Brian Mahany: Transcript of Mensa Annual Conference Keynote featuring 2015’s leading whistleblower attorney and author of Saints, Sinners & Heroes Brian Mahany
On July 3, 2015 in Louisville, Kentucky the Mensa Annual Conference featured Brian Mahany as a keynote speaker sharing stories of his high profile False Claims Act wins and the whistleblower lawsuit landscape in general:
Introduction by Mensa Host
Brian Mahany has been working of late on the biggest whistleblowing case in the history of the United States, and he’s going to be talking about that and the state of America. His book called Whistle-blowers: Sinners, Saints, Heroes will be published this winter and he came to us through his publisher. So please give a warm welcome to Brian Mahany.
Brian Mahany: Thank you. Thank you, Kat. I am honored to be here today. What you’re going to hear today is a mix of law, big business, corporate greed, justice, and every day heroism. That’s what defines the whistleblower landscape in America today.
Before I begin, I always just like to find out from folks what they think of when they hear the term, ‘whistle-blower’. So if I were doing this talk in an inner-city, for example, people would immediately think of snitches that are going to the cops. Some people think of tattletales, some people think of people that have been disciplined or been fired, or suffered some sort of retaliation for wrongdoing in the workplace.
Before I begin my formal remarks, does anyone have any ideas, or what comes to your mind when you hear the term ‘whistle-blower’?
Brian Mahany: That’s great. Actually, a lot of people think the same thing. Yes, sir.
Audience: Somebody sees something going on that they know is wrong and have the courage to act on it.
Brian Mahany: True. So we’re hearing some common themes here. We’re hearing of courage and heroism. We’re hearing of the underdogs that are against all odds. What I’m going to talk about today is a very narrow subset. It is the whistleblowers that bring cases under the I.R.S whistle blower program or the Federal False Claims Act. These are often cases that have changed history. They are stories of good vs. evil, they are stories of underdogs; they are stories of David vs. Goliath.
I‘m going to start with the story of David vs. Goliath at least as we understand that story in the biblical story of David vs. Goliath. It takes place in the Old Testament, it takes place in what is today Israel, what was then Palestine. The area of Palestine where David vs. Goliath took place is called Sheppela. Sheppela today is an area south of Jerusalem, it is bordered by mount Hebron and the Coastal planes.
It’s an area where many battles over history have been fought, it is the gateway to Jerusalem, it is the gateway to Bethlehem, the gateway to Hebron, and back in the Old Testament times, it is where the Philistines fought the Israelites. Unlike combat today with mass casualties, in the battle of David vs. Goliath at least as it’s told in the bible, it was one on one combat
The Philistines picked their greatest warrior; Goliath, the Israelites had the opportunity to pick their greatest warrior and the two were going to fight one on one and whoever won that battle, that would be how the war was decided
So, as we all know from history, Goliath was apparently this huge individual, many say that he was 7 feet tall, We know that he was armed with full body armour, bronze helmet, bronze breast plate, bronze leggings. He had a sword, he had a shield, he had a javelin and he was the first on the battlefield. The Israelites where up in the hill looking down on Goliath, the giant standing there, and all wondering, ‘Who’s going to fight Goliath?’ And apparently nobody was ready to volunteer; none of the Israelite soldiers were willing to volunteer.
Finally a young shepherd boy named David came forward. David wasn’t a soldier; he was apparently there to bring food to the soldiers. To say that he was armed is probably an over statement; he had a shepherd’s crook, and he had a sling. As the story goes, David approached king Saul and said, ‘I will go down there and fight Goliath’ and Saul said, ‘Hey, you’re just a boy. How can you take on a giant like Goliath?’
But David wasn’t afraid, David decided that the future of the tribe, the future of the Israelites was at stake, and if no one else was going to volunteer, he was going to volunteer. What happened next is one of the greatest historic battles ever. It is the battle of the young shepherd boy David, vs. the giant, Goliath.
So what happened in that battle? Apparently David used his sling, picked up a rock, whipped the rock around, threw it and hit Goliath between the eyes, Goliath was stunned, David took his sword, that’s Goliath’s sword, beheaded Goliath, and the rest is history. I use that story, because it’s a good intro. It’s one of the most famous battles, as I have said. It is the story of good vs. evil. It is the story of the underdog persevering and prevailing against all odds.
With that in mind, we’re going to turn to... Oh by the way, there is the alternative version of David vs. Goliath: the politically incorrect version of David vs. Goliath. The caption says ‘if anyone asks, you hit him in the forehead’. I think this is a type cartoon; you don’t even need the caption. Just looking at it, you can pretty much look at it and see what it says. Hopefully this is acceptable for this audience and I haven’t offended anyone.
So, the first story I’m going to tell is about Bradley Birkenfeld. That’s a picture of Bradley and myself this May in Miami, I flew down to meet him. Bradley Birkenfeld has the largest whistle blower award in history, he is the individual who had the largest check from the government, and this story is an interesting one. Unlike stories in the Bible where there is a clear good and bad, black vs. white, good vs. evil, things in modern time and much more grey, and his story is very controversial.
Bradley Birkenfeld, it’s hard to tell there, but he stands six foot four. He’s a very loud individual. In a prior career I was a law enforcement officer, I was a cop in New Orleans and people like Bradley Birkenfeld have what I call command presence, when they enter the room you know they are in that room. He was the son of a neurosurgeon, grew up in New England, he went to military college in Vermont. Later he would go to Switzerland to get his M.B.A.
He started his career in finance, he started working in the United States in Massachusetts, he worked for 11 years at State Street bank, he was doing currency trading and then decided that he wanted to go back to Switzerland. He first went to work for Credit Suisse, then he went to Barclays, and around 2001 he ends up in UBS, and that is pretty much where he would end his banking career. When he was working at UBS his job was to recruit wealthy Americans.
