Defense Contractor Agrees to Pay $27.5 Million to Settle Overbilling Allegations

Lockheed Martin Integrated Systems (LMIS) has agreed to pay $27.5 million to resolve allegations that it violated the False Claims Act by knowingly overbilling the government for work performed by LMIS employees who lacked required job qualifications.

The settlement was announced today by Acting Assistant Attorney General Joyce R. Branda for the Justice Department’s Civil Division and U.S. Attorney Paul J. Fishman for the District of New Jersey.

“Contractors that knowingly bill the government in violation of contract terms will face serious consequences,” said Acting Assistant Attorney General Branda.  “The department will ensure that those who do business with the government, and seek taxpayer funds, do so fairly and in accordance with the applicable rules.”

“U.S. forces rely on the goods and services provided by defense contractors, so it is imperative the government be able to rely on those contractors to adhere to the rules,” said U.S. Attorney Fishman.  “This settlement should remind all who do business with the government that there is a price to pay for fudging the math.”

LMIS is a subsidiary of Lockheed Martin Inc., which is headquartered in Bethesda, Maryland.  The alleged labor mischarging occurred on the Rapid Response (CR2) contract and the Strategic Services Sourcing (S3) contract, both issued by the U.S. Army Communication and Electronics Command (CECOM).  CECOM is located at Fort Monmouth, New Jersey, and at the Aberdeen Proving Group in Maryland.  The purpose of the CR2 and S3 contracts is to provide rapid access to products and services to be provided to the Army in Iraq and Afghanistan. Individual task orders then are separately negotiated, based on these contracts, to quickly meet the needs of CECOM.  LMIS allegedly violated the terms of the contracts by using under-qualified employees who were billed to the United States at the rates of more qualified employees.  The overbilling allegedly resulted in greater profit for LMIS.

“This settlement demonstrates the commitment of the Defense Criminal Investigative Service (DCIS) and our partners to vigorously pursue alleged violations of the False Claims Act,” said Special Agent in Charge Craig W. Rupert of the DCIS Northeast Field Office.  “All contractors doing business with the federal government are expected to abide by the acquisition rules no matter who they are.  Investigations of such allegations are necessary to protect American taxpayers and our warfighters.”

This settlement was the result of a coordinated effort by the Civil Division, the U.S. Attorney’s Office for the District of New Jersey, the Southern New Jersey Branch of the Defense Contract Audit Agency (DCAA) and the DCAA’s Mid-Atlantic Region’s Comprehensive Labor Team and Investigative Support Team, the U.S. Army’s Criminal Investigative Command’s Major Procurement Fraud Unit and the DCIS.

The claims resolved by the settlement are allegations only and there has been no determination of liability

Former Chief Executive Officer of Oil Services Company Indicted in New Jersey on Foreign Bribery and Kickback Charges

The former co-chief executive officer (CEO) of PetroTiger Ltd. – a British Virgin Islands oil and gas company with operations in Colombia and offices in New Jersey – was indicted today for his role in a scheme to pay bribes to foreign government officials in violation of the Foreign Corrupt Practices Act (FCPA) and to defraud PetroTiger.

Acting Principal Deputy Assistant Attorney General Marshall Miller of the Justice Department’s Criminal Division, U.S. Attorney Paul J. Fishman of the District of New Jersey and Special Agent in Charge Aaron T. Ford of the FBI’s Newark Division made the announcement.

Joseph Sigelman, 43, of Miami and the Philippines, was indicted today by a federal grand jury in the District of New Jersey and charged with conspiracy to violate the FCPA and to commit wire fraud, conspiracy to launder money, and substantive FCPA and money laundering violations.    Gregory Weisman, 42, of Moorestown, New Jersey, the former general counsel of PetroTiger, pleaded guilty on Nov. 8, 2013, to conspiracy to violate the FCPA and to commit wire fraud.    Sigelman’s co-CEO, Knut Hammarskjold, 42, of Greenville, South Carolina, pleaded guilty to the same charge on Feb. 18, 2014.

