3C’s Recommended Amicus Brief on Section One Summary Judgment Standard

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Here is a link to a brief filed by a number of professors asking the Supreme Court to clarify the standard to be applied by districts courts to a defendant’s motion for summary judgment in a Section One antitrust case,  evergreen – petition for certiorari – amicus brief – filed copy – 4.21.17 – evergreen partnering group v. pactiv corp.  The petition notes:

“[C]ircuit courts are mired in an abiding difference of opinion concerning the appropriate interpretation of the summary judgment paradigm in cases brought under Section 1 of the Sherman Act as applied to circumstantial evidence.”

The professors are going to bat for plaintiff Evergreen, which had its group boycott claimed dismissed on summary judgment. The amicus brief argues that the First Circuit incorrectly applied the Matsushita standard that requires the plaintiff to produce evidence that “tends to exclude the possibility of independent conduct.” The brief goes on to argue say this strict standard should only be applied where the defendants’ conduct is arguably pro-competitive (like the price cutting in Matsushita). In this case, the brief argues, the correct standard, is found in Eastman Kodak Industry Co. v. Image Technical Services Inc.,: whether the plaintiff has produced evidence that the defendants’ conduct is unreasonable.

From the brief:

The Second, Third, Fifth, Sixth, Seventh, Ninth, and Tenth Circuits “have narrowed the application of Matsushita’s “tends to exclude the possibility of independent conduct” test to situations where the plaintiff ’s theory: (1) is implausible; and (2) challenges pro-competitive conduct….The First, Fourth, Eighth, and Eleventh Circuits, however, do not interpret Kodak as a limitation on Matsushita’s “tends to exclude” test. These courts universally apply the test to all motions seeking entry of summary judgment on a conspiracy claim under Section 1, regardless of whether plaintiff’s theory makes economic sense or there is little or no risk of chilling pro-competitive behavior.”

The brief notes that Judge Posner has been critical of the Matsushita “tends to exclude the possibility of independent conduct” standard for requiring the plaintiffs to disprove the defendants’ case with a “sweeping negative.” Richard Posner, Antitrust Law, 100 (2d ed. 2001).  The brief also quotes a Judge Posner opinion:

“That would imply that the plaintiff in an antitrust case must prove a violation of the antitrust laws not by a preponderance of the evidence, not even by proof beyond a reasonable doubt (as indeed is required in criminal antitrust cases), but to a 100 percent certainty, since any lesser degree of certitude would leave a possibility that the defendant was innocent.”

In re Brand Name Prescription Drugs Antitrust Litig., 186 F.3d 781, 787 (7th Cir. 1999) (Posner, C.J.).

The brief concludes:

“In sum, the decision below illustrates and intensifies confusion among the lower courts about the Matsushita standard for Section 1 antitrust claims at summary judgment. The question is critical; private enforcement is essential to maintaining the correct balance between under and over deterrence to foster healthy competition. But when it comes to Matsushita, inconsistency in its application is now the rule, rather than the exception. For these reasons, the Court should clarify the standard, resolve the circuit split, and emphasize that the correct interplay between Matsushita and Kodak properly limits the “tends to exclude” summary judgment standard to cases where the alleged conspiracy is economically irrational and the conduct is pro-competitive.”

Whichever side of the “v.” you are on [plaintiff or defendant] the brief is a useful read for the discussion of the differences among the circuits on the proper standard for summary judgment.

Evergreen is represented by Richard Wolfram  who earlier had filed a petition for certiorari with Supreme Court. A copy of the petition can be found here.

Thanks for reading.

Los Angeles Hospital Agrees to Pay $42 Million to Settle Alleged False Claims Act Violations Arising from Improper Payments to Physicians

Wednesday, June 28, 2017

PAMC Ltd., and Pacific Alliance Medical Center Inc., which together own and operate Pacific Alliance Medical Center, an acute care hospital located in Los Angeles, California, have agreed to pay $42 million to settle allegations that they violated the False Claims Act by engaging in improper financial relationships with referring physicians, the Justice Department announced today. Of the total settlement amount, $31.9 million will be paid to the Federal Government, and $10 million will be paid to the State of California.