I’ll take a little bit of a time out to do a little bit of background explanation.
Owning a Swiss account, not withstanding what people hear in the media, is not illegal. If you want to own a foreign bank account, that’s absolutely legal as long as you tell the government about it. We have this law called the Bank Secrecy Act, which goes back to 1970 and it says that if you have more than 10 thousand dollars of foreign financial assets, you have to tell the government. You don’t have to tell your creditors, you don’t have to tell anyone else, but Uncle Sam wants to know where your money is.
So if you’re opening a Swiss account because you’re in a high-risk occupation, if you are a neurosurgeon and you’re worried about being sued and you want to do some sort of offshore asset protection, totally legal. If you’re worried about the collapse of the American banking system, and you want to put some of your assets in Switzerland, totally legal. If you want to own a Swiss account to hide your money from Uncle Sam and not pay taxes, or evade taxes, it becomes a felony.
And after 3 years, the light went on in Birkenfeld’s head. By 2004 he figured out that many of the American clients that he was signing up were trying to hide money from Uncle Sam. He knew this for several reasons. First of all, UBS had 50 people, just like Bradley in the United States, whose only job was to run around and find wealthy people, very high net worth individuals. They would sponsor regattas, they would sponsor golf events; anything where they thought very wealthy people would hang out. They would sponsor these events, show up, and try and sign clients up.
If the client said, ‘Hey, I want to hide my money,’ UBS was only too happy to help. They would help people create corporations in Panama, which at the time allowed bare shares, so there was no record of corporate ownership, they would help people create foreign trusts, they would agree to hold statements in Switzerland so that there was no mail coming into the United States that you would have an account at UBS. Birkenfeld says that they were trained to lie to Customs agents, and because by this time he is both a resident of Switzerland and still a U.S citizen, he was told that whenever he went back to the United States, it was never work, he was always to tell customs if they asked, that he was going home to visit family, or home to visit friends. Never that he was there to sign up clients.
He said that his laptop, and all the laptops from the 50 private bankers from UBS had an extra button on them with a programme embedded on them so that if they were ever approached by the F.B.I, ever approached by the I.R.S or a Treasury agent, hit the button and it wipes out the hard drive. Obviously this is not a bank that is conducting legitimate business; this is a bank that is helping wealthy Americans evade taxes.
So, what did Bradley Birkenfeld do? Having represented many, many, whistleblowers, Bradley Birkenfeld rings true to me. Over 95% of the people that I have met or represented, don’t become whistle blowers because they’re interested in an award pay out, they blow the whistle because they want to do the right thing.
So the first thing he did is told his boss. He said ‘Hey, this is wrong. I’m breaking the law and I’m not comfortable doing this anymore. And he was ignored. So then he went to the compliance department at UBS and he was ignored again. Finally he went to the legal department and was still ignored. So around 2005 he decided that he just couldn’t do this anymore and he quit. He didn’t become a whistleblower until around 2007. He says he thought very long and hard about what his next move should be. He was worried that if he became a whistle blower he could be prosecuted because he was part of this. He helped many wealthy Americans hide money. He helped a Russian billionaire that was a U.S citizen hide tens of millions, hundreds of millions of dollars in a Swiss bank account and he knew he had some risks.
So he weighed his options. Ultimately he went to the I.R.S in 2007, talked to them, asked for immunity and the I.R.S said ‘Hey we have a whistle-blower program. We’re not interested in prosecuting you but we don’t have the ability to give you immunity.’ So Birkenfeld went back to the drawing board, hired a lawyer, considered his options and went to the Justice Department. The Justice Department said, ‘Sure, we can give you immunity but we choose not to give you immunity. We’re not going to give you immunity.’
So he ultimately decided, ‘Hey, I’m still going to do the right thing’. And he sat down over a series of days with both the Justice Department and the I.R.S and told them everything he knew about how Swiss banks, not just his banks, but how Swiss banks in general were helping Americans evade taxes.
How did he get thanked for that? In 2008 when he was flying back from Switzerland back to the United States, remember, he’s not working for UBS anymore, but he’s still a resident of both countries. He’s flying back to his native New England, he gets of the flight at Boston and he’s promptly met by 2 special agents of the Criminal Investigation Division of the I.R.S, with guns and handcuffs and the handcuffs are meant for him. He was arrested. That created all types of outrage within the whistleblower community.
The I.R.S has always operated on what they call the first contact policy. You wont find it in writing, but the I.R.S.’ policy is, ‘Hey, if you haven’t filed returns for years, or if you fudged numbers on your returns and you want to come clean, if you get to us first, if you come to us, we won’t arrest you. We might issue all kinds of penalties, you might be broke, but at least you know you’re not going to go to jail. And the idea behind that is, we want people to come forward, we want people to admit their mistakes and come clean and come into compliance with the Tax Code. ‘
Unfortunately, the Justice Department has different rules. The Justice Department said, ‘Hey, you committed a crime. You helped people set up offshore accounts, that’s a crime and you’re going to be prosecuted for that.’ So the prosecution went forward. Birkenfeld didn’t really have a defense; after all he had sat down with the Justice Department, sat down with the I.R.S and pretty much confessed everything. It’s kind of hard after you have a video taped confession to now plead not guilty and want a trial. So he plead guilty.
Next came the sentencing phase. What should happen to Bradley Birkenfeld?
Now, today, as I stand here today, there have been dozens of Swiss bankers, and bankers from other countries that have been criminally prosecuted for helping Americans hide accounts. Back then there had been no historical reference. Although the Banks Secrecy Act has been on the books since the 1970s, it’s been used for money launderers, it hadn’t been used for people setting up unreported accounts in Switzerland. Nobody really knew what to do.
