Big Pharma’s Love Affair with Opioids

Steve W. Berman on Jul. 22, 2014 | 0 comments

I don’t know if it is human nature or a symptom of the increasingly chaotic nature of our lives that allows us to become accustomed – even accepting – of things that would have caused us angst, anger or frustration in years past.

I could list a legion of things that fall into this category – the lack of civility in everything from rush-hour driving behavior to political discourse in Washington, to the now-common use of profanity as a part of civil society.

Most of these things are minor annoyances; we can change the channel when the talking heads begin blathering on Fox News or CNN, we move over to the slow lane on the freeway.

But our acclimation to once-troubling behavior can also be manipulated and used against the public interest. We believe that is exactly what Big Pharma has been doing now for years with opioids.

Let me explain.

Today, we don’t think twice when we hear of a friend or neighbor taking prescription pain medication for a bad back, or for any number of conditions or injuries. Trademarked words like Percocet, Vicodin and Oxycontin are as much a part of the layperson’s medical vocabulary as Tylenol and aspirin were for our parents.

And our perception is borne out by the facts: Opioids have become the most widely prescribed class of drug in the U.S.

But here is the alarming part: Opioids were never intended for use for long-term, chronic pain. Historically, physicians prescribed them for a very narrow window of uses, typically for pain around post-surgery discomfort or other short-lived situations.

So what happened?

In a recent court filing we made on behalf of a group of California counties, we believe five of the world’s largest narcotics manufacturers – Purdue Pharma, Teva Pharmaceutical Industries, Cephalon Inc., Johnson & Johnson, Janssen Pharmaceuticals and Endo Health Solutions Inc. – began a campaign to stack the deck in favor of wider use of opioids.

One tactic was to tout the broader use of opioids to physicians by finding – and hiring – other physicians to write papers and speak at events.

At the same time, the drug companies mounted a campaign encouraging patients, including the elderly, to ask their doctors for the painkillers to treat common conditions such as back pain, arthritis and headaches.

The results are toxic. The National Survey on Drug Use and Health reported that the number of first-time abusers of prescription opioids increased from 628,000 in 1990 to 2.4 million in 2004, that emergency room visits involving prescription opioid abuse increased by 45 percent from 2000 to 2002 and that treatment admissions for primary abuse of prescription opioids increased by 186 percent between 1997 and 2002.

Opioid overdoses now account for more deaths in the U.S. than car crashes, cocaine, heroin and suicides combined.

If you’re finding this a bit hard to stomach, know that this isn’t the first time a company has mounted a campaign of deception with such blatant disregard for the public’s well-being. Think Big Tobacco. It seems like common sense to us now that cigarettes contain harmful chemicals and are wildly addictive, but back when I led my firm’s work on behalf of 13 states against Big Tobacco, we saw these same tactics used to misinform the public.

We beat them then, and I believe we can beat this new incarnation – Big Pharma – today.

At the end of the day, we may not be able to change how people drive, or the amount of venom the politicians spit at one another, but if we are successful with this case, we should be able to slow – or stop – the insidiousness of this scheme. 

IOU: Lawsuit against Government Challenges Actions Following Financial Crisis

Steve W. Berman on Aug. 26, 2013 | 0 comments

In the comedy film “Dumb and Dumber,” the two main characters, played brilliantly by Jim Carey and Jeff Daniels, trek across the country to return a briefcase that they believe was mistakenly left at an airport by a beautiful woman. On the way, they discover that the briefcase is full of cash, and agree that it is important that they return the money. Unbeknownst to them, the money was a ransom for the return of a kidnapping victim, and in the climax of the film, Carey and Daniels’ characters are forced at gunpoint to open the briefcase by the kidnappers. 

Out of the brief case tumbles hundreds of slips of paper, marked simply “I.O.U.” “What is this? Where’s all the money?” asks one of the criminals. “That’s as good as money, sir. Those are I.O.U’s.” 

While this scene is funny, it speaks to a broader point of justice. If you are going to borrow money, you ought to be prepared to pay it back. This is the point enshrined in the takings clause of the 5th amendment of the U.S. Constitution which declares in part, “nor shall private property be taken for public use, without just compensation.” 

In other words, if the government needs to confiscate property for an important public purpose, it must compensate the owner for the loss. In Dumb and Dumber, the characters did not have a particularly persuasive reason to spend the money, but the U.S. government has faced a number of pressing public challenges that required the confiscation of private property. 

For instance, during World War Two, the government acquired more than 20 million acres of land to build defense plants and other essential war facilities. After the war, the government knew that both as a matter of economic necessity and as a matter of national security, we needed to build an interstate highway system connecting the country, coast-to-coast. To facilitate the mammoth undertaking it engaged in more than 750,000 separate takings of private property. 

Examples of the federal government taking property abound. Even NASA benefited from government takings of private land; the Cape Canaveral launch site was originally taken from private ownership in order to help the space race. 

In each of these cases, the government’s actions were an understandable response to an urgent public need, and the individuals whose land was taken were compensated. While every property owner was not perfectly satisfied, the government generally made a good-faith effort to pay owners a fair market value for their property in cold hard cash, rather than vague IOUs. 

This stands in stark contrast to public takings throughout history. Roman emperors, feudal lords, even the British monarchy in colonial America, could take property without just compensation. It was in part due to these experiences that the 5th amendment was added to the Bill of Rights. The principle established by the takings clause is clear; sometimes property must be taken for an important national need, but owners must be fairly compensated for their losses. 

In the midst of the financial crisis of 2008, such a need was made apparent; without quick action, the national economy could collapse. The government took a number of emergency actions, including the now-infamous bailouts of some of the largest financial institutions in the country. But we allege it also engaged in massive public takings under the 5th amendment. 

As the government rushed to loan funds to major financial institutions in order to prevent them from becoming insolvent, it took the opposite tact with two private, shareholder-owned companies, Fannie Mae and Freddie Mac. 