The settlement announced today resolves allegations brought in a whistleblower lawsuit that the defendants submitted false claims to the Medicare and MediCal Programs for services rendered to patients referred by physicians with whom the defendants had improper financial relationships. These relationships took the form of (1) arrangements under which the defendants allegedly paid above-market rates to rent office space in physicians’ offices, and (2) marketing arrangements that allegedly provided undue benefit to physicians’ practices. The lawsuit alleged that these relationships violated the Anti-Kickback Statute and the Stark Law, both of which restrict the financial relationships that hospitals may have with doctors who refer patients to them.

“This is another example of how the False Claims Act whistleblower provisions can help protect the public fisc,” said Acting Assistant Attorney General Chad A. Readler of the Justice Department’s Civil Division. “This recovery should help to deter other health care providers from entering into improper financial relationships with physicians that can taint the physicians’ medical judgment, to the detriment of patients and taxpayers.”

The lawsuit was filed by Paul Chan, who was employed as a manager by one of the defendants, under the qui tam provisions of the False Claims Act. Under the Act, private citizens can bring suit on behalf of the United States and share in any recovery. The United States may intervene in the lawsuit, or, as in this case, the whistleblower may pursue the action. Mr. Chan will receive over $9.2 million as his share of the federal recovery.

“Federal law prohibits improper financial relationships between hospitals that receive federal health care funds and medical professionals – this is to protect the doctor-patient relationship and to ensure the quality of care provided,” said Acting U.S. Attorney Sandra R. Brown for the Central District of California. “Patients deserve to know their doctors are making health care decisions based solely on medical need and not for any potential financial benefit.”

“This settlement is a warning to health care companies that think they can boost their profits by entering into improper financial arrangements with referring physicians,” said Special Agent in Charge Christian J. Schrank of the Department of Health and Human Services, Office of Inspector General (HHS-OIG). “Working with our law enforcement partners, we will continue to crack down on such deals, which work to undermine impartial medical judgement, drive up health care costs, and corrode the public’s trust in the health care system.”

The case, United States ex rel. Chan v. PAMC, Ltd., et al., Case No. 13-cv-4273 (C.D. Cal.), was monitored by the Civil Division’s Commercial Litigation Branch, the U.S. Attorney’s Office for the Central District of California, and HHS-OIG. The claims settled by this agreement are allegations only, and there has been no determination of liability.

Owner of New England Compounding Center Sentenced for Racketeering Leading to Nationwide Fungal Meningitis Outbreak

Monday, June 26, 2017
Outbreak Was the Largest Public Health Crisis Ever Caused by a Pharmaceutical Product

The owner and head pharmacist of New England Compounding Center (NECC) was sentenced today to nine years in prison in connection with the 2012 nationwide fungal meningitis outbreak, the Department of Justice announced today.

Barry Cadden, 50, of Wrentham, Massachusetts, was sentenced by U.S. District Court Judge Richard G. Stearns to serve 108 months in prison and three years of supervised release, and forfeiture and restitution in an amount to be determined later. In March 2017, Cadden was convicted by a federal jury of racketeering, racketeering conspiracy, mail fraud and introduction of misbranded drugs into interstate commerce with the intent to defraud and mislead.

“Barry Cadden put profits ahead of patients,” said Acting Assistant Attorney General Chad A. Readler of the Justice Department’s Civil Division. “Under his direction, employees assured customers that they were getting safe drugs, while Cadden ignored grave environmental failures, used expired active ingredients, and took innumerable other production shortcuts that led to numerous, entirely preventable deaths. As Cadden’s sentence reflects, the Justice Department’s Consumer Protection Branch is committed to prosecuting those who put the health of Americans at risk.”

“Barry Cadden put profits over patients,” said Acting U.S. Attorney William D. Weinreb for the District of Massachusetts. “He used NECC to perpetrate a massive fraud that harmed hundreds of people. Mr. Cadden knew that he was running his business dishonestly, but he kept doing it anyway to make sure the payments kept rolling in. Now he will have to pay for his crimes.”

