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The federal False Claims Act was originally enacted in 1863 as a response to widespread abuses by government contractors during the Civil War. This Act allows any citizen (known as a "relator") who knows of an individual or company that has financially defrauded the federal government to file a whistleblower (qui tam) lawsuit on behalf of the United States.
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The law was used very little until 1986, when amendments strengthened the law and increased monetary rewards.
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The citizen files the lawsuit in federal court "under seal", meaning it is NOT available to the public and cannot be discussed with anyone except government officials investigating the case. At the same time, the citizen presents to the government a statement of all evidence that he/she knows is relevant to case.
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Even the defendants - the individual or organization charged with committing fraud - are not told about the lawsuit. This gives the government time to investigate the fraud allegations without alerting the defendant.
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The government has 60 days to review the case and decide whether or not to pursue it (seals on whistleblower cases are often extended for 1-2 years or more.)
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If the government decides to join the case, the lawsuit is unsealed, a copy is served on the defendant, and the government and the citizen work together in the case a co-plaintiffs.
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The law stipulates that a liable defendant pay three times the government's losses plus $5,00 to $10,000 for each false claim.
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When settling a case, the government often agrees to forego any awarded civil penalties, accepting instead two or three times the amount of damages suffered by the government. The defendant also must pay the fees and case-related expenses of the whistleblower's attorney.
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In 2000, the state of Massachusetts passed a False Claims Act law with a whistleblower (qui tam) provision. It tracks the federal law fairly closely.
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Several other states have also passed such laws. For example, California has had a False Claims Act since the late 1980's and since 1999 has recovered over $270 million (in non-healthcare cases alone).