According to court records, Sigelman and others allegedly paid bribes to an official in Colombia in exchange for the official’s assistance in securing approval for an oil services contract worth roughly $39 million.    To conceal the bribes, they first attempted to make the payments to a bank account in the name of the foreign official’s wife for purported consulting services she did not perform.  Sigelman and Hammarskjold provided Weisman invoices, including her bank account information.    The conspirators made the payments directly to the official’s bank account when attempts to transfer the money to his wife’s account failed.    Sigelman and his conspirators then took steps to conceal the bribe payments from PetroTiger’s board members.

In addition, court documents allege that Sigelman and others attempted to secure kickback payments while negotiating an acquisition of another company on behalf of PetroTiger, including on behalf of several members of PetroTiger’s board of directors who were helping to fund the acquisition.    In exchange for negotiating more favorable terms for the owners of the target company, two of the owners agreed to kick back to the conspirators a portion of the increased purchase price.    To conceal the kickback payments, Sigelman and others had the payments deposited into Sigelman’s bank account in the Philippines, created a “side letter” to falsely justify the payments and used the code name “Manila Split” to refer to the payments amongst themselves.
Sigelman and Hammarskjold were charged by sealed complaints filed in the District of New Jersey on Nov. 8, 2013.    Hammarskjold was arrested Nov. 20, 2013, at Newark Liberty International Airport.    Sigelman was arrested on Jan. 3, 2014, in the Philippines.    The charges against Sigelman, Hammarskjold and Weisman were unsealed on Jan. 6, 2014.
The charges contained in the indictment are merely accusations, and the defendant is presumed innocent unless and until proven guilty.
The case was brought to the attention of the department through a voluntary disclosure by PetroTiger, which cooperated with the department’s investigation.    The department has worked closely with and has received significant assistance from its law enforcement counterparts in the Republic of Colombia and greatly appreciates their assistance in this matter.    The department also thanks the Republic of the Philippines, including the Bureau of Immigration, and the Republic of Panama for their assistance in this matter.    Significant assistance was also provided by the Criminal Division’s Office of International Affairs.
The case is being investigated by the FBI’s Newark Division.    The case is being prosecuted by Assistant Chief Daniel S. Kahn of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Zach Intrater of the District of New Jersey.

Diagnostic Imaging Group to Pay $15.5 Million for Allegedly Submitting False Claims to Federal and State Health Care Programs

Diagnostic Imaging Group (DIG) has agreed to pay a total of $15.5 million to resolve allegations that its diagnostic testing facility falsely billed federal and state health care programs for tests that were not performed or not medically necessary and by paying kickbacks to physicians.  Assistant Attorney General for the Justice Department’s Civil Division Stuart F. Delery, U.S. Attorney for the District of New Jersey Paul J. Fishman and U.S. Attorney for the Eastern District of New York Loretta E. Lynch announced the settlement today.

DIG has agreed to pay $13.65 million to the federal government and an additional total of $1.85 million to New York and New Jersey.  DIG operates a chain of diagnostic testing facilities through its subsidiary, Doshi Diagnostic Imaging Services, which is headquartered in Hicksville, N.Y.  DIG previously operated chains in New Jersey and Florida through subsidiaries Doshi Diagnostic Imaging Services of New Jersey and Signet Diagnostic Imaging Services.

“When health care providers pay kickbacks and submit false claims to Medicare, they not only deplete the Medicare Trust Fund, they undermine the integrity of the health care system,” said Assistant Attorney General Delery.  “The Justice Department will relentlessly pursue those who misuse federal health care funds for their own profit.”

“Health care providers who make decisions based on profit instead of medical need compromise patient safety and confidence,” said U.S. Attorney Fishman.  “Unnecessary tests and the payment of kickbacks also siphon precious resources from our health care system.  The settlement we’re announcing today is an appropriate response to these unacceptable practices.”

The settlement announced today resolves allegations that DIG submitted claims to Medicare, as well as the New Jersey and New York Medicaid Programs, for 3D reconstructions of CT scans that were never performed or interpreted.  Additionally, DIG allegedly bundled certain tests on its order forms so that physicians could not order other tests without ordering the additional bundled tests, which were not medically necessary.  Today’s settlement also resolves allegations that DIG paid kickbacks to physicians for the referral of diagnostic tests.  According to the government, the kickbacks were in the form of payments that DIG made to physicians ostensibly to supervise patients who underwent nuclear stress testing.  These payments allegedly exceeded fair market value and were, in fact, intended to reward physicians for their referrals.

