Jesse Drucker, writing for Bloomberg, reported a complicated transfer pricing scheme involving Forest Lab's Lexapro. The strategy shifts dollars from American sales of the blockbuster drug to other countries where tax rates are lower than in the US. Drucker estimates that corporate transfer pricing strategies, like this one involving Lexapro, enable thousands of companies to avoid paying $60 billion per year in US tax revenue.
Transfer pricing schemes involve the overpricing of imports and/or the underpricing of exports between related companies in different countries for the purpose of transferring profits or revenue out of the United States in order to evade taxes. The profits and revenue end up in a country that has a lower corporate tax rate than the US.
US Senator Carl Levin of Michigan has been a long time foe of transfer pricing schemes and has been quoted as saying they are "the corporate equivalent of the secret offshore accounts of individual tax dodgers." Levin introduced the Stop Tax Haven Abuse Act in March 2009. The bill allows US tax and securities agencies to treat non-publicly traded offshore entities as being controlled by the US taxpayer who formed them, sent or received assets to them, or benefited from them, unless the taxpayer proves otherwise. Despite strong support from the Obama administration, the bill has yet to pass. Critics of the bill say transfer pricing requires a mult-lateral fix, and the bill's US-centric focus will likely not be successful in remedying the problem.
In the meantime, reports Drucker, Forest Laboratories is employing a "Double Irish" corporate structure to transfer some of the revenue from Lexapro to Ireland, Amsterdam, and Bermuda to show profit from Lexapro in those countries as opposed to the United States, the country where the product is being purchased. Tax savings for Forest are significant. If the profit from Lexapro is reported as US income, the profit could be subject to the US corporate tax rate of 35 percent. In Ireland, the corporate tax rate is between 10% and 12.5%.
To read Jesse Drucker's article, click here.
Friday, May 14, 2010
Wednesday, April 28, 2010
K&M Represents Whistleblower in $520 Million AstraZeneca Settlement
AstraZeneca has agreed to pay $520 million in civil fines, penalties, and damages to settle allegations that the company defrauded Medicare, Medicaid, and other government-funded health care programs in connection with its marketing and promotional practices for the blockbuster atypical antipsychotic Seroquel. This is the largest settlement of off-label marketing claims brought under the False Claims Act to date that involved civil-only fines. The $520 million settlement resolves a qui tam lawsuit filed by whistleblower Dr. Stefan Kruszewski, one of two relators to file a case. Dr. Kruszewski was represented by Brian Kenney and Tavy Deming of Kenney & McCafferty, along with William Leonard of Obermayer, Rebmann, Maxwell & Hippel. For more information about the settlement, click here.
Friday, April 9, 2010
Not Fundamentally Designed to be Successful
"Not fundamentally designed to be successful." That's what the Inspector General's Office had to say in its March 2010 Assessment of the SEC's Bounty Program. OIG identified problems with the program when it released its August Report on the "Investigation of Failure of the SEC to Uncover Bernie Madoff's Ponzi Scheme." The latest report details the follow up investigation of the SEC's whistleblower program.
According to the OIG report, the SEC has had its bounty program in place for more than 20 years. The program provides for rewards to whistleblowers for reporting insider trading. The OIG found that the program was not recognized inside or outside of the SEC and that few applications had ever been received by the program.
Many of the recommendations that followed the OIG's findings appeared to basic, common sense management practices. For example, one recommendation is to keep some kind of file, whether it be hard copy or electronic, for each bounty application. The file, according to the OIG report, should contain, at minimum:
A bit of a concern is the recommendation that the SEC Bounty Program should incorporate "best practices" from the IRS Whistleblower Rewards Program. One hopes that that new SEC program would incorporate ideas from the latest incarnation of the tax fraud program under Director Stephen Whitlock and eschew past versions. Prior to Whitlock's leadership, the tax reward program showed similar problems to those currently capturing the attention of SEC watchers. While much improved in the last few years, the Service is still struggling to find lost complaints and improve communication with whistleblowers.
The SEC is charged with providing OIG with a written corrective action plan designed to address the recommendations. The plan should appear in late May.
According to the OIG report, the SEC has had its bounty program in place for more than 20 years. The program provides for rewards to whistleblowers for reporting insider trading. The OIG found that the program was not recognized inside or outside of the SEC and that few applications had ever been received by the program.
