Acting Manhattan U.S. Attorney Announces $13.4 Million Settlement Of Civil Healthcare Fraud Lawsuit Against US Bioservices Corp.

Wednesday, August 23, 2017

Joon H. Kim, the Acting United States Attorney for the Southern District of New York, and Scott J. Lampert, Special Agent in Charge of the U.S. Department of Health and Human Services’ Office of Inspector General for the New York Region (“HHS-OIG”), announced that the United States has settled a civil fraud case against US BIOSERVICES CORP. (“US BIO”) pursuant to which US BIO will pay a total of $13.4 million. The settlement resolves claims that US BIO violated the Anti-Kickback Statute and the False Claims Act by participating in a kickback scheme with Novartis PharmaceuticalS Corp. (“Novartis”) relating to the NOVARTIS drug Exjade. Specifically, the United States’ Complaint alleges that US BIO and NOVARTIS entered into a kickback arrangement pursuant to which US BIO was promised additional patient referrals and related benefits in return for refilling a higher percentage of Exjade than the two other pharmacies that also dispensed Exjade. The settlement will also resolve numerous state law civil fraud claims.

Yesterday, Chief U.S. District Judge Colleen McMahon approved a settlement stipulation to resolve the Government’s claims against US BIO. Under the settlement, US BIO is required to pay approximately $10.6 million to the United States and has made extensive admissions regarding its conduct. Further, as part of the settlement, US BIO will pay approximately $2.8 million to resolve the state law civil fraud claims. In prior lawsuits, the Government sued NOVARTIS and the two other pharmacies that participated in this same Exjade kickback scheme. The Government settled those lawsuits, pursuant to which NOVARTIS paid $390 million, the two other pharmacies paid $75 million, and NOVARTIS and the pharmacies made extensive admissions regarding their conduct.

Acting Manhattan U.S. Attorney Joon H. Kim said: “The integrity of the federal healthcare system requires that all providers, including pharmacies like US Bioservices, refrain from entering into kickback relationships. When healthcare providers accept kickbacks, they violate the law, subject what should be health-based decision-making to the influence of profit-seeking drug manufacturers, and thereby put their own financial interests ahead of the interests of their patients. This Office will continue to use its law enforcement tools to pursue healthcare providers who accept kickbacks or otherwise put their profits ahead of patient safety.”

HHS-OIG Special Agent in Charge Scott J. Lampert said: “The conduct displayed by US Bioservices compromised patient care and undermined the integrity of our nation’s health care programs. This settlement should serve as a warning to all providers that choose to let financial inducements cloud their medical judgment.”

As alleged in the Government’s Complaint, US BIO participated in a kickback scheme with NOVARTIS that violated the federal Anti-Kickback Statute and the False Claims Act. In connection with this scheme, US BIO submitted claims for thousands of Exjade prescriptions to Medicare and Medicaid, causing those programs to pay out millions of dollars for false claims tainted by kickbacks. As part of the settlement, US BIO admitted as follows:

  • In December 2005, US BIO signed a contract with Novartis relating to the distribution of Exjade. Under that contract, Novartis agreed that US BIO would be one of three specialty pharmacies (the “EPASS pharmacies”) permitted to dispense Exjade as part of Novartis’s EPASS network. US BIO, in turn, agreed to provide specialty pharmacy services to Exjade patients, including having clinical staff available to speak with patients and to answer clinical questions or concerns about Exjade.
  • In or about June 2007, Novartis began issuing monthly “Exjade Scorecards” to US BIO and the other two EPASS pharmacies that measured, among other things, the pharmacies’ “adherence” scores. The “adherence” score in the Exjade Scorecards showed how long Exjade patients continued to order refills, without excluding patients who stopped ordering refills due to side effects or patients who were directed to stop therapy by their physicians. Starting in or about July 2007, Novartis had discussions with US BIO regarding how US BIO could improve its “adherence” scores in the Exjade Scorecards.
  • In late 2007 and early 2008, and to improve its “adherence” score, US BIO trained its nurses to call Exjade patients and tell patients that not treating iron overload, for which Exjade is prescribed, could have severe consequences like organ failure, and that while Exjade had certain common side effects like diarrhea, such side effects typically went away with time. The nurses at US BIO did not use written scripts for the calls with Exjade patients.
  • In October 2008, Novartis implemented a new plan for allocating Exjade patient referrals among US BIO and the other EPASS pharmacies. Under that plan, Novartis would allocate 60% of all undesignated patient referrals to the EPASS pharmacy with the top “adherence” scores in the Exjade Scorecards and allocate 20% of the undesignated patient referrals to each of the other two EPASS pharmacies.

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Mr. Kim thanked HHS-OIG and the Medicaid Fraud Control Units for New York, Washington, and California for their investigative efforts and assistance with this case.

The case is being handled by the Office’s Civil Frauds Unit. Assistant U.S. Attorneys Li Yu and Mónica P. Folch are in charge of the case.

Chairman of a Macau Real Estate Development Company Convicted on All Counts for Role in Scheme to Bribe United Nations Ambassadors to Build a Multi-Billion Dollar Conference Center

Friday, July 28, 2017

Yesterday, a federal jury convicted the chairman of a real estate development company for his role in a scheme to bribe United Nations ambassadors to obtain support to build a conference center in Macau that would host, among other events, the annual United Nations Global South-South Development Expo.

Acting Assistant Attorney General Kenneth A. Blanco of the Justice Department’s Criminal Division, Acting U.S. Attorney Joon H. Kim of the Southern District of New York, Assistant Director in Charge William F. Sweeney, Jr. of the FBI’s New York Field Office and Chief Don Fort of Internal Revenue Service Criminal Investigation (IRS-CI) made the announcement.

After a four week trial, Ng Lap Seng, a/k/a “David Ng,” 69, of Macau, China, was convicted of two counts of violating the Foreign Corrupt Practices Act, one count of paying bribes and gratuities, one count of money laundering and two counts of conspiracy. No sentencing date has been set.

“The defendant’s corrupt activities were all the more egregious and shameful as he tried to hide his bribes as philanthropy,” said Acting Assistant Attorney General Blanco. “Corruption is a disease that has a corrosive effect on the rule of law everywhere and harms good people throughout the world. The Department is steadfast in its mission to aggressively investigate and prosecute bribery in all its forms, and vigorously protect the rule of law.”

“In his unbridled pursuit of even greater personal fortune, billionaire Ng Lap Seng corrupted the highest levels of the United Nations,” said Acting U.S. Attorney Kim. “Through bribes and no show jobs, Ng turned leaders of the league of nations into his private band of profiteers. Ng’s journey from a Macau real estate mogul to convicted felon should serve as a cautionary tale to all tempted to follow his path. If you bring corruption to New York – whether to the State Capitol in Albany or to the halls of the U.N. General Assembly – your journey may very well end in a Manhattan federal courtroom, with a unanimous jury announcing your guilt.”

“Ng’s bribery scheme began at the intersection where business and intergovernmental matters overlap,” said Assistant Director in Charge Sweeney, Jr. He may have thought this was a good place to start, but it’s doubtful this was the ending he had in mind. This case is nothing more than an example of corruption in its purest form, and we’ve proven once again that no individual or organization is powerful enough to be immune from prosecution.”