Fannie and Freddie fulfilled a crucial need in the market for mortgages in the United States, buying mortgages and mortgage-backed securities from other financial institutions and guaranteeing them for investors. The companies had originally been established by the government, but had since been privatized, raising capital and issuing stock like any other publically traded company. 

Unlike many other financial institutions, Fannie and Freddie had largely avoided the riskiest subprime loans and mortgage-backed securities built on that debt. However, beginning in 2001, Congress and regulators took steps that encouraged the companies to take on more and more questionable assets, including subprime loans. 

Despite these actions, both companies had less exposure to toxic assets than did other financial institutions. However, as the financial crisis worsened, the government decided to place both companies into conservatorship, effectively nationalizing them. 

In quite possibly the most lopsided loan arrangement of all time, the government would be given senior preferred shares and the right to purchase up to 80 percent of the companies at a price of $.00001 per share. These actions, while perhaps necessary as part of a broader plan to save the global economy, made the common stock held by shareholders effectively worthless overnight. 

One would assume, then, that the government compensated stockholders for their losses. After all, their property was effectively made worthless by the government’s actions, actions that were admittedly necessary to save the economy. However, in this instance, the government did not compensate shareholders, which is why we have now filed a lawsuit on their behalf. 

We think that the government’s actions were effectively a taking under the 5th amendment. Except instead of taking land or physical goods, the government seized financial assets by devaluing the common stock held by investors. Investors have not been compensated for that taking, and have instead been forced to write off nearly their entire investment in Fannie and Freddie as a complete loss. 

We are confident that we will prevail in this case. The constitution is on our side, and we suspect that the government ultimately will agree with us that a stack of IOU slips is not sufficient in this case; real compensation must be given.

DHHS Whistleblower Program Expands Rewards

Steve W. Berman on May. 7, 2013 | 0 comments

Charles Munger, vice-chairman at Berkshire Hathaway, once gave a speech touting the importance of incentives in guiding human behavior.

He told the story of Xerox, who introduced a new and far superior machine to its customers, only to find that it was being outsold by its outdated and obsolete predecessor. Company founder Joe Wilson investigated the situation and found the problem. The sales team received higher commission bonuses on the older machines.

He also told the story of FedEx who in the early days of the company struggled to efficiently sort and move packages between its planes each night so they would be prepared to ship the next morning. The company, Munger claimed, tried everything to get the system to work more smoothly, but to no avail. Then finally, someone got the bright idea of paying employees by the shift, and letting them leave once their work was done, rather than paying them by the hour. With the incentive to finish quickly so they could leave early, the employees dramatically increased their efficiency.

Munger summed up the lesson with a maxim from Ben Franklin, “If you would persuade, appeal to interest and not to reason.”

As a whistleblower attorney, spotting motives and understanding incentives is very important. It not only helps in developing a case against a defendant, defining motive, opportunity and means. It also helps me to understand why whistleblowers choose to put their careers and livelihoods on the line to expose corporate wrongdoing.

I wish I could tell you that every whistleblower was motivated solely by a desire to make the world a better place. But like Franklin said, don’t look to reason, look to interest and incentives. The truth is that many whistleblowers are also motivated by the tremendous financial rewards available to those who recover significant funds for the government.

The cold hard truth is if we want to give more potential whistleblowers a reason to step forward and shine the light of public scrutiny on fraud, one of the things we need to do is improve the rewards programs available to them.

That’s why I was very excited to hear that the Department of Health and Human Services (DHHS) recently announced a proposed change to the rules of its whistleblower program. The program, administered by the Centers for Medicare and Medicaid Services (CMS), previously awarded a maximum of $1,000 to whistleblowers who exposed fraud in Medicare. The proposed new rule would increase that reward up to a maximum of nearly $10 million.

The proposed rule follows a number of other initiatives taken by the DHHS and CMS over the last several years to reduce Medicare fraud; steps that I applaud. Those steps are having a serious impact – last February the government reported that it recovered a record-breaking $4.1 billion in Fiscal Year 2011.

Despite the positive steps that have been taken, there is still a lot of fraud that goes unpunished. While estimates vary, the Government Accountability Office pegged losses in the program at nearly $50 billion, far larger than the government’s recoveries.

I hope and believe that the DHHS’ decision to expand rewards for whistleblowers will have a serious impact on closing that gap and returning money to taxpayers.

As a whistleblower attorney, I have some parting advice for potential whistleblowers under the expanded program.

Whistleblowers under this program, and other programs, should seek experienced legal counsel before moving forward with a formal tip to DHHS. A whistleblower attorney can make sure you know your rights and responsibilities as a whistleblower, as well as the risks of proceeding with a formal whistleblower complaint.

An attorney with experience prosecuting whistleblower cases can also help you develop your information to encourage the government to take action. DHHS will receive many more tips than the agency can fully investigate in the next several years; you want to make sure your information is actionable and credible.

HBSS Secures $1.4 Billion Settlement in Toyota SUA Case

Steve W. Berman on Feb. 27, 2013 | 0 comments

In 1935, Austrian physicist Erwin Schrödinger, a contemporary of Albert Einstein, postulated a thought experiment in which a live cat was placed inside a box. The box would be connected to a device that might, or might not, kill the cat, depending on whether or not a single microscopic radioactive particle changed its state.

Schrödinger theorized a complex system involving Geiger counters and a particularly lethal type of acid. Einstein felt the experiment was far too complicated, filling the theoretical box with a pistol, loaded with one bullet, which may or may not fire.

Though it is probably worth asking why these Austrian physicists seem to have such a hatred of cats, Schrodinger was making an interesting point. He was, in a sense, trying to provide a scientific answer to the question, “if a tree falls and no one is there to hear it, does it make a sound?”

You see, a core part of quantum mechanics claims that the smallest microscopic particles do not decide which direction to spin or how to behave until we look at them. Until we look at them, their state is undetermined.

