How Qui Tam Cases Work
The False Claims Act is a unique statute that allows an individual to bring a case (called a “qui tam” case”) on behalf of the federal government, and to receive a substantial reward in the event the case yields a recovery for the government. Most states also have their own false claims acts that enable whistleblowers to bring cases on behalf of those state governments.
The following sections describe how to determine whether you have a potential False Claims Act qui tam case, the unique legal procedures that apply to qui tam cases, the protections afforded to whistleblowers who file qui tam cases, and how whistleblower lawyers get paid even though they typically do not bill their clients by the hour.
Do you have a potential False Claims Act qui tam case?
Before filing a qui tam case, the whistleblower and the whistleblower’s attorney need to evaluate whether they have a potentially viable case. Among the factors they will consider are:
- Whether the potential defendant committed fraud against the government. The False Claims Act applies only to fraud involving government money; it does not apply to fraud against private parties. Some states, including California and Illinois, have separate laws that allow whistleblowers to file cases involving fraud that affects private insurance companies.
- Whether the whistleblower has clear evidence of the fraud. Whistleblowers often only have some of the documents necessary to prove a fraud, but qui tam cases are much more likely to be successful if the whistleblower has at least some documentary proof of the fraud. Emails, text messages, invoices, and even recordings of conversations are just some of the types of evidence that can help make a qui tam case work.
- Whether the government suffered significant financial harm as a result of the fraud. Not every good qui tam case involves tens of millions of dollars or more, but a qui tam case generally needs to involve a substantial amount of money in order for it to make economic sense to pursue the case. How much money exactly depends on other factors, such as how much work will be involved in pursuing the case. So, it can make sense to file a case that has only limited damages if the government is likely to be able to investigate the case without devoting substantial resources to it.
- Whether the defendant is likely to be able to pay a judgment. Unfortunately, even if the evidence of fraud is very strong, it may not make sense to file a qui tam case if the defendant is likely to abscond or to be unable to pay the government when the case is over.
So, the ideal qui tam case would involve a large fraud against the government that is easy to prove and has a defendant with deep pockets. But no qui tam case is perfect. That is why it makes sense to consult with an experienced qui tam lawyer who can advise you on whether you have a potentially viable case. Because most qui tam lawyers, including Gregg Shapiro, work on a contingency fee basis – meaning they get paid only if you get paid – they share your interest in filing a qui tam case only when there is a reasonable chance of success.
Importantly, the government typically will give serious consideration to a False Claims Act qui tam case only if it has been filed by an attorney.
The Legal Procedures that Apply to Qui Tam Cases
Before a whistleblower initiates a qui tam case under the False Claims Act, the whistleblower’s attorney must submit a disclosure statement to the Department of Justice. The disclosure statement typically describes the whistleblower’s allegations in detail, attaches documents to corroborate the whistleblower’s allegations, and explains how the alleged conduct violated the law. Sometimes, the whistleblower’s attorney will submit the disclosure statement only moments before filing the qui tam complaint. Other times, it may make sense to submit the disclosure statement well in advance of filing in order to allow the government attorney a chance to review the document and to give feedback to the whistleblower’s attorney.
The next step is to file the qui tam complaint “under seal.” In other words, the whistleblower’s attorney files the complaint with the court and serves a copy of it on the government, but the court does not put the case on the public docket, and both the government and the whistleblower are prohibited from disclosing the existence of the case to anyone else. Under the False Claims Act, the initial seal period lasts 60 days, but the government often will obtain several six-month extensions of the seal. As a practical matter, most qui tam cases stay under seal for well over a year, and some stay under seal for several years.
The purpose of the seal is to enable the government to investigate the whistleblower’s allegations without the defendant or third parties knowing the details of the whistleblower’s case. While the seal is in effect, it also preserves the whistleblower’s anonymity.
At some point during the government’s investigation, the government decides whether it wants to pursue the whistleblower’s case. If the government views the case favorably, it typically will try to convince the defendant to settle the case. If that doesn’t work, the government will “intervene” in the case and take it over for purposes of litigation against the defendant. If the government resolves the case, either before or after active litigation, the whistleblower is entitled to 15 to 25 percent of the government’s recovery.
