Whistleblowers and qui tam lawsuits can help stop fraud in federal bailout program, Grassley says

Nov. 20, 2008, WASHINGTON, DC -- The False Claims Act, its qui tam provisions and whistleblowers "can and will play an important role in preventing, deterring, and prosecuting fraud" in the $700 billion federal bailout program known as the "Troubled Asset Recovery Program" (TARP) and the "Capital Purchase Program" (CPP), U.S. Sen. Chuck Grassley (R-Iowa) said in a letter this week to Treasury Secretary Henry Paulson and Attorney General Michael Mukasey.

Grassley, a longtime supporter of whistleblowers and co-author of the 1986 amendments to the False Claims Act, asked Paulson and Mukasey "to ensure that whistleblowers are treated seriously, their concerns are reviewed in an expeditious manner, and that any legitimate claims of fraud, waste, or abuse are aggressively investigated and prosecuted to the fullest extent of the law, including seeking recovery of all funds lost via the FCA."

The text of Grassley's letter to Treasury Secretary Henry Paulson and Attorney General Michael Mukasey is posted below.

November 17, 2008

Via Electronic Transmission

Dear Secretary Paulson and Attorney General Mukasey;

The Emergency Economic Stabilization Act of 2008 (the "Act") signed into law October 3, 2008, authorized the President to grant Treasury the authority to purchase, or commit to purchase, troubled assets up to the limit of $700 billion. Through the Troubled Asset Recovery Program (TARP) and the Capital Purchase Program (CPP), Treasury is using the broad authorities of the Act to stabilize the economy. While Congress gave the Treasury the authority to use taxpayer funds, Congress also outlined strict oversight provisions to ensure that taxpayer dollars would be used efficiently, effectively, and would not be subject to waste, fraud, or abuse.

Nearly seven weeks since the passage of the Act, effective oversight of the TARP and CPP is still lacking. To date, many of the oversight provisions have been overlooked or ignored-in fact, the first nomination hearing for the role of the Special Inspector General for the TARP was just held this afternoon. At least one other hearing will follow. According to The Washington Post, some even fear that, "bureaucratic logjams" could delay oversight work for months. [1] American taxpayers deserve better than bureaucratic logjams and I look forward to the expedited review of Mr. Neil Barofsky's nomination for the position of Special Inspector General.

In the meantime, taxpayer dollars are at risk and I believe it is important to discuss alternative procedures and measures that can be taken to ensure taxpayers aren't taken to the cleaners by unscrupulous individuals. One proven and effective method of overseeing taxpayer funds has been to support courageous whistleblowers who risk their jobs and livelihoods to bring forth allegations of fraud, waste, and abuse of taxpayer monies. As a longtime supporter of whistleblowers, I can attest to the fact that whistleblowers are often the key to uncovering schemes to defraud the government. With their inside knowledge of how businesses, corporations, or government agencies operate they are often privy to information that is often the necessary component to piece together how a fraud is perpetrated. As such, I believe you should both work to ensure that all entities participating in the TARP and CPP are made aware that any allegations of fraud, waste, or abuse will be treated seriously and properly referred to the Treasury Inspector General or the Attorney General for review until a Special Inspector General for the TARP is appointed.

Additionally, another effective deterrent to fraud against the Government has been the False Claims Act (FCA) (31 U.S.C. § 3729 et. seq.). As the Senate author of the 1986 amendments that reinvigorated the qui tam whistleblower provisions of the FCA, I believe the FCA can and will play an important role in preventing, deterring, and prosecuting fraud against the TARP and CPP. For example, it has been long recognized by Federal Courts across the country that actionable fraud against the government has occurred when:

· An entity seeks payment pursuant to a program they are not eligible for,

· Fraudulently seeking to obtain a Government contract,

· Submitting fraudulent applications for a grant of Government funds,

· Submitting a false application for a Government loan, and

· Submitting a claim that falsely certifies that the defendant has complied with a law, contract term, or regulation.

While these examples are by no means an exhaustive list of FCA liability, these examples do show that entities who receive federal funds under the TARP and CPP are subject to the provisions of the FCA should they use false or fraudulent submissions in order to obtain federal funds. For instance, any entity that submits false or fraudulent information in an application to Treasury in order to obtain federal funds available through the CPP would be liable to the Government under the FCA. Further, while it has been reported that the Treasury does not currently plan to utilize authority under the Act to use the TARP to purchase distressed assets either directly or indirectly, should Treasury exercise its authority to do so, any fraudulent statements or submissions made to induce the Government to purchase those assets would also subject the fraudfeasors to liability. As a result, these individuals and corporations could be subject to civil penalties and treble damages for committing fraud against the Government.

It is my sincere hope that in this time of economic difficulty that businesses, corporations, banks and other institutions applying for federal assistance under the TARP and CPP would make only accurate and truthful statements to the Government. However, many individuals use complex situations to take advantage of the Government and will stop at nothing to obtain government funds, including providing false and misleading information to do so. To this point, a witness from the Justice Department testified before the Senate Judiciary Committee earlier this year that "[T]here are no government programs that are immune from possible fraud." [2] As such, I encourage both of you to ensure that whistleblowers are treated seriously, their concerns are reviewed in an expeditious manner, and that any legitimate claims of fraud, waste, or abuse are aggressively investigated and prosecuted to the fullest extent of the law, including seeking recovery of all funds lost via the FCA.

Sincerely,

Charles E. Grassley

United States Senator

Cc: The Honorable Eric Thorson

Inspector General

U.S. Department of the Treasury

1500 Pennsylvania Avenue, N.W.
Room 4436,
Washington, DC 20220


[1] Amit R. Paley, Bailout Lacks Oversight Despite Billions Pledged: Watchdog Panel Is Empty; Report Is Unfinished, The Washington Post, Nov.13, 2008, at A01.

[2] Testimony of Michael Hertz, Deputy Assistant Attorney General, Civil Division, U.S. Department of Justice, S. Hrg. 110-412, The False Claims Act Correction Act (S. 2041): Strengthening the Gov't's Most Effective Tool Against Fraud for the 21st Century, 110th Cong. (February 27, 2008).