A Backlog Of Cases Alleging Fraud

Help from Justice greatly enhances the chances that a complicated fraud scheme can be unraveled, lawyers say. And department statistics show that cases Justice turns away win paltry, if any, financial recoveries.

Key lawmakers have called on Justice to make false-claims investigations a priority.

"Whistle-blowers are the key to the secrets locked in closets throughout the federal bureaucracy and government contractors," said Sen. Charles E. Grassley (R-Iowa). "These patriotic Americans stick their necks out, against all odds, to help the federal government pursue fraud and save taxpayers tens of billions of dollars that would otherwise be lost."

Last month, Deputy Assistant Attorney General Michael F. Hertz told Congress that "the number and increased complexity of the fraud schemes presented to the department, combined with the volume of cases now under review, certainly present challenges."

Among the largest false-claims cases to date are a $650 million settlement earlier this year by drugmaker Merck in connection with an alleged failure to repay Medicaid rebates; a $515 million deal with Bristol-Myers Squibb to cover illegal drug pricing and marketing; and a $98 million agreement with software maker Oracle over pricing.

If their claims are successful, whistle-blowers can receive a hefty slice of the settlements or verdicts, sometimes as much as 20 percent of the award. A former Merck sales manager collected $68 million earlier this year for his role in exposing an alleged drug-pricing scheme.

Even bigger lawsuits containing potentially explosive allegations are waiting in the wings. The vast majority, more than 500 cases, involve the health-care and pharmaceutical industries and often involve Medicare and Medicaid funds.

Only a few hints of the Iraq and Afghanistan disputes have erupted publicly. One is a suit filed by two former employees of Custer Battles, a defense contracting company in Fairfax. The workers accused the company of inflating expenses on a contract it won to replace the Iraqi currency. After a three-week trial in 2006, a jury found in favor of the plaintiffs and awarded them $10 million. But U.S. District Judge T.S. Ellis III later tossed out the case, ruling that the money at issue, controlled in the early years of the Iraq conflict by the Coalition Provisional Authority, belonged to the Iraqi government, not U.S. taxpayers.

Justice declined the whistle-blowers' request to intervene before the case went to trial, plaintiffs' lawyers said. The government eventually weighed in with a court brief on behalf of the whistle-blowers when the case was appealed.

Frederick M. Morgan Jr., a Cincinnati lawyer who represents whistle-blowers, said that the numbers of lawyers willing to take on cases involving defense contractors has dwindled, in part because of Justice's slow decisions.

One of Morgan's lawsuits, against contractors hired by the Navy to build nuclear submarines and an Ohio company that manufactured submarine valves, took five years to resolve.

Another case, involving the manufacture of the F-22 fighter, was filed in early 1999. It was late 2006 before Justice decided not to intervene. The case is now in active litigation.