In this round-up of key qui tam settlements from June 2024, we outline three False Claims Act cases where whistleblowers helped the government crack-down on a wide range of fraud types 

Key Takeaways

• Cybersecurity issues and COVID-19 fraud remain recent focuses of the DOJ’s FCA enforcement efforts
• The possibility of large-scale fraud exists within defense contracting
• In successful qui tam cases, whistleblowers are eligible to receive between 15-30% of the settlement; in June multiple whistleblowers received multi-million dollar awards.

In June, the U.S. Department of Justice (DOJ) announced several major False Claims Act (FCA) settlements stemming from qui tam whistleblower lawsuits.

Under the FCA’s qui tam provisions, whistleblowers have the power to file suits on behalf of the federal government if they possess the knowledge of an individual or company defrauding the government. The government may choose to intervene and take over the suit, but regardless if a qui tam lawsuit results in a successful settlement, the whistleblower is eligible to receive between 15-30% of the monies collected.

The qui tam settlements announced in June demonstrate the scope of frauds covered under the FCA. While the DOJ announced many high-profile healthcare fraud cases in May, the June settlements touch on a diverse range of frauds, including defense contracting fraud, cybersecurity fraud, and COVID-19 fraud

$70 Million Settlement with SSSI and Derco for Allegedly Overcharging Navy for Aircraft Parts

On June 21, the DOJ announced that Sikorsky Support Services Inc. (SSSI) and Derco Aerospace Inc. (Derco) agreed to pay $70 million to settle allegations of improper markups on spare aircraft parts sold to the U.S. Navy.

According to the government, “SSSI and Derco, which were both wholly-owned subsidiaries of the same parent company, knowingly entered into an improper cost-plus-percentage-of-cost (CPPC) subcontract. Under that contract, SSSI agreed to purchase parts from Derco at the cost that Derco paid other suppliers for those parts, plus a fixed 32% markup. SSSI, in turn, submitted cost vouchers to the Navy for reimbursement of the amounts it paid to Derco.”

The settlement resolves a qui tam whistleblower suit filed by Mary Patzer, a former employee of Derco. Patzer will receive nearly $14 million as her share of the recovery.

On June 17, the DOJ announced that two consulting companies, Guidehouse Inc. and Nan McKay and Associates, agreed to pay $7.6 million and $3.7 million to resolve allegations that they violated the FCA by failing to comply with cybersecurity requirements in federally funded contracts.

Guidehouse and Nan McKay were contracted by New York’s Office of Temporary and Disability Assistance to administer the state’s emergency rental assistance program (ERAP), a federal program that provided federal funds “to eligible low-income households to cover the costs of rent, rental arrears, utilities and other housing-related expenses during the COVID-19 pandemic.”

According to the government, “Guidehouse and Nan McKay admitted that neither satisfied their obligation to complete the required pre-production cybersecurity testing.”

The settlement stems from a qui tam whistleblower suit filed by Elevation 33 LLC, owned by a former Guidehouse employee. The suit alleged that Guidehouse failed to complete the required testing. Elevation will receive nearly $2 million as its share of the recovery.

$12 Million Settlement with CityMD for Allegedly Submitting False Claims to the COVID-19 Uninsured Program

On June 7, the DOJ announced that CityMD, which manages and operates approximately 177 urgent care practices in New Jersey and New York, agreed to pay $12 million to settle allegations that it submitted false claims to the Health Resources and Services Administration’s (HRSA) COVID-19 Claims Reimbursement to Health Care Providers and Facilities for Testing, Treatment, and Vaccine Administration for the Uninsured Program.

According to the government, “from Feb. 4, 2020, through April 5, 2022, CityMD knowingly submitted or caused to be submitted false claims for payment for COVID-19 testing to the Uninsured Program for individuals who had health insurance coverage when CityMD administered those tests. The United States contends that CityMD did not adequately confirm whether those individuals had health insurance coverage before submitting their claims to the Uninsured Program, including but not limited to certain individuals for whom CityMD had health insurance cards on file.”

The settlement resolves allegations brought forward in a qui tam whistleblower suit filed by Stephen Kitzinger, a patient of CityMD. Kitzinger will receive $2,046,308 as his share of the recovery.

Conclusion

As these settlements demonstrate, qui tam lawsuits are crucial to the effective enforcement of the False Claims Act. The significant monetary recoveries and the deterrent effect of these settlements underscore the importance of qui tam provisions in uncovering and prosecuting fraud. In the 2023 Fiscal Year, the DOJ recovered a total of $2.68 billion from FCA settlements and judgments, more than $2.3 billion of which stemmed from qui tam whistleblower suits.

Furthermore, these settlements show two areas where the DOJ has been increasing its enforcement efforts: cybersecurity and COVID-19 fraud. In 2021, the DOJ launched Task Forces and Initiatives focused on these areas.