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Lawyer's Qui Tam Spam Nets Him Nearly $12M

By Casey C. Sullivan, Esq. on October 24, 2016 | Last updated on March 21, 2019

Talk about a niche practice: A Chicago lawyer has filed almost a thousand qui tam cases in Cook County, Illinois courts over the past 15 years, bringing in millions of dollars in settlements. Stephen Diamond and his firm, Bloomberg's Michael Bologna reports, obtained almost $30 million across 911 qui tam actions, $11.6 million of which he's kept for himself.

Diamond became the "king of qui tam" by suing internet retailers for failing to pay proper taxes. But now that his secret's out, Bloomberg writes, Diamond "could be coming to the end of his false claims gravy train."

A False Claims Juggernaut

Bloomberg looked through hundreds of previously confidential settlements in order to piece together Diamond's business model. It goes something like this: The lawyer and his firm buy hundreds of products online, then look to see if those retailers are paying the proper state sales and use taxes. If it appears that they're not, Diamond sues under the Illinois False Claims Act, which allows whistleblowers to bring cases for alleged tax fraud.

The targets range from some of the country's biggest companies, like Microsoft and Boeing, to some of its smallest retailers, like a tiny Elmhurst, Illinois wrestling gear distributor and a Denver-based wine seller.

Over 15 years, Diamond's firm has negotiated 371 settlements, ranging from $6.3 million to just $500. Seventy-eight percent of the settlements involved "defendant's failure to properly apply the sales and use tax on shipping and handling charges on merchandise sold into Illinois," according to Bloomberg.

Diamond in the Rough

Diamond's luck with the state False Claims Act might have run its course, however. Despite bringing in millions for Illinois, Diamond has his critics in the state administration. In December, a judge dismissed a block of 114 actions Diamond had filed, after Illinois Attorney General Lisa Madigan's office intervened and argued that the retailers didn't have to pay Illinois tax, as they lacked a sufficient nexus with the state. Another 202 cases were dismissed in May.

Mark Dyckman, general counsel for the state Department of Revenue, told Bloomberg that Diamond's approach to false claims "interferes with the department's authority to administer and enforce the tax laws."

Retailers, too, aren't much of a fan. "This violates the fundamental principles of the tax system where you have one administrator, one interpreter of the tax code in the Illinois Department of Revenue, and you have retailers following the regulations and interpretations of the department," says Rob Karr, president of the Illinois Retail Merchants Association. "It makes no sense."

Diamond, however, says his work has a "significant prophylactic effect," forcing retailers to comply with state tax laws. "Under the False Claims Act the State has the power to dismiss any claim" a whistleblower, or "relator," files, he notes. "The State has never asserted that the lawsuits filed by the Relator were abusive of the false claims process."

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