Ultimately, the Justice Department admitted that Birkenfeld had been extremely corporative, had provided tons and tons and tons of information to the government. The U.S. sentencing guidelines, that’s what judges are supposed to start with when they figure out what sentence somebody should receive, said that Birkenfeld should get a sentence of 57 months. That was the midpoint of the sentencing guidelines. There really wasn’t any precedent for this though. The sentencing guidelines were built for money laundering, being terrorists or helping drug dealers. They weren’t built for these situations where Americans were hiding money from Uncle Sam in Switzerland.
The Justice Department waffled; they knew that they were alone in the quest. The prosecutor told the judge that the only reason the Justice Department prosecuted Birkenfeld is because Mr. Birkenfeld didn’t come completely clean in his debriefing. Birkenfeld’s reply was, ‘How could I come completely clean? You didn’t give me immunity. I told you in general what was going on, I can’t tell you about my clients. I asked for immunity, and or I asked for you to issue a grand jury subpoena. I am still a resident of Switzerland I am still subject to the Swiss Bank Secrecy laws and I could be prosecuted in Switzerland and I could go to prison for 15 years for telling you about my American clients. So yes, I didn’t tell you everything, I told you more than enough and had you given me immunity or a grand jury subpoena, I would have told you about my clients.’
The case goes before the judge, and one of the most unusual criminal sentencings, Senator Carl Levin, who was then the Chair of the Senate Permanent Sub Committee on Investigations actually wrote a letter on behalf of a convicted felon, at this point Birkenfeld has plead guilty, saying ‘Hey, give this guy leniency. We couldn’t have done what we did without his testimony.’
The director of enforcement of the S.E.C wrote a letter on Birkenfeld’s behalf. Even more surprisingly, the Chief Counsel’s office of the I.R.S wrote a letter directly to the judge said, ‘Hey judge, be lenient. This is a guy that came forward to us and gave us valuable information.’ The Justice Department waffled a little bit more and said ‘Well Judge, he was cooperative, don’t give him 57 months, give him just 30 months.’ The judge gave 40 months with no explanation. I have the transcript from the sentencing and no explanation at all. Birkenfeld, the lawyers, they make their argument and the judge just looks at them and says ’40 months in prison’, bangs down the gavel and Bradley Birkenfeld heads to prison. He was given 90 days first out-of-jail so that the F.B.I could get more information and he was still cooperative.
It was kind of hard for the Justice Department to say ‘Put this guy in jail, but judge, give us an extra 90 days so that we can pick his brain a bit more.’
I saw a hand right here.
Audience: He had been in jail for some time before he was sentenced, so he had some jail time?
Brian Mahany: No he did not. He was arrested in Boston, the prosecution was in Florida, so he was in custody of the marshal for 2 or 3 days while they flew him from Boston to Miami, but then we was released on bail. But now that he is convicted, he has to go to prison. He actually serves 32 months out of that 40-month sentence.
Audience: Any fines?
Brian Mahany: Excuse me?
Audience: Any fines?
Brian Mahany: Any fines? He paid a small fine, like $72,000. I say small, and I’ll tell you why it’s small in a minute.
The Whistleblower Advocacy Center screamed that no one is going to come forward again if you put them in jail for coming forward and reporting misconduct from their bank. And they’re right. There have been a lot of bankers that have come forward, but to my knowledge no one from a foreign bank has since come forward. I say to my knowledge, all of these cases are under seal, you and I don’t know about them until they’re over and the government announces whatever action they’re going to take, so there could be others but we haven’t heard about it.
The very conservative accounting group called Tax Analysis promptly after Bradley was sentenced to 40 moths in jail, they turned around and nicknamed him 2009 Person of the Year. To the whistle-blowers and to the I.R.S he was a hero. To the Justice Department, the Justice Department was still waffling back and forwards saying ‘well he’s a criminal, but no he’s not a criminal, he’s helped us’.
But he goes to jail. What happens after he is released from jail is the amazing part of the story. Since Bradley was convicted, obviously we all heard in 2009 that UBS entered a deferred prosecution agreement. At the time it was the largest fine against a bank, it was a $780 million dollar fine.
They didn’t have to plead guilty; they entered a deferred prosecution agreement that basically says if you stay out of trouble for a few months, we’ll just wipe your record clean. Paid $780 million dollars, they had to disclose 4,500 names of Americans with accounts. Later the government would go after Credit Suisse, Credit Suisse had to plead guilty and paid the next record fine, $2.6 billion dollars, a third Swiss bank, the oldest private bank in Switzerland, Waglin, would plead guilty and within a week they just closed the doors, they went under. The fine just put them under.
Since then, 25 other Swiss banks have raced to the Justice Department trying to make a deal. The I.R.S reports that as of last year, the only statistics I have are through 2014, 45,000 Americans have come forward to report their foreign accounts. Those 45,000 Americans have paid a total of $6.5 billion dollars in tax, interest and penalty.
What happened to Mr. Birkenfeld? Well 5 weeks after getting released from prison, he served 32 months, the I.R.S presented him with a whistle-blower award check of $104 million dollars. That record still stands today. I have had larger cases, but not one person has ever made more than Mr. Birkenfeld.
Audience: Is that before or after tax?
Brian Mahany: It’s a good question. The I.R.S withholds taxes from their whistle-blower awards. Believe it or not, the Justice Department doesn’t. If you or I go to a casino, and we win 1,000 bucks, they’re going to withhold tax from us. But if I get a whistle-blower award under the Justice Department False Claims Act, for $10 million bucks, no withholding. The I.R.S are a little bit smarter than that, they want the money up front.
He gets $104 million bucks. To this day, the I.R.S continue to say that they will pay awards to people, even if they have engaged in criminal misconduct, it’s that important for them to get the people to come forward, and the Justice Department to this day says ‘hey, if you’ve committed a criminal act, we will restrict the amount of an award you will receive.’
