A conference committee reconciling differences between the House and Senate versions of a sweeping financial regulatory bill included a provision in the legislation that would extend the statute of limitations on some securities fraud offenses and seek to improve whistleblower protections.

Under the amendment, a person could face charges for certain securities fraud violations up to six years after the offense occurred. Under current law, the statute of limitations is five years.

The amendment would apply to the following securities violations:

18 U.S.C. 1348  — Securities and Commodities Fraud

15 U.S.C. 78ff(a) — False Statements/Failure to File Information Pursuant to the Securities Exchange Act of 1934

15 U.S.C. 77x — Willful violations of Securities Act of 1933

15 U.S.C. 80b–17– Willful violations of the Investment Advisors Act of 1940

15 U.S.C. 80a–48 — Willful violations of the Investment Company Act of 1940

15 U.S.C. 77yyy — Willful violations of the Trust Indenture Act of 1939

The amendment also would ask the U.S. Sentencing Commission to revise and increase the sentencing guidelines for securities and bank fraud offenses. According to the Senate Judiciary Committee, sentences for securities and bank fraud are often shorter than those for other white collar crimes. The amendment does not offer specific ranges for sentences but instead would ask the Sentencing Commission to make changes so the sentences are more in line with those for other forms of white collar crime.

According to the committee, the amendment also would seek to ensure that proper incentives are in place to reward whistleblowers who step forward to report fraud and abuse.

“Often the best way to deter the kind of reckless and outrageous conduct that can bring down financial institutions and harm so many Americans is to ensure that those who commit these crimes actually go to jail,” Leahy said in a statement. “The provisions included in the Wall Street reform legislation will lead to increased sentences for those who commit securities fraud and bank fraud, and strengthen protections for whistleblowers, who often serve as an early warning system to stop fraud before it damages financial institutions and the economy.”

The Leahy amendment was added during a 20-hour marathon meeting to hash out differences between the House and Senate bills. Rep. Howard Berman (D-Calif.) was a lead supporter of the amendment during the Senate-House conference, according to the committee.

Congress is expected to finish up work on the bill before the July 4 recess.

The text of the amendment is embedded below.

HEN10584 (Fraud Conference w House Changes)

People who blew the whistle on drug companies were often motivated by personal integrity, rather than financial gain, and their assistance in False Claims Act investigations took a large personal toll, according to a new study published in The New England Journal of Medicine Thursday.

The study was based on interviews with 26 whistleblowers, all of whom received a share of financial recoveries in cases against pharmaceutical manufactures that settled between 2001 and 2009. Their cuts ranged from $100,000 to $42 million, with a median of $3 million.

In order of most common to least, whistleblowers motivations included integrity, altruism or public safety, justice and self-preservation. The study shatters the popularly held view of whistleblowers living out their lives in opulence after helping the government recover millions in taxpayer dollars. In fact, a majority of those interviewed said the payoff wasn’t worth the personal costs. According to the study:

The settlements helped alleviate some of the financial and nonfinancial costs of the litigation. One relator likened his large settlement to “hitting the lottery” (Relator 5). But a majority perceived their net recovery to be small relative to the time they spent on the case and the disruption and damage to their careers…..One ruefully reported that he “should have taken the bribe” (Relator 7), and another noted that if she “stayed and took stock options” she “would’ve been worth a lot more” (Relator 4).

Some whistleblowers described feeling overwhelmed by their role. They spoke of long hours — and long years — punctuated by stressful situations.

One relator estimated spending “thousands of hours” on the case over its 5-year duration (Relator 17); another spent “probably 30 hours a week” during the first few years. Some meetings took place at Justice Department offices, with relators traveling at their own expense; others occurred unnervingly close to home. One reported that “a typical day could be meeting an FBI agent in a parkway rest stop. Sitting in his car with the windows rolled up. Neither heat nor air conditioning. Getting wired. Running to a meeting. . . . That might happen at 7 for a meeting at 8″ (Relator 16). Another said, “I would have FBI agents show up in the office. I told them, the company people, that they were computer people. Luckily they believed it. . . . That’s amusing now after the fact. But at the time they call you in 5 minutes. They say `We’re coming onto your campus’” (Relator 18).

The co-authors recommended, among other things, pouring more resources in the qui tam investigations to move them along more quickly, strengthening the penalties for violating anti-retaliation provisions and compensating insider whistleblowers more than outsiders.

