Supreme Court Whistle-blower Case Could Redefine “Fraud”
April 2016
IN THIS ISSUE
— False Claims Act, in use for more than 150 years, could be reshaped by the Court
— Definition of fraud could change scope of investigations
GREETINGS!
Welcome to the April edition of our newsletter! In this issue, we’ll examine a case before the U.S, Supreme Court that could redefine what constitutes fraud with respect to allegations reported by whistle-blowers.
FALSE CLAIMS ACT, IN USE FOR MORE THAN 150 YEARS, COULD BE RESHAPED BY THE COURT
As has been mentioned many times before, the largest percentage of fraud investigations are begun with some kind of tip from a company insider, vendor or concerned customer. Since the time of the Civil War, participants in government bureaucracy — employees, and vendors, taxpayers — have had certain rights and protections to report waste in government spending.
Private companies which contract to provide services to the government — a much more widespread practice now than when the original act became law in 1863 — are also subject to the act’s regulations. As the case law regarding the multitude of False Claims Act cases has evolved over that time, certain interpretations — such as a company’s being able to claim “implied certification” with statutes in Medicare or Medicaid — have made a facially simple question more complex: what is fraud?
DEFINITION OF FRAUD COULD CHANGE SCOPE OF INVESTIGATIONS
As the highest court in the land wrestles with that question, each side has staked its ground. Whistle-blowers and their advocates have argued that materiality is key to the standard — the nature of a breach of contract, whether fraud or negligence, should determine the scope of the penalty. Contractors who provide services to the government have argued that there must be some form of omission from disclosure between the parties, or falsity of disclosure made, in order to show breach of contract. To apply a broad standard to other offenses, they argue, is to impose the civil tort system upon contract law between the federal government and its vendors.
The court has heard the arguments and is due to rule later this year. While the scope of the ruling could be narrowly applied only to federal entities, the definition of what they consider to be fraudulent activity that is covered under the False Claims Act could have ramifications for the private sector as well, both as vendors to the government and in terms of the broader definition of what is considered fraudulent activity in the marketplace.