Schrödinger hypothesized that if one could build a machine that would make a cat’s life forfeit based on the movement of a single, small particle, and walked out of the room while the experiment ran, the cat would not technically be alive or dead until someone opened the box and took a look inside.

A similar phenomenon can be found in litigation. Often, when millions of dollars are on the line and the outcome of a case is uncertain, it is not worth taking the all-or-nothing risk of seeing litigation through to the very end. Doing so is like opening Schrödinger’s box; the cat may be alive or it may be dead and the case may be completely viable or the jury may vote an acquittal on all charges.

Sometimes, no matter how many millions of documents are read, no matter how many witnesses are deposed, you just don’t know how a case will end until you open the box and find out. In cases involving millions or even billions of dollars in damages that risk may not be worth taking. When that happens, it is our job, as plaintiffs’ attorneys, to fight tooth-and-nail for our clients to ensure they receive a settlement that recognizes the merit of their claims while avoiding the risk of a complete loss at trial.

We recently had just such a case. Back in 2010, a media firestorm erupted when Toyota owners across the United States reported that their vehicles were accelerating suddenly out of their control. Toyota issued several recalls impacting millions of vehicles, but reports of sudden, unintended acceleration (SUA) continued to flood in.

Many, myself included, speculated that the recalls, which included floor mats and accelerator pedals, failed to address a possible defect in the electronic throttle control system (ETC), the system that links the accelerator pedal to the engine. If such a defect did exist, Toyota’s recalls were not adequately protecting consumers.

Moreover, as reports of accidents continued to pour in, the trade-in and resale values of Toyota vehicles plummeted. Consumers attempting to sell or trade in their vehicles received less than they would have before the alleged defect became public.

We filed a lawsuit on behalf of owners and lessees of those Toyota vehicles, asking for Toyota to compensate them for the reduction in value. Proving our case would require us to demonstrate a defect causing SUA that Toyota had failed to address.

As the case worked its way through the courts, we read millions of internal Toyota documents, attempting to uncover whether Toyota knew, or should have known, about a defect in the ETC system.

At the same time, Congress, the National Highway Traffic Safety Association (NHTSA), and engineers at National Aeronautics and Space Administration (NASA) investigated the issue, questioning Toyota engineers and inspecting vehicles to see if they could replicate the issue and demonstrate a defect in the ETC system. Ultimately, both NHTSA and NASA engineers were unable to reproduce SUA in Toyota vehicles. They concluded that driver error, among other causes, was the most likely explanation for SUA events.

We strongly disagreed with NHTSA and NASA’s findings. Simple driver error could not explain the hundreds of incidents being reported. It also could not explain the number of reports claiming that pushing the brake pedal and shifting to a neutral gear failed to stop vehicles from accelerating out of control.

Still, we knew that with so much evidence and so many witnesses, it would take years before we finally uncovered the truth, and continuing the litigation carried certain risks for the plaintiffs. If the court dismissed the case, or a jury in one of the first cases acquitted Toyota, the plaintiffs might receive nothing.

So, we weighed our options carefully and worked with Toyota to come up with a settlement agreement that would both make Toyota vehicles safer and compensate owners and former owners who realized economic losses when they attempted to sell or trade in their Toyota.

The settlement we agreed to, which must now be approved by the court, does all of that and much more. It includes benefits for the class worth up to $1.4 billion, making it the largest automotive defect settlement in history. It includes $250 million for Toyota owners who sold their cars, another $250 million for Toyota owners whose vehicles are not eligible for a brake-override system and an expanded warranty program for all current owners, lasting up to ten years for certain parts.

Ultimately, we feel that the settlement is fair, and we look forward to working with the court to finalize it. There are those who might have hoped for more, or hoped we could demonstrate conclusively that Toyota vehicles suffered from a SUA defect in a full jury trial. However – at the end of the day we felt like Schrödinger and Einstein; without opening the box we couldn’t be sure what might happen. In a case this complicated, we felt that the risks of litigation were not in the best interests of consumers, especially when we were able to achieve such a generous settlement that will make an immediate and positive difference in the safety of Toyota vehicles.

SEC Whistleblower Program Begins Paying Awards

Steve Berman on Aug. 31, 2012 | 0 comments

2012 is quickly shaping up to become The Year of the Scandal on Wall Street – a tall order considering the run of disrepute we’ve seen over the past decade. One would think that just four years since the financial crisis that nearly brought our country to its knees, we would have learned some lessons about greed, malfeasance and outright fraud perpetrated on the American people by major financial institutions and publicly traded companies.

One would think. But that’s not the way it is playing out.

Take JPMorgan Chase. In May, it stunned investors when it announced the investment house had suffered a $2 billion loss in trading of complex derivatives called credit-default swaps. If the term credit-default swap sounds familiar, that’s because credit-default swaps on home loans played a leading role in causing the recession. I would have hoped JPMorgan’s traders learned their lesson the first time around.

Then, a week later, Facebook effectively botched the largest IPO in recent memory, seeding more uncertainty and doubt with already skittish investors. From the start, the offering was delayed and plagued by trading delays and other technical difficulties. Shortly after the IPO, Facebook’s stock began to fall, finally settling near 50 percent of its initial value.

Even worse, news reports suggested that Facebook’s lead underwriters reduced forecasts for earnings, but rather than making information public, selectively disclosed the information to key investors. Those claims will now be tested in court in a class-action lawsuit filed on behalf of investors who were allegedly left out of the loop.

Now to June: several regulatory agencies announced more than $450 million in fines against Barclays Bank for attempting to manipulate the London Interbank Offered Rate, or Libor, a key benchmark used to set interest rates on loans in the United States and internationally. While this sounds ethereal and complex, the scandal most likely affected the interest rates the average US consumer paid on mortgages, car loans or even credit cards, costing us billions of dollars in inflated interest rates.

These three scandals suggest that our financial sector is still plagued by corruption, patronage, and secrecy, the factors that brought our economy to the brink just a few years ago.