Phillips & Cohen LLP’s Erika Kelton, who has represented several whistleblowers, including a sales representative in an illegal-marketing case against Pfizer Inc. that settled last year for $1.8 billion, said in a statement that the study tracked closely with her experience.

“People often turn to us after they have been fired or have raised their concerns with management but nothing changes.  Typically, whistleblowers decide to file a ‘qui tam’ lawsuit as a last resort,” she said. “Most are motivated more by exposing wrongdoing and stopping what often are harmful or dangerous practices than by any hope for a reward.”

A dental management company has agreed to pay $24 million to settle allegations it performed unnecessary services on children — including root canals, placing crowns and pulling teeth — to boost its Medicaid reimbursements, the Justice Department said on Wednesday.

An federal investigation also uncovered evidence that staff in “Small Smiles Centers,” which are managed by FORBA Holdings LLC, administered anesthesia and x-rays without proper licenses or certifications, and used restraints, such as a device known as the papoose board, in a way that could cause children undue pain.

The government alleged that the misconduct in the Sara Smiles clinics, which operate in 21 states and the District of Columbia, stemmed from FORBA practices deigned to maximize corporate profit.

“We have zero tolerance for those who break the law by exploiting needy children,” said Tony West, Assistant Attorney General for the Civil Division, in a news conference in the Justice Department’s Washington headquarters.

While the settlement releases the company from further liability, West said an investigation of individual dentists is ongoing. They could face sanctions by state dental boards, exclusion from Medicaid, or criminal prosecution.

The investigation, dubbed “Operation Bite Back,” was handled by the FBI, the Department of Health and Human Service’s Office of the Inspector General, the Justice Department’s Civil Division, and U.S. Attorneys’ Offices for the District of Maryland, Western District of Virginia, the District of South Carolina and the District of Colorado. Several state Medicaid Fraud Control Units also participated.

HHS Inspector General Daniel Levinson said FORBA entered into a corporate integrity agreement with his office, under the terms of which the company agreed to retain independent monitors, appoint a patient advocate, and fire staff and dentists who violate professionally recognized standards of care.

Of the $24 million, the federal government will receive $14.3 million, and the states $9.7 million. Three lawsuits filed under the whistleblower provision of the False Claims Act sparked the government investigation. The whistleblowers will receive a total of $2.4 million, from the federal government’s share.

Chevron Corp. has agreed to pay more that $45.5 million to settle claims that it shortchanged federal, state and American Indian accounts when paying royalties owed on land leases, the Justice Department said Wednesday.

The government alleged that the company systematically deducted costs, reduced the value of gas, and reported processed gas as unprocessed in order to shrink royalty payments. The payments were made to the Interior Department, which oversees collection and distribution of roylalties on federal and Indian lands. The alleged conduct occurred from March 1988 to November 2008.

“This administration is changing the way Interior does business and settlements, such as this one, demonstrate our determination to assure the American public receives fair market value for the resources we manage in their name,” Interior Secretary Ken Salazar said in a statement.

Civil Division Chief Tony West said the Justice Department was ”committed to protecting public and Indian lands and to ensuring that companies with leases to take natural gas from those lands pay their fair share of royalties.”

The $45.5 million will be divvied among federal, state and American Indian accounts. The case, brought under the False Claims Act, was handled by the Civil Division, the U.S. Attorney’s Office for the Eastern District of Texas, and the Interior Department’s Office of Inspector General, Minerals Management Service and Office of the Solicitor.

The settlement flows from an FCA lawsuit filed by whistleblower Harrold Wright, who died in the course of the litigation. His heirs will receive $12.3 million as part of the settlement, the Justice Department said.

The Justice Department previously settled with Burlington Resources Inc. for $105.3 million, Shell Oil Co. for $56 million and Dominion Exploration and Production Co. for $2 million.

Wednesday’s announcement comes on the two weeks after the government entered into an agreement to pay more than $1.4 billion to settle a long-running class-action brought by American Indians who accused the Interior Department of mishandling Indian funds held in trust. The plaintiffs and the government executed a settlement Dec. 7, but it requires approval from Congress and a federal district judge.

Assistant Attorney General Tony West (Steve Bagley/Main Justice)

The Department of Justice and Congress are working together to beef up the government’s ability to fight health care fraud.

Assistant Attorney General Tony West told the Senate Judiciary Committee Wednesday the DOJ needs Congress’s help. “We cannot combat this fraud alone,” said West, who has headed the DOJ’s Civil Division for eight months.