“Today’s conviction is a result of untangling a global labyrinth of complex financial transactions used by Seng to facilitate bribes to foreign officials,” said Chief Fort. “IRS-CI has become a trusted leader in pursuit of those who use corruption as their business model to circumvent the law. CI is committed to maintaining fair competition, free of corrupt practices, through a dynamic synthesis of global teamwork and our robust financial investigative talents.”

According to the evidence presented at trial, Ng, the chairman of the Sun Kian Ip Group, conspired with and paid bribes to Francis Lorenzo, a former UN Ambassador from the Dominican Republic, and John W. Ashe, the late former Permanent Representative of Antigua and Barbuda to the UN and the 68th President of the UN General Assembly (“UNGA”). With the assistance of Jeff C. Yin, an accountant and co-conspirator who worked with Ng and others and previously pleaded guilty, Ng orchestrated a scheme with the principal objective of obtaining the formal support of the UN for a multi-billion dollar facility that Ng hoped to build in Macau using the Sun Kian Ip Group (the “Macau Conference Center”). Ng wanted the Macau Conference Center to serve as a location for meetings, discussions, forums, and other events associated with the UN. In particular, he wanted it to serve as the permanent home of the annual “Global South-South Development Expo,” which is run by the UN Office for South-South Cooperation, and is hosted in a different country or city every year.

The trial evidence further showed that Ng bribed Ambassador Ashe and Ambassador Lorenzo (together, the “Ambassadors”) in exchange for their agreement to use their official positions to advance Ng’s interest in obtaining formal UN support for the Macau Conference Center. As the evidence demonstrated at trial, Ng paid the Ambassadors in a variety of forms. For example, Ng appointed Ambassador Lorenzo as the President of South-South News, a New York-based organization — funded by Ng — which described itself as a media platform dedicated to advancing the implementation of the UN’s Millennium Development Goals, a set of philanthropic goals. Ng provided bribe payments to Ambassador Lorenzo through South-South News by transmitting payments from Macau to a company in the Dominican Republic affiliated with Ambassador Lorenzo’s brother (the “Dominican Company”). Through South-South News, Ng also made payments to Ambassador Ashe, including to Ambassador Ashe’s wife, who was paid in her capacity as a “consultant” to South-South News, and to an account that Ambassador Ashe had established, purportedly to raise money for his role as President of UNGA. Ng also provided bribes through cash and wire payments to the Ambassadors.

According to the trial evidence, one of the actions that the Ambassadors took in exchange for bribe payments, to advance Ng’s objectives, was to submit an official document to the then-UN Secretary-General in support of the Macau Conference Center (the “UN Document”). The UN Document claimed that there was a need to build the Macau Conference Center to support the UN’s global development goals. Ambassador Ashe, aided by Ambassador Lorenzo, initially submitted the UN Document to the UNGA in or about late February 2012. More than a year later, at Ng’s behest, the Ambassadors revised the UN Document to refer specifically to Ng’s company, the Sun Kian Ip Group, as a partner in the Macau Conference Center project. The UN Document requested that the Secretary-General circulate the UN Document “as a document of the sixty-sixth session of the General Assembly,” under a specific item of the official UNGA agenda. The Secretary-General followed this request, thereby making the UN Document an official part of the UNGA record.

Five other defendants have been charged in this matter. Co-conspirators Lorenzo, Yin and Heidi Hong Piao have pleaded guilty and are awaiting sentencing. Shiwei Yan has pleaded and was sentenced to 20 months in prison. Co-defendant Ashe passed away in 2016 and the charges against him were dismissed.

This case was investigated by the FBI and IRS-CI. Trial Attorney David A. Last of the Criminal Division’s Fraud Section and Assistant U.S. Attorneys Daniel C. Richenthal, Janis M. Echenberg and Douglas S. Zolkind of the Southern District of New York are prosecuting the case.

The Criminal Division’s Fraud Section is responsible for investigating and prosecuting all FCPA matters. Additional information about the Justice Department’s FCPA enforcement efforts can be found at www.justice.gov/criminal/fraud/fcpa.

Ivorian Man Pleads Guilty In Manhattan Federal Court To Conspiring To Provide Material Support To The FARC

Tuesday, July 25, 2017

Joon H. Kim, the Acting United States Attorney for the Southern District of New York, and Raymond Donovan, Special Agent in Charge of the Special Operations Division of the United States Drug Enforcement Administration (“DEA”), announced that FAOUZI JABER, a/k/a “Excellence,” pled guilty to conspiring to provide material support to the Fuerzas Armadas Revolucionarias de Colombia (the “FARC”), a designated foreign terrorist organization.  JABER pled guilty earlier today in Manhattan federal court before U.S. Magistrate Judge Katherine H. Parker.

Acting U.S. Attorney Joon H. Kim said:  “Faouzi Jaber arranged to traffic millions of dollars’ worth of lethal weapons and narcotics in support of the FARC’s efforts to violently overthrow the government of Colombia and terrorize U.S. forces stationed there.  In a series of meetings that took him around the world, Jaber was willing to do whatever it took to help this foreign terrorist organization achieve its violent and undemocratic goals.  Our Office will continue to prosecute those who conspire to provide material support to the FARC and other dangerous terrorist organizations to the fullest extent of the law.”

DEA Special Agent in Charge Raymond Donovan said:  “DEA’s number one priority is going after individuals and organizations that pose a direct threat to the safety and security of the American people.  Faouzi Jaber demonstrated how willing he was to do business with some of the world’s most deadly terror networks that wish harm on innocent Americans and the rule of the law.  We must continue to attack these potentially deadly networks globally, no matter where they hide.”

According to the allegations contained in the Superseding Indictment, statements made during the plea proceeding, and other documents in the public record:

From the fall of 2012 through early 2014, JABER participated in a conspiracy to provide material support to the FARC, a guerilla group that, as of that time period, was dedicated to the violent overthrow of the democratically elected government of Colombia, had engaged in acts of violence against U.S. citizens and interests in Colombia and elsewhere, and was one of the world’s largest suppliers of cocaine.  JABER engaged in a series of meetings, in locations such as Accra, Ghana, and Warsaw, Poland, with individuals who identified themselves as representatives and associates of the FARC, but who were, in fact, confidential sources (the “CSes”) working for the DEA.  In the course of those meetings, which were recorded, JABER introduced the CSes to two of his associates, a weapons trafficker based in Ukraine and a narcotics trafficker based in West Africa, in furtherance of his efforts to assist the FARC.  Working together with those associates, during the meetings with the CSes, JABER agreed to provide weapons – including surface-to-air missiles, assault rifles, grenade launchers, and grenades – to the FARC, at a total price of over $8 million, with the understanding that those weapons would be used by the FARC against U.S. forces in Colombia.  JABER also agreed to assist the FARC with the transportation and storage of FARC-owned cocaine in West Africa, and with the laundering of cocaine proceeds for the FARC, including by moving the cocaine proceeds through bank accounts in New York.

In April 2014, JABER traveled to Prague, Czech Republic, to meet with certain of the CSes to continue negotiating and arranging the weapons and narcotics-trafficking transactions in support of the FARC.  On April 5, 2014, JABER was arrested in Prague by Czech authorities based on the charges in this case, at the request of U.S. authorities.  JABER was later extradited to the United States to face the charges against him.