“Patients deserve testing decisions based solely on medical need, not doctors’ pocketbooks,” said U.S. Attorney Lynch.  “We will continue to work with our federal and state law enforcement partners to investigate vigorously allegations of fraud on federal programs like Medicare and to pursue those who seek to fraudulently deplete the Medicare Trust Fund.”

“Paying physicians for their referrals and submitting false claims to increase Medicare and Medicaid reimbursements – as was alleged in this case – simply cannot be tolerated,” said Inspector General of the U.S. Department of Health and Human Services Daniel R. Levinson.  “Besides levying a hefty penalty, the settlement requires an independent organization to review Diagnostic Imaging Group’s claims for five years and to send reports to the government.”

The allegations resolved by today’s settlement were raised in three lawsuits filed under the qui tam, or whistleblower, provisions of the False Claims Act.  The Act allows private citizens with knowledge of fraud to bring civil actions on behalf of the government and to share in any recovery.  The three whistleblowers, Mark Novick, M.D., Rey Solano and Richard Steinman, M.D., will receive $ 1.5 million , $ 1.07 million and $ 209,250 , respectively, as part of today’s settlement.

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 Secretary of Health and Human Services 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 $19 billion through False Claims Act cases, with more than $13.4 billion of that amount recovered in cases involving fraud against federal health care programs.

This case was handled by the Civil Division of the Department of Justice, the U.S. Attorney’s Office for the District of New Jersey and the U.S. Attorney’s Office for the Eastern District of New York.  The settlement is the culmination of an investigation conducted jointly by special agents of the Department of Health and Human Services Office of Inspector General and the FBI with contributions from the Railroad Retirement Board.

The claims settled by this agreement are allegations only, and there has been no determination of liability.  The three cases are captioned United States ex rel. Mark Novick, M.D. v. Doshi Diagnostic Imaging Services P.C. , Civil Action No. 09-4992 (D.N.J.), United States ex rel. Rey Solano v. Diagnostic Imaging Group et al., Civil Action No. 10-267 (D.N.J.) and United States ex rel. Richard Steinman, M.D. v. Diagnostic Imaging Group, et al., Civil Action No. 10-4161 (E.D.N.Y.).

Former Chief Executive Officer of Oil Services Company Pleads Guilty to Foreign Bribery Charges

The former chief executive officer of PetroTiger Ltd., a British Virgin Islands oil and gas company with operations in Colombia and offices in New Jersey, pleaded guilty today for his role in a scheme to pay bribes to foreign government officials and to defraud PetroTiger.
Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division, U.S. Attorney Paul J. Fishman of the District of New Jersey and Special Agent in Charge Aaron T. Ford of the FBI’s Newark Division made the announcement.
Knut Hammarskjold, 42, of Greenville, S.C., the former co-CEO of PetroTiger, pleaded guilty before U.S. District Judge Josephy E. Irenas in Camden, N.J., to an information charging one count of conspiracy to violate the Foreign Corrupt Practices Act (FCPA) and to commit wire fraud and is scheduled for sentencing on May 16, 2014.   Gregory Weisman, 42, of Moorestown, N.J., the former general counsel of PetroTiger, pleaded guilty to the same charges on Nov. 8, 2013.   Charges remain pending against Joseph Sigelman, 42, of Miami and the Philippines, the other former co-CEO of PetroTiger, for conspiracy to commit wire fraud, conspiracy to violate the FCPA, conspiracy to launder money and substantive violations of the FCPA.
According to the charges, the defendants allegedly paid bribes to an official in Colombia in exchange for the official’s assistance in securing approval for an oil services contract worth roughly $39 million.   To conceal the bribes, the defendants allegedly first attempted to make the payments to a bank account in the name of the foreign official’s wife, for purported consulting services she did not perform.   The charges allege that Sigelman and Hammarskjold provided Weisman invoices including her bank account information.   The defendants made the payments directly to the official’s bank account when attempts to transfer the money to his wife’s account failed.
In addition, court documents allege that the defendants attempted to secure kickback payments at the expense of several of PetroTiger’s board members.   According to the criminal charges, the defendants were negotiating an acquisition of another company on behalf of PetroTiger, including on behalf of several members of PetroTiger’s board of directors who were helping to fund the acquisition.   In exchange for negotiating a higher purchase price for the acquisition, two of the owners of the target company agreed to kick back to the defendants a portion of the increased purchase price.   According to the charges, to conceal the kickback payments, the defendants had the payments deposited into Sigelman’s bank account in the Philippines, created a “side letter” to falsely justify the payments, and used the code name “Manila Split” to refer to the payments amongst themselves.
Sigelman and Hammarskjold were charged by sealed complaints filed in the District of New Jersey on Nov. 8, 2013.   Hammarskjold was arrested on Nov. 20, 2013, at Newark Liberty International Airport.   Sigelman was arrested on Jan. 3, 2014, in the Philippines.   The charges against Sigelman, Hammarskjold and Weisman were unsealed on Jan. 6, 2014.
The conspiracy to commit violations of the FCPA count carries a maximum penalty of five years in prison and a fine of the greater of $250,000 or twice the value gained or lost.   The conspiracy to commit wire fraud count carries a maximum penalty of 20 years in prison and a fine of the greater of $250,000 or twice the value gained or lost.
As to the charges in the complaint pending against Sigelman, they are merely accusations and the defendant is presumed innocent unless and until proven guilty.
The department has worked closely with and has received significant assistance from its law enforcement counterparts in the Republic of Colombia and greatly appreciates their assistance in this matter.    The department also thanks the Republic of the Philippines, including the Bureau of Immigration, and the Republic of Panama for their assistance in this matter.   Significant assistance was also provided by the Criminal Division’s Office of International Affairs.
The case is being investigated by the FBI’s Newark Division.   The case is being prosecuted by Assistant Chief Daniel S. Kahn of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Aaron Mendelsohn of the District of New Jersey.

