Settlement Reached in Historic Qui Tam Escheat Fraud Case Over Unused Gift Cards

Historic Settlement in Qui Tam Case Over Gift Card Fraud

In a significant legal development, Card Compliant LLC and Phillip Rouse have reached a settlement of $4.375 million to resolve claims of escheat fraud related to unused gift cards. This settlement comes more than eight years after whistleblower William S. French filed a lawsuit under the New York False Claims Act, alleging that these companies failed to return millions of dollars owed to the State of New York. The case represents one of the largest successful settlements in the history of False Claims Act escheat cases.

Background of the Case

The lawsuit initiated by French accused Card Compliant LLC, Phillip Rouse, and HM Hennes Mauritz, L.P. (HM LP) of wrongdoing by not escheating large sums of unredeemed gift card balances to New York State, as required by law. Instead, it was alleged that HM LP created a deceptive agreement with CardFact LTD to mask their obligation, effectively misappropriating funds that should have been submitted to the state treasury. Further complicating matters, the complaint charged that HM falsely reported to the state that HM LP’s obligations were transferred to CardFact LTD, despite the funds remaining in HM LP's bank accounts.

Details of the Settlement

Ultimately, Card Compliant LLC and Rouse's agreement to pay $4.375 million marks a critical resolution in this extensive legal battle that has unfolded over nearly a decade. This amount, along with a previous payment of $36 million by HM LP in 2022, positions this case as one of the consequential qui tam actions involving escheat obligations in U.S. history.

Dan Miller of Walden Macht Haran & Williams, LLP, who has been representing Mr. French since 2016, expressed pride in the outcome, noting that it underscores the tremendous effort involved in piecing together this complex case. He mentioned that the expertise of the New York Attorney General's Office, particularly Assistant Attorney General Laura Jereski, was pivotal in achieving this success.

Implications for Whistleblower Cases

This case is not an isolated event; French has been involved in a series of successful False Claims Act claims that challenge corporate misconduct regarding escheat obligations. Miller highlighted the essential role of whistleblowers and legal professionals dedicated to holding organizations accountable, indicating that cases like this have returned over $3 billion to state and federal entities nationwide.

Conclusion

As the legal landscape continues to evolve, this settlement serves as a potent reminder of the importance of upholding financial transparency and corporate accountability. The funds resulting from this case will benefit the taxpayers of New York State, showcasing the value of dedicated whistleblowers such as William S. French in combating fraud. While the claims against HM LP remain unproven in terms of liability, this case draws attention to the gravity of corporate compliance and the necessity for vigilance.

This case, titled State of New York ex rel. William S. French v. HM Mauritz, L.P., will likely set a precedent for future whistleblower lawsuits involving escheat fraud and other financial irregularities.