N.Y.S. Attorney General Unleashes New Bureau and New Power

By Terrance P. Flynn and Mitchell J. Pawluk

After each New York State Attorney General first takes office the media proclaims “There is a new sheriff in town.”  With Attorney General Schneiderman’s announcement last week of a $300 million lawsuit against Sprint-Nextel, it is clear the proclamation is true.  The lawsuit revealed his new Taxpayer Protection Bureau’s first use of a powerful new weapon to fight fraud against state and local government, and its taxpayers.  As a result, the new bureau is nothing short of a fraud S.W.A.T. team.

The civil complaint alleges the global telecommunications company under-collected and underpaid millions of dollars in New York state and local sales taxes.  According to the complaint, Sprint-Nextel deliberately failed to pay sales tax on the full amount of flat-rate monthly phone plans.  As a result, Attorney General Schneiderman’s office alleges Sprint deprived state and local governments of over $100 million (or $30,000 a day) in sales tax revenue.

The lawsuit was brought under the New York False Claims Act, which allows for the state (including local governments) or any private citizen whistleblower to sue an alleged violator for three times the amount of the fraud.  This is the first lawsuit brought under the New York False Claims Act since a 2010 amendment allowing for lawsuits based on tax fraud, which includes sales tax fraud.

For more information concerning the importance of the lawsuit and the landscape moving forward, see the following Legal Alert available here.