FCPA Charges Unsealed Against Former Chief Executive Officers of Oil Services Company

Two former chief executive officers of PetroTiger Ltd. – a British Virgin Islands oil and gas company with operations in Colombia and offices in New Jersey – have been charged for their alleged participation in a scheme to pay bribes to foreign government officials in violation of the Foreign Corrupt Practices Act (FCPA), to defraud PetroTiger, and to launder proceeds of those crimes.   In addition, PetroTiger’s former general counsel pleaded guilty to bribery and fraud charges in connection with the same scheme.
Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division, U.S. Attorney Paul J. Fishman of the District of New Jersey and Special Agent in Charge Aaron T. Ford of the FBI’s Newark Division made the announcement after the charges and guilty plea were unsealed today.

“We have said – repeatedly and emphatically – that foreign corruption, whether committed by companies or by the individuals entrusted to run those companies, will not be tolerated.   And, our track record in vigorously enforcing the FCPA has shown that message to be undeniably true,” said Acting Assistant Attorney General Raman.   “The charges unsealed today against two former CEOs of PetroTiger and the guilty plea announced today of the former General Counsel reaffirm our clear message that we will prosecute corruption and fraud wherever we find it.  Bribery distorts what should be a level playing field and deprives corporations and governments of funds that should instead be used to strengthen those institutions.   Today’s announcement should be a reminder to CEOs and other executives who seek to corrupt the system at the expense of honest businesses:   we are not going away.”

“Bribery of public officials, whether at home or abroad, corrupts business opportunity and undermines trust in government,” said U.S. Attorney Fishman.  “The under-the-table deals alleged in today’s charges are not an acceptable way of doing business.”

“The FBI is committed to pursuing those who disrupt the level playing field to which companies in the U.S. and around the world are entitled,” said FBI Special Agent in Charge Ford.   “We will continue to investigate these matters by working with law enforcement agencies, both foreign and domestic, to ensure that both corporations and executives who bribe foreign officials for lucrative contracts are punished.”

According to the charges, former co-CEOs of PetroTiger Joseph Sigelman, 42, formerly of Miami and the Philippines, and Knut Hammarskjold, 42, of Greenville, S.C.; former general counsel Gregory Weisman, 42, of Moorestown, N.J., and others allegedly paid bribes to an official in Colombia in exchange for the official’s assistance in securing approval for an oil services contract worth roughly $39 million.