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JABER, 61, of the Ivory Coast, pled guilty to one count of conspiring to provide material support and resources to a designated foreign terrorist organization, i.e., the FARC, which carries a maximum sentence of 15 years in prison. The maximum potential sentence is prescribed by Congress and is provided here for informational purposes only, as any sentencing of the defendant will be determined by a judge. Sentencing is scheduled for November 8, 2017, at 4:00 p.m. before Chief U.S. District Judge Colleen McMahon.

Mr. Kim praised the outstanding efforts of the DEA’s Special Operations Division and DEA’s Vienna, Austria Country Office; DEA’s Warsaw, Poland Country Office; DEA’s Accra, Ghana Country Office; and DEA’s New York Field Division.  Mr. Kim also thanked Czech law enforcement authorities, the Counterterrorism Section of the Department of Justice’s National Security Division, and the Department of Justice’s Office of International Affairs for their assistance.

This prosecution is being handled by the Office’s Terrorism and International Narcotics Unit.  Assistant U.S. Attorney George D. Turner is in charge of the prosecution.

Three Former Traders for Major Banks Arraigned in Foreign Currency Exchange Antitrust Conspiracy

Monday, July 17, 2017

Three United Kingdom nationals and former traders of major banks voluntarily surrendered to the FBI and were arraigned on a charge arising from their alleged roles in a conspiracy to manipulate the price of U.S. dollars and euros exchanged in the foreign currency exchange (FX) spot market, the Justice Department announced today.

A one-count indictment, filed in the U.S. District Court for the Southern District of New York on January 10, 2017, charges Richard Usher (former Head of G11 FX Trading-UK at an affiliate of The Royal Bank of Scotland plc, as well as former Managing Director at an affiliate of JPMorgan Chase & Co.), Rohan Ramchandani (former Managing Director and head of G10 FX spot trading at an affiliate of Citicorp) and Christopher Ashton (former Head of Spot FX at an affiliate of Barclays PLC) with conspiring to fix prices and rig bids for U.S. dollars and euros exchanged in the FX spot market.

The charge in the indictment carries a maximum penalty of 10 years in prison and a $1 million fine. The maximum fine may be increased to twice the gain derived from the crime or twice the loss suffered by victims if either amount is greater than $1 million.

According to the indictment, from at least December 2007 through at least January 2013, Usher, Ramchandani and Ashton (along with unnamed co-conspirators) conspired to fix prices and rig bids for the euro – U.S. dollar currency pair. Called “the Cartel” or “the Mafia,” this group of traders carried out their conspiracy by participating in telephone calls and near-daily conversations in a private electronic chat room. Their anticompetitive behavior included colluding around the time of certain benchmark rates known as fixes, such as by coordinating their bidding/offering and trading to manipulate the price of the currency pair by the time of the fix or otherwise profit as a result of the fix price. The conspirators also coordinated their trading activities outside of fix times, such as by refraining from entering bids/offers or trading at certain times as a means of stabilizing or controlling price.

The charge in the indictment is merely an allegation, and the defendants are presumed innocent unless and until proven guilty.

This prosecution is being handled by the Antitrust Division’s New York Office and the FBI’s Washington Field Office. Anyone with information concerning price fixing or other anticompetitive conduct in the FX market should contact the Antitrust Division’s Citizen Complaint Center at (888) 647-3258, visit https://www.justice.gov/atr/report-violations or call the FBI tip line at (415) 553-7400.

Manhattan U.S. Attorney Announces $4.4 Million Settlement Of Civil Lawsuit Against VNS Choice For Improper Collection Of Medicaid Payments

Monday, July 17, 2017

VNS Choice Admits to Collecting Medicaid Payments for Hundreds of Beneficiaries Who It Failed to Timely Disenroll From Its Managed Long-Term Care Plan

Joon H. Kim, the Acting United States Attorney for the Southern District of New York, announced today that the United States has settled a civil fraud lawsuit against VNS CHOICE, VNS CHOICE COMMUNITY CARE, and VISITING NURSE SERVICE OF NEW YORK (collectively, “VNS”) for improperly collecting monthly Medicaid payments for 365 Medicaid beneficiaries whom VNS Choice failed to timely disenroll from the VNS Choice Managed Long-Term Care Plan (“Choice MLTCP”). Most of the beneficiaries who should have been disenrolled from the Choice MLTCP were no longer receiving health care services from VNS. Under the terms of the settlement approved today by United States District Judge Ronnie Abrams, VNS Choice must pay a total sum of $4,392,150, with $1,756,860 going to the United States and the remaining amount to the State of New York. In the settlement, VNS admits that VNS Choice failed to timely disenroll 365 Choice MLTCP members and, as a result, received Medicaid payments to which it was not entitled.

Acting Manhattan U.S. Attorney Joon H. Kim said: “VNS Choice failed to timely disenroll individuals from its managed care plan and continued to collect Medicaid payments for their care, even when it provided no medical services to them. This Office is committed to holding accountable those who receive government health care program dollars to which they are not entitled.”

HHS-OIG Special Agent in Charge Scott J. Lampert said: “As State Medicaid Programs increasingly have moved to managed care arrangements, we have adapted our investigative tools accordingly. We will continue to work closely with our state and federal law enforcement partners to unravel these schemes, and hold health care providers accountable for the money they receive.”

VNS Choice administers a Managed Long-Term Care Plan for Medicaid beneficiaries pursuant to a contract with the New York State Department of Health (“MLTC Contract”). VNS Choice receives payments for each member enrolled in the Plan (called “capitation payments”) in exchange for arranging and providing certain community-based long-term care services, such as care management, skilled nursing services, physical therapy, speech therapy, occupational therapy, and preventive services. During the relevant period, VNS Choice received a monthly capitation payment of $3,800 to $4,200 for each Choice MLTC member.

The MLTC Contract sets forth various circumstances under which members must be disenrolled. For example, VNS Choice is required to disenroll Choice MLTCP members when it knows that a member no longer resides in the service area, a member has been absent from the service area for a specified number of consecutive days, a member is hospitalized for 45 consecutive days or longer, a member is no longer eligible to receive Medicaid benefits, or a member is deemed to be no longer eligible for managed long-term care. VNS Choice also must initiate disenrollment upon a member’s voluntary request.

As alleged in the United States’ Complaint filed in Manhattan federal court, VNS Choice failed to timely disenroll 365 Choice MLTCP members as required by the MLTC Contract and regulatory requirements during the period January 1, 2011, through March 31, 2015. In many instances, VNS Choice continued to collect capitation payments for several months after the date the member should have been disenrolled, during which time VNS Choice provided no health care services to the member. Approximately half of the 365 members moved out of VNS Choice’s service area or left the service area for extended periods of time. Other members notified VNS Choice of their desire to disenroll from the Choice MLTCP or repeatedly refused services but were not timely disenrolled. VNS Choice also failed to promptly disenroll members after determining that they no longer met managed long-term care eligibility criteria. Although VNS Choice eventually disenrolled the 365 members, it kept the Medicaid payments it had improperly received for these members while delaying their disenrollment.

As part of the settlement, VNS admits, acknowledges, and accepts responsibility for the following conduct:

  • VNS Choice failed to identify and disenroll 365 Choice MLTCP members in a timely manner and, as a result, received monthly capitation payments to which it was not entitled.
  • With respect to a number of these 365 Choice MLCTP Members, VNS Choice was aware at the time it ultimately disenrolled the members that the members should have been disenrolled earlier, but failed to repay Medicaid for the monthly capitation payments that VNS Choice had improperly received for those members.

