Big money whistle-blower suits on the rise

When Marc Raspanti left the Philadelphia District Attorney's Office in the late 1980s to strike out on his own, he wasn't sure where to focus his practice.

He started out with a fairly standard white-collar defense practice with a private firm, drawing on his experience with the district attorney. But he soon set up his own firm and moved into whistle-blower lawsuits - a fateful decision, it turns out.

Whistle-blower lawsuits have boomed in recent years, and Raspanti's practice, along with those of the small clutch of other lawyers who handle these cases nationally, has grown accordingly.

Since Congress bolstered the federal False Claims Act in 1986 by expanding the circumstances under which contractors can be sued for cheating the government, financial penalties assessed against crooked companies have reached $27 billion, according to the latest Department of Justice compilation.

Under the act, whistle-blowers are entitled to at least 15 percent of the proceeds, a powerful incentive for people with information about corporate misdeeds.

That would mean that in the last generation, whistle-blowers have pulled down more than $4 billion; attorneys' fees likely have exceeded $1 billion. In one case last year, drug manufacturer Pfizer Inc. paid the government $2.3 billion to settle whistle-blower allegations that it had illegally marketed the painkiller Bextra and other medications.

Raspanti says that the whistle-blower cases handled by his Center City firm have resulted in payments of $1.8 billion to the government since he began the practice in 1989.

Not a bad payday all around.

"When I first started doing this work I would get low-level billing people coming in with information," said Raspanti, whose firm - Pietragallo, Gordon, Alfano, Bosick & Raspanti L.L.P. - has 90 lawyers and is based in Pittsburgh and Philadelphia. "Now I am getting people coming in from the boardrooms."

And there are signs that growth in this practice is accelerating.

Lawyers who focus on whistle-blower cases say the publicity surrounding huge pharmaceutical-industry settlements is raising awareness and causing people with information of corporate wrongdoing to come forward.

Moreover, the new law signed by President Obama governing oversight of the financial industry establishes procedures for similar whistle-blower actions against financial-services companies.

This has triggered criticism in the business community that expanding such lawsuits will simply create another huge payday for plaintiffs' lawyers while interfering with efforts by companies to root out corruption on their own.

"You are eviscerating corporate compliance programs," said Tom Quaadman, an official with the U.S. Chamber of Commerce in Washington.

Lawyers in the whistle-blower bar beg to differ, arguing that the prospect of such suits only makes companies more vigilant.

"The reality is that whistle-blowers have allowed the government to greatly enhance enforcement," said Plymouth Meeting lawyer Brian Kenney, who represented one of the whistle-blowers in last year's Pfizer case.

Whistle-blower lawsuits, known as qui tam actions, named for a Latin phrase that means "he who sues on behalf of the king," have been around since the Civil War. Then, Congress sought to encourage private citizens to come forward with information about war profiteering.

Qui tam actions took off in the 1980s when Congress expanded the circumstances under which private citizens could bring such cases, and took steps to enhance the financial rewards.

Whistle-blower lawsuits are filed under seal to conceal the informants' identities and to preserve the secrecy of the investigation.

The Justice Department monitors the lawsuits and will join in the action if it determines there is a solid case.

Charles Miller, a spokesman for the civil division of the Justice Department in Washington, said there currently are an estimated 1,000 qui tam lawsuits filed in federal courts around the nation. Philadelphia and Boston are particularly favored jurisdictions by qui tam lawyers because federal prosecutors in those cities are known for aggressively pursuing such cases.

While the pharmaceutical-industry settlements suggest potential windfalls for people who come forward, Raspanti says they are difficult cases to make and often take years to sort out, testing the stamina of both the plaintiffs' lawyers and their clients.

That is what happened in a giant action that Raspanti filed against Medco Health Solutions Inc. in 1999. The lawsuit charged that Medco, a pharmacy-benefits company that managed employers' prescription-drug plans, paid kickbacks to health insurance plans to obtain business and solicited payments from drug manufacturers seeking to sell their medications through Medco, among other allegations.

The case finally settled in 2006, with Medco agreeing to pay $155 million to settle the federal action without admitting wrongdoing. Nearly a dozen lawyers from Raspanti's firm worked on the case. They reviewed millions of documents and took nearly 100 depositions.

"It is a tremendous amount of work," Raspanti said. "It is very hard to crack some of these complicated schemes and some of the things that are involved in take years."