Once we staggered back from that near economic collapse, lawmakers clamored that we needed to do more in terms of oversight, arming organizations like the SEC with the tools necessary to hold these rogue actors in check.

It was good in theory, but doomed in practice.

The truth is that – no matter how well intentioned the policies – the SEC lacks the funding and personnel to prosecute even a small fraction of the fraud on Wall Street, let alone prevent it. Metaphorically, they are outgunned, and outnumbered.

I am hopeful, however, because the SEC now has a new tool to prosecute fraud – millions of honest, well-intending Americans.

The SEC’s new whistleblower program, established last year, offers rewards to those who report fraud and wrongdoing to the agency. These rewards can be significant, totaling up to 30 percent of the funds the government recovers after an SEC enforcement action.

And the program is working - after many appeals and procedural hurdles, the SEC finally announced the first whistleblower award under the program. The whistleblower, who chose to remain anonymous, will receive $50,000 as a reward for providing information regarding violations of the securities laws.

That might not seem like a lot of money in the grand scheme of things, but the announcement is much more than that – it is the proof-of-concept, a warning if you will, to every CEO that is considering using creative accounting to explain away a loss, or brokerage-house executive who is pondering trading on information he or she received sub-rosa. The warning is that if you plan to commit fraud, you better be very good at covering your tracks because now instead of just having to fool an understaffed agency, now you need to deceive every honest person in your organization who now has the power and the incentive to hold you accountable.

My prediction is two-fold.

First, I believe we will see a spate of announcements regarding prosecutions of bad actors, all resulting from tips from whistleblowers. This new program will shine the light of public scrutiny, and scurry they will.

Second, I firmly believe that, thanks to this program, we will see a slow but steady improvement in the behavior by Wall Street, in large part because of this virtual oversight.

Whistleblowers should be cautious, however. I would advise any potential whistleblower to speak with an experienced attorney before talking with the SEC. The SEC is receiving several tips each day, and a private whistleblower attorney can help develop your claim so that the SEC is more likely to take your case.

You can learn more about our whistleblower practice at

Toyota Owners Forced to Continue Driving Ticking Time Bombs

Steve Berman on Jun. 1, 2012 | 0 comments

In the critically acclaimed novel Catch-22, a World War II pilot asks his squadron’s doctor about the sanity of another pilot, who continues to fly suicidal missions day after day with no fear of death.

The doctor confirms that the pilot must be insane and therefore should be grounded from any future missions. However, there is a catch. The pilot must ask to be grounded, but “anyone who wants out of combat isn’t really crazy, so I can’t ground him. That’s Catch-22.”

I was recently reminded of Catch-22 when a judge issued a ruling in our case against Toyota. In the case, we allege that a defect in the electronic throttle system and other part failures in most Toyota models cause sudden, unintended acceleration, or SUA, resulting in deadly car wrecks and crashes. We have asked the court to award damages to Toyota owners so that they can replace their defective vehicles and we seek an order requiring Toyota to install a fail-safe mechanism that can prevent SUA.

The judge’s decision uses reasoning right out of the novel. The trial court ruled that Toyota owners in Florida and New York may not sue Toyota until they have personally experienced SUA.

SUA often leads to serious injuries or even death. Like the pilot in Catch-22, the Court’s reasoning seems to be that drivers must continue to risk their lives driving a defective vehicle that is likely to accelerate suddenly out of control at any moment. Only after the car is wrecked and the driver injured can they challenge Toyota for selling them a defective product.

Now that’s a Catch-22.

Between 2000 and 2010, The National Highway Traffic Safety Administration (NHTSA) reported 89 deaths and 57 injuries attributed to unintended acceleration in Toyota vehicles. It’s difficult to understand Judge Selna’s decision in that context. How can we tell Toyota drivers in Florida and New York to roll the dice every time they drive their cars, risking serious injuries and even death? How can one say a car that has a risk of SUA is worth the same as a car that has a much lower risk and has better fail-safe features in the event SUA occurs?

Consider just one story of a driver who experienced SUA. On April 19, 2008, Guadalupe Alberto of Flint, Michigan, drove her 2005 Toyota Camry to work, a routine drive she had taken hundreds of times before.

She had never received a speeding ticket in all of her years of driving, but on that day, Ms. Alberto’s Toyota suddenly accelerated out of control, jumping a curb and flying through the air before crashing into a tree. She died instantly.

According to the Court’s reasoning, Ms. Alberto would have had no legal claim against Toyota until she experienced SUA. In other words, until it was too late.

For its part, Toyota has issued several recalls to “fix” the SUA problem, blaming sticky pedals and defective floor mats, but has denied that there is any defect in the electronic throttle system. All the while internally Toyota has replicated SUA in customers’ cars and acknowledged the cause as “ECM failure” or “ECU failure” or cause “unknown”.

A recent story on CNN’s Anderson Cooper lent additional proof to our theory. CNN’s investigators found an internal document, written in Japanese, which appears to note a SUA problem discovered in a test vehicle during pre-production trials. According to one translation commissioned by CNN, the document notes that the test vehicle experienced “sudden unintended acceleration due to wrong judgment made by the full speed range Adaptive Cruise Control (ACC) System.”

Even more alarming, Toyota did not share this document with the National Highway Traffic Safety Administration (NHTSA), who conducted an official investigation into SUA.

Beyond the immediate impact on Toyota owners in New York and Florida, the court’s decision will set an unfortunate precedent for similar cases in the future.

For instance, a video recently went viral on Youtube showing a 2010 Chrysler Jeep suddenly light on fire. In the video, the driver reacts quickly, swerving off the road to avoid running a red light.

The driver’s video explains that this is a known defect, but Chrysler has failed to respond to the problem. According to the precedent set by Judge Selna’s Toyota decision, Jeep owners who fear for their lives must wait for their cars to light on fire before they can take legal action against Chrysler.

In my view, the decision misses the entire point of our lawsuit. Car owners should not be forced to drive a ticking time bomb and wait until they are seriously injured in an accident. They deserve justice now, including compensation for the replacement of their defective and unsafe vehicles.