In connection with the filing of the lawsuit and settlement, the Government joined a private whistleblower lawsuit that had been filed under seal pursuant to the False Claims Act. The Government previously partially intervened in this whistleblower lawsuit and entered into a settlement with VNS to resolve allegations relating to the use of social adult day care centers to enroll ineligible members in the Choice MLTCP.

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Mr. Kim thanked the Office of the Inspector General for HHS for its assistance. Kim also thanked the Medicaid Fraud Control Unit of the New York State Attorney General’s Office for its investigative efforts and work on the case.

The case is being handled by the Office’s Civil Frauds Unit. Assistant U.S. Attorney Jeffrey K. Powell is in charge of the case.

National Health Care Fraud Takedown Results in Charges Against Over 412 Individuals Responsible for $1.3 Billion in Fraud Losses

Thursday, July 13, 2017

Largest Health Care Fraud Enforcement Action in Department of Justice History

Attorney General Jeff Sessions and Department of Health and Human Services (HHS) Secretary Tom Price, M.D., announced today the largest ever health care fraud enforcement action by the Medicare Fraud Strike Force, involving 412 charged defendants across 41 federal districts, including 115 doctors, nurses and other licensed medical professionals, for their alleged participation in health care fraud schemes involving approximately $1.3 billion in false billings. Of those charged, over 120 defendants, including doctors, were charged for their roles in prescribing and distributing opioids and other dangerous narcotics. Thirty state Medicaid Fraud Control Units also participated in today’s arrests. In addition, HHS has initiated suspension actions against 295 providers, including doctors, nurses and pharmacists.

Attorney General Sessions and Secretary Price were joined in the announcement by Acting Assistant Attorney General Kenneth A. Blanco of the Justice Department’s Criminal Division, Acting Director Andrew McCabe of the FBI, Acting Administrator Chuck Rosenberg of the Drug Enforcement Administration (DEA), Inspector General Daniel Levinson of the HHS Office of Inspector General (OIG), Chief Don Fort of IRS Criminal Investigation, Administrator Seema Verma of the Centers for Medicare and Medicaid Services (CMS), and Deputy Director Kelly P. Mayo of the Defense Criminal Investigative Service (DCIS).

Today’s enforcement actions were led and coordinated by the Criminal Division, Fraud Section’s Health Care Fraud Unit in conjunction with its Medicare Fraud Strike Force (MFSF) partners, a partnership between the Criminal Division, U.S. Attorney’s Offices, the FBI and HHS-OIG.  In addition, the operation includes the participation of the DEA, DCIS, and State Medicaid Fraud Control Units.

The charges announced today aggressively target schemes billing Medicare, Medicaid, and TRICARE (a health insurance program for members and veterans of the armed forces and their families) for medically unnecessary prescription drugs and compounded medications that often were never even purchased and/or distributed to beneficiaries. The charges also involve individuals contributing to the opioid epidemic, with a particular focus on medical professionals involved in the unlawful distribution of opioids and other prescription narcotics, a particular focus for the Department. According to the CDC, approximately 91 Americans die every day of an opioid related overdose.

“Too many trusted medical professionals like doctors, nurses, and pharmacists have chosen to violate their oaths and put greed ahead of their patients,” said Attorney General Sessions. “Amazingly, some have made their practices into multimillion dollar criminal enterprises. They seem oblivious to the disastrous consequences of their greed. Their actions not only enrich themselves often at the expense of taxpayers but also feed addictions and cause addictions to start. The consequences are real: emergency rooms, jail cells, futures lost, and graveyards.  While today is a historic day, the Department’s work is not finished. In fact, it is just beginning. We will continue to find, arrest, prosecute, convict, and incarcerate fraudsters and drug dealers wherever they are.”

“Healthcare fraud is not only a criminal act that costs billions of taxpayer dollars – it is an affront to all Americans who rely on our national healthcare programs for access to critical healthcare services and a violation of trust,” said Secretary Price. “The United States is home to the world’s best medical professionals, but their ability to provide affordable, high-quality care to their patients is jeopardized every time a criminal commits healthcare fraud. That is why this Administration is committed to bringing these criminals to justice, as President Trump demonstrated in his 2017 budget request calling for a new $70 million investment in the Health Care Fraud and Abuse Control Program. The historic results of this year’s national takedown represent significant progress toward protecting the integrity and sustainability of Medicare and Medicaid, which we will continue to build upon in the years to come.”

According to court documents, the defendants allegedly participated in schemes to submit claims to Medicare, Medicaid and TRICARE for treatments that were medically unnecessary and often never provided. In many cases, patient recruiters, beneficiaries and other co-conspirators were allegedly paid cash kickbacks in return for supplying beneficiary information to providers, so that the providers could then submit fraudulent bills to Medicare for services that were medically unnecessary or never performed. The number of medical professionals charged is particularly significant, because virtually every health care fraud scheme requires a corrupt medical professional to be involved in order for Medicare or Medicaid to pay the fraudulent claims.  Aggressively pursuing corrupt medical professionals not only has a deterrent effect on other medical professionals, but also ensures that their licenses can no longer be used to bilk the system.

“This week, thanks to the work of dedicated investigators and analysts, we arrested once-trusted doctors, pharmacists and other medical professionals who were corrupted by greed,” said Acting Director McCabe. “The FBI is committed to working with our partners on the front lines of the fight against heath care fraud to stop those who steal from the government and deceive the American public.”

“Health care fraud is a reprehensible crime.  It not only represents a theft from taxpayers who fund these vital programs, but impacts the millions of Americans who rely on Medicare and Medicaid,” said Inspector General Levinson. “In the worst fraud cases, greed overpowers care, putting patients’ health at risk. OIG will continue to play a vital leadership role in the Medicare Fraud Strike Force to track down those who abuse important federal health care programs.”

“Our enforcement actions underscore the commitment of the Defense Criminal Investigative Service and our partners to vigorously investigate fraud perpetrated against the DoD’s TRICARE Program. We will continue to relentlessly investigate health care fraud, ensure the taxpayers’ health care dollars are properly spent, and endeavor to guarantee our service members, military retirees, and their dependents receive the high standard of care they deserve,” advised Deputy Director Mayo.

“Last year, an estimated 59,000 Americans died from a drug overdose, many linked to the misuse of prescription drugs. This is, quite simply, an epidemic,” said Acting Administrator Rosenberg. “There is a great responsibility that goes along with handling controlled prescription drugs, and DEA and its partners remain absolutely committed to fighting the opioid epidemic using all the tools at our disposal.”

“Every defendant in today’s announcement shares one common trait – greed,” said Chief Fort. “The desire for money and material items drove these individuals to perpetrate crimes against our healthcare system and prey upon many of the vulnerable in our society.  Thanks to the financial expertise and diligence of IRS-CI special agents, who worked side-by-side with other federal, state and local law enforcement officers to uncover these schemes, these criminals are off the street and will now face the consequences of their actions.”

