Neil Getnick on Using False Claims Law to Combat Tax and Consumer Fraud

State and federal false claims laws have been used predominantly in recent years to combat health care fraud.

But now the laws are starting to catch tax frauds – and soon – consumer frauds.

Neil Getnick
Getnick & Getnick
New York, New York

Last week, Neil Getnick and co-counsel Jordan Thomas secured a major settlement in the second stage of the largest tax whistleblower recovery in New York state history.

New York Attorney General Barbara Underwood announced the $30 million settlement. It follows a related $40 million settlement in April 2017, bringing the total recovery to $70 million.

The whistleblower, whose identity remains protected, will receive 22 percent of the $30 million settlement or $6.6 million.

The case was brought against Harbinger Capital Partners Offshore Manager, the investment manager for New York-based hedge funds run by Philip Falcone from 2002 to 2009.

The case alleges that the defendants evaded New York State and City taxes by shifting income derived from Harbinger from New York to Alabama to avoid New York’s higher tax rates.

The previous $40 million settlement announced in April 2017 was with Harbert Management Corporation, an Alabama-based investment company that had an investment and business relationship with Harbinger Capital Partners Offshore Manager.

“Offshore Manager made profits remarkable even by Wall Street standards but failed to pay what should have been paid to the city and state where it made these profits and misled tax authorities to ensure that it would not have to pay its fair share,” the state alleged.

The case was filed under the New York False Claims Act, which was amended to cover tax claims in 2010.

Getnick says that “New York State at this point in time has the most robust False Claims Act in the country – more so than the federal False Claims Act and more so than any other state law.”

“Let me mention a few ways that the law leads the pack,” Getnick told Corporate Crime Reporter in an interview last week. “First of all, there is no tax bar. Virtually all false claims laws make an exception for tax claims – they are not permissible. As of 2010, when strengthening amendments were passed by the New York legislature, such claims became specifically allowed in New York State.”

“That opened up a very wide area for pursuit. In addition, while there is a desire to make sure that these cases are not based purely on facts that are already out there in the public, the New York State False Claims Act allows for a wider use of information. For example, information gathered under the Freedom of Information law is permissible for use in a New York State False Claims Act whistleblower case. That provides for a much more substantial base of knowledge from which to proceed.”

“The law also has an expansive statute of limitations – a ten year statute of limitations for all such actions as opposed to a fluctuating statute of limitations from six to ten years under the federal False Claims Act.”

“If a case doesn’t go forward, the whistleblower or relator under New York Law is able to withdraw the case under seal so that the identity of a whistleblower in a dismissed case does not become revealed.”

“The anti-retaliation provision in New York is unique in that it not only bars retaliation by the employer, but it also specifically prohibits industry wide blacklisting of whistleblowers. When the whistleblower applies for his or her next job, that prospective employer is not permitted to discriminate in hiring by virtue of the fact that that individual was once a whistleblower. It’s a very impressive and powerful statutory tool.”

“Many state Attorneys General have specialized investigative units known as Medicaid Fraud Control Units. New York has that as well. But as of 2011, New York went one step further and created a special unit – known as the Taxpayer Protection Bureau – to deal with non-Medicaid fraud False Claims Act cases.”

“And even though it is known as the Taxpayer Protection Bureau, it doesn’t deal simply with tax cases. It’s basically saying it is there to protect taxpayers against all types of non-Medicaid fraud.”

“There is a dedicated unit, a dedicated group of attorneys who work those cases and have a clear understanding of the public/private partnership that is the foundation of that law.”

Where do you see the future of whistleblower lawsuits going?

“I try to stay on the leading edge of expanding the boundaries of these laws,” Getnick said. “One of the most important areas is the potential use of the False Claims Act as a consumer fraud enforcement tool. Within the last year, Ralph Nader and the Center for Study of Responsive Law brought together a group of people in the consumer rights movement to discuss the fact that it is becoming more and more difficult over time to pursue consumer fraud enforcement. There are impediments such as mandatory arbitration clauses and class action limitations.”

“It’s essential to look for alternative means of undertaking this important work. If we think of government as a consumer of services, it is probably one of the largest in the country. And certain consumer frauds are not only impacting private citizens. They are also impacting governments. By way of an example, if you think of utility services, an area where private citizens are impacted, the government itself is a consumer of utility services. If one is able to point to a fraud on the government in the provision of utility services, it likely will also expose parallel activity adversely affecting private consumers and provide a remedy for those private consumers as well.”

“That is a means of using the False Claims Act to expand the fight against consumer fraud.”

Is there a case on consumer fraud brought under the False Claims Act?

“Given court sealing requirements, all I’m comfortable saying in that regard is – stay tuned.”

[For the complete Interview with Neil Getnick, see 32 Corporate Crime Reporter 39(11), October 8, 2018, print edition only.]


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