Even if the government decides not to take over the whistleblower’s case, the False Claims Act permits the whistleblower to continue to litigate the case on behalf of the government. Litigating such “declined” qui tam cases can be arduous, but it also can be rewarding. In a declined case, the whistleblower is entitled to 25 to 30 percent of the recovery on behalf of the government. So, for example, in 2022, when the government declined to intervene in a customs fraud qui tam case that Gregg Shapiro had brought, he began litigating the case and the defendant quickly offered to settle. That case resulted in a 27.5 percent award for the whistleblower just 15 months after Gregg filed the case.
Protections for Whistleblowers under the False Claims Act
Because False Claims Act qui tam cases are filed under seal, nobody other than the government knows when a whistleblower has initiated a qui tam case. Eventually, the seal gets lifted and the whistleblower’s name becomes public. Under the False Claims Act, however, it is illegal to retaliate against a whistleblower for filing a qui tam case, or to retaliate against someone who tries to stop False Claims Act violations before filing a case. As a result, some whistleblowers add retaliation claims to the qui tam cases that they file.
Whistleblower Submissions to the SEC, CFTC, IRS, and Other Government Agencies
For many years now, the SEC, CFTC, and IRS have had whistleblower programs. There are also new agency whistleblower programs – involving vehicle safety, money laundering, and kleptocracy – that are just getting off the ground.
The SEC and CFTC Whistleblower Programs
An SEC or CFTC whistleblower need not use an attorney, but an attorney often can help the whistleblower draft a submission that is more likely to attract the interest of the agency. Also, while the SEC and CFTC try hard to preserve the anonymity of all whistleblowers, an attorney can ensure that the whistleblower remains anonymous.
Typical SEC whistleblower submissions may involve evidence of insider trading, fraudulent statements in securities offering materials, accounting fraud, or foreign bribery. Typical CFTC whistleblower submissions involve similar conduct, including spoofing, that affects the commodities or derivatives markets.
If a whistleblower submission results in an SEC or CFTC recovery of greater than $1 million, the agency may award the whistleblower 10 to 30 percent of the amount recovered.
In recent years, the SEC and CFTC whistleblower programs have paid out hundreds of millions of dollars in rewards.
The IRS Whistleblower Program
If a whistleblower makes a submission to the IRS concerning a tax fraud involving more than $2 million and the submission results in a successful action by the IRS, the whistleblower may be entitled to 15 to 30 percent of the government recovery.
Unfortunately, the IRS whistleblower program has had little success in recent years. In fiscal year 2021, the agency paid out just a handful whistleblower awards for a total of $36 million. Agency leaders have promised to revitalize the IRS whistleblower program, but it remains to be seen whether that effort will be successful.
The NHTSA Whistleblower Program
The National Highway Traffic Safety Administration has a new program for whistleblowers who can provide information about violations of the Vehicle Safety Act. In 2021, the NHTSA made its first whistleblower reward, for $24 million to an individual who supplied information about engine defects in Hyundai and Kia automobiles.
The Money Laundering Whistleblower Program
Since 2021, the Financial Crimes Enforcement Network (FinCEN) has had a whistleblower program for individuals who supply information about money laundering activities, including violations of the Bank Secrecy Act.
The Kleptocracy Asset Recovery Rewards Program
The newest government whistleblower program is the Department of the Treasury’s Kleptocracy Asset Recovery Rewards Program, which is intended to pay rewards of up to $5 million to individuals who supply information leading to the restraint or seizure, forfeiture, or repatriation of stolen assets linked to foreign government corruption.
How Whistleblower Attorneys Charge for Their Services
Most whistleblower attorneys, including Gregg Shapiro, typically do not charge an hourly rate to their clients up front. Instead, they charge a contingency fee if, and only if, the case is successful. The contingency fee is a fixed percentage of the client’s recovery that is agreed at the outset of the representation.
In addition, in a successful False Claims Act qui tam case, the whistleblower’s attorney is entitled to collect his or her hourly rate from the defendant for time spent on the case. Other whistleblower programs do not provide for payment of hourly attorney fees by the defendant.
For whistleblowers, the bottom line is that there is no upfront cost because whistleblower attorneys generally do not bill their clients by the hour. A whistleblower attorney gets paid only after the attorney achieves a monetary recovery for the client.