Lawyers for a whistleblower who sued a pillow manufacturer on behalf of the state of New York over alleged tax fraud said Monday the parties have reached a settlement for more than $1 million.
My Pillow Inc., a Minnesota company, will pay the state of New York $1.109 million to resolve the complaint, filed by a whistleblower under the New York False Claims Act in New York Supreme Court, New York County.
According to the firm, the settlement resolves allegations that My Pillow knowingly failed to collect and remit New York use taxes on Internet and telephone sales to in-state customers. The settlement is “the first New York False Claims Act settlement for unpaid taxes on Internet and telephone sales since the Act was amended in 2010 to explicitly include tax claims,” the firm said.
The settlement comes after a Chicago lawyer investigating tax fraud and other violations of the Illinois False Claims Act found that My Pillow sold merchandise at craft shows and through the Internet and telephone to New York customers. The company widely broadcast its products on infomercials to New York residents.
The Chicago lawyer/whistleblower then filed a lawsuit on behalf of the State of New York, seeking recovery of the taxes.
“Actions for unpaid taxes pursuant to the False Claims Act give the State a means to recover substantial amounts of lost revenue, including treble damages and penalties,” the lawyer/whistleblower noted.
The New York State Attorney General investigated the whistleblower’s claims and opted to join the case. The $1.109 million settlement recovers lost taxes on 2011-2015 sales, taxes on all future Internet and telephone sales to New York customers, and civil penalties.
“New York is one of only a few states that have false claims acts ‘with qui tam provisions‘ permitting private individuals to sue state sales and income tax fraud evaders on behalf of the government,” an attorney involved in the case said in a statement. “Illinois is another such state. Typically a whistleblower can receive between 15 and 30 percent of recovered funds if the suit is successful.”
The whistleblower in this case received $221,000, 20 percent of the total settlement.