In 2014 and 2015, a PE sponsor directed its portfolio company to knowingly perpetrate a fraudulent marketing and payment scheme involving prescription cream medications to bilk almost $70 million from a federal health care program for military members and their families. That resulted in the PE sponsor and its portfolio company, among others, reaching a $21‑million settlement with the U.S. Department of Justice (DOJ) for False Claims Act violations in 2019. In addition, on November 19, 2020, the DOJ announced a separate $1.5‑million settlement with a PE sponsor for allegedly having an active role in False Claims Act violations, although the specific facts are unknown as the case remains under seal. Taken together, those settlements have raised fears that, with their deep pockets and top-level management of portfolio companies, PE sponsors are a new enforcement priority of the DOJ. To suss out those issues and assuage sponsors’ concerns, the Private Equity Law Report recently interviewed Sarah Ernst and Joseph H. Hunt, partner and senior counsel, respectively, at Alston & Bird. This article will describe the grounds for sponsors to be liable under the False Claims Act, the conduct that introduces the greatest risk and various mitigation techniques sponsors can adopt going forward. For coverage of suits against fund managers under New York’s False Claims Act, see “Harbinger Capital Partners Offshore Manager Settles New York Tax Evasion Case for $30 Million
” (Nov. 8, 2018); and “New York State Record Tax Whistleblower Settlement Illustrates Pitfalls of Domestic Tax-Shifting Schemes
” (Apr. 27, 2017).