FTC Charges Qualcomm With Monopolizing Key Semiconductor Device Used in Cell Phones

 

Company’s sales and licensing practices hamper Qualcomm’s competitors and threaten innovation in mobile communications, according to FTC

The Federal Trade Commission filed a complaint in federal district court charging Qualcomm Inc. with using anticompetitive tactics to maintain its monopoly in the supply of a key semiconductor device used in cell phones and other consumer products.

Qualcomm is the world’s dominant supplier of baseband processors – devices that manage cellular communications in mobile products. The FTC alleges that Qualcomm has used its dominant position as a supplier of certain baseband processors to impose onerous and anticompetitive supply and licensing terms on cell phone manufacturers and to weaken competitors.

Qualcomm also holds patents that it has declared essential to industry standards that enable cellular connectivity. These standards were adopted by standard-setting organizations for the telecommunications industry, which include Qualcomm and many of its competitors. In exchange for having their patented technologies included in the standards, participants typically commit to license their patents on what are known as fair, reasonable, and non-discriminatory, or “FRAND,” terms.

When a patent holder that has made a FRAND commitment negotiates a license, ordinarily it is constrained by the fact that if the parties are unable to reach agreement, the patent holder may have to establish reasonable royalties in court.

According to the complaint, by threatening to disrupt cell phone manufacturers’ supply of baseband processors, Qualcomm obtains elevated royalties and other license terms for its standard-essential patents that manufacturers would otherwise reject. These royalties amount to a tax on the manufacturers’ use of baseband processors manufactured by Qualcomm’s competitors, a tax that excludes these competitors and harms competition. Increased costs imposed by this tax are passed on to consumers, the complaint alleges.

By excluding competitors, Qualcomm impedes innovation that would offer significant consumer benefits, including those that foster the increased interconnectivity of consumer products, vehicles, buildings, and other items commonly referred to as the Internet of Things.

The FTC has charged Qualcomm with violating the FTC Act. The complaint alleges that Qualcomm:

  • Maintains a “no license, no chips” policy under which it will supply its baseband processors only on the condition that cell phone manufacturers agree to Qualcomm’s preferred license terms. The FTC alleges that this tactic forces cell phone manufacturers to pay elevated royalties to Qualcomm on products that use a competitor’s baseband processors. According to the Commission’s complaint, this is an anticompetitive tax on the use of rivals’ processors. “No license, no chips” is a condition that other suppliers of semiconductor devices do not impose. The risk of losing access to Qualcomm baseband processors is too great for a cell phone manufacturer to bear because it would preclude the manufacturer from selling phones for use on important cellular networks.
  • Refuses to license standard-essential patents to competitors. Despite its commitment to license standard-essential patents on FRAND terms, Qualcomm has consistently refused to license those patents to competing suppliers of baseband processors.
  • Extracted exclusivity from Apple in exchange for reduced patent royalties. Qualcomm precluded Apple from sourcing baseband processors from Qualcomm’s competitors from 2011 to 2016. Qualcomm recognized that any competitor that won Apple’s business would become stronger, and used exclusivity to prevent Apple from working with and improving the effectiveness of Qualcomm’s competitors.

The FTC is seeking a court order to undo and prevent Qualcomm’s unfair methods of competition in violation of the FTC Act. The FTC has asked the court to order Qualcomm to cease its anticompetitive conduct and take actions to restore competitive conditions.

The Commission vote to file the complaint was 2-1. Commissioner Maureen K. Ohlhausen dissented and issued a statement. Both a public and sealed version of the complaint were filed in the U.S. District Court for the Northern District of California on January 17, 2017.

 

SEC Charges Shell Factory Operators With Fraud

The Microcap Fraud Task Force Activities have clearly been gaining momentum…

The Securities and Exchange Commission today announced fraud charges against a California stock promoter and a New Jersey lawyer who allegedly were creating sham companies and selling them until the SEC stopped them in their tracks.

The SEC alleges that Imran Husain and Gregg Evan Jaclin essentially operated a shell factory enterprise by filing registration statements to form various startup companies and misleading potential investors to believe each company would be operating and profitable.  The agency further alleges that their secret objective all along was merely to make money for themselves by selling the companies as empty shells rather than actually implementing business plans and following through on their representations to investors.

Moving quickly to protect investors based on evidence collected even before its investigation was complete, the SEC issued stop orders and suspended the registration statements of the last two created companies – Counseling International and Comp Services – before investors could be harmed and the companies could be sold.

“Issuers of securities offerings must make truthful disclosures about the company and its business operations so investors know what they’re getting into when they buy the stock,” said Michele Wein Layne, Director of the SEC’s Los Angeles Regional Office.  “We allege that Husain drummed up false business plans and created a mirage of initial shareholders while Jaclin developed false paperwork to depict emerging companies that later sold as just empty shells.”

According to the SEC’s complaint filed in federal court in Los Angeles:

  • Husain and Jaclin created nine shell companies and sold seven using essentially the same pattern.
  • Husain created a business plan for each company that would not be implemented beyond a few initial steps, and then convinced a friend, relative, or acquaintance to become a puppet CEO who approved and signed corporate documents at Husain’s direction.
  • Jaclin supplied bogus legal documents that Husain used to conduct sham private sales of a company’s shares of stock to “straw shareholders” who were recruited and given cash to pay for the stock they purchased plus a commission.  Some of the recorded shareholders were not even real people.
  • Husain and Jaclin filed registration statements for initial public offerings and falsely claimed that a particular business plan would be implemented.  Deliberately omitted from the registration statements were any mention of Husain starting and controlling the company.
  • Husain and Jaclin filed misleading quarterly and annual reports once a company became registered publicly, providing much of the same false information depicted in the registration statements.
  • Husain obtained about $2.25 million in total proceeds when the empty shell companies were sold, and Jaclin and his firm received nearly $225,000 for their legal services.

The SEC’s complaint charges Husain and Jaclin with violating or aiding and abetting violations of the antifraud, reporting, and securities registration provisions of the federal securities laws.  The SEC seeks disgorgement of ill-gotten gains plus interest and penalties, permanent injunctions, and penny stock bars.  The SEC also seeks an officer-and-director bar against Husain.

The SEC’s investigation was conducted by Roberto A. Tercero and Spencer E. Bendell as part of the Microcap Fraud Task Force.  The litigation will be led by Amy J. Longo and supervised by John Berry.  The SEC appreciates the assistance of the FBI and the U.S. Attorney’s Office for the Northern District of California.

Former Silk Road Task Force Agent Pleads Guilty to Money Laundering and Obstruction

Ex-Secret Service Agent Used Status to Pocket $820,000 Worth of Bitcoin 

A former U.S. Secret Service special agent pleaded guilty today to money laundering and obstruction of justice in connection with his theft of digital currency during the federal investigation of Silk Road, an online marketplace used to facilitate the purchase and sale of illegal drugs and other contraband.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Melinda Haag of the Northern District of California, Chief Richard Weber of the IRS-Criminal Investigation (IRS-CI), Special Agent in Charge David J. Johnson of the FBI’s San Francisco Division, Special Agent in Charge Michael P. Tompkins of the Justice Department’s Office of the Inspector General’s Washington, D.C. Field Office, and Special Agent in Charge Lori Hazenstab of the Department of Homeland Security’s Office of the Inspector General in Washington D.C. made the announcement.