We intend to appeal this ruling and we will continue to fight for justice for Toyota owners throughout the United States. You can learn more about this litigation at

Whistleblower Earns $14 Million Reward in Case against Bank of America

Steve Berman on May. 29, 2012 | 0 comments

In 1998, I worked with a number of very talented attorneys general to hold Big Tobacco accountable for the damage it caused to millions of Americans through years of deception, improper marketing and a number of other nefarious tactics. Until this coordinated effort, no one – not attorneys general nor the civil justice system – could lay a glove on Big Tobacco. They had a virtual army of attorneys and lobbyists, and mountains of cash to fund their effort to avoid accountability.

And it worked, for a while.

But thanks in part to a courageous whistleblower, former Brown & Williamson executive Jeffrey Wigand, Big Tobacco finally had its day of reckoning, and eventually agreed to an omnibus settlement of $206 billion – the largest settlement ever at the time.

Mr. Wigand publicly spoke out and said what we all knew, but couldn’t prove – that the tobacco companies knew cigarettes are addictive and lethal. He also explained that companies were using additives known to increase the risk of cancer and increasing the amount of nicotine in order to make them even more addictive.

Yet, in coming forward, Mr. Wigand took a monumental risk. He also paid a price for what he did; he found himself in a series of legal battles and the victim of a smear campaign orchestrated by his former employer. His wife divorced him and his two daughters left with her.

And as he attempted to shine the light of public scrutiny on Big Tobacco, he soon found that light reflected back at him. He had to defend himself and his accusations at every turn, in the media and in the courtroom.

Of course, Mr. Wigand was ultimately vindicated and is now heralded as a hero and a champion of the public interest. Hollywood told his story in the movie “The Insider” starring Al Pacino and Russell Crowe.

His story showcases the risks and rewards that are part of being a whistleblower. David can beat Goliath, but that doesn’t make the prospect of taking on Goliath any less scary. When challenged over big issues, corporations have the power and resources to fight vigorously and delay justice for years.

Still, I think the situation for whistleblowers is improving in this country. There is a renewed sense, driven in part by the disastrous behavior we all saw on Wall Street before the financial crisis, that whistleblowers should play an important role in deterring corporate fraud.

Consider the United States Congress, who took Wall Street’s malfeasance to heart and passed the Dodd-Frank Financial Reform bill, which includes two new whistleblower programs. Under the programs, individuals who report violations of securities or commodities trading and reporting laws may receive up to 30 percent of any fines or penalties the government collects.

Another longstanding law passed during the American Civil War called the False Claims Act protects whistleblowers who report fraud committed against the government. Congress recently strengthened this law to catch more fraud and protect additional whistleblowers. Those who present a valid legal claim and recover the government’s money are entitled to a reward. We represent a whistleblower under the False Claims Act, and like Mr. Wigand, he has fought a long, costly battle against powerful corporate interests.

Our client, a former employee at appraisal company Landsafe named Kyle Lagow, blew the whistle on Countrywide Financial, now owned by Bank of America, for what he believed to be widespread appraisal, appraisal review and underwriting fraud. First, he blew the whistle to the highest levels of the company. When they wouldn’t listen, he filed a lawsuit. He alleged that Countrywide and home developing giant KB Homes, among others, used a number of tactics to inflate the appraised values of homes and set up a sham review process.

Accurate home appraisals are important for many reasons. For one thing, they serve as a check on greedy home developers or bankers hoping to cash in on interest payments from an overvalued mortgage.

They are also very important for the Federal Housing Administration (FHA), a federal agency that helps low- and moderate-income homebuyers afford homes by insuring loans. Under the program, if a house goes into foreclosure, the government steps in, pays the bank the remaining amount due on the mortgage and takes ownership of the property. In order to qualify a loan for FHA endorsement, underwriters must follow strict guidelines, including guidelines about proper appraisals. If appraisals are inaccurate and a loan goes bad, the government is forced to pay an inflated price. This helps people who might otherwise have a hard time affording a home secure a loan, but it goes without saying that the government has to be really careful about what loans they insure.

What Lagow alleged was a pattern of violating the most important rules to qualify for FHA endorsement, including inflating appraisals across the entire country. He claimed that when the real estate market collapsed and homes began to go into foreclosure in record numbers, the government was forced to overpay for the full cost of the mortgages.

Lagow’s first sign that something was deeply wrong at Landsafe and Countrywide came in early 2005, when he had a meeting with the new LandSafe president, Todd Baur, who expressed interest in having Lagow’s team of appraisers work on large multimillion dollar properties. Lagow questioned the decision, noting that such properties require specialized experience and an incredible attention to detail to produce accurate appraisals. He felt that his appraisers simply weren’t ready for such a challenge, but Baur disregarded his concerns and pushed ahead with the project.

This was the first symptom of a much wider problem. What Lagow came to notice at both Landsafe and Countrywide was a culture that disregarded the most important rule of proper appraisals; to be neutral, appraisals must be completely independent of the lending side of the equation.

Instead, Landsafe and Countrywide executives, Lagow alleged, sought to break down the federal regulations that separate appraisers and bankers, creating an environment ripe for corruption. He attested that President Baur instructed Landsafe managers that the appraisal unit needed to change and that its role was to facilitate the closing of loan deals negotiated by Countrywide.

Lagow claimed that he saw the potential for corruption fully realized when a joint venture was announced between KB Homes, one of the nation’s largest home developers, and Countrywide. He recruited appraisers to work on KB Homes’ properties, only to see his staff turned away and told that the homebuilder would decide who would perform appraisals.

Lagow claimed that KB Homes was given the power to turn away any appraiser who refused to certify as accurate whatever inflated price the developer was trying to push on a homebuyer. If you think that sounds like a rigged system, you’re right.

An extreme example of this policy in practice was found in Houston. Lagow alleged that he uncovered a scheme in which only a single appraiser was given every single KB Homes project in the city. That appraiser somehow managed to do more than 400 appraisals per month.