The Medicare Fraud Strike Force operations are part of a joint initiative between the Department of Justice and HHS to focus their efforts to prevent and deter fraud and enforce current anti-fraud laws around the country. The Medicare Fraud Strike Force operates in nine locations nationwide. Since its inception in March 2007, the Medicare Fraud Strike Force has charged over 3500 defendants who collectively have falsely billed the Medicare program for over $12.5 billion.

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For the Strike Force locations, in the Southern District of Florida, a total of 77 defendants were charged with offenses relating to their participation in various fraud schemes involving over $141 million in false billings for services including home health care, mental health services and pharmacy fraud.  In one case, the owner and operator of a purported addiction treatment center and home for recovering addicts and one other individual were charged in a scheme involving the submission of over $58 million in fraudulent medical insurance claims for purported drug treatment services. The allegations include actively recruiting addicted patients to move to South Florida so that the co-conspirators could bill insurance companies for fraudulent treatment and testing, in return for which, the co-conspirators offered kickbacks to patients in the form of gift cards, free airline travel, trips to casinos and strip clubs, and drugs.

In the Eastern District of Michigan, 32 defendants face charges for their alleged roles in fraud, kickback, money laundering and drug diversion schemes involving approximately $218 million in false claims for services that were medically unnecessary or never rendered. In one case, nine defendants, including six physicians, were charged with prescribing medically unnecessary controlled substances, some of which were sold on the street, and billing Medicare for $164 million in facet joint injections, drug testing, and other procedures that were medically unnecessary and/or not provided.

In the Southern District of Texas, 26 individuals were charged in cases involving over $66 million in alleged fraud. Among these defendants are a physician and a clinic owner who were indicted on one count of conspiracy to distribute and dispense controlled substances and three substantive counts of distribution of controlled substances in connection with a purported pain management clinic that is alleged to have been the highest prescribing hydrocodone clinic in Houston, where approximately 60-70 people were seen daily, and were issued medically unnecessary prescriptions for hydrocodone in exchange for approximately $300 cash per visit.

In the Central District of California, 17 defendants were charged for their roles in schemes to defraud Medicare out of approximately $147 million. Two of these defendants were indicted for their alleged involvement in a $41.5 million scheme to defraud Medicare and a private insurer. This was purportedly done by submitting fraudulent claims, and receiving payments for, prescription drugs that were not filled by the pharmacy nor given to patients.

In the Northern District of Illinois, 15 individuals were charged in cases related to six different schemes concerning home health care services and physical therapy fraud, kickbacks, and mail and wire fraud.  These schemes involved allegedly over $12.7 million in fraudulent billing. One case allegedly involved $7 million in fraudulent billing to Medicare for home health services that were not necessary nor rendered.

In the Middle District of Florida, 10 individuals were charged with participating in a variety of schemes involving almost $14 million in fraudulent billing.  In one case, three defendants were charged in a $4 million scheme to defraud the TRICARE program.  In that case, it is alleged that a defendant falsely represented himself to be a retired Lieutenant Commander of the United States Navy Submarine Service. It is alleged that he did so in order to gain the trust and personal identifying information from TRICARE beneficiaries, many of whom were members and veterans of the armed forces, for use in the scheme.

In the Eastern District of New York, ten individuals were charged with participating in a variety of schemes including kickbacks, services not rendered, and money laundering involving over $151 million in fraudulent billings to Medicare and Medicaid. Approximately $100 million of those fraudulent billings were allegedly part of a scheme in which five health care professionals paid illegal kickbacks in exchange for patient referrals to their own clinics.

In the Southern Louisiana Strike Force, operating in the Middle and Eastern Districts of Louisiana as well as the Southern District of Mississippi, seven defendants were charged in connection with health care fraud, wire fraud, and kickback schemes involving more than $207 million in fraudulent billing. One case involved a pharmacist who was charged with submitting and causing the submission of $192 million in false and fraudulent claims to TRICARE and other health care benefit programs for dispensing compounded medications that were not medically necessary and often based on prescriptions induced by illegal kickback payments.

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In addition to the Strike Force locations, today’s enforcement actions include cases and investigations brought by an additional 31 U.S. Attorney’s Offices, including the execution of search warrants in investigations conducted by the Eastern District of California and the Northern District of Ohio.

In the Northern and Southern Districts of Alabama, three defendants were charged for their roles in two health care fraud schemes involving pharmacy fraud and drug diversion.

In the Eastern District of Arkansas, 24 defendants were charged for their roles in three drug diversion schemes that were all investigated by the DEA.

In the Northern and Southern Districts of California, four defendants, including a physician, were charged for their roles in a drug diversion scheme and a health care fraud scheme involving kickbacks.

In the District of Connecticut, three defendants were charged in two health care fraud schemes, including a scheme involving two physicians who fraudulently billed Medicaid for services that were not rendered and for the provision of oxycodone with knowledge that the prescriptions were not medically necessary.

In the Northern and Southern Districts of Georgia, three defendants were charged in two health care fraud schemes involving nearly $1.5 million in fraudulent billing.

In the Southern District of Illinois, five defendants were charged in five separate schemes to defraud the Medicaid program.

In the Northern and Southern Districts of Indiana, at least five defendants were charged in various health care fraud schemes related to the unlawful distribution and dispensing of controlled substances, kickbacks, and services not rendered.

In the Southern District of Iowa, five defendants were charged in two schemes involving the distribution of opioids.

In the Western District of Kentucky, 11 defendants were charged with defrauding the Medicaid program.  In one case, four defendants, including three medical professionals, were charged with distributing controlled substances and fraudulently billing the Medicaid program.

In the District of Maine, an office manager was charged with embezzling funds from a medical office.

In the Eastern and Western Districts of Missouri, 16 defendants were charged in schemes involving over $16 million in claims, including 10 defendants charged as part of a scheme involving fraudulent lab testing.

In the District of Nebraska, a dentist was charged with defrauding the Medicaid program.

In the District of Nevada, two defendants, including a physician, were charged in a scheme involving false hospice claims.

In the Northern, Southern, and Western Districts of New York, five defendants, including two physicians and two pharmacists, were charged in schemes involving drug diversion and pharmacy fraud.

In the Southern District of Ohio, five defendants, including four physicians, were charged in connection with schemes involving $12 million in claims to the Medicaid program.

In the District of Puerto Rico, 13 defendants, including three physicians and two pharmacists, were charged in four schemes involving drug diversion, Medicaid fraud, and the theft of funds from a health care program.

In the Eastern District of Tennessee, three defendants were charged in a scheme involving fraudulent billings and the distribution of opioids.

In the Eastern, Northern, and Western Districts of Texas, nine defendants were charged in schemes involving over $42 million in fraudulent billing, including a scheme involving false claims for compounded medications.

In the District of Utah, a nurse practitioner was charged in connection with fraudulently obtaining a controlled substance, tampering with a consumer product, and infecting over seven individuals with Hepatitis C.

In the Eastern District of Virginia, a defendant was charged in connection with a scheme involving identify theft and fraudulent billings to the Medicaid program.

In addition, in the states of Arizona, Arkansas, California, Delaware, Illinois, Iowa, Louisiana, Massachusetts, Michigan, Minnesota, Mississippi, New York, Oklahoma, Pennsylvania, Rhode Island, South Dakota, Texas, Utah, Vermont and Washington, 96 defendants have been charged in criminal and civil actions with defrauding the Medicaid program out of over $31 million. These cases were investigated by each state’s respective Medicaid Fraud Control Units. In addition, the Medicaid Fraud Control Units of the states of Alabama, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Missouri, Nebraska, New York, North Carolina, Ohio, Texas, and Utah participated in the investigation of many of the federal cases discussed above.