Shaun W. Bridges, 32, of Laurel, Maryland, had been a special agent with the U.S. Secret Service for approximately six years in the Baltimore Field Office and was assigned to the Electronic Crimes Task Force.  He pleaded guilty before the U.S. District Judge Richard Seeborg of the Northern District of California and a sentencing hearing is scheduled for Dec. 7, 2015.

“There is a bright line between enforcing the law and breaking it,” said Assistant Attorney General Caldwell.  “Law enforcement officers who cross that line not only harm their immediate victims but also betray the public trust.  This case shows we will act quickly to hold wrongdoers accountable, no matter who they are.”

“Mr. Bridges has now admitted that he brazenly stole $820,000 worth of digital currency while working as a U.S. Secret Service special agent, a move that completely violated the public’s trust,” said U.S. Attorney Haag.  “We depend on those in federal law enforcement having the highest integrity and unshakeable honor, and Mr. Bridges has demonstrated that he utterly lacks those qualities.  We appreciate the hard work of our federal partners that went into bringing Mr. Bridges to justice.”

“Through a series of complex transactions, the defendant stole bitcoins worth hundreds of thousands of dollars,” said Chief Weber.  “This case is an excellent example of the financial expertise of our special agents. Through the analysis of both the block chain and data from the Silk Road servers, we were able to trace the flow of funds, which eventually led to the defendant.”

Between 2012 and 2014, Bridges was assigned to the Baltimore Silk Road Task Force, a multi-agency group investigating illegal activity on Silk Road.  Bridges’ responsibilities included, among other things, conducting forensic computer investigations in an effort to locate, identify and prosecute targets, including Ross Ulbricht, aka Dread Pirate Roberts, who ran Silk Road.

According to his plea agreement, Bridges admitted that in January 2013 he used an administrator account on the Silk Road website that belonged to another individual to fraudulently obtain access to that website, reset passwords of various accounts and to move bitcoin from those accounts into a bitcoin “wallet” that Bridges controlled.  Bridges admitted that he moved and stole approximately 20,000 bitcoin, which at that time was worth approximately $350,000.

Bridges admitted that he moved the stolen bitcoin into an account at Mt. Gox, an online digital currency exchange based in Japan.  According to his admissions, he liquidated the bitcoin into $820,000 of U.S. currency between March and May 2013, and had the funds transferred to personal investment accounts in the United States.

Bridges’ plea agreement also established that he obstructed the Baltimore federal grand jury’s investigations of Silk Road and Ulbricht in a number of ways, including by impeding the ability of the investigation to fully utilize a cooperator’s access to Silk Road.  In addition, Bridges admitted that he made multiple false and misleading statements to investigators in connection with the San Francisco federal grand jury’s investigation into his own illegal acts, and that he encouraged another government employee to lie to investigators.

Bridges is one of two federal agents to plead guilty in connection with illegal activity during the investigation of Silk Road.  Carl M. Force, 46, of Baltimore, was a special agent with the Drug Enforcement Administration and was also assigned to the Baltimore Silk Road Task Force.  On July 1, 2015, Force pleaded guilty to a three-count information charging him with money laundering related to his theft of over $700,000 in digital currency while acting as an undercover agent on the Task Force.  Force is scheduled to be sentenced by Judge Seeborg on Oct. 19, 2015.

The case was investigated by the FBI’s San Francisco Division, the IRS-CI’s San Francisco Division, the Justice Department’s Office of the Inspector General and the Department of Homeland Security’s Office of the Inspector General in Washington, D.C.  The case is being prosecuted by Assistant U.S. Attorneys Kathryn Haun and William Frentzen of the Northern District of California and Trial Attorney Richard B. Evans of the Criminal Division’s Public Integrity Section, with assistance from Assistant U.S. Attorney Arvon Perteet.

Former Executive Pleads Guilty to Conspiring to Bribe Panamanian Officials

A former regional director of SAP International Inc. pleaded guilty today to conspiracy to violate the Foreign Corrupt Practices Act (FCPA) by participating in a scheme to bribe Panamanian officials to secure the award of government technology contracts for SAP.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Melinda Haag of the Northern District of California, Special Agent in Charge George L. Piro of the FBI’s Miami Division and Acting Special Agent in Charge Thomas McMahon of the Internal Revenue Service-Criminal Investigation (IRS-CI) made the announcement.

Vicente Eduardo Garcia, 65, of Miami, pleaded guilty to a one-count information charging him with conspiracy to violate the anti-bribery provisions of the FCPA.  Sentencing before Senior U.S. District Court Judge Charles R. Breyer of the Northern District of California is scheduled for Dec. 16, 2015.

According to plea documents, in late 2009, SAP sought a multi-million dollar contract to provide a Panamanian state agency with a technology upgrade package.  In connection with his guilty plea, Garcia admitted that, to secure the contract, he conspired with others, including advisors and consultants to SAP, to pay bribes to two Panamanian government officials, as well as to the agent of a third government official (with the understanding that at least a portion of the money would be transmitted to the third official).  According to Garcia’s admissions, the conspirators used sham contracts and false invoices to disguise the true nature of the bribes.  Garcia further admitted that he believed paying such bribes was necessary to secure both the initial contract and additional Panamanian government contracts.

Ultimately, SAP’s Panamanian channel partner secured the technology upgrade contract for $14.5 million, which included $2.1 million in SAP software licenses.  Soon thereafter, the Panamanian government awarded SAP’s channel partner additional contracts that included the provision of SAP products.

The investigation is being conducted by FBI and the IRS-CI.  The Criminal Division’s Office of International Affairs and the Securities and Exchange Commission’s Division of Enforcement, which separately announced civil charges against Garcia, provided assistance.  The case is being prosecuted by Trial Attorney Aisling O’Shea of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Adam A. Reeves of the Northern District of California.

Additional information about the Justice Department’s FCPA enforcement efforts can be found at www.justice.gov/criminal/fraud/fcpa.

Thirty-Three Defendants Charged in Massive Criminal Conspiracies Including Allegations of Fraud, Prescription Drug Diversion, and Money Laundering

FOR IMMEDIATE RELEASE
Thursday, May 7, 2015

Thirty-two people were arrested yesterday after being charged variously with racketeering conspiracy, conspiracy to commit identity theft, conspiracy to commit access device fraud, conspiracy to commit mail, wire and bank fraud, conspiracy to commit money laundering, conspiracy to use a facility of interstate commerce to commit murder-for-hire and conspiracy to engage in the unlicensed wholesale distribution of drugs, announced U.S. Attorney Melinda Haag of the Northern District of California, Special Agent in Charge David J. Johnson of the Federal Bureau of Investigation, and Special Agent in Charge José M. Martinez of Internal Revenue Service (IRS) Criminal Investigation.  A thirty-third defendant remains at large and is subject to an active arrest warrant.

