Leader of Coupon Counterfeiting Ring on Silk Road Websites Pleads Guilty

A leader of a coupon counterfeiting ring pleaded guilty today to participating in a conspiracy to sell counterfeit coupons using the “Silk Road” online marketplace, announced Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division and U.S. Attorney Kenneth A. Polite of the Eastern District of Louisiana.

Beau Wattigney, 30, New Orleans, pleaded guilty before U.S. District Judge Ivan L.R. Lemelle of the Eastern District of Louisiana to conspiracy to commit wire fraud and conspiracy to commit trademark counterfeiting.  Sentencing has been scheduled for Oct. 28, 2015.

In connection with his plea, Wattigney admitted that, between May 2012 and November 2014, he used the online monikers “PurpleLotus” and “GoldenLotus” to sell counterfeit coupons for various goods and services on Silk Road 1.0, which was a hidden website through which users around the world bought and sold illegal drugs, goods and services.  Wattigney further admitted that he engaged in the same conduct on Silk Road 2.0, a successor to Silk Road 1.0, using the monikers “PurpleLotus” and “CouponKing.”

The coupons allowed purchasers to obtain significant discounts on a variety of goods and services offered by the victim companies, including Hopster, Veri-fi, SmartSource, RedPlum and Visa.  For example, Wattigney sold a counterfeit coupon that allowed users to purchase $50.00 Visa Gift Cards for $0.01 each.

Wattigney admitted that he created and manufactured the fraudulent coupons with the assistance of several co-conspirators, and that they designed the coupons to look like original print-at-home manufacturers’ coupons by using the companies’ trademarks.  He also admitted that the scheme affected more than 50 U.S.-based businesses, and caused or attempted to cause more than one million dollars in intended losses.

The investigation is being conducted by the FBI Philadelphia Division, with assistance from the FBI New Orleans Field Office.  The case is being prosecuted by Senior Counsel Marie-Flore Johnson, Gavin Corn and Robert Wallace of the Criminal Division’s Computer Crime and Intellectual Property Section, and Assistant U.S. Attorney Jordan Ginsberg of the Eastern District of Louisiana.

Thirteen U.S. Soldiers Sentenced for Roles in Fraudulent Military Recruiting Bonus Scheme

Thirteen members of the Texas Guard have received their sentences for their roles in wide-ranging bribery and fraud schemes that caused more than $170,000 in losses to the United States.  Seven of those members were sentenced this past week in Houston.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division and U.S. Attorney Kenneth Magidson of the Southern District of Texas made the announcement.

  • Jammie Martin, 38, of Katy, Texas, and Michelle Davis, 34, of Houston, were convicted in February of this year after a five-day trial of conspiracy, bribery, wire fraud and aggravated identity theft.  Martin was sentenced to serve 102 months in prison and Davis was sentenced to serve 57 months in prison.
  • Vanessa Phillips, 37, of Houston, pleaded guilty to one count of conspiracy and one count of bribery and was sentenced to three years probation.
  • Zaunmine “Orlando” Duncan, 39, of Douglasville, Georgia, pleaded guilty to one count of conspiracy, one count of bribery and one count of aggravated identity theft.  He was sentenced to serve 70 months in prison.
  • Annika Chambers, 29, of Houston, and Lashae Hawkins, 29, of San Antonio, pleaded guilty to one count of conspiracy and one count of bribery.  Chambers was sentenced to serve six months in prison.  Hawkins received one year and one day in prison.
  • Christopher Renfro, 27, of Houston, pleaded guilty to one count of conspiracy, one count of bribery, one count of aggravated identity theft and two counts of wire fraud.  He was sentenced to serve 36 months in prison.

In June, six other members of the Texas Guard were sentenced for their roles in the scheme.

  • Michael Rambaran, 52, of Pearland, Texas, pleaded guilty to one count of conspiracy, one count of bribery and one count of aggravated identity theft.  He was sentenced to serve 60 months in prison.
  • Edia Antoine, 29, and Ernest A. Millien III, 51, both of Houston, and Melanie Moraida, 35, of Pearland, pleaded guilty to one count of conspiracy and one count of bribery.  Each received 12 months and one day in prison.

