New York False Claims and the FCA

Tony Munter is not licensed to practice in New York. The following is a summary of the New York False Claims Act by Tony Munter. He is not, however, a New York False Claims Act lawyer.

The New York State False Claim’s Act was enacted in 2007 and is one of the most powerful of all the state False Claims laws. It creates the right of an individual to sue on behalf of the state or any “local government” which has been defrauded in almost any way. Whether it’s nationwide pharmaceutical fraud, a financial scheme that defrauds a state pension plan, or a local business defrauding a city, the New York False Claims Act provides whistleblowers with an opportunity to act.

NY False Claims Act and Tax Fraud

Furthermore, the New York law uniquely applies whistleblower rewards and the right of the individual to sue on behalf of the government (also called qui tam) to tax fraud cases. Indeed, in New York it is possible for an individual to file a case alleging tax fraud if the net income or sales of the person against whom the action is brought equals or exceeds one million dollars for any taxable year and the damages pleaded in such action exceed three hundred and fifty thousand dollars.

In most other respects the New York law resembles the federal False claims Act, including allowing a successful relator to obtain 15%-30% of a recovery and imposing treble damages on the defendant. In a couple of respects the New York law is stronger than the federal False Claims Act. It creates civil fines of $6,000-$12,000 for violating the Act, values that are slightly higher than the federal law. It also has a ten year statute of limitations, which is longer than the general statute of limitations under federal law.

Examples of NY False Claims Act in Action

A November, 2013 settlement announced by the New York State Office of the Attorney General shows why any state might want to have a strong False Claims Act. The settlement was filed in federal court, but alleged a computer software company based in New York defrauded the federal and several state governments, including New York:

“CA, Inc. agreed to pay $11 million to New York State and several other states as well as the Federal Government to resolve claims it ‘engaged in a scheme to overcharge government customers, including local school districts and law enforcement agencies, for computer-software maintenance and servicing plans it sold from 2001-2009.'”

Without a New York State False Claims Act it would have been difficult, if not impossible, for the state to collect a share of this fraud recovery even though the case involved a business based in New York and doing business with New York.

In February of 2014, New York was able to share in a $15.5 million settlement against a radiology practice headquartered in Long Island, New York. This case was also filed in federal court, alleging both state and federal false claims violations. New York was able to collect its share of the recovery through the state False Claims Act.

Benefits of the NY False Claims Act

Now, New York is able to share in the large settlements generated by whistleblower cases filed against pharmaceutical companies for nationwide illegal schemes to market drugs. For example, the state is collecting $25 million as part of its share of the $173 million settlement with Endo Pharmaceuticals announced in February of 2014.

Of course just waiting to share in a Federal Government case is not the only benefit of the law. The New York State operating budget alone is projected to be more than $90.5 billion in 2014. With cities in New York included there is a huge amount of business now protected under the False Claims Act.

Now, whistleblowers have a way to help fight back.

The unusual state tax provision of the law has already shown some benefits to New York. The Attorney General’s Office has settled one tax fraud aase under the New York False Claims Act for $5.5 million. Mohan Custom Tailors had to pay that amount for allegedly avoiding sales and income taxes for ten years.

In addition, the state is pursuing a $300 million case against Sprint. The state’s current case against Spring has to be the only state law case attempting to collect large amounts of money from a company for tax fraud based on the initial reports of a whistleblower.

NY False Claims Act and Fraud

In addition to the New York State False Claims Act, New York City has its own False Claims Act for fraud cases, which specifically involve city funds.

Since individuals can sue to recover the funds of “local governments” under the state False Claims Act, all the cites from Buffalo to Islip — which previously had limited ways to fight contracting fraud and probably no way to empower whistleblowers in that fight — now enjoy both options.

Please see the U.S. Department of Justice pdf of the False Claims Act: False Claims in New York, U.S.C. 31 3729 Sections et seq, and New York False Claims Act, NY State Fin. Law Sections 188 et seq.


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