According to an indictment that was unsealed yesterday, Ara Karapedyan, 45, Mihran Stepanyan, 29, and Artur Stepanyan, 38, were at the center of a nationwide conspiracy—with at least 18 other person—to conduct the affairs of a wide-ranging criminal enterprise through a pattern of racketeering.  This enterprise was fueled by a broad range of criminal activity including unlicensed wholesale drug distribution, money laundering and fraud.  The indictment names 33 defendants in all and describes an enterprise that spanned throughout California as well as in Minnesota, Ohio and Puerto Rico.

One key aspect of the alleged criminal activity described in the indictment was a multi-million dollar prescription drug diversion scheme.  Members and associates of the enterprise are alleged to have procured prescription drugs from unlicensed sources and to have resold the drugs to unknowing customers.  A central figure to these allegations is David Miller, 50.  Miller is alleged to be the owner and operator of a drug wholesaler called Minnesota Independent Cooperative (MIC) that, between 2010 and 2014, bought approximately $157 million of drugs from Mihran Stepanyan and Artur Stepanyan.  Miller and his employees allegedly knew the Stepanyans were not licensed to sell drugs and knew the Stepanyans procured their drugs through unlicensed sources.  Miller and his employees nevertheless purchased the drugs from the Stepanyans’ various companies, including Panda Capital Group, Red Rock Capital, Trans Atlantic Capital, GC National Wholesale, Sky Atlantic Capital and Nationwide Payment Solutions and resold the drugs as legitimate products.

A separate investigation has resulted in another indictment in the Southern District of Ohio charging David Miller, Mihran Stepanyan, Artur Stepanyan and MIC with various crimes arising from their sale of millions of dollars of illicitly-procured drugs.

The indictment also charges Karapedyan and his associates with engaging in the fraudulent unlicensed distribution of drugs.  For instance, from 2013 through 2015, Karapedyan, either personally or through an associate, sold several hundred thousand dollars’ worth of drugs such as Abilify, Liboderm, Cymbalta and Namenda, as well as HIV drugs such as Atripla, Truvada and Isentress and the cancer drug Gleevec.  Likewise, from roughly the latter part of 2014 through early 2015, Karapdyan and his racketeer co-conspirator Maxwell Starsky, 36, sold to another complicit wholesaler more than $1 million in illicitly procured drugs.  Karapedyan also supplied the Stepanyans with drugs.

Hugo Marquez, 41, Eric Figueroa, 29, Arman Zagaryan, 32, and their associates are likewise charged with procuring drugs from unlicensed sources and distributing the drugs to buyers.  According to the indictment, Alexander Soliman, 46, was one of their principal customers.  Between roughly 2012 and 2014, Soliman, through his companies Apex Pharmaceuticals and Maroon Pharma, knowingly purchased illicitly-procured drugs from Marquez, Figueroa and Zagaryan and then re-sold them as legitimate drugs.  During this time period, Marquez, Figueroa, Zargaryan and Soliman engaged in the distribution of more than $20 million worth of drugs.

Another aspect of the alleged criminal activity is a massive check and bank fraud operation.  As part of the enterprise, Karapedyan and his associates, including Asatour Magzanyan, 53, Tigran Sarkisyan, 38, and Hripsime Khachtryan, 41, allegedly used fraudulent identification information to prepare fraudulent tax returns, which were then filed with the government in order to induce the U.S. Treasury to issue tax refund checks.  Karapedyan associate Khachig Geuydjian, 74, allegedly used his unlicensed mail-box business to provide addresses for these fraudulent tax filings.  They and other members and associates of the enterprise then negotiated the tax refund checks using fraudulent identities or through a complicit check cashing business operated by Jean Dukmajian, 61, Karine Dukmajian, 33, and Angela Dukmajian, 26.  In addition to the tax refund scheme, members and associates of the enterprise also engaged in negotiating counterfeit and stolen checks.  In all, from roughly late 2012 to late 2014, Karapedyan and his associates negotiated more than 500 fraudulent checks worth more than $5 million.

In addition to the fraudulent unlicensed distribution of drugs and negotiating fraudulent checks, Karapedyan, the Stepanyans, Miller and others are charged with conspiring to launder money in an effort to promote their criminal activities and to conceal proceeds collected from their criminal activities.  For example, a description of Miller’s activity between 2012 through 2014, wherein he attempted to hide the fact he was paying the Stepanyans for drugs is alleged in the indictment.  The indictment further alleges Miller made the payments to the Stepanyans’ company GC National Wholesale through companies in Puerto Rico he controlled, such as B&Y Wholesalers and FMC Distributors.  The payments were for sales of drugs that the Stepanyans actually delivered to Miller’s company MIC.  Similarly, the indictment includes allegations Karapedyan and Starsky also arranged payments for more than $1 million of illicitly-procured drugs through a shell company.  In addition, Karapedyan also allegedly laundered money for the Stepanyans.  According to the indictment, in 2013, the Stepanyans transferred more than $1 million in proceeds derived from MIC to Karapedyan, who caused the money to be withdrawn as cash.

Furthermore, in addition to the foregoing, defendants Karapedyan and Gevork Ter-Mkrtchyan are charged with conspiring to use a facility of interstate commerce to commit murder-for-hire.  According to the indictment, these defendants made several attempts to find a person who would be willing to kill someone who had angered Ter-Mkrtchyan.  Although the defendants paid $1,500 for the hit, it was never carried out.

According to the indictment, a significant portion of the criminal activity took place in the Northern District of California.  For example, one delivery of drugs took place in the Northern District of California and many of the checks were negotiated in the Northern District as well.  In addition, much of the proceeds from the check and the drug schemes were laundered through the Northern District of California, where Karapedyan and his associates regularly picked up large amounts of cash.  In addition, Miller’s company, MIC, posted fraudulent information relating to the origins of the drugs he sold via a website.  The website was maintained by an Internet service provider in the Northern District of California.  Furthermore, Karapedyan made numerous calls to the Northern District of California in order to find individuals willing to perform the hit he sought.

An indictment merely alleges that crimes have been committed, and all defendants are presumed innocent until proven guilty beyond a reasonable doubt.   All the defendants except Miller were arrested yesterday.  Miller remains at large and is the subject of an active arrest warrant.