“Protecting Americans from unsafe and contaminated drugs is at the core of our mission,” said FDA Commissioner Scott Gottlieb, M.D. “Patients should not have to worry about the safety and sterility of the drugs they are prescribed. Since this tragedy, Congress has given the FDA important new authorities, and the agency has implemented key policies, all to provide a greater assurance of safety over compounded medicines. As part of these efforts, we will continue to hold accountable those who violate the law and put patients at risk.”

“Today, Barry Cadden was held responsible for one of the worst public health crises in this country’s history, and the lives of those impacted because of his greed, will never be the same,” said Special Agent in Charge Harold H. Shaw of the FBI, Boston Field Division. “This deadly outbreak was truly a life-changing event for hundreds of victims, and the FBI is grateful to have played a role, alongside our law enforcement partners, in bringing this man to justice.”

In 2012, 753 patients in 20 states were diagnosed with a fungal infection after receiving injections of preservative-free methylprednisolone acetate (MPA) manufactured by NECC. Of those 753 patients, the U.S. Centers for Disease Control and Prevention (CDC) reported that 64 patients in nine states died. The outbreak was the largest public health crisis ever caused by a pharmaceutical product.

Specifically, Cadden directed and authorized the shipping of contaminated MPA to NECC customers nationwide. In addition, he authorized the shipping of drugs before test results confirming their sterility were returned, never notified customers of nonsterile results, and compounded drugs with expired ingredients. Furthermore, certain batches of drugs were manufactured, in part, by an unlicensed pharmacy technician at NECC. Cadden also repeatedly took steps to shield NECC’s operations from regulatory oversight by the FDA by claiming to be a pharmacy dispensing drugs pursuant to valid, patient-specific prescriptions. In fact, NECC routinely dispensed drugs in bulk without valid prescriptions. NECC even used fictional and celebrity names on fake prescriptions to dispense drugs, such as “Michael Jackson,” “Freddie Mae” and “Diana Ross.”

“Today’s sentencing demonstrates the ongoing commitment of the Defense Criminal Investigative Service (DCIS) to protect the integrity of TRICARE, the U.S. Defense Department’s health care program,” stated Special Agent in Charge Leigh-Alistair Barzey of DCIS, Northeast Field Office. “DCIS will continue to work with its law enforcement partners to identify and investigate individuals who disregard pharmaceutical and drug regulations and endanger the health and safety of U.S. military members and their families.‎”

“No veterans receiving VA care were harmed by the fungal meningitis outbreak,” said Special Agent in Charge Donna L. Neves for the Department of Veterans Affairs, Office of Inspector General (VA-OIG). “The VA Office of Inspector General, together with its law enforcement partners, will persist in working drug adulteration cases to ensure veterans continue to receive safe and effective medications for the purpose of healing their ailments.”

“Today’s sentencing is an example of the dedicated work of law enforcement, along with the U.S. Attorney’s Office Health Care Fraud Unit in their steadfast pursuit of justice in the largest public health crisis caused by a pharmaceutical product in this nation’s history,” said Inspector in Charge Shelly Binkowski of the U.S. Postal Inspection Service. “The U.S. Postal Inspection Service will continue to be vigilant in investigating cases where the U.S. mail is used to put our nation’s citizens at risk.”

Assistant U.S. Attorneys George P. Varghese and Amanda P.M. Strachan of Weinreb’s Health Care Fraud Unit and Trial Attorney John W.M. Claud of the Justice Department’s Consumer Protection Branch prosecuted the case.

 

International Shipping Executives Indicted for Colluding on Bids and Rates

Tuesday, June 27, 2017
Eleven Executives and Four Companies Have Been Charged in Ocean Shipping Investigation

 

An indictment of three shipping executives was unsealed in U.S. District Court in Baltimore, the Department of Justice announced today.

Anders Boman, Arild Iversen, and Kai Kraass have been charged with participating in a long-running conspiracy to allocate certain customers and routes, rig bids, and fix prices for the sale of international ocean shipments of roll-on, roll-off cargo to and from the United States and elsewhere, including the Port of Baltimore. A federal grand jury returned the indictment in November 2016.