Many of the recommendations that followed the OIG's findings appeared to basic, common sense management practices. For example, one recommendation is to keep some kind of file, whether it be hard copy or electronic, for each bounty application. The file, according to the OIG report, should contain, at minimum:
- The bounty application
- Any correspondence with the whistleblower
- Documentation of how the whistleblower's information was utilized
- Documentation regarding any significant decisions made with regard to the claim
A bit of a concern is the recommendation that the SEC Bounty Program should incorporate "best practices" from the IRS Whistleblower Rewards Program. One hopes that that new SEC program would incorporate ideas from the latest incarnation of the tax fraud program under Director Stephen Whitlock and eschew past versions. Prior to Whitlock's leadership, the tax reward program showed similar problems to those currently capturing the attention of SEC watchers. While much improved in the last few years, the Service is still struggling to find lost complaints and improve communication with whistleblowers.
The SEC is charged with providing OIG with a written corrective action plan designed to address the recommendations. The plan should appear in late May.
Monday, April 5, 2010
SEC Whistleblower Program Proposals – Another dismal failure or real opportunity?
Senate Banking Committee Chairman Christopher Dodd of Connecticut introduced a financial reform bill on March 15, 2010. The proposal includes a new whistleblower program to reward those who assist the Securities and Exchange Commission (SEC) in its enforcement of securities violations, like violations of the Foreign Corrupt Practices Act.
The SEC already has a program in place to reward whistleblowers in insider trading programs. The existing program is widely regarded as a dismal failure, having paid only four rewards totaling only $67,570. In the last year, at least three proposals have been discussed to establish a new SEC whistleblower program, including the most recent Dodd proposal.
Dodd's bill proposes that whistleblowers who provide original information that leads to monetary sanctions would be paid between 10and 30 percent of any money the government collects that results from the information provided by the whistleblower. Whistleblowers would also receive rewards if their information leads to other successful "related actions," i.e. actions brought by other federal and state regulatory agencies, including the DOJ and foreign law enforcement agencies.
Most commentators watching the process feel that the final version of the new SEC program will be very similar to the IRS whistleblower rewards program. They expect the SEC program will include the IRS's one bite rule, for example, though the IRS itself appears to be moving away from full implementation of the civil investigation prohibition against talking to tax whistleblowers more than once. The Service's criminal division never adhered to the one bite rule, and now, the IRS civil division is embracing whistleblowers to a greater degree as well. It would be unfortunate if any new SEC whistleblower program blindly adopted IRS rules, like the one bite rule, without learning from the IRS's mistakes. The SEC has a dismal record with whistleblower incentive and protection programs. It would be best for the American people if any new SEC provision learned from, rather than repeated, the mistakes of other whistleblower programs.
The SEC already has a program in place to reward whistleblowers in insider trading programs. The existing program is widely regarded as a dismal failure, having paid only four rewards totaling only $67,570. In the last year, at least three proposals have been discussed to establish a new SEC whistleblower program, including the most recent Dodd proposal.
Dodd's bill proposes that whistleblowers who provide original information that leads to monetary sanctions would be paid between 10and 30 percent of any money the government collects that results from the information provided by the whistleblower. Whistleblowers would also receive rewards if their information leads to other successful "related actions," i.e. actions brought by other federal and state regulatory agencies, including the DOJ and foreign law enforcement agencies.
Most commentators watching the process feel that the final version of the new SEC program will be very similar to the IRS whistleblower rewards program. They expect the SEC program will include the IRS's one bite rule, for example, though the IRS itself appears to be moving away from full implementation of the civil investigation prohibition against talking to tax whistleblowers more than once. The Service's criminal division never adhered to the one bite rule, and now, the IRS civil division is embracing whistleblowers to a greater degree as well. It would be unfortunate if any new SEC whistleblower program blindly adopted IRS rules, like the one bite rule, without learning from the IRS's mistakes. The SEC has a dismal record with whistleblower incentive and protection programs. It would be best for the American people if any new SEC provision learned from, rather than repeated, the mistakes of other whistleblower programs.