Good timing. Later Wednesday, Sen. Ted Kaufman (D-Del.) introduced the Health Care Fraud Enforcement Act to help the Justice Department out.

The act would make a few key reforms, Kaufman said, including changing sentencing guidelines for criminals convicted of health care fraud, make punishments “commensurate with costs” of the fraud, and increase whistleblower payments.

According to a news release from Kaufman’s office, the bill would increase the sentences for health care fraud convictions, redefine the definition of what constitutes a health care fraud offense to include drug marketing, kickback and ERISA crimes, increase whistleblower claims, create a mental state requirement for trying health care fraud offenses and devoting $20 million annually from 2011 to 2016 in federal funding to increase Medicare fraud investigations and prosecutions.

“We have seen an increasing number of sentences of fines for where there is really serious egregious conduct. Fines have just added to the cost of doing business,” Sen. Arlen Specter (D-Pa.) said at the Senate Judiciary Committee hearing this morning.

On the Senate floor Tuesday, Kaufman spoke about the bill, the Health Care Fraud Enforcement Act of 2009. “We must also ensure law enforcement has the tools it needs,” Kaufman said.

West said that “fighting Medicare and Medicaid fraud has become a “Cabinet-level priority,” with the DOJ and HHS’s combined efforts.

The two agencies in May announced the Health Care Fraud Prevention and Enforcement Action Team (HEAT) to pursue Medicare and Medicaid fraud.  ”If we can put these people in prison, we will do that,” West said. “That’s a commitment the department has made.”

At the hearing, Sen. John Cornyn (R-Texas) said he wanted to see the DOJ’s Civil and Criminal Divisions beef up their staff to deal with health care fraud. “The bad guys outnumber the good guys,” Cornyn said. “I don’t know how we can expect [The Centers for Medicare and Medicaid Services] to do a better job, when out of the 4.4 million claims you get every day you can only review 3 percent of them. I’m not sure we are ever going to have enough good guys to outnumber the bad guys in this.”

Sen. Chuck Grassley (R-Iowa) questioned West on the 1,040 pending qui tam lawsuits waiting for the DOJ to sign on. “I find it troubling that some cases are lingering for 36 months,” Grassley said of the whistle blower suits. “Does the Justice Department have a plan to clear this backlog in a timely manner? And if so, what is it?”

Those cases, West said, are being “actively investigated.”

The world’s largest drug maker, Pfizer Inc., will pay $2.3 million in a settlement with the government over charges that it illegally marketed several of its drugs,  The Associated Press reports.

In financial filings, the New York-based company disclosed in January that it was putting aside $2.3 billion for an expected settlement over allegations that it promoted the pain reliever Bextra and other products for unapproved uses. It is the largest health care fraud settlment in the Justice Department’s history.

In March, a regional manager pleaded guilty to promoting  the drug Bextra for uses and dosages that were not approved by the Food and Drug Administration.

The Justice Department will announce the terms of the deal in a news conference this morning.

UPDATE (10:41 a.m.) See the department’s release below:

JUSTICE DEPARTMENT ANNOUNCES LARGEST HEALTH CARE FRAUD SETTLEMENT IN ITS HISTORY

Pfizer To Pay $2.3 Billion For Fraudulent Marketing

WASHINGTON – American pharmaceutical giant Pfizer Inc. and its subsidiary Pharmacia & Upjohn Company Inc. (hereinafter together “Pfizer”) have agreed to pay $2.3 billion, the largest health care fraud settlement in the history of the Department of Justice, to resolve criminal and civil liability arising from the illegal promotion of certain pharmaceutical products, the Justice Department announced today.

Pharmacia & Upjohn Company has agreed to plead guilty to a felony violation of the Food, Drug and Cosmetic Act for misbranding Bextra with the intent to defraud or mislead.  Bextra is an anti-inflammatory drug that Pfizer pulled from the market in 2005.  Under the provisions of the Food, Drug and Cosmetic Act, a company must specify the intended uses of a product in its new drug application to FDA.  Once approved, the drug may not be marketed or promoted for so-called “off-label” uses – i.e., any use not specified in an application and approved by FDA.  Pfizer promoted the sale of Bextra for several uses and dosages that the FDA specifically declined to approve due to safety concerns.  The company will pay a criminal fine of $1.195 billion, the largest criminal fine ever imposed in the United States for any matter.  Pharmacia & Upjohn will also forfeit $105 million, for a total criminal resolution of $1.3 billion.

