ALERT: The False Claims Act is Now an “All-Purpose Antifraud Statute"

    14 July 2009

    The False Claims Act (“FCA”) has been a potent enforcement weapon against companies alleged of defrauding the federal government, including government contractors, pharmaceutical and device companies, and healthcare providers. Until its recent amendment, generally speaking, the FCA imposed liability for knowingly presenting a false or fraudulent claim to the government for payment. Two features of the FCA have made it particularly effective: (1) it imposes liability of treble damages plus potentially ruinous civil penalties; and (2) it permits whistle-blowers, often disgruntled current or former employees, to initiate an action on behalf of the United States in return for 15%-30% of the federal recovery.

    In recent years, courts have ruled that a defendant must present a false claim directly to an officer or employee of the government, as opposed to a contractor or grantee which holds federal funds, to come within the scope of the FCA. In addition, just last year the Supreme Court ruled that a false statement, made to get a false claim paid, falls within the scope of the FCA only if the defendant made the statement with the intent that the government itself (as opposed to a contractor) pay the claim. The Court reasoned that “[r]ecognizing a cause of action under the FCA for fraud directed at private entities would threaten to transform the FCA into an all-purpose antifraud statute.” Allison Engine Co., Inc. v. United States ex rel. Sanders, 128 S.Ct. 2123, 2130 (2008).

    Congress responded by amending the FCA in several ways that effectively transform the Act into an “all-purpose antifraud statute.” This transformation is ironic because it was not achieved as a result of the FCA amendments intended to overrule Allison Engine. While those amendments have received most of the attention, the radical transformation of the FCA into a broad “all-purpose antifraud statute” has received very little notice or attention.