Elisha Ceja, 28, of Barboursville, West Virginia, and Kimberly Hartgraves, 30, of League City, Texas, pleaded guilty to one count of conspiracy and one count of bribery.  Ceja was sentenced to serve nine months in prison and Hartgraves received probation.

U.S. District Judge Lee H. Rosenthal in the Southern District of Texas imposed the prison terms and also ordered all 13 defendants to pay restitution.  One remaining defendant, Danielle Applin 29, of Harker Heights, Texas, who previously pleaded guilty to one count of conspiracy and one count of bribery, is scheduled to be sentenced on Sept. 2, 2015, in Houston.

In approximately September 2005, the National Guard Bureau entered into a contract with Document and Packaging Broker Inc. to administer the Guard Recruiting Assistance Program (G-RAP).  Through this program, a participating soldier, known as a recruiting assistant, could receive bonus payments for referring another individual to join the National Guard.  Based on certain milestones achieved by the referred soldier, a participating soldier would receive payment through direct deposit into the participating soldier’s designated bank account.  To participate in the program, recruiting assistants were required to create online accounts.

According to the evidence presented at trial and in connection with various guilty pleas, Phillips and Davis, both of whom participated in the G-RAP as recruiting assistants, conspired with Martin, a recruiter, to defraud the program by falsely claiming that they were responsible for referring potential soldiers to join the National Guard.  The trial evidence showed that Martin used his position to obtain the names and Social Security numbers of potential soldiers which he provided to recruiting assistants so that they could use the information to obtain fraudulent recruiting referral bonuses.  The evidence at trial showed that, in exchange for the information, Martin, who organized and led the scheme, personally received approximately $15,000 in payments from the recruiting assistants.  This scheme resulted in more than $30,000 in losses to the National Guard Bureau.

In a separate scheme that resulted in an additional $70,000 in losses, recruiting assistants Antoine, Millien, Moraida and Renfro admitted to paying Rambaran, a recruiter who organized and led the scheme, for the personal information of potential soldiers.  They then used that information to obtain fraudulent bonuses by falsely claiming they referred those individuals to join the National Guard.  Rambaran admitted that, in exchange for the recruit information, he personally received a total of approximately $29,000 in payments from the recruiting assistants.

In connection with his guilty plea in a scheme he organized and led, Duncan, a recruiter, admitted he personally received approximately $24,000 in payments from recruiting assistants in exchange for personal information of potential soldiers.  Those recruiting assistants – Ceja, Chambers, Hartgraves and Hawkins – admitted to paying Duncan for the information and using it to obtain fraudulent bonuses by falsely claiming they referred those individuals to join the National Guard.  This scheme resulted in another $70,000 in losses to the National Guard Bureau.

The cases were investigated by the San Antonio Fraud Resident Agency of Army Criminal Investigation Command’s Major Procurement Fraud Unit.  These cases are being prosecuted by Trial Attorneys Sean F. Mulryne, Heidi Boutros Gesch and Mark J. Cipolletti of the Criminal Division’s Public Integrity Section and Assistant U.S. Attorney John Pearson of the Southern District of Texas.

Medical Device Manufacturer NuVasive Inc. to Pay $13.5 Million to Settle False Claims Act Allegations

California-based medical device manufacturer NuVasive Inc. has agreed to pay the United States $13.5 million to resolve allegations that the company caused health care providers to submit false claims to Medicare and other federal health care programs for spine surgeries by marketing the company’s CoRoent System for surgical uses that were not approved by the U.S. Food and Drug Administration (FDA), the Justice Department announced today.  The settlement further resolves allegations that NuVasive caused false claims by paying kickbacks to induce physicians to use the company’s CoRoent System.

“The Justice Department is committed to holding medical device manufacturers accountable, which includes requiring that they follow all laws designed to ensure that medical devices are safe and effective,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division.  “It is also imperative that manufacturers not improperly influence the selection of medical devices in order to ensure that these decisions are based on the needs and interests of patients, not on a physician’s own financial interests.”

