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Post date: June 12 2003

Spitzer Calls For Passage Of State False Claims Act

State Attorney General Spitzer today called on the State Legislature to enact his proposed legislation to enhance enforcement against those who defraud State and local governments.

The bill, which is modeled on the federal False Claims Act, authorizes treble damages against the perpetrators of such frauds, and also provides individuals with a financial incentive to provide information about fraudulent activities involving government funds.

"In these difficult fiscal times, it is essential that we take every possible step to protect taxpayer dollars by preventing fraud against the government," said Attorney General Spitzer. "The federal government has been extremely successful in this effort because it has effective statutory tools, and New York must adopt similar protections. This bill is particularly important for local governments, many of which are struggling to balance their budgets."

The federal False Claims Act – which permits "qui tam" actions by whistleblowers who receive a share of the proceeds – has existed in various forms at least since the mid-1860s. In a qui tam action an individual with knowledge of fraud may bring a law suit on behalf of the state and share in the recoveries. Since 1986, over 3,500 federal qui tam cases have been filed and over $4 billion has been recovered by the federal government. Several states – including California, Florida, Illinois, Louisiana and Tennessee – have adopted legislation modeled after the federal law. California’s law also allows lawsuits on behalf of local governments.

A key component of the federal law – and Spitzer’s proposed state legislation – is the provision authorizing individuals who reveal frauds to obtain a share of the recovery. These financial incentives allow the State and local governments to learn about frauds they otherwise would never discover, result in the recovery of amounts stolen from the government (plus additional penalties), and deter future frauds from occurring.

Spitzer noted that in April, the federal government settled the largest Medicaid fraud case in history, resulting in the recovery of $344 million from two major drug companies. The case had begun as a qui tam action by a whistleblower who revealed the fraud, and New York State is getting over $15 million as its share of the Medicaid recovery. That case would never have been brought – and New York would be $15 million poorer – if it had involved only State funds and not federal funds. A New York False Claims Act would provide an incentive for individuals to reveal frauds.

"I have been told by attorneys that they turn away individuals who claim to have evidence of frauds against New York State, because there is no basis for them to bring lawsuits to recover the funds. We should be encouraging these individuals to come forward with such information, so that we can recover the amounts owed and reduce the burden on honest taxpayers."

Spitzer noted that financial incentives work well in other contexts, such as the New York State Crime Stoppers program, which offers monetary rewards for individuals who provide information about criminals who shoot police officers.

False claims acts enjoy bipartisan support, because they not only prevent fraud, they also make more money available for education, health care and other purposes. Senator Charles Grassley (R-Iowa), who co-authored legislation updating the federal law in 1986 with Congressman Howard Berman (D-Cal.), has stated that the False Claims Act "is so successful because it employs bedrock principles of fiscal conservatism."

Spitzer also noted that his proposal protects businesses that want to cooperate, and prevents false accusations and vexatious lawsuits. These include: (1) requiring that private qui tam lawsuits be filed under seal and reviewed by the Attorney General, who can supersede, settle or dismiss the action; (2) preventing recoveries by individuals convicted for participation in the fraud; and (3) prohibiting lawsuits based on tax claims, lawsuits against government entities, and lawsuits involving frauds under $25,000.

"The State and its local governments are looking to balance their budget by attacking fraud, cutting spending, and increasing revenues," said Attorney General Spitzer. "Enactment of a False Claims Act would allow us to do both simultaneously, by cutting off funds being paid to perpetrators of frauds, and recovering the money they have already stolen from the government."