A.G. Schneiderman Announces $40 Million Settlement With Investment Management Company For Tax Abuses, Marking Largest Tax Whistleblower Recovery In Office’s History

New York Attorney General  Eric T. Schneiderman announced last week that his office reached a  $40 million settlement with Alabama-based Harbert Management Corporation and top executives at the firm over allegations that they failed to pay millions in New York State tax on performance income for several years. Harbert Management was the fund sponsor for Harbinger Capital Partners, a $26 billion hedge fund based in New York City (“Harbinger Fund”).

“Our investigation uncovered a brazen and deliberate decision to avoid paying millions in taxes owed to New York State,” said Attorney General Schneiderman. “Harbert Management made a clear choice to skirt the rules and as a result, ordinary New York taxpayers were left footing the bill. On tax day, this sends a forceful reminder to businesses that if they think they can get away with tax evasion in New York, they should think again.”

When businesses operate both inside and out of New York City and State, they must apportion for tax purposes the part of their income derived from or connected with New York.  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 is the largest tax-related recovery by the Attorney General’s office, resulting from an action brought by an unnamed whistleblower under the New York False Claims Act, which was amended to cover tax claims in 2010. The whistleblower will receive an award of $8.8 million.

About Faruqi & Faruqi, LLP

Faruqi & Faruqi, LLP focuses on complex civil litigation, including securities, antitrust, consumer class actions, shareholder derivative litigation and whistleblower (Qui Tam) litigation. The firm is headquartered in New York, and maintains offices in California, Delaware and Pennsylvania. Since its founding in 1995, Faruqi & Faruqi, LLP has served as lead or co-lead counsel in numerous high-profile cases which ultimately provided significant recoveries to investors, consumers and employees. To schedule a free consultation with our attorneys and to learn more about your legal rights, call our offices today at (877) 247-4292.

About T. Talyana Bromberg

Talyana Bromberg is a partner in Faruqi & Faruqi, LLP's Pennsylvania office and chair of its False Claims Litigation group. Ms. Bromberg focuses her practice on representing whistleblowers in Medicare and Medicaid fraud cases, educational, financial, tax, defense contractors' fraud and matters involving bribery under the Foreign Corrupt Practices Act.

Ms. Bromberg was a lead attorney representing whistleblower Ronald Streck in the lawsuits against pharmaceutical manufacturers AstraZeneca Pharmaceuticals LP, Cephalon, Inc., Biogen Inc., and Genzyme Corp. relating to underpayment of Medicaid rebates, with settlements totaling over $59.8 million. She represented whistleblowers in pharmaceutical lawsuits against Abbott Laboratories related to off-label promotion and payment of kickbacks for anti-seizure drug Depakote that resulted in a $1.6 billion settlement; against GlaxoSmithKline related to unlawful marketing tactics and kickbacks for GSK drug Advair for a $1.04 billion settlement; and against Pfizer for alleged illegal promotion of its kidney transplant drug Rapamune, resulting in $257 million settlement.

The False Claims Act allows whistleblowers to sue those who commit fraud against the government and to receive between 15 and 30 percent of the recovered funds. The law covers fraud involving any government-funded contract or program, including Medicare, Medicaid, military, transportation, housing, educational, agricultural, or other program. Separate IRS, SEC and CFTC whistleblower programs cover federal tax fraud, securities and commodities fraud. Since 1986, whistleblowers have helped the government to recover more than $40 billion by bringing lawsuits under the federal and state False Claims Acts.

Posted by T. Talyana Bromberg

Partner at Faruqi & Faruqi, LLP
Pennsylvania Office
Tel: (215) 277-5770
Fax: (215) 277-5771
Email: tbromberg@faruqilaw.com
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