Monday, January 11, 2010
IRS Makes Good: $5.5 Million Partial Payment to K&M Client
Philadelphia, PA/January 11, 2010. The IRS Whistleblower Office facilitated a partial payment of $5.5 million to a Kenney & McCafferty, P.C. whistleblower who reported tax fraud seven years ago. The payment is the first substantial payment to be made under the auspices of the IRS Whistleblower Office.
“We feel good about the positive changes that we’ve seen in the Whistleblowers Office in the last two years,” said lead partner Brian Kenney of Kenney & McCafferty. “Things are getting easier for tax whistleblowers who want to help the IRS recover money for the Treasury. We’re getting answers and results that three years ago would have been impossible to obtain. We expect that an additional payment will be made in this case within the next few months.”
The K&M tax whistleblower first contacted Brian Kenney eight years ago about a complex, international a stock and tax fraud scheme orchestrated by a overseas-based corporate conglomerate. As a result of the whistleblower coming forward the United States has recovered over $60 million in taxes, fines, and penalties. The K&M whistleblower’s identity remains confidential, consistent with provisions of the new IRS Rewards Program. In 2006, Senator Chuck Grassley championed legislation to incentivize tax whistleblowers to come forward with information to assist the Service in recovering tax dollars improperly withheld by taxpayers. The new IRS Rewards Program guarantees a percentage of the Service’s recovery to those who make meritorious claims. To improve the way the Service works with whistleblowers, the IRS formed a Whistleblowers Office to track whistleblower reports. Steven Whitlock became Director of the new Office three years ago.
Linda Stengle, K&M’s attorney assigned to the case, credits the Whistleblower Office for facilitating the reward. “Director Steven Whitlock has evolved the WO into a responsive, knowledgeable unit in just a short time. Dawn Applebaum, the Analyst assigned to the case, made the system work for our client here. Things happened quickly, after years and years of waiting.”
Kenney notes that the recent TIGTA report presented a dismal picture for would-be tax whistleblowers. The TIGTA report noted the Whistleblower Office lost claims, long delays, and duplicative record keeping systems resulted in a poor record for the fledgling Rewards Program. Under the old system, the lack of uniform oversight meant that whistleblowers had to wait as long as ten years to learn if they would receive any reward at all. Whistleblowers grew frustrated by bureaucratic snafus.
“A lot of the things noted in the TIGTA report are old news,” said Kenney. “We’ve been monitoring the situation very closely, and we’re impressed with the changes we’ve seen in the program. It’s much more efficient and effective than it was just a year ago. We’re optimistic.”
Brian Kenney’s optimism about whistleblower programs has led him to become one of the leading tax whistleblower attorneys in the country. Kenney & McCafferty, P.C. focuses on qui tam and tax whistleblower litigation. Its attorneys have recovered more than $4 billion for the government in False Claims Act and tax whistleblower cases. For more information, contact Linda Stengle at 610-940-0327.
“We feel good about the positive changes that we’ve seen in the Whistleblowers Office in the last two years,” said lead partner Brian Kenney of Kenney & McCafferty. “Things are getting easier for tax whistleblowers who want to help the IRS recover money for the Treasury. We’re getting answers and results that three years ago would have been impossible to obtain. We expect that an additional payment will be made in this case within the next few months.”
The K&M tax whistleblower first contacted Brian Kenney eight years ago about a complex, international a stock and tax fraud scheme orchestrated by a overseas-based corporate conglomerate. As a result of the whistleblower coming forward the United States has recovered over $60 million in taxes, fines, and penalties. The K&M whistleblower’s identity remains confidential, consistent with provisions of the new IRS Rewards Program. In 2006, Senator Chuck Grassley championed legislation to incentivize tax whistleblowers to come forward with information to assist the Service in recovering tax dollars improperly withheld by taxpayers. The new IRS Rewards Program guarantees a percentage of the Service’s recovery to those who make meritorious claims. To improve the way the Service works with whistleblowers, the IRS formed a Whistleblowers Office to track whistleblower reports. Steven Whitlock became Director of the new Office three years ago.
Linda Stengle, K&M’s attorney assigned to the case, credits the Whistleblower Office for facilitating the reward. “Director Steven Whitlock has evolved the WO into a responsive, knowledgeable unit in just a short time. Dawn Applebaum, the Analyst assigned to the case, made the system work for our client here. Things happened quickly, after years and years of waiting.”