We’ve all heard about robo-signing lenders who claimed to have a handful of workers reviewing thousands and thousands of pages of mortgage paperwork each day. It is hard to believe those workers actually paid very much attention to each case they reviewed, and it is even harder to believe that an individual conducting 400 appraisals in a month could possibly do a full and fair analysis of the properties’ values.

What is even more shocking, but makes perfect sense when you consider KB Homes’ and Countrywide’s motives, is that Lagow claimed this appraiser was paid far more than most appraisers, $450 per appraisal. That sure sounds like a quid pro quo to me: endorse inflated appraisals and be paid an above-market rate for the trouble.

Of course, there were upstanding appraisers who refused to cooperate. As he dug deeper, Lagow claimed he discovered explicit blacklisting of those appraisers whose conscience and professional integrity prevented them from participating in inflating home appraisals.

In 2007, for instance, Lagow claimed that an appraiser he recruited precisely because the appraiser had high ethical standards told Lagow that he had been told if he refused to change his appraisals, he would be no longer assigned to KB Homes properties. Lagow alleged that the appraiser in question refused to sacrifice his integrity, and was ultimately blacklisted not only from KB Homes, but from all Countrywide projects.

Lagow continued to raise these concerns with management, but to no avail. Instead, he was instructed to keep all ethical concerns out of writing.

At the same time, he was fighting a battle to obtain the documents necessary for his appraisers to even do their jobs effectively. He claimed that KB Homes and Countrywide refused to provide final sales documents. By withholding these documents, Lagow’s appraisers were forced to use other, less accurate price listings to determine how much a home had sold for.

This is important, because one of the biggest factors in appraising a home is the answer to the question, “What have comparable homes in the same area sold for recently?” Lagow believed that KB Homes was clandestinely reducing home prices at the 11th hour in order to secure a deal, but reporting the original, higher prices for the public data. This, Lagow claimed, corrupted the data his appraisers were forced to use and encouraged inflated appraisals. Despite repeated requests for the documents, Lagow claimed KB Homes and Countrywide did not provide them.

As Lagow dug deeper and allegedly found more illegal activities, he became more desperate to convince senior executives at the company to hear him out. The more vigorously he raised the alarm, however, the more he was marginalized and his job responsibilities were reduced.

Finally, he was contacted by a senior loan officer, who asked him to “review” appraisals in order to find “missed” value. As far as Lagow was concerned, this was a direct request to participate in a conspiracy to commit fraud. He noted that because no one had given his team the appropriate documents, any analysis would not support a change in the appraisals.

Lagow claimed that this did not stop the scheme. He noticed over the next two years that if an appraisal came in too low for Countrywide and KB Homes’ taste, it would mysteriously disappear from the files. Then, a new appraisal with a higher value would just as mysteriously appear and the loan would go through.

Finally, in absolute desperation, he sent two emails to the CEO of Countrywide, Angelo Mozilo. Shortly after, he was fired, told the company wanted to move “in a different direction.”

Like tobacco whistleblower Jeffrey Wigand, Lagow suffered over the next several years. Unable to find a job and suffering from cancer, his house went into the foreclosure process. His wife and five kids also suffered the punishment for having reported fraud, experiencing poverty and hardship.

Lagow did not give up, however. He contacted our law firm and filed a lawsuit under the False Claims Act. The government has resolved a $1 billion settlement with Bank of America, based in part on Lagow’s claims and evidence.

There is light at the end of the tunnel for Lagow, as he will receive a $14 million reward for his part in the case. The reward is well deserved.

The importance of whistleblowers today cannot be understated. Lagow’s courage, tenacity and willingness to walk through fire to expose wrongdoing are the defining virtues of a good citizen. His sacrifices humble all of us, and should push us to all think more deeply about how we can contribute to the public good.

New Federal Whistleblower Law Enhances National Security, Reduces Wasteful Spending

Steve Berman on May. 21, 2012 | 0 comments

Have you ever looked at an election ballot, and had a strange sense of déjà vu?

Every November when I look at my ballot, I see candidates who have run and lost at least a dozen times for as many different positions. Yet, every year, these perennial candidates throw their hat into the ring once more.

For instance, consider Michael “Goodspaceguy” Nelson, who has run for office in my home state of Washington the last several cycles, including runs for King County Council, congress and governor.

This year he is running for a seat on the King County Council. And yes, the name he uses on the ballot is actually “Goodspaceguy.”

Predictably, space exploration appears to be his most important concern.

Last election, he noted that “We should already have more than 200 private space habitats in orbit, connected together in different configurations and in different orbits. You have already paid the money required for space colonization, but you have not gotten the space colonies because many of your chosen leaders have not studied space colonization, and so they have misspent your money.”

Opining on the current economic outlook in the country, he noted, “I, Goodspaceguy, have studied economics and studied how to increase jobs and the living standard and how to improve the quality-of-life: To increase jobs, we should increase profits.”

Oh, if only it were that easy. I’ll make a bold prediction; Goodspaceguy is probably not going to win in November.

The phenomenon of perennial candidates is not unique to politicians. Some laws have been proposed dozens of times, only to be voted down by representatives and the people time and time again.

There are also laws that pass by a strong bipartisan vote, but are repeatedly vetoed or otherwise never implemented for a variety of procedural reasons. The champions of those ideas must feel like Sisyphus, the Greek King sentenced by the Gods to push a boulder up a hill for eternity.

For instance, many of us in the legal community who represent whistleblowers have long championed the core components of the Whistleblower Protection Enhancement Act (WPEA), a law that was first proposed more than a decade ago. The law, which contains various protections for federal workers who blow the whistle on fraudulent and improper practices, was recently passed by the U.S. Senate by a unanimous vote.

Yet, despite a unanimous vote in favor, I am only cautiously optimistic that the bill will become law. After all, it has passed unanimously at least four times before.