Boman, a citizen of Sweden, and Iversen, a Norwegian citizen, are former executives of Wallenius Wilhelmsen Logistics AS (WWL). Kraass, a German citizen, is a current WWL executive. Including the charges announced today, eleven executives have been charged in the investigation to date. Four have pleaded guilty and been sentenced to serve prison terms. Others remain international fugitives. WWL has pleaded guilty and been sentenced to pay a $98.9 million fine. Three other companies have also pleaded guilty, resulting in total collective criminal fines over $230 million.

The indictment alleges that Boman, Iversen, and Kraass conspired with their competitors to allocate certain customers and routes for the shipment of cars and trucks, as well as construction and agricultural equipment. The defendants accomplished their scheme by, among other things, attending meetings in Baltimore County and elsewhere during which they agreed not to compete against each other, by refraining from bidding or by agreeing on the prices they would bid for certain customers and routes. In addition, Boman, Iversen, and Kraass agreed with competitors to fix, stabilize, and maintain rates charged to customers of international ocean shipping services. The customers affected by the conspiracy included U.S. companies.

“The indictment unsealed today is yet another step in the Division’s efforts to restore competition in the shipping industry,” said Acting Assistant Attorney General Andrew Finch of the Justice Department’s Antitrust Division. “WWL has pleaded guilty. Now we are working to ensure that its executives who conspired to suppress competition at the expense of American consumers will be held accountable.”

“These indictments are the continuation of a long-term effort by the FBI’s Baltimore Field Office to secure our nation’s economy against collusion in the shipping industry, to ensure competition in the market place and to protect US companies from these deceptive practices.” said Special Agent in Charge Gordon B. Johnson.

Today’s announcement is the result of an ongoing federal antitrust investigation into price fixing, bid rigging, and other anticompetitive conduct in the international roll-on, roll-off ocean shipping industry, which is being conducted by the Antitrust Division’s Washington Criminal I Section and the FBI’s Baltimore Field Office, along with assistance from the U.S. Customs and Border Protection Office of Internal Affairs, Washington Field Office/Special Investigations Unit.

3C’s: What She [Sally Q. Yates] Said….

What She [Sally Q. Yates] Said….

I have written often about the need to reform the Sentencing Guideline for antitrust violations.  U.S.S.G. 2R1.1. (here)(here)(here).  My major beef is that the antitrust guideline measures culpability primarily by the volume of commerce subject to the agreement, to the exclusion of many other very relevant factors.  The cartel boss who engages the firm in the illegal conduct is tagged with the same volume of commerce as the employee who is assigned the task of going to cartel meetings to work out the details.

Sally Q. Yates served in the Justice Department from 1989 to 2017 as an assistant U.S. attorney, U.S. attorney, deputy attorney general and, briefly this year, as acting attorney general.  Ms. Yates described the problem with overweighting a quantifiable factor better than I ever have, though in a slightly different context:

“But there’s a big difference between a cartel boss and a low-level courier. As the Sentencing Commission found, part of the problem with harsh mandatory-minimum laws passed a generation ago is that they use the weight of the drugs involved in the offense as a proxy for seriousness of the crime — to the exclusion of virtually all other considerations, including the dangerousness of the offender.”

Sally Yates, Making America Scared Won’t Make us Safer.  Washington Post, June 23, 2017

For the record, the issue of mandatory minimums is a far more serious issue than the problem of sentencing individual criminal antitrust offenders.  While I hope for antitrust sentencing reform, it is not really a “need.” The antitrust sentencing guidelines are so divorced from actual culpability that virtually no individual–even a cartel boss–is sentenced to a guideline range term of imprisonment.

Thanks for reading.

War Against Global Warming Creates Major Enforcement Risks to Grantees

Despite what you hear about United States withdrawal from the Paris accords and increased grant enforcement from Inspector Generals at the EPA, Department of Energy, and NASA, government and corporate action and funding continues to coalesce around this issue cluster and that is not likely to change quickly if at all, even as the U.S. government reduces its “green” footprint.

However quickly you dismiss the political fight’s effect on the ultimate outcome of the war that is currently raging between global warming advocates and global warming deniers, you should not dismiss the effects this battle has on the risk profile of current government contractors and government grantees.  In short, pushback by the current administration policy against “green” initiatives increase the perceived value of these grant fraud cases to enforcers.

