Whistle-blowers Gained Record $532 Million-Plus from Lawsuits Last Year

(Reuters) -- Whistle-blowers earned more than $532 million in 2011 through lawsuits alleging fraud against the U.S. government, a record for such payouts, according to a law-firm study published on Friday.

Private parties suing on the behalf of the government collected $140 million more than they did the previous year, even as the U.S. Justice Department's total civil-fraud sanctions remained consistent, the law firm Gibson, Dunn & Crutcher said.

The DOJ recovered some $3.02 billion last year through cases under the False Claims Act -- the third-largest recovery ever, just shy of the $3.09 billion it won through cases in 2010.

But for the whistle-blowers that helped bring them, 2011 was an even better year.

The bounty provisions are so attractive, said Andrew Tulumello, who helps lead Gibson Dunn's Washington office and worked on the report. When you look at $540 million going to basically the plaintiffs bar, that is going to attract more and more interest.

The Justice Department has used the Civil War-era law, designed to root out unscrupulous contractors, to aggressively go after health-care providers and pharmaceutical companies for overcharging Medicare and Medicaid.

The law provides for whistle-blowers to earn as much as 30 percent of any recovery and in recent years such tipsters -- referred to as relators in False Claims parlance -- have helped bring an increasing number of the government's cases.

Eighty-four percent of such cases opened last year were brought by whistle-blowers, up from 75 percent the year before. Twenty-five years ago, only 8 percent of the government's cases were based on lawsuits from relators.

The record payouts in 2011 come amid the ramp-up of a new whistle-blower bounty program created by the Dodd-Frank financial regulatory overhaul to encourage individuals with information about securities law violations to come forward. That program has yet to provide its first award.

The 2011 numbers -- based on the government's fiscal year from October through September -- are helped by one of the largest payouts ever, to a former GlaxoSmithKline PLC employee.

In October 2010, a GSK quality manager won $96 million for exposing manufacturing defects at a plant in Puerto Rico. The company paid $750 million to settle the charges.

Whistle-blowers earn a cut based on how far they advance a case before the government takes over. In cases where the Justice Department declines to intervene, they can win an even greater share of any eventual settlement.

The vast majority of the 2011 awards -- some $490 million -- came in cases where the Justice Department joined the case. Another $42 million came from cases the government declined to pursue.

(Reporting by Aruna Viswanatha; editing by Andre Grenon)