N.C. new fraud law now in effect
On Jan. 1, North Carolina became home to Lincoln's law, officially titled the North Carolina False Claims Act ("NC FCA")(S.L. 2009-554). It just took 147 years to get here.
Congress first enacted the federal false claims act in 1863 during "The War between the States," sometimes known as "The Civil War," in response to outrage over extensive fraud against the government by Union army contractors.
A congressional committee formed to investigate "the gross waste and squandering of the public funds" found "an astounding amount of illegal and fraudulent activities ... Through haste, carelessness, or criminal collusion, the state and federal officers accepted almost every offer and paid almost any price for commodities, regardless of character, quality, or quantity ... For sugar it [the government] got sand; for coffee, rye; for leather, something no better than brown paper; for sound horses and mules, spavined beasts and dying donkeys; and for serviceable muskets and pistols, the experimental failures of sanguine inventors, or the refuse of shops and foreign armories."
In order to prevent recurring and chronic public fraud, the federal false claims act allows an individual whistle blower to bring a civil action in the name of the United States of America as a private attorney general and share in the recovery as a de-facto bounty hunter. The plaintiff whistle-blower is known as a "Relator" and, if successful, he or she is entitled to a statutory share of any settlement or recovery. The statute may apply even if the Relator engaged in wrongful activity. The theory of the statute is that "it takes a rogue to catch a rogue."
Now the bounty hunter law has arrived in North Carolina. The N.C. False Claims Act was enacted in response to the Deficit Reduction Act of 2005, which Congress passed in February 2006. The Deficit Reduction Act provides incentives to states to adopt their own false claims statutes. So as our legislature struggled to close the $4.5 billion budget gap over the past summer, one of 300 changes looked at was enacting a N.C. False Claims Act to gain access to the federal incentives.
Under the law just about any written document, if submitted to the government in connection with a commercial transaction, may be considered a "claim." A claim may be "false" if an individual:
- Had actual knowledge of the correct information and failed to disclose it.
- Acted in deliberate ignorance of the truth or falsity of the information submitted to the government.
- Acted in reckless disregard of the truth or falsity of the information submitted to the government.
The statute establishes a simple preponderance of the evidence standard, civil penalties (punitive damages) of &36;5,500 to &36;11,000 per violation, civil damages of three times the amount of payments made in reliance upon the "false claim," and give the Relator's share legally protected status -- (15 to 25 percent if the N.C. Attorney General gets involved, and 25 to 30 percent without AG's involvement) and attorney's fees.
In sum, the N.C. False Claims Act imposes liability on any person who submits a claim to the state government that he or she knows (or should know) is false. An example may be a physician who submits a bill to Medicare for medical services she knows she has not provided.
The N.C. False Claims Act also imposes liability on an individual who may knowingly submit a false record in order to obtain payment from the government. An example of this may include a government contractor who submits records that he knows (or should know) are false and that indicate compliance with certain contractual or regulatory requirements.
The third area of liability includes those instances in which someone may obtain money from the state government to which he may not be entitled, and then uses false statements or records in order to retain the money. An example of this so-called "reverse false claim" may include a hospital that obtains interim payments from Medicare throughout the year, and then knowingly files a false cost report at the end of the year in order to avoid making a refund to the Medicare program. Another example would be anyone under-reporting on taxes, unemployment and workers compensation to the state.
In addition, the N.C. False Claims Act provides protection to the Relators who are discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of their employment as a result of their furtherance of an action under the N.C. False Claims Act. Remedies include reinstatement with comparable seniority as the Relator would have had but for the discrimination, two times the amount of any back pay, interest on any back pay, and compensation for any special damages sustained as a result of the discrimination, including litigation costs and reasonable attorneys' fees.
So will this law turn everybody into informers against fraud... one can only hope so. Now doing the right thing will get you paid. So fraudsters beware, for North Carolina is paying handsomely to stamp out fraud of any size big or small.
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