Why?  Cases against grantees that received money under the last Administration’s priorities helps undermine the moral case for global warming. In fact, undermining the case for global warming through the development of “green” grant fraud cases is a smaller mountain to climb than having to disprove the so-called scientific consensus which, from their vantage point, was created through government grant funding.  While it is hard to “prove the negative” (that man-made CO2 has no effect on temperature) it is easier to show that “green” research and development was subject to fraud, waste and abuse.  Once the case is made that “green” grants involved fraud, waste and abuse, it is but a small step to establish in public opinion that the “green” technologies themselves are fraudulent.

The Trump Administration can pursue a blue print in the current struggle that was drafted by the Iraq anti-war movement that many believe adversely impacted what was then called the “War on Terror” resulting in what may be viewed as hasty withdrawal from Iraq.  In 2005-2006, media accounts began circulating about fraud, waste and abuse in the “war zone.”  In October 2006, the National Procurement Fraud Task Force was formed to marshal the efforts by agents and prosecutors.  A similar effort involving Grant Fraud has already started today.  In January 2007, there were perhaps a half-dozen “war-zone” cases filed. Within three years, there were over 100 warzone cases filed.  The vast increase spilled over into fraud generally and in 2010 there had been perhaps 700 cases filed across the Department of Justice involving procurement fraud and grant fraud.  There were probably ten to twenty times that number of inquiries, investigations, and qui tam suits filed.

Although it is impossible to factor the effect the public perceptions of fraud and corruption had on public opinion regarding the War in Iraq, no one can argue that its effect was negligible.  Here the current Administration wants to undermine resolve in continuing to fight the “War Against a Heating Planet” so prosecutors looking to advance their careers under the new Administration already have begun beating the investigative bushes to see what complainants, informers, complaints and investigations are coming into the “green” fraud enforcement pipeline.

Physician and Wife to Pay $1.2 Million For False Claims Act Allegations that They Billed for Unapproved Drugs

Tuesday, June 27, 2017

Dr. Anindya Sen and Patricia Posey Sen will pay $1.208 million to resolve state and federal False Claims Act allegations that their medical practice billed Medicare and Tennessee Medicaid (TennCare) for anticancer and infusion drugs that were produced for sale in foreign countries and not approved by the U.S. Food and Drug Administration (FDA) for marketing in the United States, the Department of Justice announced today. Dr. Sen owns and operates East Tennessee Cancer & Blood Center and East Tennessee Hematology Oncology and Internal Medicine located in Greeneville and Johnson City, Tennessee. Mrs. Sen managed Dr. Sen’s medical practice from 2009 through 2012.

“Billing for foreign drugs that are not approved by the FDA undermines federal health care programs and could potentially risk patient safety,” said Acting Assistant Attorney General Chad A. Readler of the Justice Department’s Civil Division. “The Department of Justice is committed to maintaining the integrity of the health care system and ensuring that patient safety, not physician misconduct, determines health care decisions.”

“Medical providers and practitioners that distribute and disseminate unapproved and potentially unsafe drugs—especially those used in cancer treatment—put at risk the health and safety of the American consumer,” said U.S. Attorney Nancy Stallard Harr for the Eastern District of Tennessee. “This settlement reflects our ongoing commitment to safeguard the federal health care programs and vital care that they provide.”

The United States alleged that the unapproved drugs that the Sens provided to patients and billed to Medicare and TennCare were not reimbursable under those programs. The United States further alleged that the Sens purchased unapproved drugs because they were less expensive than the drugs approved by FDA for marketing in the United States. The Sens thus allegedly profitted by administering the cheaper unapproved drugs.

The United States’ investigation was a coordinated effort by the Civil Division’s Commercial Litigation Branch, the U.S. Attorney’s Office for the Eastern District of Tennessee, the Department of Health and Human Services Office of General Counsel, the Food and Drug Administration Office of Criminal Investigations and Office of Chief Counsel, the FBI’s Knoxville Division and the Tennessee Bureau of Investigation.

 

Former Packaged Seafood Executive Pleads Guilty to Price Fixing

Wednesday, June 28, 2017

A former senior vice president of sales for a packaged seafood company pleaded guilty for his role in a conspiracy to fix the price of packaged seafood, such as canned tuna, sold in the United States, the Department of Justice announced today.

