“Securities fraud,” said the state official and with that about 20 attorneys, all experts in False Claims Act litigation, fell off their chairs.

We were in a small room, down the hall in the last break out session of the annual meeting of False Claims Act attorneys sponsored by Taxpayers Against Fraud.

Most of our colleagues chose to go to another session involving particular issues of pleading fraud. That issue comes up in every case: plead fraud with particularity. Having to plead with particularity so often, we knew enough about it to understand that is a big headache.

So, looking for something different, a few of us went to a seminar on State Cases.  We were experts. We all had filed a lot of federal cases. There are only so many people who specialize in this area, so by the end of the conference we were acting a little smug.

Nobody has filed many purely State False Claims cases. Sure there are a lot of State qui tam laws now. Most of the laws aren’t even five years old.  Even in the states with older laws most of the cases are filed as part of, or the result of a big federal case. Even when  the cases are not Medicare or Medicaid related, most purely state cases look like the same thing as a federal case. The state gets ripped off so somebody files a qui tam action. States are defrauded just like the federal government.

We thought the only big difference in filing such a case under state law as opposed to the federal law is the agency you work with to conduct the initial investigation under seal –instead of working with the Federal Department of Justice, you work with the state Attorney General.  We figured there were some technical differences with State qui tam laws, but nothing experienced qui tam attorneys could not handle.

Indeed, in the first part of the seminar the state officials on the dais played to our smugness. Both state officials said, “You may have to work with the local Attorney General’s office to explain how their state qui tam law can work.” Sure we can do that, we thought. We can lecture the highest law enforcement officials of a state as to how their own law can work for them.

In truth, a lack of information is a problem because State False Claims Acts are new. State prosecutors have a lot of experience going after consumer protection cases, but do not yet know much about how to apply the qui tam procedures even to similar facts. Those procedures can be very tricky at every level. We know the procedure. We know the law and we know what can make a good claim in a False Claims case.

So, one lawyer a veteran of many conferences, asked what we all wanted to know, but few figured would elicit such a surprising answer. He asked “What kind of cases do you see being filed in State Court in the future?” When the state official answered “securities fraud” we were a little stunned.

We looked at each other. Maybe this guy is thinking of Sarbanes Oxley or class action cases? Then the penny dropped and we started to see dollar signs. Big dollar signs with lots of zeroes.

Pension funds. States have pension funds. The Federal Government has a printing press–not investments.

In the federal context the Securities and Exchange Commission handles fraud issues. The federal government does not usually own stocks or bonds.

Some states, like Illinois or California, allow us to sue on behalf of any political subdivision. So, if the city of Santa Monica has a pension fund and there is a securities fraud violation we can sue under the California False Claims Act.

When there is securities fraud usually a state pension fund will have bought the security. The City of New York supposedly has 80 billion dollars in assets in its pension fund alone. The damages for fraud have the potential to be huge and this is a new area of qui tam action.

Three days later a colleague sent me a story on the State of California suing for $200 million in securities violations.

So, if you have heard of any major securities scam, do what any smart whistleblower should do. Hire a lawyer who knows about qui tam and run to your nearest state court house.

If your state does not have a qui tam provision, maybe they should. After all, why should the pension funds covering workers in Columbus, Ohio not get the same protection as the pension funds for those who work in Richmond, Virginia?

You can see if your state has a qui tam law by clicking here.