In addition, Pfizer has agreed to pay $1 billion to resolve allegations under the civil False Claims Act that the company illegally promoted four drugs – Bextra; Geodon, an anti-psychotic drug; Zyvox, an antibiotic; and Lyrica, an anti-epileptic drug – and caused false claims to be submitted to government health care programs for uses that were not medically accepted indications and therefore not covered by those programs.  The civil settlement also resolves allegations that Pfizer paid kickbacks to health care providers to induce them to prescribe these, as well as other, drugs.  The federal share of the civil settlement is $668,514,830 and the state Medicaid share of the civil settlement is $331,485,170.  This is the largest civil fraud settlement in history against a pharmaceutical company.

As part of the settlement, Pfizer also has agreed to enter into an expansive corporate integrity agreement with the Office of Inspector General of the Department of Health and Human Services.  That agreement provides for procedures and reviews to be put in place to avoid and promptly detect conduct similar to that which gave rise to this matter.

Whistleblower lawsuits filed under the qui tam provisions of the False Claims Act that are pending in the District of Massachusetts, the Eastern District of Pennsylvania and the Eastern District of Kentucky triggered this investigation.  As a part of today’s resolution, six whistleblowers will receive payments totaling more than $102 million from the federal share of the civil recovery.

The U.S. Attorney’s offices for the District of Massachusetts, the Eastern District of Pennsylvania, and the Eastern District of Kentucky, and the Civil Division of the Department of Justice handled these cases.  The U.S. Attorney’s Office for the District of Massachusetts led the criminal investigation of Bextra.  The investigation was conducted by the Office of Inspector General for the Department of Health and Human Services (HHS), the FBI, the Defense Criminal Investigative Service (DCIS), the Office of Criminal Investigations for the Food and Drug Administration (FDA), the Veterans’ Administration’s (VA) Office of Criminal Investigations, the Office of the Inspector General for the Office of Personnel Management (OPM), the Office of the Inspector General for the United States Postal Service (USPS), the National Association of Medicaid Fraud Control Units and the offices of various state Attorneys General.

“Today’s landmark settlement is an example of the Department of Justice’s ongoing and intensive efforts to protect the American public and recover funds for the federal treasury and the public from those who seek to earn a profit through fraud.  It shows one of the many ways in which federal government, in partnership with its state and local allies, can help the American people at a time when budgets are tight and health care costs are increasing,” said Associate Attorney General Tom Perrelli.  “This settlement is a testament to the type of broad, coordinated effort among federal agencies and with our state and local partners that is at the core of the Department of Justice’s approach to law enforcement.”

“This historic settlement will return nearly $1 billion to Medicare, Medicaid, and other government insurance programs, securing their future for the Americans who depend on these programs,” said Kathleen Sebelius, Secretary of Department of Health and Human Services. “The Department of Health and Human Services will continue to seek opportunities to work with its government partners to prosecute fraud wherever we can find it.  But we will also look for new ways to prevent fraud before it happens.  Health care is too important to let a single dollar go to waste.”

“Illegal conduct and fraud by pharmaceutical companies puts the public health at risk, corrupts medical decisions by health care providers, and costs the government billions of dollars,” said Tony West, Assistant Attorney General for the Civil Division. “This civil settlement and plea agreement by Pfizer represent yet another example of what penalties will be faced when a pharmaceutical company puts profits ahead of patient welfare.”

“The size and seriousness of this resolution, including the huge criminal fine of $1.3 billion, reflect the seriousness and scope of Pfizer’s crimes,” said Mike Loucks, acting U.S. Attorney for the District of Massachusetts.  “Pfizer violated the law over an extensive time period.  Furthermore, at the very same time Pfizer was in our office negotiating and resolving the allegations of criminal conduct by its then newly acquired subsidiary, Warner-Lambert, Pfizer was itself in its other operations violating those very same laws.  Today’s enormous fine demonstrates that such blatant and continued disregard of the law will not be tolerated.”

“Although these types of investigations are often long and complicated and require many resources to achieve positive results, the FBI will not be deterred from continuing to ensure that pharmaceutical companies conduct business in a lawful manner,” said Kevin Perkins, FBI Assistant Director, Criminal Investigative Division.

