GreenScam–SEC: Co. Misled Investors About Green Tech

 

The Securities and Exchange Commission today announced fraud charges against a Texas-based technology company and its founder accused of boosting stock sales with false claims about a supposedly revolutionary computer server and big-name customers purportedly placing orders to buy it.

Also charged in the SEC’s complaint is Texas Attorney General Ken Paxton and a former member of the company’s board of directors for allegedly recruiting investors while hiding they were being compensated to promote the company’s stock.

The SEC alleges that Servergy Inc. and William E. Mapp III sold $26 million worth of company stock in private offerings while misleading investors to believe that the Cleantech CTS-1000 server (the company’s sole product) was especially energy-efficient.  They said it could replace “power-hungry” servers found in top data centers and compete directly with top server makers like IBM, Dell, and Hewlett Packard.  However, neither Mapp nor Servergy informed investors that those companies were manufacturing high-performance servers with 64-bit processors while the CTS-1000 had a less powerful 32-bit processor that was being phased out of the industry and could not in reality compete against those companies.

The SEC further alleges that when Servergy was low on operating funds, Mapp enticed prospective investors by falsely claiming well-known companies were ordering the CTS-1000, and he specifically mentioned an order purportedly received from Amazon.  In reality, an Amazon employee had merely contacted Servergy because he wanted to test the product in his free time for personal use.

Servergy has since cut ties with Mapp, who served as CEO.  The company agreed to pay a $200,000 penalty to settle the SEC’s charges.  The litigation continues against Mapp in U.S. District Court for the Eastern District of Texas.

“We allege that Mapp deceived investors into believing that Servergy’s groundbreaking technology was generating lucrative sales to major customers when it was technologically behind its competitors and made no actual sales,” said Shamoil T. Shipchandler, Director of the SEC’s Fort Worth Regional Office.

While serving in the Texas House of Representatives, Paxton allegedly reached an agreement with Mapp to promote Servergy to prospective investors in return for shares of Servergy stock.  According to the SEC’s complaint, Paxton raised $840,000 in investor funds for Servergy and received 100,000 shares of stock in return, but never disclosed his commissions to prospective investors while recruiting them.  Similarly, former Servergy director Caleb White allegedly raised more than $1.4 million for Servergy and received $66,000 and 20,000 shares of Servergy stock while never disclosing these commissions to investors.  White has agreed to settle the SEC’s charges by paying $66,000 in disgorgement and returning his shares of Servergy stock to the company.  The SEC’s litigation continues against Paxton.

“People recruiting investors have a legal obligation to disclose any compensation they are receiving to promote a stock, and we allege that Paxton and White concealed the compensation they were receiving for touting Servergy’s product,” Mr. Shipchandler said.

The SEC’s complaint charges Servergy, Mapp, Paxton, and White with violating Sections 17(a) of the Securities Act of 1933 and Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934.  Servergy, Mapp, and White also allegedly violated Sections 5(a) and (c) of the Securities Act, and Paxton and White allegedly violated Section 17(b) of the Securities Act and Section 15(a) of the Exchange Act.

Servergy and White neither admitted nor denied the SEC’s charges in their settlements.

The SEC’s investigation was conducted by Samantha S. Martin and Carol J. Hahn and supervised by Jessica B. Magee and David L. Peavler in the Fort Worth office.  The SEC’s litigation will be led by Matthew J. Gulde and Ms. Magee.

For-Profit School in Texas to Pay United States up to $2.5 Million for Allegedly Submitting False Claims for Federal Student Financial Aid

American Commercial Colleges Inc. (ACC) has agreed to pay the United States up to $2.5 million, plus interest, to resolve allegations that it violated the civil False Claims Act by falsely certifying that it complied with certain eligibility requirements of the federal student aid programs, the Justice Department announced today.

To maintain eligibility to participate in federal student aid programs authorized by Title IV of the Higher Education Act of 1965, for-profit colleges such as ACC must obtain no more than ninety percent of their annual revenues from Title IV student aid programs.  At least ten percent of their revenues must come from other sources, such as payments from students using their own funds or private loans independent of Title IV.  Congress enacted this “90/10 Rule” based on the belief that quality schools should be able to attract at least a portion of their funding from private sources, and not rely solely upon the Federal Government.  The civil settlement resolves allegations that ACC violated the False Claims Act when it orchestrated certain short-term private student loans that ACC repaid with federal Title IV funds to artificially inflate the amount of private funding ACC counted for purposes of the 90/10 Rule.  The short-term loans at issue in this case were not sought or obtained by students on their own; rather, the United States contends ACC orchestrated the loans for the sole purpose of manipulating its 90/10 Rule calculations.

“American taxpayers have a right to expect federal student aid to be used as intended by Congress —  to help students obtain a quality education from an eligible institution,” said Stuart F. Delery, Acting Assistant Attorney General for the Department of Justice’s Civil Division.  “The Department of Justice is committed to making sure that for-profit colleges play by the rules and that Title IV funds are used as intended.” Under the False Claims Act settlement, ACC, a privately-owned college operating several campuses in Texas, will pay the United States $1 million, plus interest, over five years, and could be obligated to pay an additional $1.5 million under the terms of the agreement.

“Misuse of taxpayers’ dollars cannot be tolerated – not only for the sake of taxpayers, but especially in the case of innocent individuals who seek to improve their lives through a quality education,” said U.S. Attorney for the Northern District of Texas Sarah R. Saldaña.