In sum, the indictment includes seven counts as follows: count One, RICO conspiracy, in violation of 18 U.S.C. § 1962(d) (maximum term of imprisonment, life or 20 years); Count Two, conspiracy to commit identity theft, in violation of 18 U.S.C. §  1028(f) (maximum term of imprisonment, 15 years); Count Three, conspiracy to commit access device fraud, 18 U.S.C. § 1029(b)(2) (maximum term of imprisonment, 5 years); Count Four, conspiracy to commit mail, wire, and bank fraud, in violation of 18 U.S.C. § 1349; Count Five, conspiracy to commit money laundering, in violation of 18 U.S.C. § 1956(h) (maximum term of imprisonment, 20 years); Count Six, conspiracy to use interstate facility to commit murder-for-hire, in violation of 18 U.S.C. § 1958); Count Seven, conspiracy to engage in unlicensed wholesale distribution of drugs, in violation of 18 U.S.C. § 371 (maximum term of imprisonment, 5 years).

The following charges apply as against the following defendants are: Ara Karapedyan on Counts one through seven, Mihran Stepanyan on counts one through five and seven, Artur Stepanyan on counts one through five and seven, Gevork Ter-Mkrtchyan on counts 1-7, Khachig Geuydjian on counts one through five, Arman Petrosyan on counts one through five, Lanna Karapedyan on counts one through five, Maxwell Starsky on counts one through five and seven, Sevak Gharghani on counts one through five and seven, Jean Dukmajian, on counts one through five, Karine Dukmajian on counts one through five, Angela Dukmajian on counts one through five, Arman Danielian count one, four, five and seven, Asatour Magzanyan conts one through five, Tigran Sarkisyan counts one through five, Hripsime Khachtryan counts one through five, Loui Artin on counts one through five, Hugo Marquez on counts one through five and seven, Arman Zargaryan on counts one through five and seven, Dmitriy Kustov on counts two through four, Michael Inman on counts two through four, Araxia Nazaryian on counts two five and seven, Alexander Soliman on counts four, five and seven, Cheryl Barndt on counts four, five and seven, Eric Figueroa on counts four, five and seven, Marc Asheghian on counts four, five and seven, Michael Asheghian on counts four, five and seven, David Milleron cunts one through five and seven, James Russoon on counts four, five and seven, Jeannette Couch counts four, five and seven, Marie Polichetti counts four, five and seven, Bernardo Guillen counts four, five and seven, Javier Ramirez on counts four and seven.

Additional periods of supervised release, fines and special assessments also could be imposed.  Any sentence following conviction would be imposed by the court after consideration of the U.S. Sentencing Guidelines and the federal statute governing the imposition of a sentence, 18 U.S.C. § 3553.

Thirty-one defendants appeared before the Honorable Victor B. Kenton and Michael R. Wilner in the Central District of California on Wednesday, May 6, 2015, to be advised of the charges against them and to determine conditions of release.  Some of those hearings have been continued at the request of the defendants.  Specifically, the bail hearing for Eric Figueroa has been continued to Friday, May 8, 2015, and the hearings for Hugo Marquez and Michael Inman have been continued to Monday, May 11, 2015, before the Honorable Michael R. Wilner.  In addition, Karapedyan will appear on Friday, May 8, 2015, before the Honorable Victor B. Kenton.

Further, Ter-Mkrtchyan has requested a hearing in which the government will be required to prove his identity, i.e., that he is the individual named in the indictment.  That hearing will occur on Friday, May 8, 2015, before the Honorable Victor B. Kenton.

The remaining 26 defendants have been ordered to appear before the Honorable Jacqueline Scott Corley in the Northern District of California. Alexander Soliman, Araxia Nazaryian and Asatour Magzanyan will appear on May 12, 2015.  Cheryl Barndt, Marc Asheghian, Michael Asheghian, Hripsime Khachtryan, Bernardo Guillen, Javier Ramirez, Jean Dukmajian, Karine Dukmajian, Angela Dukmajian, Khachig Geuydjian and Arman Zargaryan will appear on May 20, 2015.  Jeannette Couch, Loui Artin, Dmitriy Kustov, Marie Polichetti, Arman Danielian, Lanna Karapedyan, Sevak Gharghani, Arman Petrosyan and Maxwell Starsky will appear on May 22, 2015.

Mihran Stepanyan, Artur Stepanyan and Tigran Sarkisyan are being transported to the Northern District of California by the U.S. Marshal Service and will make court appearances after their arrival.

Assistant U.S. Attorneys Damali A. Taylor, David Countryman and W.S. Wilson Leung are prosecuting the case with the assistance of Lance Libatique, Ponly Tu, Daniel Charlier-Smith.  The prosecution is the result of an investigation by the Federal Bureau of Investigation and the Internal Revenue Service.

St. Helena Hospital Agrees To Pay $2.25 Million To Settle False Claims Act Allegations

SAN FRANCISCO – St. Helena Hospital, an acute care hospital within the Adventist Health System, has agreed to pay the United States $2,250,000 to settle allegations that it submitted false claims to Medicare for certain cardiac procedures and related inpatient admissions, United States Attorney Melinda Haag announced today.

The settlement resolves allegations that St. Helena Hospital knowingly charged Medicare for medically unnecessary percutaneous coronary interventions during the period Jan. 1, 2008 through July 31, 2011. Percutaneous coronary intervention, commonly referred to as angioplasty, is a procedure to open narrowed or blocked blood vessels that supply blood to the heart. The United States also alleged that St. Helena Hospital unnecessarily admitted angioplasty patients who should have been treated on a less costly, outpatient basis.

This settlement resolves a lawsuit filed in the U.S. District Court for the Northern District of California by Kacie Carroll, a former employee of St. Helena Hospital, under the qui tam or whistleblower provisions of the False Claims Act, which permit private citizens to bring lawsuits on behalf of the United States and obtain a portion of the government’s recovery. Carroll will receive $450,000.

Assistant U.S. Attorney Steven J. Saltiel handled the matter on behalf of the U.S. Attorney?s Office, with the assistance of Michael Zehr and Kathy Terry.

The case is captioned United States ex rel. Carroll v. Adventist Health Systems, et al., Case No. CV-10-4925 DMR. The claims resolved by this settlement are allegations only and there has been no determination of liability.

Dignity Health Agrees to Pay $37 Million to Settle False Claims Act Allegations

Dignity Health has agreed to pay the United States $37 million to settle allegations that 13 of its hospitals in California, Nevada and Arizona knowingly submitted false claims to Medicare and TRICARE by admitting patients who could have been treated on a less costly, outpatient basis, the Justice Department announced today.  Dignity, formerly known as Catholic Healthcare West, is based in San Francisco and is one of the five largest hospital systems in the nation with 39 hospitals in three states.

“Charging the government for higher cost inpatient services that patients do not need wastes the country’s vital health care dollars,” said Acting Assistant Attorney General Joyce R. Branda for the Justice Department’s Civil Division.  “This department will continue its work to stop abuses of the nation’s health care resources and to ensure patients receive the most appropriate care.”

The settlement resolves allegations that 13 Dignity Health hospitals knowingly overcharged Medicare and TRICARE, part of the military health care program, for inpatient services for patients who should have been treated on a less costly, outpatient basis.  Because hospitals generally receive significantly higher payments from federal health care programs for inpatient admissions as opposed to outpatient treatment, the admission of numerous patients who do not need inpatient care, as alleged here, can result in substantial financial harm to federal health care programs.