The cases announced today are being prosecuted and investigated by U.S. Attorney’s Offices nationwide, along with Medicare Fraud Strike Force teams from the Criminal Division’s Fraud Section and from the U.S. Attorney’s Offices of the Southern District of Florida, Eastern District of Michigan, Eastern District of New York, Southern District of Texas, Central District of California, Eastern District of Louisiana, Northern District of Texas, Northern District of Illinois and the Middle District of Florida; and agents from the FBI, HHS-OIG, Drug Enforcement Administration, DCIS and state Medicaid Fraud Control Units.

A complaint, information, or indictment is merely an allegation, and all defendants are presumed innocent unless and until proven guilty.

Additional documents related to this announcement will shortly be available here: https://www.justice.gov/opa/documents-and-resources-july-13-2017.

This operation also highlights the great work being done by the Department of Justice’s Civil Division.  In the past fiscal year, the Department of Justice, including the Civil Division, has collectively won or negotiated over $2.5 billion in judgements and settlements related to matters alleging health care fraud.

Brooklyn Pharmacy Owner/Operator Charged With Defrauding Medicare And Medicaid Programs Of Approximately $9 Million

Monday, July 10, 2017

Joon H. Kim, the Acting United States Attorney for the Southern District of New York, William F. Sweeney Jr., the Assistant Director-in-Charge of the New York Office of the New York Office of the Federal Bureau of Investigation (“FBI”), Scott J. Lampert, Special Agent in Charge of the New York Regional Office for the Department of Health and Human Services, Office of Inspector General (“HHS-OIG”), and Dennis Rosen, Inspector General of the New York State Office of the Medicaid Inspector General (“OMIG”), announced today the unsealing of a criminal Complaint charging defendant SUNITA KUMAR with operating a health care fraud scheme utilizing two pharmacies in Brooklyn, New York, through which KUMAR submitted approximately $9 million in fraudulent claims to Medicaid and Medicare. KUMAR was arrested this morning and was presented in Manhattan federal court today before U.S. Magistrate Judge Andrew J. Peck.

Manhattan Acting U.S. Attorney Joon H. Kim said: “As alleged, Sunita Kumar defrauded Medicare and Medicaid, public programs to assist the indigent and the elderly, by submitting $9 million in fraudulent claims. She allegedly did so by inducing people to surrender their own prescriptions and forego their medications in exchange for kickbacks. Medicare and Medicaid provide critical health care for some of our most vulnerable citizens. Together with our law enforcement partners, we will aggressively pursue those who allegedly use public programs as a vehicle for illegal personal profit.”

FBI Assistant Director William F. Sweeney Jr. said: “Exploiting our federal and state health care programs places the economy at a significant disadvantage and threatens the stability of the health care industry overall. Because there’s no single, clearly identifiable victim, the public often finds these schemes incomparable to other, more explicit frauds. But everyone deserves to know that health care fraud alone costs this country tens of billions of dollars a year, not to mention the obvious health safety risks it presents. We will continue to confront this type of crime, and root it out, until it no longer exists.”

HHS-OIG Special Agent-in-Charge Scott J. Lampert said: “Prescription drug scams, such as the one alleged in this case, work to undermine our nation’s health care system. Today’s arrest coordinated with our law enforcement partners serve as a stern warning to pharmacy owners tempted to plunder government health programs meant to care for our most vulnerable citizens.”

Medicaid Inspector General Dennis Rosen said: “Exploiting the Medicaid program for personal gain by preying upon New York’s most-vulnerable populations is reprehensible. We will continue to work closely with our federal, state and local partners to hold wrongdoers fully accountable and protect the integrity of the Medicaid program.”

According to the allegations contained in the Complaint[1]:

KUMAR – while owning one pharmacy herself and operating a second pharmacy, both located in Brooklyn, New York – conducted a multimillion-dollar scheme to defraud Medicare and Medicaid programs by fraudulently seeking reimbursements for prescription drugs. Specifically, KUMAR engaged in a scheme to obtain prescriptions for medications, for which her pharmacies billed and received reimbursement from Medicare and Medicaid, but which she did not actually dispense to customers. From in or about January 2015 through in or about December 2016, KUMAR obtained approximately $9 million in reimbursements from Medicare and Medicaid for prescription drugs that her pharmacies never actually dispensed. KUMAR defrauded Medicare and Medicaid into providing her pharmacies with these reimbursements by obtaining prescriptions from other individuals, who were willing to forego delivery of the medications in exchange for a share of the reimbursed proceeds, in the form of kickbacks paid by KUMAR.

* * *

KUMAR, 54, of Old Westbury, New York, is charged with one count of health care fraud, which carries a maximum sentence of 10 years in prison, and one count of paying illegal remuneration in the form of kickbacks, which carries a maximum sentence of five years in prison. The maximum potential sentences are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

Mr. Kim praised the investigative work of the FBI, HHS-OIG, and OMIG.

The case is being prosecuted by the Office’s Complex Frauds and Cybercrime Unit. Assistant United States Attorneys Christopher J. DiMase and Sarah E. Paul are in charge of the prosecution.

The charges contained in the Complaint are merely accusations, and the defendant is presumed innocent unless and until proven guilty.


[1] As the introductory phase signifies, the entirety of the text of the Complaint, and the description of the Complaint set forth herein, constitute only allegations, and every fact described should be treated as an allegation.

Guilty Plea in Bribery Scheme Involving $800 Million Vietnamese Real Estate Deal

Wednesday, June 21, 2017

Defendant Double-Crossed His Clients and Stole a $500,000 Bribe Intended to Influence a South Korean Company’s Sale of the Landmark 72 Building in Hanoi, Vietnam

The middleman in a foreign bribery scheme pleaded guilty today to wire fraud and money laundering charges for his role in a scheme to bribe a foreign official in the Middle East to land a real estate deal, and to defrauding his co-schemers.

Acting Assistant Attorney General Kenneth A. Blanco of the Justice Department’s Criminal Division, Acting U.S. Attorney Joon H. Kim for the Southern District of New York, and Assistant Director in Charge William F. Sweeney Jr. of the FBI’s New York Field Office made the announcement.

Malcolm Harris pleaded guilty to wire fraud and money laundering charges arising from his role as a middleman in a corrupt scheme to pay millions of dollars in bribes to a foreign official (“Foreign Official-1”) of a country in the Middle East (“Country-1”). The bribes were intended to facilitate the sale by South Korean construction company Keangnam Enterprises Co., Ltd. (“Keangnam”) of a 72-story commercial building known as Landmark 72 in Hanoi, Vietnam, to Country-1’s sovereign wealth fund (the “Fund”) for $800 million. Instead of paying an initial $500,000 bribe to Foreign Official-1 as he had promised, Harris simply pocketed the money and spent it on himself. Harris pleaded guilty before U.S. District Judge Edgardo Ramos who is scheduled to sentence Harris on September 27.