Kenney notes that the recent TIGTA report presented a dismal picture for would-be tax whistleblowers. The TIGTA report noted the Whistleblower Office lost claims, long delays, and duplicative record keeping systems resulted in a poor record for the fledgling Rewards Program. Under the old system, the lack of uniform oversight meant that whistleblowers had to wait as long as ten years to learn if they would receive any reward at all. Whistleblowers grew frustrated by bureaucratic snafus.
“A lot of the things noted in the TIGTA report are old news,” said Kenney. “We’ve been monitoring the situation very closely, and we’re impressed with the changes we’ve seen in the program. It’s much more efficient and effective than it was just a year ago. We’re optimistic.”
Brian Kenney’s optimism about whistleblower programs has led him to become one of the leading tax whistleblower attorneys in the country. Kenney & McCafferty, P.C. focuses on qui tam and tax whistleblower litigation. Its attorneys have recovered more than $4 billion for the government in False Claims Act and tax whistleblower cases. For more information, contact Linda Stengle at 610-940-0327.
Tuesday, December 29, 2009
2009 - The Year of the Ponzi Scheme Collapse
2009 was a bad year for Bernie Madoff, Allen Stanford, and Scott Rothstein. The government targeted all three as perpetrators of massive Ponzi schemes -a form of pyramid fraud that targets investors looking for a fast turnaround on their dollar. Unfortunately, thousands of investors also lost billions in 2009 as the pyramid schemes unraveled.
Ponzi schemes promise abnormally high or abnormally consistent returns that they cannot deliver. Returns do not come from any actual profit. Earlier investors are paid high returns generated from investments of later investors. If left to run indefinitely, the system inevitably collapses under its own weight because it never earns more than it is obligated to pay. It relies on a constant infusion of new investors to pay returns to the older investors.
As the Ponzi scheme collapses, one of four things will usually happen:
1. The fraudster will disappear and take all available investment dollars with him or her.
2. The fraudster will have difficulty paying the promised returns; investors will begin to panic, and the scheme will start to collapse under its own weight as revenue dries up.
3. The scheme is exposed by legal authorities.
4. External market forces cause investors to withdraw their funds, decreasing the revenue stream to the pyramid.
Ponzi schemes are named after Charles Ponzi, an Italian immigrant, who took in $15 million in fraudulent investments between 1919 and 1920. Charles Ponzi modernized an old fraud scam, previously referred to as "Robbing Peter to pay Paul" schemes.
"My business is simple," said Ponzi in his last interview. "It was the old game of robbing Peter to pay Paul. You would give me one hundred dollars and I would give you a note to pay you one-hundred-and-fifty dollars in three months. Usually I would redeem my note in 45 days. My notes became more valuable than American money... Then came trouble. The whole thing was broken."
In his 1857 novel, Little Dorrit, Charles Dickens described the "rob Peter to pay Paul" scheme. Commentators note an eery resemblance between Dickens's Mr. Merdle, the fraudster in Little Dorrit, and Bernie Madoff, whose Ponzi scheme resulted in his incarceration in 2009. Both were hailed as financial geniuses before being unmasked as thieves; both had wives who displayed their wealth openly and ostentatiously; both had legions of investors who wanted to entrust them with their dollars.
The Associated Press reports that Ponzi collapses in 2009 nearly quadrupled over those in 2008, deriving its numbers from counting criminal prosecutions and administrative actions taken at state and federal levels. AP states that 150 Ponzi schemes collapsed in 2009, compared with only about 40 in 2008.
The Madoff Ponzi scheme collapse has generated increased vigilance at the federal level, but the 2009 recession was more likely the driving force behind the collapse of these old style pyramid schemes. As dollars got tighter, investors withdrew their funds and wanted to put them into more conservative and safe investment options. Sources of new investors, and revenue, dry up, resulting in less money becoming available to pay off old investors. The pyramid collapses.
Most new federal cases have not yet resolved, and investigations are ongoing. The FBI opened 2100 securities fraud investigations in 2009, about 350 cases more than were opened in 2008. The SEC opened about 6% more investigations in 2009 than in 2008.