According to documents filed in this case, Stephen Hodge and his co-conspirators agreed to fix the prices of packaged seafood from as early as 2011 through 2013. He pleaded guilty to a one-count criminal information filed on May 30, 2017, in U.S. District Court for the Northern District of California in San Francisco. Hodge has agreed to pay a criminal fine and cooperate with the Antitrust Division’s ongoing investigation. He will be sentenced by the court at a later date.

“With today’s plea, the Antitrust Division continues to send a strong signal that senior executives will be held accountable for their actions,” said Acting Assistant Attorney General Andrew Finch of the Justice Department’s Antitrust Division. “The division, along with our law enforcement colleagues, will continue to investigate price fixing among packaged seafood companies and the executives who worked at those companies.”

“The FBI will not tolerate the reprehensible behavior of company executives who abuse the trust of the American public for personal gain,” said FBI San Francisco Division Special Agent in Charge John F. Bennett. “We, along with our Justice Department partners, are dedicated to our ongoing investigations into price fixing and will bring these companies to justice.”

According to court documents, Hodge and his co-conspirators discussed the prices of packaged seafood sold in the United States and agreed to fix the prices of those products. Hodge and his co-conspirators negotiated prices and issued price announcements for packaged seafood in accordance with the agreements they reached. Including Hodge, three executives have pleaded guilty for their participation in this conspiracy. Bumble Bee Foods LLC has also been charged for its role in the price-fixing conspiracy. Bumble Bee Foods has a court appearance scheduled for August 2, 2017.

Today’s plea is the result of an ongoing federal antitrust investigation into the packaged seafood industry, which is being conducted by the Antitrust Division’s San Francisco Office and the FBI’s San Francisco Field Office.

Federal Grand Jury in Chicago Indicts Two Former Tech Executives For Allegedly Conspiring to Obstruct SEC Probe into Sale of Company

Department of Justice
U.S. Attorney’s Office
Northern District of Illinois

FOR IMMEDIATE RELEASE
Friday, June 30, 2017

CHICAGO — A federal grand jury in Chicago has indicted two former executives of a Florida technology company for allegedly conspiring to obstruct an investigation by the U.S. Securities and Exchange Commission.

CHRISTOPHER YOUNG, the former President of Tampa-based M2 Interactive Group Inc., and JOSHUA CARLUCCI, M2 Interactive’s former Chief Executive Officer, are charged with conspiracy to obstruct, influence, and impede an official proceeding. The pair allegedly conspired with executives from Schaumburg-based Quadrant 4 System Corp. to obstruct an SEC investigation into Quadrant 4’s 2013 purchase of M2 Interactive.

The indictment was returned Thursday in federal court in Chicago. In addition to the conspiracy count, Young, 35, of Norwich, N.Y., and Carlucci, 39, of Tampa, Fla., are also charged with attempting to obstruct, influence, and impede an official proceeding. Carlucci also faces a charge of making false statements to the Federal Bureau of Investigation. The Court will schedule arraignments for Young and Carlucci at a later date.

New and expanded criminal charges were also filed Thursday against the two Quadrant 4 executives, NANDU THONDAVADI and DHRU DESAI. A criminal information filed in federal court in Chicago charged them with wire fraud. Arraignments for Thondavadi, 63, of North Barrington, and Desai, 55, of Barrington, have been scheduled for July 6, 2017, at 10:00 a.m., before U.S. District Judge Charles Norgle.

The charges were announced by Joel R. Levin, Acting United States Attorney for the Northern District of Illinois; and Michael J. Anderson, Special Agent in Charge of the Chicago office of the FBI. The Chicago office of the SEC provided valuable assistance.

M2 Interactive was a technology company that developed applications for mobile devices and conducted business under the name Momentum Mobile. Quadrant 4 provides software products, platforms and consulting services to customers in the healthcare and education sectors. As a public company, Quadrant 4 is required to provide to the SEC a detailed report of its financial condition.