Had Birkenfeld filed under the False Claims Act, and you can’t use the false claims act for taxes, but his award would have been capped, and he would have made roughly $35 million dollars instead of $104 million dollars, under the same set of facts. Because the Justice Department, under their whistle-blower program has decided that if you engage in criminal activity you should get nothing, or a very small percentage. I leave it to this audience. Who is right? Is it the Justice Department that says ‘we don’t want to award criminal behavior,’ or is it the I.R.S that says ‘Hey, if you want to come clean, we want to hear from you, and we’ll pay you an award.’
Audience: Can you give us the names of the Americans who came forward to confess?
Brian Mahany: To confess?
Audience: Yeah, the rich people who had the Swiss accounts... Yeah, who was it?
Brian Mahany: We don’t know who they are, because it’s tax information. Unless somebody is criminally prosecuted, tax information remains confidential. So we have to take the I.R.S at its word when they say 45,000 people came forward.
A year ago, there was an international group of investigative journalists who got some leaked documents; there were actually documents that were taken from a foreign banker, a guy by the name of Herve... I can’t remember his last name, it will come to me, who gave them to the journalists, and the journalists published a bunch of those names, but that’s one of those Wiki Leaks type things. The I.R.S doesn’t release the names of taxpayers.
Audience: I want to know if I’m on that list.
Brian Mahany: You could be on the list. If you’re on the list, I would run to the I.R.S. They wont prosecute you if come forward first. It’s not in writing, but they have a pretty good history of that. So, that’s an I.R.S whistle-blower case, let’s talk about another whistle-blower case.
An American icon, Lance Armstrong. He’s one of the greatest sports figures in the history of the United States. He won the Tour de France several times. He had cancer, beat cancer, and still went on to win the Tour de France several times. And throughout his entire racing career, multiple times, he was accused of doping, he was accused of steroid use. Armstrong always denied it, and nothing ever seemed to stick.
For years and years and years, there were always these rumors about Lance Armstrong using performance enhancing drugs, but nobody could prove it. Armstrong not only denied it, he went public, several times, and threatened anybody who accused him of doping, he was going to sue.
So, you have rumors and then you have Lance, our American icon, our seven-time Tour de France winner who said ‘I’ve never used performance enhancing drugs.’
So who do you believe? Let’s tell a little more of the story. Lance finally gets caught in 2015. He actually gets caught years before, and I’ll tell you that story in a minute, but he gets publically caught in 2012. By then the U.S Anti-Doping agency, yes we have a Federal agency called the U.S. Anti-Doping agency, is hot on his trail.
Armstrong goes to court trying to stop their investigation, he fails, the court won’t shut down the investigation, and Armstrong doesn’t admit to drug use in 2012, he merely says ‘I am no longer going to fight the allegations, because it is too hard on my family. I’m not a drug user, but I’m not going to say, government agency, that you’re wrong, I just want to be left alone and I don’t want my family to suffer anymore’.
2013, of course, he’s on Oprah, and he partially confesses. He says ‘I may have made some mistakes, and may have done things and taken things that I shouldn’t have’. I’m not sure if that’s a confession or not. Why is he suddenly confessing in 2013? Why is he not fighting the U.S Anti-Doping Agency anymore in 2012?
Well, we’re going to introduce to this story, Fred Landis. Fred is one of the team members of the U.S. cycling team. As you recall, the cycling team was sponsored by the U.S. Postal Service. If you remember, they all race around in their little biking uniforms with the little Postal Service logo on it. Landis and Armstrong were on the team for 3 years together: 2002, 2003, and 2004. Because the Postal Service was sponsoring the team, it’s Federal dollars and Federal dollars opens up the door for the Federal False Claims Act. The last case we discussed was an I.R.S case; this is a False Claims Act case. The False Claims Act is a Civil War law, it’s still on the books today.
Back during the Civil War, the Federal government was almost broke, fighting a very costly war, costly both in terms of money and in lives lost. And just like today, we had fraudsters back then, and fraudsters were selling the Union Army mules that were lame, wagons where the wheels would fall off, gunpowder that was wet and wouldn’t fire, rations that were rancid, wool blankets that had moth holes in them. The government was getting ripped off.
We didn’t have the money and the resources to prosecute these vendors all across the United States. Abraham Lincoln and Congress got together and passed the False Claims Act. The law, many people today say it is still called Lincoln’s Law. And what Lincoln’s law said was; you or I could file a lawsuit in the name of the United States of America, so it wouldn’t be Brian Mahany vs. Big Evil Corporation, it would be United States of America vs. Big Evil Corporation. I could file that lawsuit in the name of the government, the case would be filed under seal, which means it’s secret, the government will have a period of time to investigate and the government can do one of three things.
The government can say, ‘Hey, thank you for bringing this to our attention. We’re going to take over form here, and if we win, you’ll get a check,’ the government could say ‘Hey judge, there’s nothing wrong here. He or she has got their facts wrong, just dismiss this case,’ or the government could say ‘We’re not taking any position. We don’t have the time, we don’t have the money, too small, too far away, don’t have the expertise, let the whistle-blower pursue it,’ and then the whistle-blower gets an even larger check.
That law’s still on the books today. So Fred Landis decided that he was going to use that law when going after Lance Armstrong, and he used that law because the Postal Service had poured in tens of millions of dollars. In 4 years alone, the postal service has sponsored and paid sponsorship money of $31 million dollars. That’s your tax dollars and my tax dollars.
So what happened in this case?
Well, Fred Landis in his lawsuit, he files his lawsuit in 2010. It’s under seal, the public doesn’t know about it, ESPN doesn’t know about it, it’s not on Nightline, it’s under seal while the government investigates. But, while the government is investigating, the US Anti-Doping Agency took that information and began its own investigation.
