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The Rise of Whistleblower Lawsuits to Combat Corporate Fraud

Whistleblower lawsuits, or qui tam actions (Latin for "he who sues on behalf of the king"), have been the vehicle through which private citizens have been targeting fraud on behalf of the government since the Civil War, when Congress began actively soliciting information on companies that were profiting from the conflict.

At their advent, such suits were relatively rare. Today, they are commonplace and, by every measurable standard, growing impressively. A spokesperson for the U.S. Department of Justice ("DOJ") says that there are approximately 1,000 whistleblower lawsuits presently in the federal court system.

Many concerned citizens would undoubtedly be motivated to report fraudulent corporate acts even in the absence of the whistleblower provisions of the Federal Civil False Claims Act ("FCFCA"). The added incentives created in that legislation for doing so, however, have greatly fueled the instances in which private parties have identified fraud against the government.

In 1986, the FCFCA expanded the opportunities for reporting fraud, upping the penalties against wrongdoers and creating a powerful financial incentive for citizens to get involved. Private parties who identify corruption and bring a qui tam suit (which the Justice Department joins if it deems the case has merit) share in any financial recovery.

Since the FCFCA was bolstered, the DOJ estimates that penalties assessed corporate wrongdoers have reached nearly $30 billion, with whistleblowers receiving about $4 billion of that amount.

Some businesses complain that the proliferation of whistleblower actions impedes internal corporate efforts to identify and deal with corruption. That claim has been dismissed by many government officials, attorneys and others. A party involved in the recent fraud case against Pfizer Inc., which settled for more than $2 billion, states that, "The reality is that whistleblowers have allowed the government to greatly enhance enforcement."

Related Resource: www.philly.com "Big money whistle-blower suits on the rise" November 28, 2010

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