Amanda Robert Feb. 14, 2014, 1:52pm

WASHINGTON, D.C. (Legal Newsline) -Former U.S. Deputy Attorney General David Ogden refers to the False Claims Act as the government's most important tool for combating fraud.

However, Ogden, now a partner at WilmerHale in Washington, D.C., and chairman of the firm's government and regulatory litigation group, also points out that the "extraordinary law" often achieves that goal by allowing private individuals, or relators, to bring lawsuits on behalf of the U.S. They then share a portion of the amount recovered through settlement or litigation.

The end result of these qui tam lawsuits? Individuals who were not harmed in any way can receive millions or billions in compensation.

"That brings about a whole series of problems," Ogden said. "But there are also good things about the law. That's why we think that with some important adjustments, it can serve its purposes without doing the bad things it does right now."

In October, Ogden and Peter Hutt, a partner at Akin Gump in Washington, D.C., proposed a series of reforms that would deter fraud, but also prevent excessive payments to whistleblowers and their attorneys. Their paper, "Fixing the False Claims Act: The Case for Compliance-Focused Reforms," was published by the U.S. Chamber Institute for Legal Reform, which owns Legal Newsline.

Ogden also presented these reforms on Capitol Hill during a panel discussion hosted by the Law & Economics Center at George Mason University School of Law in December.

Michael Wilt, assistant director of research and policy at the Law & Economics Center, found potential reform of the False Claims Act an important topic for two reasons. First, he says, the public sees a lot of companies settle with the government for staggering sums of money.

"You're talking about a lot of money at stake regardless of whether you look at it from the perspective of the U.S. government being defrauded millions or a billion dollars, or from the perspective that companies are paying for things that their employees did that they didn't necessarily know that they were doing," he said.

Secondly, Wilt adds, since corporate fraud and scandals have increased in the past 15 years, the legal and business communities seek a better understanding of how to best structure internal compliance programs.

From Ogden's perspective, the False Claims Act needs to require a higher level of corporate compliance. One set of his proposed reforms call for the creation of general and industry-specific "state-of-the-art standards" that encourage internal whistleblowers to come forward with information about violations, and also protect them from retaliation.

"As a whistleblower, you would be required to bring your concern to the company before filing a lawsuit, and to give the company an opportunity to fix it right away," Ogden said. "Because there would be a state-of-the-art corporate compliance system that would protect the whistleblower, there would be no reason not to do that."

He also contends that the new compliance system would incentivize companies to immediately report violations. Currently, companies that violate the law face three times the amount of damages sustained by the U.S., but in the future, they would only be held liable for 1.5 times damages if they disclose misconduct.

"Companies that self-report to the government before an action is filed would have enforcement by the government, but they wouldn't have one of these private whistleblower lawsuits," Ogden said. "It would avoid these ridiculous situations where companies that have done the right thing are getting sued for hundreds of millions of dollars."

Ogden points out that other proposed reforms address inefficiencies in the operation and enforcement of the law, such as reducing the relator's share of the government recovery and a bar on qui tam lawsuits brought by former or present government employees.

He adds that another reform seeks to change the False Claims Act's "irrational and excessive" penalty provisions. Under the current law, companies that defraud the government face not only treble damages, but also civil penalties of $5,500 to $11,000 per claim.

Stephen Kohn, executive director of the National Whistleblowers Center in Washington, D.C., joined Ogden on the False Claims Act panel in December, but argued against the proposed reforms. He sees no need to amend the law since it already requires companies to implement effective fraud detection programs and strong internal compliance departments.

Kohn contends that focusing on further compliance with the law - rather than enforcement of the law - misses the mark since companies often argue that they can fire employees who raise internal concerns about compliance. He says these companies claim that true whistleblowers take their concerns to the government.

"What that actually tells you is that companies, even though they often talk very positively about internal compliance, have actually been extremely reluctant to create effective internal compliance," Kohn said.

He contends that the failure of employees to disclose misconduct directly to the government exacerbates the problem. According to the Ethics Resource Center, he says, nearly 98 percent of employees only report concerns to their managers or compliance departments.

"We want to encourage that, but you do that by creating other laws that overcome the problems that corporations have caused," he said. "The corporations retaliated against these people, and the corporations created compliance programs that were weak and ineffective."

He adds that trade organizations, such as the Association of Certified Fraud Examiners, and top compliance officials at companies like BP, have already offered guidelines for creating and promoting effective corporate compliance programs.

Since proposing the reforms, Ogden says he's received some interest, but isn't sure where the issue will fall on the legislative agenda. While the Obama administration has yet to join the debate, Ogden contends that the law receives more attention as a result of aggressive enforcement by the government and attorneys, and the significant size of settlement and fees.

"Since amendments to the law in 1986 made it much easier to maintain a qui tam lawsuit, a substantial plaintiffs' bar has come into being and the obtaining of large fees for counsel and relators has spurred more litigation activity," Ogden said. "There are more claims each year, and the size of settlements are growing."

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