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Why Maryland needs a broader false claims law

Attorney General Brian Frosh on why Maryland needs a broader false claims law.

As Maryland's leaders work to close a state budget shortfall and make government more accountable, we need every tool at our disposal. One particularly effective instrument in protecting taxpayer money is called the False Claims Act.

For the federal government and many states, the False Claims Act creates a firewall against fraud and incentivizes whistleblowers to speak out and report theft.

The approach has a long, bipartisan history of success. The federal government first enacted a False Claims Act in 1863, when Abraham Lincoln wanted to leverage the ability of the government to crack down on unscrupulous Civil War contractors who sold rotten food and defective arms to the Union Army.

It was updated and strengthened in 1986 — by Republican Sen. Chuck Grassley of Iowa and Democratic Rep. Howard Berman of California — and was signed into law by Ronald Reagan. In 2005 and 2009, further changes allowed states to share in the benefits if they adopted their own versions of the law.

Twenty-nine states have enacted laws based upon the federal statute. But nine of them, a group that includes Maryland, have limited their laws to apply only to health care and Medicaid cases.

Maryland has recouped about $60 million since adopting a False Health Claims Act in 2010. But we can do better –— preventing more fraud, and saving more taxpayer dollars. The time has come to enact a full, robust law so that Maryland, its 24 counties and Baltimore City can begin recouping millions that we know are being lost.

That is why I have asked the General Assembly to adopt such a measure this year (House Bill 405/Senate Bill 374).

The new law will be effective because employees of companies doing business with government often have the most detailed information about wrongdoing. But they may stay silent because they fear they will be fired or demoted.

The False Claims Act provides whistleblowers with protection against retaliation. And it creates motivation for speaking out, allowing individuals with useful information to receive a reward of up to 25 percent of the judgments obtained by the state or county resulting from the legal action.

There are powerful examples of the laws' effectiveness throughout the county. Take Joe and John Carciero, brothers who were general managers for the multi-billion dollar food service company Sodexo. Sodexo sold school lunches to many New York school districts. The Carcieros learned that their employer was negotiating big discounts when it purchased food, but was pocketing the money instead of passing the savings on as their contracts required. They complained to their bosses and were fired. So they blew the whistle, and, working with the attorney general of New York, helped recover $20 million in funds that were supposed to go to kids and their schools.

In Virginia, Attorney General Mark Herring last year filed a $1.15 billion case against 11 banks accused of defrauding the state's retirement system. The whistleblower is an analytics firm that did a sophisticated analysis to show how banks were rigging the mortgage securities market, providing data that Virginia officials would not have collected on their own.

A broader false claims law will allow Maryland to pursue those types of cases and more against companies that say they are providing American-made goods but aren't, or companies that are supposed to pay prevailing wages but don't. Others states are doing just that, but Maryland has been missing out.

While some argue that the law would encourage more lawsuits, or dampen the state's business climate, experience around the country shows that is not the case. Putting cheaters out of business helps firms that play by the rules. Red states and blue states known for business-friendly environments have false claims acts, including Texas, North Carolina, Colorado and Georgia, among others.

Under our proposal for Maryland, only legal actions that meet the standards of the attorney general's Office can move forward. This check means that frivolous or unsubstantiated suits will be weeded out.

Lawmakers should act quickly on this legislation, which has sponsors from both parties. This is not an issue of right versus left. It is an issue of right versus wrong.

Brian E. Frosh is attorney general of Maryland. His email is bfrosh@oag.state.md.us.

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