Getnick & Getnick LLP and co-counsel Labaton Sucharow LLP have secured the largest ever tax whistleblower recovery in New York state history. New York Attorney General Eric T. Schneiderman announced the $40 million settlement today.
The whistleblower, whose identity remains protected, will receive 22 percent of the settlement ($8.8 million), the largest amount and percentage share ever for a whistleblower in a New York False Claims Act case not involving Medicaid.
Getnick and Labaton represent a whistleblower in a tax evasion case brought against Harbert Management Corporation, an Alabama-based investment company. Harbert had an investment and business relationship with Harbinger Capital Partners Offshore Manager LLC, the investment manager for New York-based hedge funds run by Philip Falcone from 2002 to 2009. The case alleges that the defendants evaded New York State and City taxes by shifting income derived from Harbinger from New York to Alabama to avoid New York’s higher tax rates. The settlement includes Harbert and related entities and individuals. The Attorney General’s Office has announced that its investigation into the conduct at issue in this matter continues.
“This settlement is an important step forward for the use of whistleblower laws to battle tax evasion in New York, and it should serve as a wake-up call for hedge funds with multi-state operations,” said Neil Getnick, managing partner of Getnick & Getnick. “The Attorney General’s Office did an extraordinary job working with us and our client in developing this case, illustrating the value of the public-private partnership established by state and federal whistleblower laws.”
“This should be a cautionary tale for wealthy companies and individuals about the probability of detection and prosecution because of whistleblower laws enabling private citizens and their counsel to bring to light misconduct previously invisible to regulators,” said Jordan Thomas, Chair of Labaton’s Whistleblower Representation practice.
The case was filed under the New York False Claims Act, which was amended to cover tax claims in 2010. Today’s press release from the New York Attorney General is here.
Getnick & Getnick is a Manhattan-based law firm dedicated to fighting fraud and promoting business integrity. The firm works with whistleblowers, government agencies and companies, guided by the principle that anti-fraud is not anti-business. The firm’s whistleblower cases have recovered more than $1 billion for taxpayers, and clients have received record awards, including the largest ever award for a single whistleblower.
Harbert Management to Pay New York $40 Million in Tax Settlement, The New York Times, April 18, 2017 (“‘This is a new tax evasion method where tax obligations are being shifted to another state,’ Mr. Getnick said. ‘There is a lot of potential liability here for the industry with multistate operations.'”)
Harbert Management Reaches New York Settlement, The Wall Street Journal, April 18, 2017 (“The whistleblower will receive $8.8 million in reward, according to the [New York State Attorney General’s] office, the largest tax whistleblower recovery ever awarded by the New York attorney general.”)
AG Nets Record $40 Million Tax Settlement Against Hedge Fund, New York Law Journal, April 18, 2017 (“‘This settlement is an important step forward for the use of whistleblower laws to battle tax evasion in New York, and it should serve as a wake-up call for hedge funds with multistate operations,’ Getnick said in a statement.”)
Harbert Management to Pay $40 Million to Settle New York Tax Whistleblower Tax Case, Corporate Crime Reporter, April 18, 2017 (“Getnick told the Corporate Crime Reporter that the case ‘underscores the efficacy of the New York State’s False Claims Act qui tam approach for pursuing tax fraud by taking full advantage of whistleblowers and their counsel teaming up with the government to achieve successful recoveries.’ ‘The IRS whistleblower program would benefit from similar partnerships,’ Getnick said.”)
New York Targets Hedge Funds in $40m State Tax Settlement, HFM Week, April 18, 2017 (“‘This tax-shifting scheme has precisely the same effect as an offshore tax evasion scheme as far as New York State and City is concerned,’ [Neil Getnick] said. ‘They receive zero tax. That is a big deal because there is a lot of potential liability out there and that should be a wake-up call for hedge funds with multi-state offices. The New York False Claims Act has a retroactive statute of limitations provision that reaches back 10 years. I believe that this case provides a window on what is in the pipeline and it will encourage other cases as well.’”)
Getnick & Getnick/Labaton Sucharow Recover $40m, The Hedge Fund Journal, April 18, 2017 (Neil Getnick quote: “The Attorney General’s Office did an extraordinary job working with us and our client in developing this case, illustrating the value of the public-private partnership established by state and federal whistleblower laws.”)
Whistleblower Gets $8.8M Thanks to Falcone Tax-Scheme Settlement, New York Post, April 18, 2017 (“‘You can’t set up operations in Midtown Manhattan . . . and turn around and pay zero dollars in taxes,’ Neil Getnick, attorney for the whistle-blower, told The Post.”)
NY Settles With Ala. Firm for $40M In Biggest Tax Recovery, Law360, April 18, 2017
Law360’s Weekly Verdict: Legal Lions & Lambs, Law360, April 20, 2017 (Neil V. Getnick named a “legal lion” in connection with Getnick & Getnick’s record-breaking hedge fund tax case.)
New York State Record Tax Whistleblower Settlement With Harbinger Capital Partners Illustrates Pitfalls of Domestic Tax-Shifting Schemes, Hedge Fund Law Report, April 27, 2017 (“The most significant ‘wakeup call’ for hedge fund managers, [Neil Getnick] noted, ‘has to do with this case revealing a new tax evasion method involving the shifting of tax obligations to another state instead of offshore.’ . . . ‘From the perspective of a governmental agency, the impact of both the domestic and the offshore efforts is the same – zero dollars get paid.'”)
Viewpoint: Extending False Claims Act to Tax Is A Good Idea, Neil V. Getnick & Gregory M. Krakower, Bloomberg BNA Daily Tax Report: State, May 2, 2017
Hedge Funds Become Latest Target for Whistleblowers: $40 Million Settlement in Tax Case Demonstrates Broad Reach of New York’s False Claims Act, Fried Frank FraudMail Alert, May 2, 2017 (“This latest action, which relied on state tax laws as the basis for the fraud claim, may usher in a whole new wave of potential liability against hedge funds and similar businesses.”)