U.S. joins fraud lawsuit against Armstrong

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WASHINGTON -- The Justice Department joined a lawsuit Friday against disgraced cyclist Lance Armstrong that alleges the former seven-time Tour de France champion concealed his use of performance-enhancing drugs and defrauded his longtime sponsor, the U.S. Postal Service.

The lawsuit alleges that riders on the postal service-sponsored team, including Mr. Armstrong, knowingly violated their postal service agreements by regularly using banned substances and methods to enhance their performance.

"Lance Armstrong and his cycling team took more than $30 million from the U.S. Postal Service based on their contractual promise to play fair and abide by the rules -- including the rules against doping," said U.S. Attorney Ronald Machen, whose office is handling the case. "The Postal Service has now seen its sponsorship unfairly associated with what has been described as 'the most sophisticated, professionalized and successful doping program that sport has ever seen.' "

In recent weeks, settlement discussions had been under way between the Justice Department and Mr. Armstrong's lawyers. A person familiar with the negotiations said Friday that the two sides are tens of millions of dollars apart on how much Mr. Armstrong should pay to settle the case. The person spoke on condition of anonymity because the source was not authorized to speak on the record about the private talks.

From 1996 through 2004, the postal service sponsored a professional cycling team run by Tailwind Sports Corp., and Mr. Armstrong was the lead rider. From 1999 to 2004, he won six consecutive Tour de France titles. The suit also said Johan Bruyneel, the team's manager, knew that team members were using performance-enhancing substances and facilitated the practice.

The Justice Department notified the federal court that it is joining the lawsuit against Mr. Armstrong, Mr. Bruyneel and Tailwind and will file its formal complaint within 60 days. In announcing that it was joining the case, the Justice Department emphasized Mr. Armstrong's concealment of his activities, and said the cover-up went back to at least 1998.

"The U.S. Postal Service Cycling Team was run as a fraudulent enterprise, and individuals both inside and outside of sport aided and abetted this scheme and profited greatly," said Travis Tygart, CEO of the U.S. Anti-Doping Agency. "USADA applauds today's action by the U.S. Department of Justice, which holds promise for returning the many millions of federal dollars in ill-gotten gains generated by this fraud."

In October, USADA released a report that included affidavits from 11 of Mr. Armstrong's former teammates. These affidavits detailed how the teammates were supplied with EPO -- a banned hormone that increases oxygen-carrying red blood cells to boost endurance, particularly in thin mountain air -- by Mr. Armstrong and saw him inject, and how they were pressured to dope and bullied by Mr. Armstrong and Mr. Bruyneel. The cycling world's governing body then took away from Mr. Armstrong the seven Tour de France titles he won from 1999 to 2005.

Last month, the USADA lobbied Attorney General Eric Holder for the Justice Department to join the lawsuit against Mr. Armstrong.

An Armstrong lawyer, Robert Luskin, said negotiations with the government failed because "we disagree about whether the postal service was damaged." He added, "The postal service's own studies show that the service benefited tremendously from its sponsorship -- benefits totaling more than $100 million."

Mr. Luskin said "Lance and his representatives worked constructively over these last weeks with federal lawyers to resolve this case fairly."

The suit the Justice Department is joining was filed under seal in 2010 by former teammate Floyd Landis, who was stripped of his 2006 Tour de France title for doping. Under the False Claims Act, private citizens can act as whistle-blowers and sue to recover money they believe was obtained through fraud against the federal government. These suits remain under seal until the Justice Department decides whether it thinks there is enough merit in the case to take it over. The private whistle-blower receives a percentage of any money ultimately recovered.

If the Justice Department ends up taking the Landis whistle-blower case all the way to trial, a key issue is likely to be whether the U.S. Postal Service suffered financial harm from the drug scandal. The government must prove not only that the postal service was defrauded, but that it was damaged somehow.

Studies done for the postal service conclude that the agency reaped at least $139 million in worldwide brand exposure in four years. The government could counter that all of the recent controversy tarnishes the whole sponsorship and has damaged the postal service.

But the USPS sponsorship ended long ago, and relatively few people reading stories about the current controversy are associating Mr. Armstrong with the post office. Mr. Armstrong's last sponsor for his final two Tours de France was Radio Shack, in 2009 and 2010.

The government has a potentially strong weapon on its side: An argument could be made that until recent months, there was an active, ongoing conspiracy to cover up Mr. Armstrong's alleged fraud. If the case ever goes to trial, that argument could persuade a judge to allow in a huge amount of evidence on Mr. Armstrong's use of performance-enhancing drugs dating back to the 1990s -- evidence that would be barred from the government's court case as too old if there were no extended conspiracy.



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