The Colorado legislature recently enacted a law, patterned on the federal False Claims Act, that creates new liability risks for businesses receiving or using state funds. The Colorado False Claims Act (the “CFCA”) was passed by the General Assembly in early June, signed into law by Governor Polis on June 7, 2022, and takes effect in September 2022. Like its federal counterpart, the CFCA holds individuals and businesses liable for committing, conspiring to commit, or aiding and abetting the commission of what the law characterizes as “false claims.” Such claims include false claims for payment from state funds, false records relating to claims for state payments, and withholding and misuse of state funds. The CFCA authorizes hefty civil penalties to protect public funding from misuse and misappropriation: between $11,800 and $23,600 per violation plus three times the amount of the damages sustained by the state as a result of the false claim.
In addition to authorizing civil penalties for false claims on state funds, the CFCA also empowers, protects, and rewards whistleblowers who sound the alarm on fraud against the state. This is typically seen in the case of employees blowing the whistle on their employers. The CFCA allows such employees and any other public citizens to file qui tam lawsuits on behalf of the state against those who make false claims for state funds. In the event of a successful qui tam suit, whistleblowers stand to recover up to 30% of any funds recouped by the government, “based on the extent the [whistleblower] contributed to the investigation and prosecution of the false claim.” The CFCA also protects whistleblowers from any form of retaliation, including – in the case of whistleblowing against an employer – discrimination, demotion, or termination because of the whistleblower’s “efforts in furtherance of investigating, prosecuting, or stopping false claims.” Additionally, the CFCA authorizes the Colorado Attorney General and local prosecutors to investigate false claims, seek penalties, and intervene in qui tam cases brought by whistleblowers.
Although the impact of the CFCA will not be known until after it takes effect in September, it has the potential to significantly incentivize individuals to blow the whistle on employers who receive or use state funds for any kind of statements or conduct that could be characterized as false or misleading. Under the federal False Claims Act, after which the CFCA is modeled, whistleblowers have been awarded over $8 billion and assisted the federal government in recovering over $70 billion since 1986, including over $5.6 billion in 2021 based on false claims relating to, among other things, federal health care funds (Medicaid, Medicare, etc.), unlawful kickbacks by businesses, unnecessary medical services, government procurement fraud, and COVID-related fraud.
As a result of the protection on whistleblowers and the financial incentive to blow the whistle, the CFCA may result in businesses facing more enforcement suits – whether meritorious or not. With implementation of the CFCA imminent, our attorneys are ready to help companies navigate this new law and its potential impact on their business, including by ensuring appropriate compliance mechanisms are in place to help prevent false claims from occurring.