The United States alleged that from 2006 through 2010, 13 Dignity hospitals billed Medicare and TRICARE for inpatient care for certain patients who underwent elective cardiovascular procedures (e.g., stents, pacemakers) in scheduled surgeries when the claims should have been billed as outpatient surgeries.  In addition, the government alleged that from 2000 through 2008, four of the hospitals billed Medicare for beneficiaries undergoing elective kyphoplasty procedures, which are minimally-invasive and performed to treat certain spinal compression fractures that should have been billed as less costly outpatient procedures.  Lastly, the government alleged that from 2006 through 2010, 13 hospitals admitted patients for certain common medical diagnoses where admission as an inpatient was medically unnecessary and appropriate care could have been provided in a less costly outpatient or observation setting.

“This settlement demonstrates this office’s commitment to protecting our federal health care programs,” said U.S. Attorney Melinda Haag for the Northern District of California.  “We will continue to aggressively and appropriately pursue False Claims Act allegations of wrongdoing in the health care industry.”

As part of today’s agreement, Dignity entered into a corporate integrity agreement with the U.S. Department of Health and Human Services – Office of Inspector General (HHS-OIG) requiring the company to engage in significant compliance efforts over the next five years.  Under the agreement, Dignity is required to retain independent review organizations to review the accuracy of the company’s claims for services furnished to federal health care program beneficiaries.

“Hospitals that attempt to boost profits by admitting patients for expensive and unnecessary inpatient hospital stays will be held accountable,” said Special Agent in Charge Ivan Negroni of HHS-OIG’s San Francisco Office.  “Both patients and taxpayers deserve to have medical decisions made solely on what is best for the patient based on medical necessity.”

This settlement resolves a lawsuit filed in the U.S. District Court for the Northern District of California by Kathleen Hawkins, a former employee of Dignity, under the qui tam or whistleblower provisions of the False Claims Act, which permit private citizens to bring lawsuits on behalf of the United States and obtain a portion of the government’s recovery.  Hawkins will receive approximately $6.25 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 $23 billion through False Claims Act cases, with more than $14.8 billion of that amount recovered in cases involving fraud against federal health care programs.

The settlement was a result of a coordinated effort by the Civil Division, the U.S. Attorneys’ Offices for the Northern District of California and the Western District of New York and the HHS-OIG.

The case is captioned United States ex rel. Hawkins v. Catholic Healthcare West, et al., CV C 09-5604 JCS.  The claims resolved by this settlement are allegations only and there has been no determination of liability.

Two Northern California Real Estate Investors Charged with Bid Rigging at Public Foreclosure Auctions Investigation Has Yielded 46 Plea Agreements to Date

Department of Justice
Office of Public Affairs
FOR IMMEDIATE RELEASE
Tuesday, March 11, 2014
Two Northern California Real Estate Investors Charged with Bid Rigging at Public Foreclosure Auctions Investigation Has Yielded 46 Plea Agreements to Date

Two Northern California real estate investors pleaded guilty for their roles in conspiracies to rig bids and commit mail fraud at public real estate foreclosure auctions in Northern California, the Department of Justice announced.

Felony charges were filed on June 30, 2011, in the U.S. District Court for the Northern District of California in Oakland, against Grant Alvernaz, of Pleasant Hill, Calif., and Douglas Moore, of Walnut Creek, Calif.  Alvernaz pleaded guilty to the charges on Sept. 7, 2011.  Moore pleaded guilty to the charges on Aug. 24, 2011.  The charges and the guilty pleas were unsealed yesterday.  Including Alvernaz and Moore, a total of 46 individuals have pleaded guilty or agreed to plead guilty as a result of the department’s ongoing antitrust investigation into bid rigging and fraud at public real estate foreclosure auctions in Northern California.

According to court documents, Alvernaz and Moore conspired with others not to bid against one another, and instead to designate a winning bidder to obtain selected properties at public real estate foreclosure auctions in Contra Costa and Alameda counties, Calif.  Alvernaz and Moore were also charged with conspiring to commit mail fraud by fraudulently acquiring title to selected Contra Costa and Alameda County properties sold at public auctions and making and receiving payoffs and diverting money to co-conspirators that would have gone to mortgage holders and others by holding second, private auctions open only to members of the conspiracy.  The department said that the selected properties were then awarded to the conspirators who submitted the highest bids in the second, private auctions.  The private auctions often took place at or near the courthouse steps where the public auctions were held.   Alvernaz and Moore pleaded guilty to participating in the conspiracies in Contra Costa County beginning as early as February 2009 and continuing until in or about December 2010 and in Alameda County from as early as March 2009 and continuing until about November 2010.

“The integrity of real estate foreclosure markets depends on open and honest competition, which the perpetrators of these collusive schemes undermined,” said Assistant Attorney General Bill Baer in charge of the Department of Justice’s Antitrust Division.  “The division will continue to pursue those who illegally enrich themselves at the expense of lenders and financially distressed homeowners.”

The department stated that the primary purpose of the conspiracies was to suppress and restrain competition in order to obtain selected real estate offered at Contra Costa and Alameda County public foreclosure auctions at non-competitive prices.  When real estate properties are sold at these auctions, the proceeds are used to pay off the mortgage and other debt attached to the property, with remaining proceeds, if any, paid to the homeowner.  According to court documents, these conspirators paid and received money that otherwise would have gone to pay off the mortgage and other holders of debt secured by the properties and, in some cases, the defaulting homeowner.

“The unsealed court documents narrate the criminal actions taken as part of this real estate bid-rigging conspiracy in northern California,” said David J. Johnson, FBI Special Agent in Charge of the San Francisco Field Office.  “The public should consider this an example of how a competitive marketplace can be taken advantage of by those who are shortsighted by greed.”

A violation of the Sherman Act carries a maximum penalty of 10 years in prison and a $1 million fine for individuals.  The maximum fine for the Sherman Act charges may be increased to twice the gain derived from the crime or twice the loss suffered by the victims if either amount is greater than $1 million.  A count of conspiracy to commit mail fraud carries a maximum sentence of 30 years in prison and a $1 million fine.  The government can also seek to forfeit the proceeds earned from participating in the conspiracy to commit mail fraud.

The charges are the latest filed by the department in its ongoing investigation into bid rigging and fraud at public real estate foreclosure auctions in San Francisco, San Mateo, Contra Costa and Alameda counties, Calif.  These investigations are being conducted by the Antitrust Division’s San Francisco Office and the FBI’s San Francisco Office.  Anyone with information concerning bid rigging or fraud related to public real estate foreclosure auctions should contact the Antitrust Division’s San Francisco Office at 415-436-6660, or call the FBI tip line at 415-553-7400.

Today’s cases were brought in connection with the President’s Financial Fraud Enforcement Task Force.  The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  With more than 20 federal agencies, 94 U.S. Attorneys’ offices and state and local partners, it is the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud.  Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations.  Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants, including more than 2,900 mortgage fraud defendants.