So you have the False Claims Act case, which is proceeding in secret, and you have the Anti-Doping investigation that is proceeding independently, all based on Fred Landis. And Landis says, ‘Back in 2002, the first year I was on the team, we were in a hotel room and Lance Armstrong was giving me testosterone patches and telling me how often I could wear them, when I had to take them off and how to beat getting caught in a test.’
Landis puts in his lawsuit that during that timeframe Armstrong even admitted to getting caught in 2001, before Landis was even on the team, by a foreign Anti-Doping Agency in either a blood or a urine test, getting caught with a dirty test and making a financial contribution, a large contribution, to make it all disappear. So he pretty much admits to bribing a foreign official to make the doping allegations go away. And probably one of the funniest stories out of this lawsuit:
He says by 2004, there’s just so many rumors of Lance Armstrong using steroids, and the whole American team using steroids, that they’re under constant surveillance during the Tour de France. Literally the international cycling officials are following the whole team around, trying to make sure that nobody is doping. These cases are often like puzzles, and I like solving puzzles, so as the anti-doping officials keep coming up with new and better tests, the people that are actually using the steroids and the labs are coming up with new and better products and testing methods to beat the tests, or new drugs that can’t be tested for.
So, things are really bad in 2004. The French officials are all over the American team, there’s a widespread allegation of doping, and everybody suspects that the Americans are doping, but nobody can prove it, and they’re under constant surveillance.
So what happens?
When they’re in the tour bus going from one leg of the Tour de France to a different leg, the bus driver feigns a breakdown on this windy mountain road, where you can’t pull up next to the bus and acts like he’s fixing the bus for an hour, while doctors on-board the bus are transfusing everybody’s blood, and then the bus miraculously restarts and they go on to the next leg, everybody passed their drugs test, and life goes on. Landis tells another story in his lawsuit, where while Armstrong is flying around on a private jet, the team is selling bicycles.
Remember, the Postal Service is footing all of the bills for the whole team. There’s one problem, there’s no line item on the budget for steroids, or doping, or drug pushers, or drug dealers. So they have to pay cash for that. They can’t expense it, so they’re actually selling equipment, they’re selling bikes for cash to come up with the money to fund the doping. He files his lawsuit in 2012. It’s under seal, everybody admits that it was Landis’ information that gave rise to the U.S Anti-Doping Agency in 2012, finally catching up to Armstrong.
It was the government’s decision to intervene in 2013. The government tells Armstrong in 2013, we’re going to take over this suit, and once the government takes it over it becomes public, it becomes unsealed. That’s when Armstrong decides to go on Oprah and make his half-hearted apology; ‘I didn’t do anything wrong, but if I did, I’m sorry,’ and the rest is history. The case isn’t over, it’s still pending. Armstrong was just on the news a couple of months ago, whining that if the case goes forward, he’ll be broke and he’ll have no house to live in anymore. The government says ‘Hey, you took $40 million dollars of tax payers’ money.’
The Postal Service was paying basically for a drug free team, Postal Service thought what they were buying was a team so that people within the Unites States, and outside of the United States would look up to our athletes, and instead they got a team that was apparently all using drugs. So is he guilty? Is he not guilty? We don’t know, that case hasn’t gone to court yet, but it’s not looking good for Mr. Armstrong.
Brian Mahany: You know, I don’t know why the Post Office is sponsoring a team, that’s a great question. I suspect that we wanted a world class cycling team that apparently takes millions, apparently they put $40 million dollars into this, it takes tens of million dollars for equipment and training, and flying people all over to races. The same team was in the Olympics as well as the Tour de France, and the Postal Service, whether they were right or wrong, decided that they were going to spend Federal dollars on bicycle racing.
It goes beyond that. Landis said in his lawsuit, when the government took over, the government said it’s not just Armstrong. There were a lot of people that made millions and millions of dollars. Every time Armstrong won a Tour de France, he was given a big fat multi-million dollar check just for coming in first place. So, he’s not the only defendant in this lawsuit, there are multiple defendants in this lawsuit, he’s the primary defendant in this lawsuit.
So what got me into this business was the mortgage crisis in 2007, 2008. And like many of us here, probably we all know somebody in the time period who lost a job, who lost a home, who was going through foreclosure. I didn’t go through foreclosure, but my house was under water. I had to write a check to the bank just to sell my house; it was that much under water. I started to think about this, and I said ‘hey, the government isn’t really doing anything. It’s too busy, or it doesn’t know where to look. How can we use the False Claims Act to go after some of these big banks?’ And it’s my personal opinion, but I believe that the big banks were in a large part, responsible for much of the financial mess that they found themselves in.
We’ll talk about last year’s Bank of America. Bank of America has found themselves (inaudible) many times. This is not their first time to the rodeo. This, the Bank of America case however, is the largest whistleblowing case in history. It is not only the largest whistleblowing case in history, the settlement last year is the largest civil recovery against a single defendant of any type of lawsuit in the history of the United States.
It was $16,650,000,000 dollars, that’s the check that the bank ultimately had to write. Actually they had to write $10 billion in cash and then an additional $6.65 billion in soft money, different programs they have to pay over the next several years.
Several years. How did that case come about? I was fortunate enough to represent one of the whistleblowers on that case and before the case would be over, I would represent the second of the three whistleblowers. Each of them have a very different story.
The first one we’ll talk about is a guy by the name of Bob Madsen. Bob isn’t one of the C Suite Mafia, he isn’t one of the vice presidents or a senior vice president, not even a manager. He’s a property appraiser, he’s a property appraiser in Northern California, he works out of his house, he works for a company called Land Safe, and Land Safe is a Bank of America subsidiary. He actually gets his checks from the Bank of America, although his employer is Land Safe.
