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Wheels of Justice

Why has admitted cheater Lance Armstrong risked millions by continuing to fight a fraud suit against him?
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AS IT STANDS now, Lance Armstrong will go to trial in November in U.S. District Court in Washington, D.C., facing civil charges that he defrauded the federal government by unjustly profiting from a sponsorship agreement with the U.S. Postal Service while using performance-enhancing drugs. The Justice Department joined a whistle-blower suit against Armstrong in 2013, and if it prevails, Armstrong could be ordered to pay more than $100 million. And yet the former seven-time Tour de France winner has turned down offers to settle. Why?

The government's case is not about whether Armstrong doped but if that doping constituted contractual fraud. From 2000 to 2004, the USPS paid $32.3 million to the Tailwind cycling team, which Armstrong rode for and co-owned. The USPS sponsored Tailwind because Armstrong seemed to epitomize the ideal traits of a postal carrier: perseverance, speed and reliability.

The False Claims Act (FCA) makes it unlawful for contractors to knowingly deceive the government and attempts to deter such fraud through stiff penalties: damages are automatically tripled. In court proceedings the government contends that in the aftermath of Armstrong's admission of doping in 2013, the deal became essentially valueless, and it cites the staggering volume of negative online impressions as evidence.

The suit asserts that each of the 41 invoices submitted by Tailwind while Armstrong was doping was an FCA violation, and the government is seeking to claim the full value of the 2000-to-'04 deal as damages, which could put Armstrong's liability at $96.8 million. Armstrong faces additional claims—and potential additional damages—for common-law fraud and "unjust enrichment."

The fact is Armstrong was doping throughout the course of his contract while claiming that he was clean.

But in court filings Armstrong insists that the USPS knew he was doping and, in effect, acquiesced to it, extending the Tailwind contract in 2000 even after allegations of doping had been reported in multiple news outlets. Armstrong also stresses that the USPS profited considerably from the deal and thus can't establish damages. In 2002 the USPS commissioned a marketing firm to evaluate the impact of the sponsorship, and the study found that the domestic value of USPS's exposure from the Tailwind deal was three times more than the sponsorship's cost while the international value was more than six times the cost.

"The government waited over a decade" to sue, one filing by Armstrong argues, because "it got everything it bargained for ... tens of millions of dollars' worth of publicity, top billing on Armstrong's and his teammates' jerseys."

Whether Armstrong harmed or helped the USPS is critical. If jurors believe Armstrong violated the FCA but that the USPS was unhurt, Armstrong would only pay between $5,000 and $11,000 for each FCA violation or a total between $205,000 and $451,000 for the 41 claims. That would be a decisive victory for Armstrong.

Armstrong has reason for some optimism. Last November, in a pretrial hearing, U.S. District Judge Christopher Cooper, the presiding judge on the case, suggested the link between any post-confession negative online impressions of Armstrong and the USPS losing money was not obvious.

Even if Armstrong loses, his capacity to pay off a sizable judgment is uncertain. As recently as 2012, Armstrong's net worth had been estimated at $125 million. But sources familiar with Armstrong's finances contend that even at his peak, he was never worth near that amount. In addition, he no longer competes and has lost lucrative endorsement deals. And since he confessed to doping, he has paid out more than $20 million to settle other lawsuits. How much money does he have left?

If Armstrong can't pay at once, he'd need to work out a repayment plan. Even declaring bankruptcy probably wouldn't save him, since it usually doesn't relieve debt owed to the government or that which is a result of fraud. There's still a good chance a settlement will be reached before trial. (Armstrong has made offers to the government, presumably for less than those made to him.) And even if Armstrong loses in court, he could appeal, pushing any penalties years down the road.

Besides the strength of his argument and the weakness of his wallet, Armstrong may have a greater motivation to fight. The initial suit was brought by Floyd Landis, a former Tailwind teammate. After Landis was hit with a two-year doping ban in 2007, he called out Armstrong's misdeeds, precipitating Armstrong's decline.

As the whistle-blower, Landis stands to collect 15% to 25% of any damages the government wins. That may be the price the ever-competitive Armstrong finds he is most unwilling to pay.

Since confessing to doping, Armstrong has paid out more than $20 million to settle various lawsuits.

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