“This resolution protects the FDA in its vital mission of ensuring that drugs are safe and effective.  When manufacturers undermine the FDA’s rules, they interfere with a doctor’s judgment and can put patient health at risk,” commented Michael L. Levy, U.S. Attorney for the Eastern District of Pennsylvania.  “The public trusts companies to market their drugs for uses that FDA has approved, and trusts that doctors are using independent judgment.  Federal health dollars should only be spent on treatment decisions untainted by misinformation from manufacturers concerned with the bottom line.”

“This settlement demonstrates the ongoing efforts to pursue violations of the False Claims Act and recover taxpayer dollars for the Medicare and Medicaid programs,” noted Jim Zerhusen, U.S. Attorney for the Eastern District of Kentucky.

“This historic settlement emphasizes the government’s commitment to corporate and individual accountability and to transparency throughout the pharmaceutical industry,” said Daniel R. Levinson, Inspector General of the United States Department of Health and Human Services. “The corporate integrity agreement requires senior Pfizer executives and board members to complete annual compliance certifications and opens Pfizer to more public scrutiny by requiring it to make detailed disclosures on its Web site.  We expect this agreement to increase integrity in the marketing of pharmaceuticals.”

“The off-label promotion of pharmaceutical drugs by Pfizer significantly impacted the integrity of TRICARE, the Department of Defense’s healthcare system,” said Sharon Woods, Director, Defense Criminal Investigative Service.  “This illegal activity increases patients’ costs, threatens their safety and negatively affects the delivery of healthcare services to the over nine million military members, retirees and their families who rely on this system.  Today’s charges and settlement demonstrate the ongoing commitment of the Defense Criminal Investigative Service and its law enforcement partners to investigate and prosecute those that abuse the government’s healthcare programs at the expense of the taxpayers and patients.”

“Federal employees deserve health care providers and suppliers, including drug manufacturers, that meet the highest standards of ethical and professional behavior,” said Patrick E. McFarland, Inspector General of the U.S. Office of Personnel Management.  “Today’s settlement reminds the pharmaceutical industry that it must observe those standards and reflects the commitment of federal law enforcement organizations to pursue improper and illegal conduct that places health care consumers at risk.”

“Health care fraud has a significant financial impact on the Postal Service.  This case alone impacted more than 10,000 postal employees on workers’ compensation who were treated with these drugs,” said Joseph Finn, Special Agent in Charge for the Postal Service’s Office of Inspector General. “Last year the Postal Service paid more than $1 billion in workers’ compensation benefits to postal employees injured on the job.”

CQ’s Jeff Stein has this interesting piece about the indefatigable and rather, um, eccentric Sibel Edmonds, the FBI translator-turned-whistleblower who alleges — and has been alleging for seven years now — that foreign agents infiltrated her old unit, the State Department, the Pentagon and Congress.

Edmonds, a multilingual Iranian raised partly in Turkey, was fired in 2002 after she formally complained of incompetence and corruption in the FBI translation unit. Then came the inevitable whistleblower suit. The Justice Department, with the help of the federal courts, has stopped her at every turn. But she seems to have stumbled upon another forum for airing her secrets, however random. Stein reports:

This week, Edmonds was scheduled to give a deposition regarding Turkish intelligence activities in an arcane congressional election dispute in Ohio.

Rep. Jean Schmidt, R-Ohio, had filed a complaint with the Ohio Board of Elections contending that a rival candidate in 2008 had slandered her with a charge that she took campaign cash from Turkish interests – “blood money,” he called it – to vote against a congressional resolution blaming Ankara for the “genocide” of 1.5 million Armenians during the First World War.

The candidate, David Krikorian, who ran against Schmidt as an Independent but wants to challenge her again in 2010 as a Democrat, planned to take a deposition from Edmonds on Saturday, Aug. 8.

Weird, right? On Monday, Edmonds notified the Justice Department of her intention to tell Krikorian details of how “certain Turkish entities had illegally infiltrated and influenced various U.S. government agencies and officials, including but not limited to the Department of State, the Department of Defense and individual members of the United States Congress.”

She gave the department until the end of the day to respond. Nada. Then she pushed the deadline to noon Tuesday. Still nothing.

A senior Justice Department official dismissed Edmonds move as theatrics and said her nondisclosure agreement (NDA) with the FBI requires her to give the bureau 30 days advance notice of her intention to discuss issues related to her employment. Edmonds told Stein that she will be deposed unless the Justice Department intervenes.

The official would not tell Stein whether Attorney General Eric Holder will respond to Edmonds, or whether the department would seek to punish her were she to violate her NDA.