The last time the law came close to final passage was in 2010, when incoming House Republicans asked Senate colleagues to place an anonymous hold on the law, creating a short delay so they could “improve” the bill. That delay turned into gridlock and the bill never became law.

I really hope that the House Republicans and President Obama can come to an agreement this time around, especially on an idea with such strong bipartisan support.

There are certainly signs of hope on that front. The House Committee on Oversight and Government Reform unanimously passed the bill in November, setting the stage for a final vote.

Yet, in this election year, even the most bipartisan ideas may be abandoned on Capitol Hill.

That is a shame. The WPEA would deter and reduce wasteful spending and enhance public safety by protecting federal workers who blow the whistle on improper activities.

Consider the recent scandal at the General Services Administration (GSA), in which federal workers allegedly wasted nearly a million dollars throwing a lavish party in Las Vegas in 2010.

One would think that with so many hundreds of employees attending the conference, a whistleblower might have come forward earlier. Yet, GSA Inspector General Brian Miller explained the problem when he testified before Congress in April. He said that any whistleblower would have been “quashed like a bug” by the powers that be at the GSA.

Congress has passed a number of bills in recent years to expand whistleblower protections and rewards, including new programs for whistleblowers that expose tax fraud and fraud on Wall Street. However, federal workers remain woefully unprotected.

A study released by the U.S. Merit Systems Protection Board, an independent executive agency, last year revealed that one-third of whistleblowers were either threatened or retaliated against for exposing fraud. Of those who reported receiving threats or retaliation, 65 percent said they were shunned by coworkers, 15 percent were suspended from their jobs and 10 percent said they were fired.

The situation is only getting worse. The same study was conducted in 1992. The 2011 data show that whistleblowers are nine times more likely to be fired for exposing fraud.

With statistics like that, it is no wonder that individuals who saw fraud at the GSA were reluctant to come forward.

The WPEA would improve protections for those whistleblowers, and deter similar fraud in the future by creating a safe environment for insiders to come forward.

For instance, the law would expand existing protections to employees at the Transportation Security Administration (TSA). The TSA guards our airports and other ports of entry into the United States and whistleblowers within the TSA have the potential to not only spot wasteful spending, but also highlight issues that could threaten our national security.

The Wikileaks saga demonstrated the risks that come with not having an effective whistleblower program for intelligence personnel, allowing safe disclosure of sensitive information to the appropriate authorities. Without a clear process for whistleblowers, one desperate rogue actor could publish sensitive information and hamper our diplomatic and intelligence efforts, undermining national security.

That’s why the WPEA creates additional protections and a process for whistleblowing within the intelligence community. This will allow policymakers to target fraud and waste without the public release of sensitive information.

The law also closes a number of loopholes that allow government agencies to retaliate against whistleblowers and affirms that disclosure of information exposing fraud is lawful.

Perhaps most importantly, the WPEA would give whistleblowers a chance to have their day in court. Currently, federal whistleblowers can only take their cases to the Federal Circuit Court of Appeals, giving them limited legal options. The WPEA would give whistleblowers the right to challenge their employers in a trial by jury in United States District Court.

I believe strongly that the WPEA will promote our national security and reduce fraud and waste in federal programs. I hope that President Obama and the Republicans in the House of Representatives come to an agreement that allows this highly bipartisan bill pass and become law.

However, I would remind prospective whistleblowers that, even with expanded protections thanks to the WPEA, a consultation with an attorney is essential before blowing the whistle. Whistleblower cases are incredibly complex and can involve accusations of fraud totaling billions of dollars. The wrong steps early in a whistleblower action can result in difficulties later.

At Hagens Berman, we provide counsel to whistleblowers under all of the major state and federal whistleblower laws. You can learn more about our practice at

State Passes New Whistleblower Protection Law

Steve Berman on May. 14, 2012 | 0 comments

A couple of years ago, CBS’ 60 Minutes conducted an investigation into Medicare and Medicaid fraud in Florida. The story included some shocking findings: fraud is rampant, hard to detect and costs taxpayers to the tune of at least $60 billion every year.

One person profiled in the story was former Federal Judge Ed Davis. Davis told 60 Minutes that his Medicare statement showed that the government had been billed to purchase him two artificial arms. Yet, Davis did not need artificial arms; the ones he was born with were still working just fine.

Someone, it seems, used Davis’ personal information to falsely bill Medicare and then pocketed the reimbursement. This scheme, and others like it, is costing taxpayers billions of dollars each year.

Thankfully – the Department of Justice and a number of state legislatures are taking the issue much more seriously than they were a few years ago. Attorney General Eric Holder has increased resources in this area and filed charges against dozens of people in connection with false billing schemes.

In fact, earlier this year, the Justice Department exposed what may be the largest healthcare fraud case of all time. Dr. Jacques Roy of Texas is accused of masterminding a scam that charged Medicare nearly $375 million for home healthcare services that were never requested or delivered.

Medicare is only one part of the equation, however. State Medicaid programs, which are designed to provide low-income and disabled people access to medical care, are also plagued by fraud. The scope of the problem is not fully understood. One official estimate suggested that nearly 8.5 percent of Medicaid claims could be fraudulent.

Washington State has not had the best track record on this issue – largely because the state has not devoted sufficient resources to the problem. Just last June, the state’s Medicaid Fraud Unit was nearly cut from the budget when the legislature failed to pass a new Medicaid fraud bill at the end of the legislative session. This is very disturbing given that the federal government pays for 75 percent of its funding on the condition that the state pays for the remaining 25 percent.

In my view, funding for Medicaid fraud programs should not be a partisan issue. Implemented correctly, these programs recover more money for the state than they cost to run. Given that so much Medicaid fraud goes undetected, the state could be recovering millions more.

One easy way that states have increased their detection and prosecution of Medicaid fraud is through the passage of whistleblower laws that provide rewards for those who come forward with information about fraud. These laws, known as false claims acts because they mirror a federal law of the same name, provide additional tools to state governments to combat fraud, including participation in multistate cases and qui tam provisions which reward whistleblowers.