The United States alleged that between 2008 and 2013, NuVasive promoted the use of the CoRoent System for surgical uses that were not approved or cleared by the FDA, including for use in treating two complex spine deformities, severe scoliosis and severe spondylolisthesis.  As a result of this conduct, the United States alleged that NuVasive caused physicians and hospitals to submit false claims to federal health care programs for certain spine surgeries that were not eligible for reimbursement.

The settlement agreement also resolves allegations that NuVasive knowingly offered and paid illegal remuneration to certain physicians to induce them to use the CoRoent System in spine fusion surgeries, in violation of the federal Anti-Kickback Statute.  The illegal remuneration consisted of promotional speaker fees, honoraria and expenses relating to physicians’ attendance at events sponsored by a group known as the Society of Lateral Access Surgery (SOLAS).  SOLAS was allegedly created, funded and operated solely by NuVasive, despite its outward appearance of independence.

“Health care providers need to be free to make medical decisions without improper influence by material or incentives from manufacturers,” said U.S. Attorney Rod J. Rosenstein of the District of Maryland.  “A medical device manufacturer violates the law if it knowingly causes physicians to use its products for purposes that are not medically reasonable and necessary and to bill federal health insurance programs.”

“Defrauding Medicare and Medicaid by paying kickbacks to physicians and promoting uses not covered by Federal health care programs will not be tolerated,” said Special Agent in Charge Nick DiGiulio of the U.S. Department of Health and Human Services-Office of Inspector General (HHS-OIG).  “Settlements such as the one entered into today by NuVasive send a message to the medical device industry that such practices will be closely monitored.”

The civil settlement resolves a lawsuit filed under the whistleblower provision of the False Claims Act by Kevin Ryan, a former NuVasive sales representative.  The act permits private parties to file suit on behalf of the United States for false claims and obtain a portion of the government’s recovery.  As part of today’s resolution, Mr. Ryan will receive approximately $2.2 million.

This settlement illustrates the government’s emphasis on combating health care fraud and marks another achievement for the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which was announced in May 2009 by the Attorney General and the Secretary of Health and Human Services.  The partnership between the two departments has focused efforts to reduce and prevent Medicare and Medicaid financial fraud through enhanced cooperation.  One of the most powerful tools in this effort is the False Claims Act.  Since January 2009, the Justice Department has recovered a total of more than $24.8 billion through False Claims Act cases, with more than $15.9 billion of that amount recovered in cases involving fraud against federal health care programs.

The settlement with NuVasive was the result of a coordinated effort among the U.S. Attorney’s Office of the District of Maryland, the Civil Division’s Commercial Litigation Branch and the National Association of Medicaid Fraud Control Units.  This matter was investigated by HHS-OIG, the Department of Defense’s Office of the Inspector General and the Office of Personnel Management’s Office of Inspector General, with assistance from the FDA’s Office of Chief Counsel and Office of Criminal Investigations.

The federal share of the civil settlement is $12,583,413.84, and the state Medicaid share of the civil settlement is $916,586.16.  The claims resolved by this settlement are allegations only, and there has been no determination of liability.

The lawsuit is captioned United States ex rel. Kevin Ryan v. NuVasive, Inc. (D. Md.).   

CCC’s: DOJ to Hire Compliance Expert

Here’s a link to a Reuters story by Karen Freifeld reporting that United States Department of Justice is hiring a Compliance Expert. The compliance expert will help evaluate whether to charge corporations that fail to detect and prevent wrongdoing by employees. The DOJ compliance expert will advise whether he believes the company had a robust compliance program or one that was window dressing–or something in between.

A candidate has been reportedly offered the position and is undergoing the background check process. The position is in the Criminal Division of DOJ, which has responsibility for health care, securities and FCPA violations, among others. This development will not directly affect the Antitrust Division, which sometimes has policies different from the Criminal Division. But, the Antitrust Division recently, for the fist time ever, gave credit to a company in a plea agreement for a compliance program. I wrote about this in a previous Cartel Capers post: Senior Antitrust Division Official Comments on Credit for Compliance Programs.  This new compliance position within the DOJ is another important step forward in the recognition by the DOJ of the valuable role played by compliance programs.

Thanks for reading.