In 2015 the SEC launched an investigation of Quadrant 4 based on indications that the firm may have violated federal securities laws. The FBI initiated an investigation of Quadrant 4 in 2016. As set forth in the information against Thondavadi and Desai, the investigation revealed that Thondavadi and Desai engaged in a wide-ranging scheme to defraud Quadrant 4’s shareholders by misappropriating more than $3 million from the company, fraudulently inflating Quadrant 4’s revenue, and regularly concealing Quadrant 4’s liabilities. The information charges that Thondavadi and Desai certified false SEC reports, including Quadrant 4’s 2014 Form 10-K, in which the defendants fraudulently inflated Quadrant 4’s revenue by more than $4.2 million – nearly 10% of Quadrant 4’s reported income that year.

The fraud scheme also involved numerous misrepresentations related to Quadrant 4’s acquisitions, including misrepresentations about the terms of Quadrant 4’s purchase of Momentum Mobile in 2013. Quadrant 4 purchased Momentum Mobile for $100,000 in cash and 250,000 shares of Quadrant 4 stock, plus assumption of approximately $165,000 in Momentum Mobile liabilities, according to the indictment against Young and Carlucci. Federal authorities discovered that Thondavadi and Desai later concealed the true terms of the deal from Quadrant 4’s auditor and its shareholders, according to the charges. The pair furnished the auditor with a fictitious agreement that Thondavadi created, the charges state. The bogus document inflated the purchase price and failed to mention the liabilities Quadrant 4 assumed, according to the charges.

As set forth in the charges, the investigation further revealed that Thondavadi and Desai attempted to obstruct the SEC’s investigation of Quadrant 4 as it related to the Momentum Mobile acquisition. In July 2016 SEC attorneys sought to question Young and Carlucci, who were unaware of the fictitious acquisition agreement that Thondavadi created. Carlucci notified Thondavadi and Desai of the SEC’s inquiry, and the Quadrant 4 executives responded by striking a deal with Young and Carlucci to pay them cash in exchange for their agreement to send Thondavadi an e-mail falsely stating that Momentum Mobile had previously authorized the terms of the fictitious agreement, according to the charges. The defendants attempted to disguise the payments – $102,900 to Young and $60,000 to Carlucci – as “consulting” fees, the charges state.

The public is reminded that charges are not evidence of guilt. The defendants are presumed innocent and entitled to a fair trial at which the government has the burden of proving guilt beyond a reasonable doubt.

The conspiracy, obstruction and wire fraud charges are each punishable by up to 20 years in prison, while making false statements to the FBI is punishable by up to five years. If convicted, the Court must impose a reasonable sentence under federal statutes and the advisory U.S. Sentencing Guidelines.

Defense Contractor Sentenced To 30 Months In Federal Prison For $53 Million Procurement Fraud And Illegal Gratuities Scheme

Department of Justice
U.S. Attorney’s Office
District of Maryland

FOR IMMEDIATE RELEASE
Tuesday, June 27, 2017

JUNE 27, 2017

FOR IMMEDIATE RELEASE                                               Contact ELIZABETH MORSE

www.justice.gov/usao/md                                                                          at (410) 209-4885

Baltimore, Maryland – On June 27, 2017, U.S. District Judge Marvin J. Garbis sentenced Andrew Bennett, age 37, of Tampa, Florida to 30 months in prison, followed by 36 months of supervised release, for a wire fraud conspiracy and for paying illegal gratuities to a government official, in connection with the award of more than $53 million in federal government contracts. Judge Garbis also ordered Bennett to pay forfeiture and restitution in the amount of $500,000.00

 

Co-conspirator John Wilkerson, age 51, of Moultrie, Georgia was previously sentenced to five years in prison, followed by three years of supervised release. James T. Shank, who was separately charged and has pled guilty, was a Program Manager at the United States Navy’s Space and Naval Warfare (SPAWAR) Systems Center.

 

The sentence was announced by Acting United States Attorney for the District of Maryland Stephen M. Schenning; Commander of the Air Force Office of Special Investigations (OSI); Special Agent in Charge Robert Craig, Special Agent in Charge, Robert E. Craig Jr, Defense Criminal Investigative Service (DCIS), Mid-Atlantic Field Office; and U.S. Small Business Administration Acting Inspector General Mike Ware.

