Most people would call that overkill,” Ms. McClain said. Her firm has represented several well known companies, including Custer Battles, in federal fraud cases.“Nobody likes to see a government defrauded,” she said. “What sometimes isn’t apparent is that these kinds of suits have many hidden costs.”The state attorney general, Eliot Spitzer, was pushing a similar state bill, but it stalled in Albany. Nonetheless, the idea is gaining momentum. The federal government recovered $667.8 million in the last fiscal year under its law, and has recouped $13.5 billion since 1986. The federal law was originally passed in 1863 to root out suppliers cheating the Union Army. To date, 14 states, the District of Columbia, and Chicago have enacted versions.With more than $9 billion in outside contracts each year, New York City could stand to save a large amount of money, supporters said. Mr. Yassky said the bill strives to weed out the baseless cases and concentrates on recovering as much money for the city as possible.“The valuable meritorious lawsuits will far outweigh the frivolous ones,” he said. “If there is a frivolous lawsuit from time to time, that is the cost of a lot of very useful suits that root out fraud.”If passed, the measure will permit anyone to bring a claim forward, though city employees must first bring the matter to the Department of Investigations.

Bill Would Pay Whistle-Blowers Who Expose Fraud

Bill Would Pay Whistle-Blowers Who Expose Fraud

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