Land Safe is a national appraisal company. Their business, or their mission, is to go out and make sure that the value of property supports a loan.
Years ago, before we got into all of the mortgage mess, years ago banks held their paper. If you went to the local bank and borrowed $100,000 dollars to buy a house, that bank would hold that mortgage. If you defaulted, it was the bank’s investors that were on the line. But over the course of time, and really in recent years, the banks realized that they could make more money if they just sell these mortgages, bundle them up, put them in the form of a residential mortgaged backed security, sell it to investors. But in that process, it’s usually the government who backs that mortgage. The loan guarantees are basically; I say basically, 95% of residential mortgage loans are either insured by the V.A, the F.H.A, Fannie Mae or Freddie Mac.
Fannie Mae and Freddie Mac are private corporations. After the mortgage meltdown when they ran out of money the government put them under conservatorship, so now if you defraud Fannie, Freddie, F.H.A or V.A you’re defrauding taxpayers and that once again kicks in the Federal False Claims Act.
So by 2006, the property market is getting soft, particularly in California. Property values had peaked, but banks now don’t hold paper anymore. They’re not making their money from the interest payments on these mortgages, they’re making their money by flipping these mortgages. The quicker they can sell them, they take their commission and they run. So what do banks do? Banks want to close as many loans as possible.
The problem is, in 2006 it’s very, very, shaky. So, if I’m buying a house for $200,000 dollars, the banks in the old days would want to make sure that that house is worth at least $200,000 plus some percentage, whatever it is, just in case of a default. They make sure they get their money back. Now banks don’t have the incentive anymore. Freddie and Fannie, and the F.H.A, they all have their rules however, saying ‘Hey, before we’ll buy a mortgage from you, you have got to certify that you’ve done your homework. You have a duty.
You’ve got whatever income verifications that you have, you’ve had somebody inspect the property, that it’s not on an earthquake fault line, or that the house is really there, the house is liveable,’ and one of the things that they have to do is make sure that house appraises properly.
The government, or Fannie or Freddie, they don’t want to guarantee a loan if the property is only worth $100K and the loan on the property is $200K. That’s where the appraisers come in. But now the appraisers are getting pushed, and it’s not just Bob Madsen who says he’s getting pushed, of course the government operates with incredible 20-20 hindsight. And now we have this financial crisis and investigations, years after the fact has come and told us ‘Gee, in 2006 90% of the real estate agents were feeling pressure to push up their numbers, they were getting pressured by their employer. And Madsen was one of those guys.
Madsen says ‘hey, I would tell my boss this property is only worth $500K’, and his boss would say ‘no no, we need an appraisal that’s at least $750,000 so that we can close this loan. And Madsen would say ‘but it’s not worth $750,000.’ And his boss would say, ‘hey, we work for a bank, and if you want this pay check, you’re going to appraise this property higher.’
Legally you can’t force an appraiser to raise a number, but you just don‘t get any more work. What’s worse is Madsen says there’s something called an Industry watch list, and it isn’t a watch list, if you ask any real estate appraiser back in those days, they’ll say it’s not a watch list, it’s a black list.
Bank of America says ‘we only put your name on that list if you’re doing poor performance, if you’re just not doing your job right.’ The appraisers will tell you, ‘no, we get put on that list if our numbers aren’t high enough’. So not only am I not getting work, if I’m on this industry watch list, I can’t get a job anywhere else. So the pressure was on. It was later, post crisis that the government says ‘yes, 90% of the appraisers felt pressured.’
In 2011 after being widely ostracized, Madsen decided that he would file a case under the False Claims Act. The pressure was on by 2006 and in 2007 the market collapses in California and by that point it’s impossible to raise the prices and the banks have figured out that they can’t pressure appraisers anymore. So he waits a few years and he files his False Claims Act case in 2011.
The second of the whistle-blowers in that case is a guy by the name of Abdou. Unlike Mr. Madsen, who was just a front end employer, who was an appraiser, this fellow is on the back end, he’s an employee of the bank of America, he’s supervising 150 employees. Believe it or not, by 2012 there are so many bad loans out there, the Bank of America has to create a department with 150 people in it just to look at all these bad loans and figure out whether or not they have an obligation to buy it back. So if I’m writing a loan, I get the government to guarantee it, and then I sell that loan off, and that loan goes into default, as tens of millions of loans throughout the United States did, the bank is obligated to buy it back if they’ve done something wrong.
So if they committed appraisal fraud for example, which is what Madsen was complaining about, or if they didn’t get proper income verifications, of if they didn’t do proper credit checks, or if they just threw out the bad credit report, the bank is obligated to buy it back. Well, just like they’re committing fraud on the front end, Mr. Abdou says ‘we’re committing fraud on the back end. So we’re going through these bad loans and the government is saying ‘is this your fault, or is it the fault of the economy?’ and Bank of America is sitting there saying ‘Nope, not our fault, not our fault, not our fault,’ and he says ‘I’m looking at these loans and there are all kinds of problems in the underwriting, there are all kinds of problems in the origination, and we’re obligated to buy them back, but we weren’t doing that.’
So in January 2014, he files a case under the False Claims Act. He has no idea about Madsen, all of these cases are under seal.
There’s a third whistle-blower and his name is Edward O’Donnell, and unlike Madsen, who was on the front end as an appraiser, or Abdou who was on the back end looking at the charge backs, O’Donnell is an employee of Fannie Mae. He’s also a two-time whistle-blower. He had brought a whistle-blower case previously against Bank of America. Of all the cases in the post mortgage meltdown against big banks, only two cases went to trial, the banks lost in both.