Abbott Laboratories Pays U.S. $5.475 Million to Settle Claims That Company Paid Kickbacks to Physicians

Abbott Laboratories has agreed to pay the United States $5.475 million to resolve allegations That it violated the False Claims Act by paying kickbacks to induce doctors to implant the company’s carotid, biliary and peripheral vascular products, the Justice Department announced today.  Abbott is a global pharmaceuticals and health care products company based in Abbott Park, Ill.

“Patients have a right to treatment decisions that are based on their own medical needs, not the personal financial interests of their health care providers,” said Assistant Attorney General Stuart F. Delery of the Civil Division of the Department of Justice.  “Kickbacks undermine the ability of health care providers to objectively evaluate and treat their patients, and will continue to be a primary focus of the Department’s health care enforcement efforts.”

The settlement resolves allegations that Abbott knowingly paid prominent physicians for teaching assignments, speaking engagements and conferences with the expectation that these physicians would arrange for the hospitals with which they were affiliated to purchase Abbott’s carotid, biliary and peripheral vascular products.  As a result, the United States alleged Abbott violated the Anti-Kickback Act and caused the submission of false claims to Medicare for the procedures in which these Abbott products were used.

“Physicians should make decisions regarding medical devices based on what is in the best interest of patients without being induced by payments from manufacturers competing for their business,” said U.S. Attorney Bill Killian of the Eastern District of Tennessee.

“Offering financial inducements can distort health care decision-making,” said Special Agent in Charge Derrick L. Jackson of the U.S. Department of Health and Human Services, Office of Inspector General in Atlanta.  “OIG and our law enforcement partners vigilantly protect government health programs from such alleged abuses.”

Carotid and peripheral vascular products are used to treat circulatory disorders by increasing blood flow to the head and various parts of the body, respectively.  Biliary products are used to treat obstructions that occur in the bile ducts.

The settlement resolves allegations originally brought in a lawsuit filed by Steven Peters and Douglas Gray, former Abbott employees, under the qui tam provision of the False Claims Act , which allows whistleblowers to file suit on behalf of the United States for false claims and share in any recovery   As part of today’s resolution, Peters and Gray will receive a total payment of morethan $1 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 Attorney General Eric Holder and Health and Human Services Secretary Kathleen Sebelius.  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 $17 billion through False Claims Act cases, with more than $12.2 billion of that amount recovered in cases involving fraud against federal health care programs.

This settlement was the result of an investigation by the Justice Department’s Civil Division, theU.S. Attorney’s Offices for the Eastern District of Tennessee and the Northern District of Californiaand the Office of Inspector General at the U.S. Department of Health and Human Services.

The lawsuit is captioned United States ex rel. Peters et al. v. Abbott Laboratories, Inc., Civil Action No. 3:09-CV-430 (E.D. Tenn.).   The claims settled by this agreement are allegations only, and there has been no determination of liability.

Johnson & Johnson to Pay More Than $2.2 Billion to Resolve Criminal and Civil Investigations (last matter GeyerGorey’s Patricia Davis worked prior to her retiring from USDOJ and joining our firm)

WASHINGTON – Global health care giant Johnson & Johnson (J&J) and its subsidiaries will pay more than $2.2 billion to resolve criminal and civil liability arising from allegations relating to the prescription drugs Risperdal, Invega and Natrecor, including promotion for uses not approved as safe and effective by the Food and Drug Administration (FDA) and payment of kickbacks to physicians and to the nation’s largest long-term care pharmacy provider.  The global resolution is one of the largest health care fraud settlements in U.S. history, including criminal fines and forfeiture totaling $485 million and civil settlements with the federal government and states totaling $1.72 billion.

“The conduct at issue in this case jeopardized the health and safety of patients and damaged the public trust,” said Attorney General Eric Holder.  “This multibillion-dollar resolution demonstrates the Justice Department’s firm commitment to preventing and combating all forms of health care fraud.  And it proves our determination to hold accountable any corporation that breaks the law and enriches its bottom line at the expense of the American people.”

The resolution includes criminal fines and forfeiture for violations of the law and civil settlements based on the False Claims Act arising out of multiple investigations of the company and its subsidiaries.

“When companies put profit over patients’ health and misuse taxpayer dollars, we demand accountability,” said Associate Attorney General Tony West.  “In addition to significant monetary sanctions, we will ensure that non-monetary measures are in place to facilitate change in corporate behavior and help ensure the playing field is level for all market participants.”

In addition to imposing substantial monetary sanctions, the resolution will subject J&J to stringent requirements under a Corporate Integrity Agreement (CIA) with the Department of Health and Human Services Office of Inspector General (HHS-OIG).  This agreement is designed to increase accountability and transparency and prevent future fraud and abuse.

“As patients and consumers, we have a right to rely upon the claims drug companies make about their products,” said Assistant Attorney General for the Justice Department’s Civil Division Stuart F. Delery.  “And, as taxpayers, we have a right to ensure that federal health care dollars are spent appropriately.  That is why this Administration has continued to pursue aggressively – with all of our available law enforcement tools — those companies that corrupt our health care system.”

J&J Subsidiary Janssen Pleads Guilty to Misbranding Antipsychotic Drug

In a criminal information filed today in the Eastern District of Pennsylvania, the government charged that, from March 3, 2002, through Dec. 31, 2003, Janssen Pharmaceuticals Inc., a J&J subsidiary, introduced the antipsychotic drug Risperdal into interstate commerce for an unapproved use, rendering the product misbranded.  For most of this time period, Risperdal was approved only to treat schizophrenia.  The information alleges that Janssen’s sales representatives promoted Risperdal to physicians and other prescribers who treated elderly dementia patients by urging the prescribers to use Risperdal to treat symptoms such as anxiety, agitation, depression, hostility and confusion.  The information alleges that the company created written sales aids for use by Janssen’s ElderCare sales force that emphasized symptoms and minimized any mention of the FDA-approved use, treatment of schizophrenia.  The company also provided incentives for off-label promotion and intended use by basing sales representatives’ bonuses on total sales of Risperdal in their sales areas, not just sales for FDA-approved uses.

In a plea agreement resolving these charges, Janssen admitted that it promoted Risperdal to health care providers for treatment of psychotic symptoms and associated behavioral disturbances exhibited by elderly, non-schizophrenic dementia patients.  Under the terms of the plea agreement, Janssen will pay a total of $400 million, including a criminal fine of $334 million and forfeiture of $66 million.  Janssen’s guilty plea will not be final until accepted by the U.S. District Court.

The Federal Food, Drug, and Cosmetic Act (FDCA) protects the health and safety of the public by ensuring, among other things, that drugs intended for use in humans are safe and effective for their intended uses and that the labeling of such drugs bear true, complete and accurate information.  Under the FDCA, a pharmaceutical company must specify the intended uses of a drug in its new drug application to the FDA.  Before approval, the FDA must determine that the drug is safe and effective for those specified uses.  Once the drug is approved, if the company intends a different use and then introduces the drug into interstate commerce for that new, unapproved use, the drug becomes misbranded.  The unapproved use is also known as an “off-label” use because it is not included in the drug’s FDA-approved labeling.