Washington recently became the 29th state to pass such a law. The bill was passed on a bipartisan basis, 40-9 in the Senate and 56-42 in the House. Governor Gregoire has signed the bill into law, and it will go into effect this June.

The qui tam, or whistleblower provisions, in the law are especially important. Whistleblowers will now be able to file a lawsuit on the state’s behalf. If the state intervenes and takes over the litigation, the whistleblower can receive up to 25 percent of any funds recovered. If the state does not intervene, the whistleblower can continue to prosecute the fraud on their own and qualify for even greater rewards.

The law also provides new protections for whistleblowers, shielding them from retaliation by their employer. This will help encourage more whistleblowers to come forward and tell investigators what they know. Perhaps most importantly, the law trebles, or triples, damages, which should help to deter Medicaid fraud moving forward.

I strongly support this legislation. Over the years, I have worked on a number of cases on behalf of states, municipalities and consumers who have been overcharged or otherwise defrauded by Big Pharma and other healthcare companies.

I have also worked with a number of whistleblowers in the healthcare industry. My law firm prosecuted a whistleblower case against an ambulance company that resulted in the second-largest recovery in that industry’s history. We also worked with a whistleblower who exposed Medicare outlier fraud and helped the government to recover millions of dollars.

We recently settled a lawsuit on behalf of two whistleblowers here in Washington who alleged that Center for Diagnostic Imaging (CDI), a radiology and diagnostic imaging company with locations in seven states, improperly billed the federal government for services without a written order from a physician. A judge also approved the maximum reward for the whistleblowers, 30 percent of the recovery.

My experience in these cases has taught me that whistleblowers should be extremely careful and hire an ethical and effective attorney to prosecute the case. This is a complex area of the law, and whistleblowers need legal counsel that has the resources and expertise needed to take on large defendants who will fight the allegations and likely retaliate against the whistleblower.

Highly skilled legal counsel is especially important for whistleblowers that come forward under the new state law. As I’ve already noted, Washington has not devoted sufficient resources in the past to catching Medicaid fraud. Thus, the state will simply not have the resources to prosecute each and every whistleblower case that comes through its door.

Instead, the state will take the cases that offer the greatest opportunity for a large recovery. Attorneys with a solid understanding of whistleblower law and the healthcare industry will help whistleblowers develop their case and present it to the government.

I strongly suggest that any prospective whistleblowers consult an experienced attorney before taking any action. You can learn more about our whistleblower practice at

Surprise Attack: Capital One's Balance Transfer Program

Steve Berman on Jan. 10, 2012 | 0 comments

On Christmas Day, 1776, with morale at an all-time low, George Washington famously crossed the Delaware River, launching a surprise attack on the British and their German mercenaries in Trenton, New Jersey.

The rout of the British forces and their Hessian mercenaries was a pivotal victory for Washington’s forces, and according to many historical scholars, a pivotal moment in turning the tide in terms of morale and recruiting.

Washington was credited with the victory thanks to his genius in perfectly timing the attack. He crossed the Delaware on Christmas night, and hit Trenton at 8:00 a.m.

The enemy, tired from a long night of celebrating, were not prepared for the sudden and unexpected attack. Washington’s forces quickly won the ensuing battle.

Fast forward 235 years, and I have to wonder if credit-card giant Capital One had the same thing in mind when they came up with their balance-transfer scheme – catch consumers where they weren’t looking and when they least expected a surprise.

I am talking about the Capital One Balance Transfer scheme.

Capital One’s program was offered as a means for consumers to transfer debts from one creditor to another. In principal, this can be advantageous to consumers by helping them to consolidate debts, or even save money by locking in lower interest rates.

Capital One promised cardholders a zero percent Annual Percentage Rate (APR) for the first year after a balance was transferred. At the same time, the company allegedly told its cardholders that when it came to normal purchases on their cards, they could avoid interest payments so long as they paid the balance on time each month.

On the surface, this program sounds appealing to consumers. For instance, students might use it to reduce the compounding interest on their debt for a year.

However, the way the program actually worked in practice made it very unappealing to cardholders.

Suppose a recent college graduate who has $10,000 in student debt decided to transfer that debt to Capital One. Once the debt was transferred, the cardholder’s account reflected two balances. The first balance was the student debt. The second balance, known as the “purchase balance” was the normal credit card debt incurred by using a Capital One card for normal purchases.

Now suppose that after transferring the debt, the cardholder spent $700 over the course of a month, resulting in a $700 purchase balance. The cardholder received a credit card bill and paid $700 to cover the card’s balance and prevent interest charges.

The next month, to the cardholder’s surprise, the credit card bill reflected a $700 reduction in the student loan debt, but no payment on the credit card debt. Instead, the bill showed interest charges on the balance that the cardholder believed they had paid off.

In other words, instead of applying the payments to the credit card, Capital One applied the payment to the larger, interest-free loans, resulting in interest charges. In some cases, these charges may be as high as 13 percent.

This came as a shock to many Capital One cardholders, who must have felt like the British at Trenton; caught completely unaware, despite paying their bill on time.

We believe that Capital One’s program is deceptive and that the company failed to accurately communicate how the program would work to cardholders.

That is why we have filed a class-action lawsuit on behalf of cardholders, alleging that the company violated several consumer protection laws in various states.

Our case will continue to move forward and we hope to force Capital One to pay back cardholders who allege they were deceived by the program.

The lesson for consumers is that you should always ask questions about credit card offers and do your best to read the fine print. If you pay close attention, you can spot some of the more obvious scams.

I sincerely hope that the Consumer Financial Protection Bureau, a new federal agency charged with exposing these scams, will act aggressively in the future.

Unfortunately, though, simply being vigilant is not a foolproof way to avoid scams and credit card companies are adept at exploiting loopholes to bypass regulators. Sometimes, when a credit card company is particularly skilled at deceiving cardholders, legal action may be the only option to recover lost funds.
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