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9 June 2016 / Whistleblower Lawsuits
How to Fund a Whistleblower or Qui Tam Lawsuit
No matter how civilized society may seem, the sad truth is that malfeasance happens every day. Yet only a small proportion of wrongdoings ever see the light of day, much less the full and open scrutiny of the courtroom. The federal government itself presents a large and potentially lucrative target for defrauders by virtue of its size and bureaucratic limitations. Every taxpaying citizen ultimately pays for this exploitation, not only in dollars but in the hazards posed by deficient goods or services. Where fraud against the government might otherwise fester unchecked, whistleblowers play a critical role in society by calling attention and deterring further abuse through qui tam or whistleblower actions, in which private parties—called relators—file a lawsuit on the government's behalf. Relators who prevail in qui tam cases can receive between 15% and 30% of any award or settlement.
A qui tam complaint is always filed "under seal," which keeps its details secret from everyone but the government, including the alleged wrongdoer. This allows the Department of Justice enough time to investigate the allegations and decide whether to intervene in the case. While a qui tam case can proceed regardless of whether the government intervenes, such intervention usually increases the likelihood of a successful outcome. In a typical whistleblower case, the plaintiff relator is entitled to a higher percentage of the recovery if the government chooses not to intervene and the relator must prosecute the case on his or her own.
Qui tam claims in the United States arise from the False Claims Act, which was enacted in the midst of the Civil War to effectively deputize private citizens to pursue the government's claims against rampant wartime fraud, which undermined national security and endangered the health and lives of soldiers. Subsequent amendments to the False Claims Act have expanded whistleblower claims beyond military contractors to fraud relating to Medicaid or Medicare. Since then, from 2009 to 2015, qui tam lawsuits have recovered a staggering $19.4 billion for the U.S. government, with $3 billion paid to successful relators. While the total number of qui tam complaints decreased in 2015 to 638—down from over 700 in 2014—relators achieved a greater than 37% increase in total recovery that year, from $435 million to $597 million. This trend underscores that courageous whistleblowing efforts can yield sizable results, but only for relators who have both the tenacity and the resources to bring their claims to fruition.
Whistleblowing is rarely easy. The time and resources needed to uncover fraudulent behavior by government contractors often prove considerable, and cannot be offset by an award or settlement that could remain far on the horizon for several years of costly litigation. Alleged government defrauders may have considerable resources and specialized counsel to defend their interests. Few nonprofit activist groups, much less private citizens, possess the financial wherewithal to oppose them on an equal footing, leaving many justice-seeking qui tam litigants wondering where to turn for financing.
Where a relator's own reserves might fall short, LexShares is there to help. With its innovative litigation finance platform, LexShares offers relators resources they need to successfully pursue qui tam lawsuits. Also called litigation funding or lawsuit funding, litigation finance allows third-party investors to provide the finances that cash-strapped relators need to see them through the entire lifecycle of a case. In exchange, investors are given a portion of future lawsuit proceeds if the qui tam claim results in a recovery. LexShares streamlines the process of bringing together relators of meritorious cases and accredited investors. Relators can apply for capital needed for litigation costs or even to keep themselves solvent throughout litigation. LexShares' highly experienced legal team then reviews their cases, and those with strong merits are posted on LexShares' website as investment opportunities with specific funding goals. After reviewing case details, investors can quickly decide whether and how much to invest—getting started with as little as $5,000.
With LexShares' online model, relators need not seek out a single "angel" investor to fund their entire case; instead, they can achieve their funding goals by pooling the collective resources of multiple investors. And unlike a loan, there is no need for repayment if the outcome isn't favorable to the relator. Case details are made available only to registered investors with the relator's authorization. In addition, confidential information or documents subject to protective orders do not have to be shared with the investor group. A relator continues to make all litigation decisions, as neither LexShares nor investors ever receive a right to manage, interfere with, or so much as influence the prosecution of the case. Relators who do not prevail owe investors nothing; those who do pay investors the agreed-upon portion of their recovery. LexShares handles the process of monitoring litigation throughout a case's lifecycle for investors, making developments readily understandable through a viewable timeline and links to publicly filed courtroom documentation.
Whistleblowers attempting to expose corporate fraud and misconduct need not fight their legal battles alone. LexShares helps undercapitalized relators finance their legal expenses and afford access to premier legal representation. LexShares not only makes it easier for whistleblowers to achieve the full and fair recoveries they deserve, but attain justice for the government and its citizens.
Max Volsky
Co-Founder & Chief Investment Officer, LexShares
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