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Whistle-blowers find bonanza in new law


WASHINGTON -- Of all the roads to riches, Jack Dowden and Christopher Urda discovered one that enabled them to do good and do well at the same time.

They exposed defense and health care companies that cheated the government, helped the taxpayers recover $165 million -- and became millionaires and men of leisure.

"My wife and I sleep on nicer sheets, we drive nicer cars, we've been on a cruise to Alaska, I play golf, I go fishing," Mr. Dowden, 47, said from his newly purchased, million-dollar home in Southern California. "If I don't enjoy it, it's my own fault."

"It's the weirdest thing, not getting up early to go to work," Mr. Urda, 37, said from his new home in Binghamton, N.Y., where he awaits the baseball season with unusual eagerness. He's an owner of a minor-league team now.

Mr. Dowden, Mr. Urda and other whistle-blowers have spearheaded a boom in big payoffs made possible by a law that guarantees a piece of the action to citizens who win lawsuits exposing frauds against the government.

In all, 70 successful whistle-blower suits -- nearly all of which uncovered frauds in the defense and health industries -- have returned more than $425 million to the U.S. Treasury since Congress beefed up the False Claims Act in 1986.

The whistle-blowers and their lawyers have collected $61 million, and predict more multimillion-dollar bonanzas to come.

But now defense contractors -- the defendants in 75 percent of whistle-blower suits -- are leading an aggressive counterattack, simultaneously lobbying Congress to tighten the law while urging the Supreme Court to rule it unconstitutional.

The defense industry's allies include 69 Blue Cross and Blue Shield insurance companies worried about a recent surge of suits accusing health care organizations of fraudulent billing, deceptive drug applications and falsified research.

"In the last 18 months, there has been an explosion of successes in whistle-blower suits -- and the [defense] industry is trying to do what it can to limit these suits because they're feeling them," said Lisa Hovelson, executive director of the nonprofit Taxpayers Against Fraud.

Whistle-blower suits now restore more money to the U.S. Treasury than do fraud suits originated by the government itself, said Ms. Hovelson, whose organization bankrolls selected whistle-blower suits, shares in the windfalls and recycles the money into new fraud cases.

Under the False Claims Act, citizens act as bounty hunters or private prosecutors on behalf of the government. If they win their suits, they may obtain triple damages for the government and can keep part of the money.

They are entitled to 15 percent to 25 percent if the government joins their fraud suit, 25 percent to 30 percent plus legal fees and expenses if the government stays out.

In the seven years since it took effect, the False Claims Act "has become very important in ferreting out fraud of taxpayers' money," said Sen. Charles Grassley, R-Iowa, the Senate's leading advocate of the law. "The sad fact is you cannot always count on the federal bureaucracy to protect the taxpayers."

Whistle-blowers whose disclosures have produced the largest recoveries:

* Mr. Dowden, who discovered that laboratories were overcharging Medicare for unnecessary blood tests. While a laboratory salesman, Mr. Dowden used his own blood sample to verify the fraud.

His suit produced a record $139.8 million recovery from National Health Laboratories and Corning Metpath in 1992 and 1993. His 15 percent share of the settlement came to $21 million.

* Chester Walsh, a former General Electric Co. employee in Israel who smuggled out information that exposed a plot to misuse $40 million in U.S. military aid to Israel.

tTC In 1992, GE agreed to pay $46.1 million, of which $13.4 million went to Mr. Walsh, his lawyers and Taxpayers Against Fraud.

But the Justice Department turned against Mr. Walsh, telling a federal judge that he didn't deserve such a "large windfall."

The judge rejected the claim, accused government lawyers of displaying a pattern of antagonism to whistle-blowers and noted an FBI agent's testimony that Mr. Walsh "brought us the only information that we had."

"I think he's on a houseboat somewhere in Florida," Ms. Hovelson added. "He won't talk to the media. He's trying to lose himself."

* Mr. Urda, who was assembling bids for the now-defunct Singer Corp. when he learned that the company's Link division inflated its costs for military flight simulators.