One of them was a case in 2013 that the government actually tried against Bank of America who said ‘we’re going to try this case, and we’re going to win. They lost. They lost and they had to pay a $1.7 billion dollar fine. That’s under appeal right now. The problem with Mr. O’Donnell, his first case was filed under a different law, it was filed under a 1987 post savings and loan law that does pay a whistle-blower award, but it caps the whistle-blower award at $1.6 million dollars. So, assuming O’Donnell wins the appeal, he will get $1.6 million for that.
He filed two cases. Eric Holder personally announced on T.V. that the cases were being settled. In the run up to that, Brian Moynihan, the CEO of Bank of America went to the Justice Department and said he wanted to personally negotiate with Eric Holder, the Attorney General. The two agreed in principle in August to a $6.65 billion-dollar settlement. The bank did that because they just needed to do something to get all the institutional investors off their bank. The bank was paralyzed. They couldn’t move forward without knowing ‘are we going to get hit for $30 billion, $20 billion, $5 billion? What’s it going to be?’
So they settled it in August, but the actual settlement, really cool story, doesn’t actually fall into place until Christmas Eve of last year, and Christmas Eve was when I got to tell my clients, ‘Hey, you’re getting a wire. Look in your bank account, you’re getting a wire for literally tens of millions of dollars.’ But of course, as only a big bank could do, my bank said ‘Oh, we can’t process the wire on Christmas Eve, it has to go through anti-money laundering’. So clients knew that they were getting paid and they didn’t actually get paid until the 27th December.
It’s not just Bank of America that got hit with these big whistle-blower cases. The first one, one of my cases, Allied Home Mortgage, that one still going on in court. The government took that case over, that’s $2.4 billion dollars. Citibank, many of the big banks only got caught because whistle-blowers came forward and filed a case under the False Claims Act.
There’s been no human side to these stories yet. In our stories so far, it’s the taxpayers that lost, Postal Service lost, taxpayers lost. Yes, Bank of America did something wrong. By the way, Bank of America was allowed to settle that $16.65 billion dollar case without any admission of wrongdoing. They said ‘we’ve done nothing wrong. Here’s a check for billions of dollars, but we didn’t do anything wrong’.
Audience: You said they didn’t do anything wrong, but they just don’t admit to it.
Brian Mahany: That’s true. You are correct. Thank you.
So there are many victims, individual victims, people who have lost their jobs or lost their homes, or couldn’t refinance or get a mortgage modification, but it’s hard to pin it on any one bank. Where you actually see true victims is when you get to the Medicare fraud cases.
I’m running low on time here, so I’m going to speed this up just a little bit. We’re going to talk about Dr. Death. I didn’t nickname this gentleman Dr. Death. That was the Detroit News that called him Dr. Death. I want to talk a little about the human side of whistle-blower cases and you see it very often in Medicare fraud cases. Medicare fraud can take place in many different types of ways. Sometimes it’s just a clinic that’s billing for services that are never performed.
We have one case now that’s still under seal. Mental health services, pretty much like social workers, if a social worker comes out and spends an hour with you, they’ll code it that the social worker spent two hours with you, and turn around and bill Medicare. Straight up fraud is over money, but often in these Medicare cases, often it’s patients receiving unnecessary treatments. And if you want to hear some horrors, I picked this case, Dr. Fata, his name is Dr. Farid Fata.
Farid Fata was an oncologist in Detroit, I say was, he’s not practicing medicine anymore, and he’s probably going to spend the rest of his life in prison. He pled guilty last year to 16 counts of healthcare fraud, he’s facing life, healthcare fraud normally carries a 10-year sentence, but if somebody gets harmed or dies, the sentence can pretty much be enhanced to life.
Any one of these could keep him in for life, and he pled guilty to 16 counts. So you don’t just think that I am just saying he’s a bad guy, this is what the Justice Department said in a sentencing memo in in May of this year. Sentencing was supposed to be last month, it’s been put off. But in May, the Department of Justice wrote to the court:
‘Dr. Fata is the most egregious doctor in the history of the United States. Measured not by the millions of dollars he stole, but by the harm he inflicted on his victims, over 550 identified so far. Rather than healing or easing the suffering of cancer patients and others who sought his help Fata administered thousands of treatments. A variety of chemical infusions and injections, all with potentially harmful or even deadly side effects to the patients that entrusted him with their care. He did it entirely for his own benefit.’
As I would like to say in these cases, it’s profits over patients. He was an oncologist. He was telling some people they had cancer and giving them radiation and chemo treatments when they didn’t even have cancer, because he could bill Medicare. The more he treated them, the more money he would get.
I’ve talked to some of the victims, some of the victims have filed statements with the court, some of the victims are no longer here, some of them even died from the side effects of the ‘treatment’.
Audience: How many victims were killed from it?
Brian Mahany: It’s hard to tell. I know at least two people; the government said that at least two were killed. Remember the government only brought 16 counts, but they say in their sentencing memo, 550. So I have to be careful to not say that he has killed or harmed 550. He’s only been criminally convicted of 16 counts. But I think everybody agrees that there are dozens and dozens and dozens.
One woman lost both legs because of unnecessary chemo treatment. One gentleman was told he had bone marrow cancer when he doesn’t have cancer. He had years of chemo and now he gets multiple heart attacks, he can’t walk. Another individual who didn’t want to leave or give a name, says that he lost all of his teeth, and not only did he loose his teeth but the chemo apparently, one of the brands of chemo attacks your jawbone and teeth, he has an actual hole in his jaw, and in an unusual twist, Medicare paid hundreds of thousands of dollars for his chemo treatment but won’t pay for dental. He’s lost his job, he can’t go to work anymore, he’s in constant pain. One person told the court that he’s in so much pain he simply wants to die.
