Federal False Claims Act

In 1995, an employee sued Northrop Grumman, his employer, for selling faulty military equipment to the federal government. Fourteen years later, the company paid a $325 million settlement to the government, and the employee was awarded a portion of the settlement in the amount of $48.7 million. This was all possible under the False Claims Act (FCA).

The FCA is a federal law that holds persons and companies who defraud the federal government accountable. It is the government’s primary tool in combating fraud.  It was passed during the Civil War to address the fraudulent sale of decrepit horses, ill mules and faulty rifles to the Union Army (which not only defrauded the government but endangered soldier’s lives).  The FCA has since grown to encompass protecting all government dollars, including healthcare spending such as Medicare, Medicaid and Tricare.

Under the law’s qui tam provision, individuals and entities (sometimes called Relators) can sue the alleged defrauders on behalf of the federal government and earn a reward if they are successful. In the Northrop Grumman case, for example, an employee sued his employer on behalf of the government under the qui tam provision. Entities and individuals who file under the qui tam provision are awarded between 15% and 30 % of the recovered damages or settlement. The employee in the Northrop Grumman case received 15 % of the government’s settlement, which came out to $48.7 million.

Having a Case Under the Qui Tam Provision

Whether you can sue under the qui tam provision depends on whether the organization’s fraudulent activities have been publicly disclosed. If the fraudulent activities have not been publicly disclosed, an individual can sue regardless of whether they have direct knowledge of the fraudulent activities. In the Northrop Grumman case, the alleged fraud was not publicly disclosed.

On the other hand, if the activities have been publicly disclosed, like say through the news, then only individuals with first hand knowledge of the activities can sue, independent of the publicly disclosed information.

What constitutes defrauding the government under the False Claims Act? Deliberately making false claims or making claims to the government without regard to their truth in exchange for money or some benefit. Northrop Grumman, for example, knowingly sold faulty military equipment to the federal government.