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The False Claims Act Seal: Does It Bind and Gag the Defendant?

By Andrew W. Schilling and Megan E. Whitehill

A company that finds itself the target of a federal fraud investigation often faces the fraught question of whether it may, or even must, disclose the existence of that investigation to third parties, such as its investors, shareholders, major creditors, or insurers. The question can be even more complicated if that investigation is being pursued under the False Claims Act and arises as the result of a sealed qui tam complaint. The Department of Justice (DOJ) takes the position that all parties — itself included — are bound by the seal, and therefore may not disclose the existence or nature of the underlying qui tam suit to anyone.

But the DOJ's position, as applied to defendants at least, does not square well with the law. While a whistleblower who brings a False Claims Act suit is both bound and gagged by the seal, the defendant arguably may not be.

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