Hammarskjold was arrested Nov. 20, 2013, at Newark Liberty International Airport.   Sigelman was arrested on Jan. 3, 2014, in the Philippines and appeared this afternoon (ChST) in Guam before U.S. Magistrate Judge Joaquin V.E. Manibusan III.   Sigelman will have an initial appearance in New Jersey federal court on a date to be determined.   Sigelman and Hammarskjold were charged by sealed complaints filed in the District of New Jersey on Nov. 8, 2013, with conspiracy to commit wire fraud, conspiracy to violate the FCPA, conspiracy to launder money and substantive violations of the FCPA.

Weisman pleaded guilty on Nov. 8, 2013, to a criminal information charging one count of conspiracy to violate the FCPA and to commit wire fraud.   The charges and guilty plea were also unsealed today.

The charges allege the defendants made three separate payments from PetroTiger’s bank account in the United States to the official’s bank account in Colombia to secure approval from Colombia’s state-owned and state-controlled oil company for a lucrative oil services contract in the country.   According to the charges, to conceal the bribes, the defendants first attempted to make the payments to a bank account in the name of the foreign official’s wife, for purported consulting services she did not perform.   The charges allege that Sigelman and Hammarskjold provided Weisman invoices including her bank account information.   The defendants made the payments directly to the official’s bank account when attempts to transfer the money to his wife’s account failed.

In addition, court documents allege that the defendants attempted to secure kickback payments at the expense of PetroTiger’s board members.   According to the criminal charges, the defendants were negotiating an acquisition of another company on behalf of PetroTiger, including on behalf of several members of PetroTiger’s board of directors who were helping to fund the acquisition.   In exchange for negotiating a higher purchase price for the acquisition, two of the owners of the target company agreed to kick back to the defendants a portion of the increased purchase price.   According to the charges, to conceal the kickback payments, the defendants had the payments deposited into Sigelman’s bank account in the Philippines, created a “side letter” to falsely justify the payments, and used the code name “Manila Split” to refer to the payments amongst themselves.

The conspiracy to commit wire fraud count carries a maximum penalty of 20 years in prison and a fine of the greater of $250,000 or twice the value gained or lost.   The conspiracy to commit violations of the FCPA count carries a maximum penalty of five years in prison and a fine of the greater of $250,000 or twice the value gained or lost.   The FCPA counts each carry a maximum penalty of five years in prison and a fine of the greater of $250,000 or twice the value gained or lost.   The conspiracy to commit money laundering count carries a maximum penalty of 20 years in prison and a fine of the greater of $500,000 or twice the value of the property involved in the transaction.

The charges contained in the complaint are merely accusations, and the defendants are presumed innocent unless and until proven guilty.

The department has worked closely with and has received significant assistance from its law enforcement counterparts in the Republic of Colombia and greatly appreciates their assistance in this matter.   The department also thanks the Republic of the Philippines, including the Bureau of Immigration, for its assistance in this matter.   Significant assistance was also provided by the Criminal Division’s Office of International Affairs.

The case is being investigated by the FBI’s Newark Division.   The case is being prosecuted by Assistant Chief Daniel S. Kahn of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Aaron Mendelsohn of the District of New Jersey.

Iraqi-Based Construction Company Pays $2.7 Million to U.s. for Alleged False Claims in Bribery Scheme

Iraqi Consultants and Construction Bureau (ICCB) has paid the U.S. $2.7 million to resolve allegations that it violated the False Claims Act by bribing a U.S. government official to obtain U.S. government contracts in Iraq, the Department of Justice announced today.  ICCB is a privately owned construction company headquartered in Baghdad, Iraq.

“Bribery will not be tolerated in government contracting,” said Assistant Attorney General for the Justice Department’s Civil Division Stuart F. Delery.  “We will ensure that government contracts are awarded based on merit and pursue allegations of fraudulently procured contracts wherever they occur.”

The government alleged that, from 2007 to 2008, ICCB paid bribes to Army Corps of Engineers procurement official John Salama Markus, 41, of Nazareth, Pa., to obtain information that gave it an advantage in bidding on several construction contracts with the Department of Defense in Iraq.  The contracts supported reconstruction efforts involving the Iraq war, including infrastructure and security projects and the building of medical facilities and schools.  ICCB then knowingly overcharged the U.S. for services provided under the contracts, according to the government’s allegation.