Today’s settlement resolves allegations brought by Shawn Clark and Juan Delgado, former directors of ACC campuses in Odessa and Abilene, respectively, under the qui tam, or whistleblower, provisions of the False Claims Act, which permit private citizens with knowledge of fraud against the government to bring an action on behalf of the United States and to share in any recovery.  Messrs. Clark and Delgado will receive $170,000 of the $1 million fixed portion of the government’s recovery, and would receive an additional $255,000 if ACC becomes obligated to pay the maximum $1.5 million contingent portion of the settlement.

This case was handled by the Civil Division of the Department of Justice, the U.S. Attorney’s Office for the Northern District of Texas; and the Department of Education’s Office of Inspector General and Office of General Counsel.

The lawsuit is captioned United States ex rel. Clark, et al., v. American Commercial Colleges, Inc., No. 5:10-cv-00129 (N.D. Tex.).  The claims settled by this agreement are allegations only, and there has been no determination of liability.

Owner of Texas Durable Medical Equipment Companies Convicted in Fraud Scheme

A Texas federal judge convicted the owner of two Texas-based durable medical equipment companies today on multiple health care fraud charges following a five-day bench trial, announced Assistant Attorney General Lanny A. Breuer of the Justice Department’s Criminal Division.
Hugh Marion Willet, 69, of Fort Worth, Texas, was found guilty by U.S. District Judge Jane J. Boyle in the Northern District of Texas on all seven counts of the June 2012 second superseding indictment: one count of conspiracy to commit health care fraud and six counts of health care fraud stemming from a durable medical equipment (DME) fraud scheme.  Willett?s wife, Jean Willett, previously pleaded guilty to the same charges and was sentenced in September 2012 to serve 50 months in prison.

The evidence at trial showed that between 2006 and 2010, the Willets co-owned and operated JS&H Orthopedic Supply LLC and Texas Orthotic and Prosthetic Systems Inc., which claimed to provide orthotics and other DME to beneficiaries of Medicare and private insurance benefit programs including Aetna, Blue Cross Blue Shield and CIGNA.

Evidence presented in court proved that both of these companies intentionally submitted claims to Medicare and other insurers for products that were materially different from and more expensive than what was actually provided, and that Hugh Marion Willett was a knowing and willing participant in the fraud.

At sentencing, currently scheduled for April 18, 2013, Hugh Marion Willett faces a maximum potential penalty of 10 years in prison and a $250,000 fine on each count.

The case is being prosecuted by Fraud Section Trial Attorney Ben O’Neil and Deputy Chief Sam Sheldon of the Justice Department?s Criminal Division.  The case was investigated by the FBI and the Department of Health and Human Services Office of Inspector General (HHS-OIG) and brought as part of the Medicare Fraud Strike Force, supervised by the Criminal Division’s Fraud Section.

Since their inception in March 2007, strike force operations in nine locations have charged more than 1,480 defendants who collectively have falsely billed the Medicare program for more than $4.8 billion.  In addition, the HHS Centers for Medicare and Medicaid Services, working in conjunction with the HHS-OIG, are taking steps to increase accountability and decrease the presence of fraudulent providers.

Baylor University Medical Center to Pay More Than $900,000 for False Medicare Claims for Radiation Oncology Services

Department of Justice
Office of Public Affairs
FOR IMMEDIATE RELEASE
Tuesday, November 27, 2012
Baylor University Medical Center to Pay More Than $900,000 for False Medicare Claims for Radiation Oncology Services

 

Baylor University Medical Center, Baylor Health Care System and HealthTexas Provider Network (collectively, Baylor) have agreed to pay the United States $907,355 to settle allegations that Baylor submitted false claims to Medicare, the Civilian Health and Medical Program of the Uniformed Services (TRICARE) and the Federal Employees Health Benefit Program (FEHBP) for various radiation oncology services, including intensity modulated radiation therapy, the Justice Department announced today. Intensity modulated radiation therapy is a sophisticated radiation treatment indicated for specific types of cancer where extreme precision is required to spare patients’ surrounding organs or healthy tissue.

The government alleges that Baylor submitted improper claims to Medicare from 2006 through May 2010 in which Baylor double billed Medicare for several procedures affiliated with radiation treatment plans, billed for certain high reimbursement radiation oncology services when a different, less expensive service should have been billed, billed for procedures without supporting documentation in the medical record, and improperly billed for radiation treatment delivery without corroboration of physician supervision.

“Physicians who participate in Medicare must bill for their services accurately and honestly,” said Stuart F. Delery, Principal Deputy Assistant Attorney General for the Justice Department’s Civil Division. “The Department of Justice is committed to ensuring that federal health care funds are spent appropriately.”

Principal Deputy Assistant Attorney General Delery also noted that the settlement with Baylor was the result of a coordinated effort among the Justice Department’s Civil Division, the U.S. Attorney’s Office for the Northern District of Texas, the Department of Health and Human Services’ Office of Inspector General, FBI and Defense Criminal Investigative Services.

 

U.S. Attorney for the Northern District of Texas Sarah R. Saldaña praised these investigative efforts and said, “this civil recovery is a testament to the efforts of the Department of Justice to hold all parties, regardless of position, accountable for the submission of improper claims to federal health care programs.”

This resolution is part of the government’s emphasis on combating health care fraud and another step for the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which was announced by Attorney General Eric Holder and Kathleen Sebelius, Secretary of the Department of Health and Human Services in May 2009. 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 that effort is the False Claims Act, which the Justice Department has used to recover $10.1 billion since January 2009 in cases involving fraud against federal health care programs. The Justice Department’s total recoveries in False Claims Act cases since January 2009 are over $13.8 billion.

The claims settled by this a gre ement are alle gations onl y, and the re has b een no det ermination of liability.