 

According to Bennett’s plea agreement, he was a program manager for Advanced C4 Solutions, or AC4S, from 2005 until 2011. AC4S was an information technology company headquartered in Tampa, Florida. In 2011, Bennett left AC4S and went to work for Co-conspirator Wilkerson at Superior Communications Solutions, Inc. (SCSI). According to co-conspirator Shank’s indictment, from August 28, 2006 until he retired on June 30, 2011, Shank was employed as a Program Manager at the United States Navy’s Space and Naval Warfare (SPAWAR) Systems Center. Shank worked with agencies within the Department of Defense to procure telecommunications equipment, software, and related services. According to his plea agreement, Wilkerson was a Department of Defense Account Manager for Iron Bow Technologies, LLC (Iron Bow), which provided IT consulting and other services to government and industry customers. Wilkerson was also part-owner and operated Superior Communications Solutions, Inc. (SCSI).

 

From September 2009 through August 2012 Bennett conspired with Wilkerson, to give them and the companies they worked for and/or owned an unfair competitive advantage in obtaining government contracts. Court documents state that Wilkerson offered, and Shank accepted, employment with SCSI while Shank was still a government employee and while he was taking official actions that benefited Wilkerson. In addition, Wilkerson paid Shank $86,000 in the year after Shank retired from government service, funneling the payment through two other companies in order to conceal the source of the funds.

 

According to Bennett’s plea agreement, Shank improperly shared information with Bennett and Wilkerson, and worked with them to structure the government contracts so as to give their companies an unfair advantage over other potential bidders.

 

For example, according to Bennett’s indictment, Bennett and Wilkerson developed a request for proposal (RFP) for DO27, a contract to supply labor services for an Air Force technology project, including for overall project management services, so that AC4S would win the contract. On June 10, 2010, DO27 was awarded to AC4S in the amount of $18,332,738.10. Wilkerson provided Bennett with a quote for labor for the installation of specific technology on behalf of SCSI that was less than the quote he had previously submitted on behalf of Iron Bow as their sales representative. After SCSI was selected as a subcontractor on DO27, it subcontracted with Iron Bow to provide most of the labor SCSI was supposed to provide under DO27 for the installation of the technology. Wilkerson was able to earn income from the work Iron Bow employees were doing by having SCSI act as a middleman and charging a mark-up on Iron Bow’s work. Bennett and Wilkerson then directed an SCSI employee to create false invoices supposedly documenting the hours SCSI employees spent working on DO27, which were submitted to AC4S and paid by the United States government. SCSI received $6,794,432.98 on DO27 out of the $18 million AC4S received for providing labor for the project.

 

In February 2011, Bennett left AC4S and went to work for Wilkerson at SCSI. According to the plea agreement, Bennett received a $500,000 bonus when he joined SCSI, which was paid for by profit Wilkerson had earned on the Air Force contracts.

 

By March 2011, the Air Force project was incomplete and there were numerous contract disputes related to the project. Shank was directed not to take any other action related to the project without the approval of a senior manager. Nevertheless, in April 2011, Shank accepted more than $3.7 million worth of invoices that benefited SCSI without informing the senior manager. In May, 2011, after Shank accepted employment with SCSI, but was still working for SPAWAR, he allegedly approved more than $1.1 million worth of invoices that benefitted SCSI and Wilkerson.

 

The National Procurement Fraud Task Force was formed in October 2006 to promote the early detection, identification, prevention and prosecution of procurement fraud associated with the increase in government contracting activity for national security and other government programs. The Procurement Fraud Task Force includes the United States Attorneys’ Offices, the FBI, the U.S. Inspectors General community and a number of other federal law enforcement agencies. This case, as well as other cases brought by members of the Task Force, demonstrate the Department of Justice’s commitment to helping ensure the integrity of the government procurement process.

 

Acting United States Attorney Stephen M. Schenning thanked Air Force OSI, Defense Criminal Investigative Service, and the U.S. Small Business Administration Office of the Inspector General for their work in the investigation. Mr. Schenning commended Assistant U.S. Attorneys Leo J. Wise and Philip A. Selden, who are prosecuting the case.