"We actually had two sets of books at the same time, one real and one 10 percent higher. We'd turn the real one upside down and throw it in a drawer whenever government inspectors came by," Mr. Urda recalled.

Mr. Urda, his lawyers and Taxpayers against Fraud split $9.1 million of a $41.3 million recovery. After paying a 50 percent legal fee and close to $1 million in taxes, Mr. Urda invested in a rising stock market and the Binghamton Mets AA baseball team. "We have really good pitching," he said.

'Qui tam'

The concept of converting citizens into bounty hunters to recover money owed to the government is known to lawyers as "qui tam" -- shorthand for a Latin phrase that refers to someone "who sues on behalf of the king as well as for himself."

Qui tam has roots in 13th-century England but came to life in the United States in 1863 when the Union was in deep trouble during the Civil War.

Confederate troops had fought the Union army to a standstill. President Lincoln and Congress decided to crack down on war profiteers who filled musket crates with sawdust and sold the same horses and mules to the cavalry time after time.

The result was the False Claims Act, sometimes called the Lincoln law. It guaranteed private citizens 50 cents for every dollar recovered, even if they were motivated by vengeance or greed.

But 1943 amendments crippled qui tam until the nation's largest peacetime military buildup in the 1980s opened new opportunities to cheat the Pentagon, producing scandals that focused public attention on $400 hammers and $7,000 coffee pots.

New teeth for an old law

So Congress, led by Senator Grassley and Rep. Howard L. Berman, D-Calif., reinvigorated the law in 1986. Would-be whistle-blowers have responded by filing more than 600 suits, most of which the Justice Department viewed as unworthy of government participation.

Former acting Attorney General Stuart M. Gerson has complained that many of the whistle-blower suits were groundless or were filed by people who helped further the fraud themselves, exploited information already available to the public, failed to report their allegations to their employer.

Another target of widespread criticism is that the law allows a government employee to file a whistle-blower suit and be entitled to a reward -- despite the potential for conflict of interest.

Whistle-blower suits were extremely unpopular at the Justice Department during the Reagan and Bush administrations. Department lawyers even wrote an opinion declaring them unconstitutional. The Clinton Justice Department has rescinded that opinion, said Walter Dellinger, an assistant attorney general.

But the constitutional challenge remains alive in the courts. It is before the Supreme Court for the first time in whistle-blower Kevin G. Kelly's suit accusing the Boeing Co. of overcharging the government for leased buildings used for the B-2 bomber and other military aircraft programs. Defense contractors, health insurers and conservatives have joined forces to support Boeing's argument that the Constitution doesn't allow private citizens who have suffered no injury to sue on behalf of the U.S. government.

Such suits undermine the authority of the executive branch of government, allow whistle-blowers to wield government power without official appointments and violate the legal rights of corporate defendants, the challengers contend.

So far, though, lower courts have uniformly rejected those arguments, and whistle-blower suits claiming in excess of $1 billion head toward resolution.

The hardships of the whistle-blower's role were spelled out in September in the Senate testimony of Jim Carton.

He and a co-worker discovered that their employer, Litton Industries, was secretly shifting computer costs from private customers to the government, Mr. Carton said.

But the co-worker, fearful of losing his friends at work, deserted him, and a government anti-fraud hot line and two California legal referral agencies discouraged him.

In the end, he sued Litton. And the Justice Department, convinced he was right, joined him. What followed, he said, was "almost four years of nonstop litigation." He said he had vastly underestimated the time and emotional energy required to pursue his case, but was looking forward to a trial in 1994.

"Recently he and his wife decided to relax and get away from the stress by taking a Caribbean cruise for their wedding anniversary," his lawyer, John Phillips, reported the other day. "On the cruise he died of heart failure at the age of 51."


If you believe you have new evidence of fraud perpetrated against the government and want to explore a possible suit, write to the nonprofit Taxpayers Against Fraud, The False Claims Act Legal Center, 1250 Connecticut Ave., N.W., Suite 401, Washington, D.C. 20036, or call 202-296-4826 or 1-800-US-FALSE.

"I don't care if you're greedy or a malcontent -- so long as your information's good," said TAF Executive Director Lisa Hovelson.

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