“It is offensive that anyone would see projects to promote stability, health and education in a rebuilding country as a way to make illegal cash on the side,” said U.S. Attorney for the District of New Jersey Paul J. Fishman.  “We will not abide companies paying to play in such a system.”

“The Defense Criminal Investigative Service (DCIS) is committed to protecting the integrity of the Defense acquisition process from personal and corporate avarice,” said Special Agent in Charge, DCIS Northeast Field Office Craig Rupert.  “Ensuring the proper use of U.S. taxpayers’ dollars and preventing contract fraud is in our nation’s interest and remains a priority.”

The settlement is part of a larger investigation initiated by the U.S. Attorney’s Office for the District of New Jersey.  As part of that investigation, Markus pleaded guilty on Sept. 7, 2012, to wire fraud, money laundering and failure to report a foreign bank account in connection with more than $50 million in contracts awarded to foreign companies in Gulf Region North, Iraq.  Markus was sentenced to 13 years in prison on March 12, 2013, in Newark, N.J., federal court.

The investigation is being handled by the U.S. Attorney’s Office for the District of New Jersey and the Civil Division’s Commercial Litigation Branch, in cooperation with the Defense Criminal Investigative Service, the Major Procurement Fraud Unit of the Army’s Criminal Investigation Command, the Criminal Investigative Division of the Internal Revenue Service and the Department of Homeland Security.  The claims resolved by the settlement are allegations only; there has been no determination of liability.

Iraqi-Based Construction Company Pays $2.7 Million to U.s. for Alleged False Claims in Bribery Scheme

Iraqi Consultants and Construction Bureau (ICCB) has paid the U.S. $2.7 million to resolve allegations that it violated the False Claims Act by bribing a U.S. government official to obtain U.S. government contracts in Iraq, the Department of Justice announced today.  ICCB is a privately owned construction company headquartered in Baghdad, Iraq.

“Bribery will not be tolerated in government contracting,” said Assistant Attorney General for the Justice Department’s Civil Division Stuart F. Delery.  “We will ensure that government contracts are awarded based on merit and pursue allegations of fraudulently procured contracts wherever they occur.”

The government alleged that, from 2007 to 2008, ICCB paid bribes to Army Corps of Engineers procurement official John Salama Markus, 41, of Nazareth, Pa., to obtain information that gave it an advantage in bidding on several construction contracts with the Department of Defense in Iraq.  The contracts supported reconstruction efforts involving the Iraq war, including infrastructure and security projects and the building of medical facilities and schools.  ICCB then knowingly overcharged the U.S. for services provided under the contracts, according to the government’s allegation.

“It is offensive that anyone would see projects to promote stability, health and education in a rebuilding country as a way to make illegal cash on the side,” said U.S. Attorney for the District of New Jersey Paul J. Fishman.  “We will not abide companies paying to play in such a system.”

“The Defense Criminal Investigative Service (DCIS) is committed to protecting the integrity of the Defense acquisition process from personal and corporate avarice,” said Special Agent in Charge, DCIS Northeast Field Office Craig Rupert.  “Ensuring the proper use of U.S. taxpayers’ dollars and preventing contract fraud is in our nation’s interest and remains a priority.”

The settlement is part of a larger investigation initiated by the U.S. Attorney’s Office for the District of New Jersey.  As part of that investigation, Markus pleaded guilty on Sept. 7, 2012, to wire fraud, money laundering and failure to report a foreign bank account in connection with more than $50 million in contracts awarded to foreign companies in Gulf Region North, Iraq.  Markus was sentenced to 13 years in prison on March 12, 2013, in Newark, N.J., federal court.

The investigation is being handled by the U.S. Attorney’s Office for the District of New Jersey and the Civil Division’s Commercial Litigation Branch, in cooperation with the Defense Criminal Investigative Service, the Major Procurement Fraud Unit of the Army’s Criminal Investigation Command, the Criminal Investigative Division of the Internal Revenue Service and the Department of Homeland Security.  The claims resolved by the settlement are allegations only; there has been no determination of liability.