Ponzi schemes promise abnormally high or abnormally consistent returns that they cannot deliver. Returns do not come from any actual profit. Earlier investors are paid high returns generated from investments of later investors. If left to run indefinitely, the system inevitably collapses under its own weight because it never earns more than it is obligated to pay. It relies on a constant infusion of new investors to pay returns to the older investors.
As the Ponzi scheme collapses, one of four things will usually happen:
1. The fraudster will disappear and take all available investment dollars with him or her.
2. The fraudster will have difficulty paying the promised returns; investors will begin to panic, and the scheme will start to collapse under its own weight as revenue dries up.
3. The scheme is exposed by legal authorities.
4. External market forces cause investors to withdraw their funds, decreasing the revenue stream to the pyramid.
Ponzi schemes are named after Charles Ponzi, an Italian immigrant, who took in $15 million in fraudulent investments between 1919 and 1920. Charles Ponzi modernized an old fraud scam, previously referred to as "Robbing Peter to pay Paul" schemes.
"My business is simple," said Ponzi in his last interview. "It was the old game of robbing Peter to pay Paul. You would give me one hundred dollars and I would give you a note to pay you one-hundred-and-fifty dollars in three months. Usually I would redeem my note in 45 days. My notes became more valuable than American money... Then came trouble. The whole thing was broken."
In his 1857 novel, Little Dorrit, Charles Dickens described the "rob Peter to pay Paul" scheme. Commentators note an eery resemblance between Dickens's Mr. Merdle, the fraudster in Little Dorrit, and Bernie Madoff, whose Ponzi scheme resulted in his incarceration in 2009. Both were hailed as financial geniuses before being unmasked as thieves; both had wives who displayed their wealth openly and ostentatiously; both had legions of investors who wanted to entrust them with their dollars.
The Associated Press reports that Ponzi collapses in 2009 nearly quadrupled over those in 2008, deriving its numbers from counting criminal prosecutions and administrative actions taken at state and federal levels. AP states that 150 Ponzi schemes collapsed in 2009, compared with only about 40 in 2008.
The Madoff Ponzi scheme collapse has generated increased vigilance at the federal level, but the 2009 recession was more likely the driving force behind the collapse of these old style pyramid schemes. As dollars got tighter, investors withdrew their funds and wanted to put them into more conservative and safe investment options. Sources of new investors, and revenue, dry up, resulting in less money becoming available to pay off old investors. The pyramid collapses.
Most new federal cases have not yet resolved, and investigations are ongoing. The FBI opened 2100 securities fraud investigations in 2009, about 350 cases more than were opened in 2008. The SEC opened about 6% more investigations in 2009 than in 2008.
Friday, November 13, 2009
Kenney & McCafferty Assists Government in $112 million Omnicare Settlement
Kenney & McCafferty, P.C., co-represented one of the whistleblowers in the nation’s largest nursing home pharmacy and pharmaceutical False Claims Act settlement. The Department of Justice announced on November 3, 2009, that Defendants Omnicare and IVAX Pharmaceuticals would pay a total of $112 million to settle litigation initiated by whistleblowers.
The Department of Justice alleged that Omnicare solicited and/or paid four different types of kickbacks:
* First, DOJ alleged that Omnicare solicited and received kickbacks for recommending that physicians prescribe Risperdal to nursing home patients.
* Second, DOJ alleged that Omnicare paid kickbacks to nursing homes by providing them with consultant pharmacist services at below cost rates.
* Third, DOJ alleged that Omincare solicited an $8 million kickback for purchasing $50 million in drugs from IVAX.
* Fourth, DOJ alleged that Omnicare conspired with nursing home for Omnicare to pay the nursing home chains $50 million in exchange for the nursing homes to continue using Omnicare for pharmacy services.
Kickbacks, such as these, are illegal because they subvert the medical judgment of health professionals and result in unnecessary and often, dangerous, changes in medications for the patient. Whistleblowers in the pharmaceutical industry recognized the illegal activity and filed False Claims actions. False Claims Acts allow whistleblowers to report false claims by filing a sealed complaint in court. If the whistleblower prevails, he or she gets a percentage of the recovery, and the remainder returns to the government.
Kenney & McCafferty, P.C. specializes in qui tam and tax whistleblower litigation, and its attorneys have recovered more than $2 billion for the government in False Claims Act and tax whistleblower cases. For more information, visit K&M’s website, www.quitam-lawyer.com
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