So what does this have to do with whistleblowers? Well it’s to do with whistleblowers because there was a nurse names Angela Swantek. And Swantek took a job in Dr. Fata’s office and didn’t stay long. She lasted less than a week. She was so horrified at what she saw. It didn’t take her long to figure out that he was giving far more chemo than was necessary. She didn’t know that some of these people didn’t have cancer; she just saw the doses and said ‘this isn’t right.’ She got so upset that less than a week into her job, she never came back from lunch. What did she do? She became a whistle-blower.
Angela Swantek reported Dr. Fata to the State Medical Licensing Board, which didn’t do anything. A month went by and meanwhile he’s still treating patients, a second month goes by, and he’s still treating patients, a year goes by and he’s still treating patients.
Finally, over a year later, the State says ‘we don’t have enough evidence, we’re closing our investigation.’ A second whistle-blower comes forward and goes to the feds instead of the State. Thankfully, someone in the Justice Department said ‘This is really serious’ and rather than just let a whistleblower case go through the process, contacted the F.B.I. He was arrested five days after the second whistle-blower came forward. The second whistle-blower was a physician. Fata’s probably going to spend the rest of his life in prison. I could tell these stories all day. I am running out of time. It is 5 minutes after 1.
I just want to talk about the human side for whistle-blowers. Many whistle-blowers loose their jobs. For those in the back, the cartoon says, ‘you did the right thing whistle-blower. So naturally, we have to fire you, good-bye’. It’s common for whistle-blower retaliation. Thankfully, Congress has passed some very strong anti-retaliation laws. They only work in the Unites States however. We get whistle-blowers from all over the world. A lot of the drug manufacturing now in the United States, the drugs are made in India and China. We’ll pay a Chinese or Indian national whistle-blower award, but our anti-retaliation provisions don’t reach outside the United States.
So, I’m winding down here, we’ll just go through some of the quick stats. Since 2009, the Federal False Claims Act has bought in $22.75 billion, that’s money that was actually paid. Those aren’t awards. Sometimes the government will win and get a judgement for a billion dollars and the company goes under and disappears. This is money collected, $22.75 billion. It does not include my Bank of America case. The federal fiscal year ended in October, the Bank of America didn’t pay until December.
FIRREA, that’s that 1980’s era Savings and Loan statue, the one that only pays a $1.6 million dollar award has brought in $108 billion dollars. Just last night getting ready for this, I was looking on Wikipedia and looking at the gross domestic product of a lot of foreign countries. A handful of whistle-blowers in the United States have brought in more money than the entire G.D.P of entire nations.
Just like the original David vs. Goliath story, these are stories where the underdog can win, these are stories where an individual can prevail against a giant corporation, and that’s about all I have. We have time for a few questions. We have seven minutes left. I’m happy to answer any questions.
Brian Mahany: Yes. A lot of people feel the same way. Even though there are anti-retaliation provisions, ultimately you win, but if you have a family to support, it’s hard to have no income for five years, knowing that, gee, maybe 5 years from now in 2121 I’ll get a check, but what happens now when I need to put bread on the table? Statue of Limitations is six years. There are circumstances where it can be extended but with every Federal law there are exceptions within exceptions, just think 6 years.
Brian Mahany: No it is not. There are the anti-retaliation provisions versus filing a whistle-blower claim. The S.E.C and the I.R.S whistle-blower process are relatively easy, you just fill out a form. The False Claims Act, you have to actually file a lawsuit in Federal Court under seal. It sounds complicated but there are lots of lawyers that do it for a living.
Audience: Why aren’t these big banks criminally prosecuted? Because paying a fine, it’s basically the shareholders picking up the tab, and the executives who actually are responsible for the fraud get off Scott free. Why aren’t we prosecuting them criminally?
Brian Mahany: Excellent question, the gentleman up front asked basically a rhetorical question saying, why aren’t we criminally prosecuting these bank officers. Why aren’t we putting them in jail? When we fine them, it’s only the shareholders that pay. I don’t disagree with anything you’ve said. In the 1980’s when we had the Savings and Loan crisis, the government prosecuted over 100 bank officers criminally. Now, we don’t process anyone at the C Suite level. We prosecute a couple of minor players but there’s scandal after scandal after scandal and no one goes to jail. I don’t know why.
But under the False Claims Act, you or I can actually take that case civilly, and even if the government doesn’t take it, we can go all the way. So at least it empowers ordinary citizens to do something, only the Justice Department can make a decision to criminally prosecute.
Gentleman at the back.
Brian Mahany: The whistle blower gets paid a percentage of what the company pays to the government. Whether it’s prosecuted by the government or prosecuted privately by the whistle blower. Generally that percentage is anything from 15-30 percent. If the government intervenes and takes over the case, it’s on the low end. If the government doesn’t intervene and you have to do all the legwork, it’s on the upper end.
I think I have time for two more questions. I’m being told that my time is up.
Brian Mahany: I don’t know whether they’re effective, that’s a good question, are anonymous whistle blowers effective? Last year there were just over 700 False Claims Act cases filed in the entire United States - those are Justice Department statistics, they are secret. We don’t know, but the Justice Department issues a report every year and they say there were just over 700. Flipside, the Health and Human services has a Medicare fraud hotline. They report that they’ve had over 10,000 reports every year.
Far more people are going to the hotline and reporting things. I know that Angela Swantek will tell you, don’t call the hotline, nothing happened to Dr. Fata. The second person who went to the Justice Department was more effective.
I have problems with hotlines for two reasons. One, I just don’t think they get enough attention, the government doesn’t have enough people to go through all of these claims. And two, you don’t get an award out of it. A lot of people don’t want an award, they just want to see it stop. But I still think there are better ways than just picking up and dialling an 800 number and reporting something anonymously.
One more question.
Audience: As far as financial fraud. What you were saying about a six year Statute of Limitations.
Brian Mahany: Yes. There are exceptions to that, but the general rule is six years. There was some case law in New York where they were using the Wartime Hostilities Act to basically say that as long as w