According to the allegations contained in the Indictment to which Harris pleaded guilty, and statements made during the plea and other court proceedings:

From in or about March 2013 through in or about May 2015, Harris co-defendants Joo Hyun Bahn, a/k/a “Dennis Bahn” (“Bahn”) and his father Ban Ki Sang (“Ban”) engaged in an international conspiracy to bribe Foreign Official-1 in connection with the attempted $800 million sale of a building complex in Hanoi, Vietnam, known as Landmark 72.

During this time, Ban was a senior executive at Keangnam, a South Korean construction company that built and owned Landmark 72. Ban convinced Keangnam to hire his son Bahn, who worked as a broker at a commercial real estate firm in Manhattan, to secure an investor for Landmark 72.

Instead of obtaining financing through legitimate channels, Bahn and Ban engaged in a corrupt scheme to pay bribes to Foreign Official-1, through Harris, who held himself out as an agent of Foreign Official-1, to induce Foreign Official-1 to use his influence to convince the Fund to acquire Landmark 72 for approximately $800 million. In furtherance of the scheme, Harris sent Bahn numerous emails purportedly sent by Foreign Official-1 and bearing Foreign Official-1’s name. In or about April 2014, following communications with Harris, Bahn and Ban agreed to pay, through Harris, a $500,000 upfront bribe and a $2,000,000 bribe upon the close of the sale of Landmark 72 to Foreign Official-1 on behalf of Keangnam.

Unbeknownst to Bahn or Ban, however, Harris did not have the claimed relationship with Foreign Official-1 and did not intend to pay the bribe money to Foreign Official-1. Instead, Harris simply stole the $500,000 upfront bribe arranged by Bahn and Ban, which Harris then spent on lavish personal expenses, including rent for a luxury penthouse apartment in Williamsburg, Brooklyn.

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Harris, 53, of San Miguel de Allende, Mexico, pleaded guilty to one count of wire fraud, which carries a maximum sentence of 20 years in prison, and one count of conducting monetary transactions in illicit funds, which carries a maximum sentence of 10 years in prison. The maximum potential sentences are prescribed by Congress and are provided here for informational purposes only as any sentencing of the defendant will be determined by the judge.

The case against Bahn is pending before Judge Ramos, and Ban is a fugitive believed to be residing in South Korea. All defendants are presumed innocent unless and until convicted beyond a reasonable doubt in a court of law.

The FBI’s International Corruption Squad in New York City investigated the case. In 2015, the FBI formed International Corruption Squads across the country to address national and international implications of foreign corruption. Trial Attorney Dennis R. Kihm of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Daniel S. Noble of the Southern District of New York are prosecuting the case. The Criminal Division’s Office of International Affairs also provided substantial assistance in this matter.

The Fraud Section is responsible for investigating and prosecuting all FCPA matters. Additional information about the Justice Department’s FCPA enforcement efforts can be found at www.justice.gov/criminal-fraud/foreign-corrupt-practices-act.

Former CEO And President Of Real Estate Investment Company Pleads Guilty To Embezzling $1.6 Million And Evading Taxes

Department of Justice
U.S. Attorney’s Office
Southern District of New York

FOR IMMEDIATE RELEASE
Tuesday, May 23, 2017

Joon H. Kim, the Acting United States Attorney for the Southern District of New York, announced that ROCKWELL GAJWANI pled guilty today to one count of wire fraud and three counts of tax evasion in connection with embezzling over $1.6 million from the Manhattan-based real estate investment company for which he had served as chief executive officer and president. As part of his plea, GAJWANI agreed to pay $1,975,068.04 in restitution and $1,612,841 in forfeiture. GAJWANI pled guilty before United States District Judge Loretta A. Preska.

Acting U.S. Attorney Joon H. Kim said: “As he admitted today, for years Rockwell Gajwani siphoned money from his employer’s accounts, lining his own pockets with more than $1.6 million. Instead of working diligently as his company’s CEO, Gajwani put his efforts into concealing his crimes and hiding his ill-gotten gains from the IRS. Thanks to the dedicated work of the Postal Inspection Service and the IRS, Gajwani will now be held to account for his crimes.”

According to the Complaint, the Indictment, and other statements made in open court:

From October 2011 through March 2013, GAJWANI was the chief executive officer and president of a real estate investment company based in Manhattan (the “Manhattan Real Estate Company”). During this period, GAJWANI took more than $1.6 million in company funds to which he was not entitled by, among other means, making wire transfers from the company’s bank account to his personal bank account, writing company checks to himself, and making cash withdrawals from the company’s bank account.

To accomplish this scheme, among other means, GAJWANI took steps to conceal his true salary and to conceal from the Manhattan Real Estate Company’s parent company (the “Parent Company”) the amount of money he had taken from the Manhattan Real Estate Company’s bank account.

Beginning in late 2012, the director of accounting for the Manhattan Real Estate Company (the “Director of Accounting”) asked GAJWANI for details regarding GAJWANI’s compensation on more than one occasion, and GAJWANI repeatedly said he would get such details to her, but failed to do so. On another occasion, in connection with a request from the Parent Company for financial information, GAJWANI told the Director of Accounting not to provide that information to the Parent Company. To further conceal the funds he had taken from the Manhattan Real Estate Company, GAJWANI directed employees of the Manhattan Real Estate Company to lump the compensation of all employees together in accounting materials provided to the Parent Company, so that GAJWANI’s compensation would not be listed separately from the aggregate figure. GAJWANI also directed certain employees of the Manhattan Real Estate Company not to communicate with employees of the Parent Company.

Over the course of his employment, GAJWANI wrote himself over $940,000 in checks from the Manhattan Real Estate Company’s bank account, and wired over $1.7 million to his personal bank account. Although some of these funds were purportedly for expenses, by the end of his employment GAJWANI had taken over $1.6 million more from the Manhattan Real Estate Company’s bank account than he was entitled to under his employment agreement.

GAJWANI also concealed his fraud on the Manhattan Real Estate Company. Specifically, on two occasions in May 2012, wrote checks to an employee of the Manhattan Real Estate Company (“Employee-2”) from the company’s bank account. wrote “expenses” in the memo line of each check, although neither check was meant to pay company expenses, and instructed Employee-2 to write a check in return directly to GAJWANI himself. Employee-2 did so on both occasions. In this manner, was able to secure over $30,000 in payments that GAJWANI appeared to receive from Employee-2 but in reality were funds GAJWANI had taken from the Manhattan Real Estate Company.

In addition to defrauding the Manhattan Real Estate Company, GAJWANI did not file tax returns or pay taxes for his legitimate salary or for the money he had secured through fraud. Ultimately, in July 2015, after he learned of a criminal investigation, GAJWANI filed tax returns for calendar years 2011, 2012, and 2013. Each of those returns included false representations. For tax year 2011, the federal income tax return that GAJWANI filed understated GAJWANI’s actual income by more than $480,000, and included over $85,000 in false, impermissible tax deductions. For tax year 2012, the federal income tax return that GAJWANI filed included over $260,000 in false, impermissible tax deductions. For tax year 2013, the federal income tax return that GAJWANI filed underreported GAJWANI’s actual income by $270,000.

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GAJWANI, 53, of Darien, Connecticut, pled guilty to one count of wire fraud, which carries a maximum sentence of 20 years in prison, and three counts of tax evasion, each of which carries a maximum sentence of five years in prison. The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the Judge. As part of his plea, GAJWANI agreed to pay $1,975,068.04 in restitution and $1,612,841.04 in forfeiture.