“When pharmaceutical companies interfere with the FDA’s mission of ensuring that drugs are safe and effective for the American public, they undermine the doctor-patient relationship and put the health and safety of patients at risk,” said Director of the FDA’s Office of Criminal Investigations John Roth.  “Today’s settlement demonstrates the government’s continued focus on pharmaceutical companies that put profits ahead of the public’s health.  The FDA will continue to devote resources to criminal investigations targeting pharmaceutical companies that disregard the drug approval process and recklessly promote drugs for uses that have not been proven to be safe and effective.”

J&J and Janssen Settle Civil Allegations of Targeting Vulnerable Patients  with the Drugs Risperdal and Invega for Off-Label Uses

In a related civil complaint filed today in the Eastern District of Pennsylvania, the United States alleges that Janssen marketed Risperdal to control the behaviors and conduct of the nation’s most vulnerable patients: elderly nursing home residents, children and individuals with mental disabilities.  The government alleges that J&J and Janssen caused false claims to be submitted to federal health care programs by promoting Risperdal for off-label uses that federal health care programs did not cover, making false and misleading statements about the safety and efficacy of Risperdal and paying kickbacks to physicians to prescribe Risperdal.

“J&J’s promotion of Risperdal for unapproved uses threatened the most vulnerable populations of our society – children, the elderly and those with developmental disabilities,” said U.S. Attorney for the Eastern District of Pennsylvania Zane Memeger.  “This historic settlement sends the message that drug manufacturers who place profits over patient care will face severe criminal and civil penalties.”

In its complaint, the government alleges that the FDA repeatedly advised Janssen that marketing Risperdal as safe and effective for the elderly would be “misleading.”  The FDA cautioned Janssen that behavioral disturbances in elderly dementia patients were not necessarily manifestations of psychotic disorders and might even be “appropriate responses to the deplorable conditions under which some demented patients are housed, thus raising an ethical question regarding the use of an antipsychotic medication for inappropriate behavioral control.”

The complaint further alleges that J&J and Janssen were aware that Risperdal posed serious health risks for the elderly, including an increased risk of strokes, but that the companies downplayed these risks.  For example, when a J&J study of Risperdal showed a significant risk of strokes and other adverse events in elderly dementia patients, the complaint alleges that Janssen combined the study data with other studies to make it appear that there was a lower overall risk of adverse events.  A year after J&J had received the results of a second study confirming the increased safety risk for elderly patients taking Risperdal, but had not published the data, one physician who worked on the study cautioned Janssen that “[a]t this point, so long after [the study] has been completed … we must be concerned that this gives the strong appearance that Janssen is purposely withholding the findings.”

The complaint also alleges that Janssen knew that patients taking Risperdal had an increased risk of developing diabetes, but nonetheless promoted Risperdal as “uncompromised by safety concerns (does not cause diabetes).”  When Janssen received the initial results of studies indicating that Risperdal posed the same diabetes risk as other antipsychotics, the complaint alleges that the company retained outside consultants to re-analyze the study results and ultimately published articles stating that Risperdal was actually associated with a lower risk of developing diabetes.

The complaint alleges that, despite the FDA warnings and increased health risks, from 1999 through 2005, Janssen aggressively marketed Risperdal to control behavioral disturbances in dementia patients through an “ElderCare sales force” designed to target nursing homes and doctors who treated the elderly.  In business plans, Janssen’s goal was to “[m]aximize and grow RISPERDAL’s market leadership in geriatrics and long term care.”  The company touted Risperdal as having “proven efficacy” and “an excellent safety and tolerability profile” in geriatric patients.

In addition to promoting Risperdal for elderly dementia patients, from 1999 through 2005, Janssen allegedly promoted the antipsychotic drug for use in children and individuals with mental disabilities.  The complaint alleges that J&J and Janssen knew that Risperdal posed certain health risks to children, including the risk of elevated levels of prolactin, a hormone that can stimulate breast development and milk production.  Nonetheless, one of Janssen’s Key Base Business Goals was to grow and protect the drug’s market share with child/adolescent patients.  Janssen instructed its sales representatives to call on child psychiatrists, as well as mental health facilities that primarily treated children, and to market Risperdal as safe and effective for symptoms of various childhood disorders, such as attention deficit hyperactivity disorder, oppositional defiant disorder, obsessive-compulsive disorder and autism.  Until late 2006, Risperdal was not approved for use in children for any purpose, and the FDA repeatedly warned the company against promoting it for use in children.

The government’s complaint also contains allegations that Janssen paid speaker fees to doctors to influence them to write prescriptions for Risperdal.  Sales representatives allegedly told these doctors that if they wanted to receive payments for speaking, they needed to increase their Risperdal prescriptions.

In addition to allegations relating to Risperdal, today’s settlement also resolves allegations relating to Invega, a newer antipsychotic drug also sold by Janssen.  Although Invega was approved only for the treatment of schizophrenia and schizoaffective disorder, the government alleges that, from 2006 through 2009, J&J and Janssen marketed the drug for off-label indications and made false and misleading statements about its safety and efficacy.

As part of the global resolution, J&J and Janssen have agreed to pay a total of $1.391 billion to resolve the false claims allegedly resulting from their off-label marketing and kickbacks for Risperdal and Invega.  This total includes $1.273 billion to be paid as part of the resolution announced today, as well as $118 million that J&J and Janssen paid to the state of Texas in March 2012 to resolve similar allegations relating to Risperdal.  Because Medicaid is a joint federal-state program, J&J’s conduct caused losses to both the federal and state governments.  The additional payment made by J&J as part of today’s settlement will be shared between the federal and state governments, with the federal government recovering $749 million, and the states recovering $524 million.  The federal government and Texas each received $59 million from the Texas settlement.

Kickbacks to Nursing Home Pharmacies

The civil settlement also resolves allegations that, in furtherance of their efforts to target elderly dementia patients in nursing homes, J&J and Janssen paid kickbacks to Omnicare Inc., the nation’s largest pharmacy specializing in dispensing drugs to nursing home patients.  In a complaint filed in the District of Massachusetts in January 2010, the United States alleged that J&J paid millions of dollars in kickbacks to Omnicare under the guise of market share rebate payments, data-purchase agreements, “grants” and “educational funding.”  These kickbacks were intended to induce Omnicare and its hundreds of consultant pharmacists to engage in “active intervention programs” to promote the use of Risperdal and other J&J drugs in nursing homes.  Omnicare’s consultant pharmacists regularly reviewed nursing home patients’ medical charts and made recommendations to physicians on what drugs should be prescribed for those patients.  Although consultant pharmacists purported to provide “independent” recommendations based on their clinical judgment, J&J viewed the pharmacists as an “extension of [J&J’s] sales force.”

J&J and Janssen have agreed to pay $149 million to resolve the government’s contention that these kickbacks caused Omnicare to submit false claims to federal health care programs.  The federal share of this settlement is $132 million, and the five participating states’ total share is $17 million.  In 2009, Omnicare paid $98 million to resolve its civil liability for claims that it accepted kickbacks from J&J and Janssen, along with certain other conduct.

“Consultant pharmacists can play an important role in protecting nursing home residents from the use of antipsychotic drugs as chemical restraints,” said U.S. Attorney for the District of Massachusetts Carmen Ortiz.  “This settlement is a reminder that the recommendations of consultant pharmacists should be based on their independent clinical judgment and should not be the product of money paid by drug companies.”

Off-Label Promotion of the Heart Failure Drug Natrecor

The civil settlement announced today also resolves allegations that J&J and another of its subsidiaries, Scios Inc., caused false and fraudulent claims to be submitted to federal health care programs for the heart failure drug Natrecor.  In August 2001, the FDA approved Natrecor to treat patients with acutely decompensated congestive heart failure who have shortness of breath at rest or with minimal activity.  This approval was based on a study involving hospitalized patients experiencing severe heart failure who received infusions of Natrecor over an average 36-hour period.

In a civil complaint filed in 2009 in the Northern District of California, the government alleged that, shortly after Natrecor was approved, Scios launched an aggressive campaign to market the drug for scheduled, serial outpatient infusions for patients with less severe heart failure – a use not included in the FDA-approved label and not covered by federal health care programs.  These infusions generally involved visits to an outpatient clinic or doctor’s office for four- to six-hour infusions one or two times per week for several weeks or months.

The government’s complaint alleged that Scios had no sound scientific evidence supporting the medical necessity of these outpatient infusions and misleadingly used a small pilot study to encourage the serial outpatient use of the drug.  Among other things, Scios sponsored an extensive speaker program through which doctors were paid to tout the purported benefits of serial outpatient use of Natrecor.  Scios also urged doctors and hospitals to set up outpatient clinics specifically to administer the serial outpatient infusions, in some cases providing funds to defray the costs of setting up the clinics, and supplied providers with extensive resources and support for billing Medicare for the outpatient infusions.

As part of today’s resolution, J&J and Scios have agreed to pay the federal government $184 million to resolve their civil liability for the alleged false claims to federal health care programs resulting from their off-label marketing of Natrecor.  In October 2011, Scios pleaded guilty to a misdemeanor FDCA violation and paid a criminal fine of $85 million for introducing Natrecor into interstate commerce for an off-label use.

“This case is an example of a drug company encouraging doctors to use a drug in a way that was unsupported by valid scientific evidence,” said First Assistant U.S. Attorney for the Northern District of California Brian Stretch.  “We are committed to ensuring that federal health care programs do not pay for such inappropriate uses, and that pharmaceutical companies market their drugs only for uses that have been proven safe and effective.”

Non-Monetary Provisions of the Global Resolution and Corporate Integrity Agreement

In addition to the criminal and civil resolutions, J&J has executed a five-year Corporate Integrity Agreement (CIA) with the Department of Health and Human Services Office of Inspector General (HHS-OIG).  The CIA includes provisions requiring J&J to implement major changes to the way its pharmaceutical affiliates do business.  Among other things, the CIA requires J&J to change its executive compensation program to permit the company to recoup annual bonuses and other long-term incentives from covered executives if they, or their subordinates, engage in significant misconduct.  J&J may recoup monies from executives who are current employees and from those who have left the company.  The CIA also requires J&J’s pharmaceutical businesses to implement and maintain transparency regarding their research practices, publication policies and payments to physicians.  On an annual basis, management employees, including senior executives and certain members of J&J’s independent board of directors, must certify compliance with provisions of the CIA.  J&J must submit detailed annual reports to HHS-OIG about its compliance program and its business operations.

“OIG will work aggressively with our law enforcement partners to hold companies accountable for marketing and promotion that violate laws intended to protect the public,” said Inspector General of the U.S. Department of Health and Human Services Daniel R. Levinson.  “Our compliance agreement with Johnson & Johnson increases individual accountability for board members, sales representatives, company executives and management.  The agreement also contains strong monitoring and reporting provisions to help ensure that the public is protected from future unlawful and potentially harmful off-label marketing.”

Coordinated Investigative Effort Spans Federal and State Law Enforcement

This resolution marks the culmination of an extensive, coordinated investigation by federal and state law enforcement partners that is the hallmark of the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which fosters government collaborations to fight fraud.  Announced in May 2009 by Attorney General Eric Holder and Health and Human Services Secretary Kathleen Sebelius, the HEAT initiative has focused efforts to reduce and prevent Medicare and Medicaid financial fraud through enhanced cooperation.

The criminal cases against Janssen and Scios were handled by the U.S. Attorney’s Offices for the Eastern District of Pennsylvania and the Northern District of California and the Civil Division’s Consumer Protection Branch.  The civil settlements were handled by the U.S. Attorney’s Offices for the Eastern District of Pennsylvania, the Northern District of California and the District of Massachusetts and the Civil Division’s Commercial Litigation Branch.  Assistance was provided by the HHS Office of Counsel to the Inspector General, Office of the General Counsel-CMS Division, the FDA’s Office of Chief Counsel and the National Association of Medicaid Fraud Control Units.

This matter was investigated by HHS-OIG, the Department of Defense’s Defense Criminal Investigative Service, the FDA’s Office of Criminal Investigations, the Office of Personnel Management’s Office of Inspector General, the Department of Veterans Affairs, the Department of Labor, TRICARE Program Integrity, the U.S. Postal Inspection Service’s Office of the Inspector General and the FBI.

One of the most powerful tools in the fight against Medicare and Medicaid financial fraud is the False Claims Act.  Since January 2009, the Justice Department has recovered a total of more than $16.7 billion through False Claims Act cases, with more than $11.9 billion of that amount recovered in cases involving fraud against federal health care programs.

The department enforces the FDCA by prosecuting those who illegally distribute unapproved, misbranded and adulterated drugs and medical devices in violation of the Act.  Since 2009, fines, penalties and forfeitures that have been imposed in connection with such FDCA violations have totaled more than $6 billion.

The civil settlements described above resolve multiple lawsuits filed under the qui tam, or whistleblower, provisions of the False Claims Act, which allow private citizens to bring civil actions on behalf of the government and to share in any recovery.  From the federal government’s share of the civil settlements announced today, the whistleblowers in the Eastern District of Pennsylvania will receive $112 million, the whistleblowers in the District of Massachusetts will receive $27.7 million and the whistleblower in the Northern District of California will receive $28 million.  Except to the extent that J&J subsidiaries have pleaded guilty or agreed to plead guilty to the criminal charges discussed above, the claims settled by the civil settlements are allegations only, and there has been no determination of liability. Court documents related to today’s settlement can be viewed online at www.justice.gov/opa/jj-pc-docs.html.