GAJWANI is scheduled to be sentenced by Judge Preska on September 12, 2017, at 4:00 p.m.

Mr. Kim praised the outstanding investigative efforts of law enforcement personnel at U.S. Postal Inspection Service and the Internal Revenue Service, Criminal Investigation Division.

The case is being prosecuted by the Office’s Complex Frauds and Cybercrime Unit. Assistant U.S. Attorneys Jonathan Cohen and Andrew D. Beaty are in charge of the prosecution.

Former Executive Director Of The Ramapo Local Development Corporation Pleads Guilty To Securities Fraud And Conspiracy Charges

Department of Justice
U.S. Attorney’s Office
Southern District of New York

FOR IMMEDIATE RELEASE
Tuesday, March 7, 2017

Preet Bharara, the United States Attorney for the Southern District of New York, announced that N. AARON TROODLER, the former Executive Director of the Ramapo Local Development Corporation (“RLDC”), pled guilty today before U.S. District Judge Cathy Seibel to conspiring with Ramapo Town Supervisor Christopher St. Lawrence to commit securities fraud as a result of a scheme to defraud investors in municipal bonds issued by the RLDC and the Town of Ramapo (the “Town”). This case is believed to be the first conviction for federal securities fraud in connection with municipal bond issuances.

U.S. Attorney Preet Bharara said: “As we said at the time of his arrest, N. Aaron Troodler defrauded both the citizens of Ramapo and thousands of investors around the country, helping to sell over $150 million of municipal bonds on fabricated financials. Today, Troodler has admitted to committing securities fraud. This guilty plea, in what we believe to be the first municipal bond-related criminal securities fraud prosecution, is a big step in policing and bringing accountability to the $3.7 trillion municipal bond market.”

According to the allegations contained in the Superseding Information to which TROODLER pled guilty today and the related Indictment of TROODLER’s co-conspirator, Town Supervisor Christopher St. Lawrence:

As of August 2015, the Town had more than $128 million in outstanding bonds that had been issued for various municipal purposes, while the RLDC, a corporation created and owned by the Town under state law, had issued $25 million in bonds to pay for the construction of Provident Bank Park (now Palisades Credit Union Park), a minor league baseball stadium in Ramapo.

The Indictment and Superseding Information charge that St. Lawrence and TROODLER lied to investors in the Town’s and RLDC’s bonds in order to conceal the deteriorating state of the Town’s finances and the inability of the RLDC to make scheduled payments of principal and interest to holders of its bonds from its own money.

While the fraud predated the construction of the stadium, the Town’s financial problems were caused largely by the $58 million total cost of the stadium. The Town paid more than half of that cost, despite the rejection of the Town’s guarantee of bonds to pay for construction of the stadium in a Town-wide referendum in 2010 and St. Lawrence’s public statements that no public money would be used to pay for the stadium.

The defendants lied to investors primarily by making up false assets in the Town’s General Fund. The General Fund is the Town’s primary operating fund. The accumulated difference over time between how much money the Town receives in taxes and fees and how much it spends in a year is the fund’s balance. The fund balance is a cushion that can be spent during difficult financial times. The size of the fund balance relative to the amount of the fund’s revenue and trends in a town’s General Fund balance over time are the primary indicators of the town’s financial health.

The Indictment alleges that St. Lawrence lied to the RLDC’s bond rating service in January 2013 when he told them in a telephone call that the 2012 fund balance would remain unchanged from the 2011 balance. Immediately after that call ended, St. Lawrence told Town employees “to do [an upcoming] refinancing of the short term debt as fast as possible because . . . we’re going to have to all be magicians to get to some of those numbers.”

The Indictment and the Superseding Information also allege that St. Lawrence and TROODLER told investors in the Town’s and RLDC’s bonds that the RLDC was making the payments on its bonds from its operating revenue, meaning money it was making from its ordinary business of running the baseball stadium and selling condominiums at a development it had built. That was important to investors because it led them to believe that the Town would not have to pay off the RLDC’s $25 million bonds. It also made the RLDC’s bonds look less risky. The RLDC actually made those payments from money TROODLER borrowed from the bank or money TROODLER obtained from the Town at St. Lawrence’s direction.

When the RLDC issued $25 million in bonds to build the stadium building itself in 2011, St. Lawrence inflated the size of the Town’s General Fund by including a false $3.6 million receivable in the General Fund. The Town’s financial condition was important to investors in the RLDC’s bonds because the Town guaranteed the payments of principal and interest on the bonds. Without that fake asset, the General Fund’s balance would have been negative in that year.

In addition, St. Lawrence inflated the General Fund with another fake receivable for $3.08 million from 2010 through 2015. It first went on the Town’s books when the RLDC agreed to buy property known as The Hamlets from the Town for $3.08 million. That sale never closed because the land turned out to be a habitat for rattlesnakes. Rather than take the receivable off the Town’s books – and reduce the size of the General Fund balance by $3.08 million, thereby creating a negative balance – St. Lawrence claimed the receivable had to do with the RLDC’s purchase of another property from the Town that had already taken place. To keep it on the books, St. Lawrence then caused the Town Attorney to tell the Town’s auditors over a period of years that the receivable would be paid back within a year, which was required if the receivable was going to stay in the General Fund. Without this fake receivable alone, the Town’s General Fund balance would have been negative for years.

In May 2013, the Federal Bureau of Investigation (“FBI”) searched Town Hall in connection with this investigation. Less than 10 days later, St. Lawrence inflated another receivable in the General Fund – this one for money from the Federal Emergency Management Agency (“FEMA”) to reimburse the Town for expenses from Hurricanes Irene and Sandy. St. Lawrence claimed that the Town was going to receive $3.145 million from FEMA when the Town hadn’t even submitted those claims to FEMA yet. Without St. Lawrence’s inflation of this receivable alone, the projected General Fund balance for 2012 would have been negative when the Town sold bonds in May 2013.

Finally, the Indictment alleges that St. Lawrence also inflated the General Fund balance by making more than $12 million in transfers from the Town’s Ambulance Fund to the General Fund from 2009 to 2014. The group of properties in Ramapo that pays into the Ambulance Fund is different from the group of properties that pays into the General Fund. Under state law, transfers between funds with different tax bases can only be loans. St. Lawrence told the auditors that the two funds had the same tax base to justify the transfers.

* * *

TROODLER, 42, of Bala Cynwyd, Pennsylvania, pled guilty to one count of securities fraud, which carries a maximum sentence of 20 years in prison, and one count of conspiracy, which carries a maximum sentence of five years in prison.

The maximum potential sentences in this case are prescribed by Congress and are provided here for informational purposes only, as any sentencing of the defendant will be determined by the judge.

TROODLER is scheduled to be sentenced by Judge Seibel on September 18, 2017, at 3:30 p.m.

The charges against Christopher St. Lawrence contained in the Indictment are merely accusations, and he is presumed innocent unless and until proven guilty.

Mr. Bharara praised the investigative work of the FBI and the Rockland County District Attorney’s Office. He also thanked the U.S. Securities and Exchange Commission for their assistance in the investigation.

This case is being prosecuted by the Office’s White Plains Division. Assistant U.S. Attorneys James McMahon, Daniel Loss, and Stephen J. Ritchin are in charge of the prosecution.