Owner of Window Installation Business Admits Tax Evasion in New Jersey

The owner of a window installation company located in Mt.Laurel, N.J. admitted today he converted to cash millions of dollars in the company’s gross receipts and used the money to pay his workers without withholding employment taxes announced, Paul J. Fishman, U.S. Attorney for the District of New Jersey, and Kathryn Keneally, Assistant Attorney General for the Tax Division.

Fred Marcus, 39, of Camden County, N.J., the owner and operator of Vortex Installations Inc., pleaded guilty before U.S. District Judge Mary L. Cooper in New Jersey federal court to an information charging him with one count of tax evasion.

According to documents filed in this case and statements made in court:

From early 2006 through the end of 2009, Marcus cashed approximately $2.8 million in Vortex Installations’ gross receipts at a check casher. Marcus used $1,025,868 of that money to pay cash wages to his workers, which he did not report to the Internal Revenue Service (IRS) and from which he did not withhold employment taxes. From 2006 through 2008, Marcus failed to file IRS Forms 941 – Employer’s Quarterly Federal Tax Returns – in which he was required to report the wages paid to his employees. In 2009, Marcus filed false Forms 941, in that he failed to report the cash wages that he paid to Vortex employees.

On the count of tax evasion, Marcus faces a maximum potential penalty of five years in prison and a fine of $250,000, along with restitution to the IRS. Sentencing is scheduled for Sept. 19, 2013.

Assistant Attorney General Keneally and U.S. Attorney Fishman credited special agents of IRS–Criminal Investigation, under the direction of Special Agent in Charge Shantelle P. Kitchen, for the investigation leading to today’s guilty plea.

The government is represented by Tax Division Trial Attorney Tino M. Lisella.

Par Pharmaceutical Companies Inc. Pleads Guilty, Admits Misbranding Of Megace® Es

Agrees to Pay $45M to Resolve Criminal and Civil Investigations

NEWARK, N.J. – New Jersey-based Par Pharmaceutical Companies Inc. (“Par”) pleaded guilty in federal court today and agreed to pay $45 million to resolve its criminal and civil liability in the company’s promotion of its prescription drug Megace® ES for uses not approved as safe and effective by the Food and Drug Administration (FDA) and not covered by federal health care programs, the Justice Department announced.

Chief Executive Officer Paul V. Campanelli pleaded guilty on behalf of Par before U.S. Magistrate Judge Madeline Cox Arleo earlier today in Newark federal court. Judge Arleo imposed sentence today, fining Par $18 million and ordering $4.5 million in criminal forfeiture. Par also agreed to pay $22.5 million to resolve its civil liability.

“The FDA requires drug makers to go through a stringent approval process before new drugs – or new uses for existing drugs – are made available to doctors and their patients,” U.S. Attorney Paul J. Fishman said. “Today, Par admitted that it chose to ignore that process in pursuit of more sales and greater profits. It is paying the price for its choice.”

“Today’s resolution emphasizes the importance of the U.S. government’s coordinated efforts to combat health care fraud. We expect companies to make honest, lawful claims about the drugs they sell. We will be vigorous in our enforcement efforts when they break the law, to ensure that they are held accountable,” said Stuart F. Delery, Principal Deputy Assistant Attorney General for the Justice Department’s Civil Division.

“Individual accountability of Par’s board and executives is required under the comprehensive five-year integrity agreement OIG has with the company,” said Daniel R. Levinson, Inspector General of the U.S. Department of Health and Human Services.  “For example, company executives may have to forfeit annual bonuses if they or their subordinates engage in significant misconduct, and sales representatives may not be paid incentive compensation for the drug involved in the case, or successor branded versions of that drug.”

“The public has been well served by this investigation and the FDA commends the efforts of the U.S. Attorney’s Office in New Jersey, the Department of Justice and the other law enforcement agencies that worked with us to vigorously pursue this matter,” said Mark Dragonetti, Special Agent In Charge of the FDA’s Office of Criminal Investigation’s New York Field Office. “Today’s settlement demonstrates the FDA’s continued commitment to target companies that disregard the safeguards of the drug approval process and promote drugs for uses before they have been proven to be safe and effective.”

Par pleaded guilty to an Information charging it with a criminal misdemeanor for misbranding Megace® ES in violation of the Federal Food, Drug, and Cosmetic Act (“FDCA”). Megace® ES, a megestrol acetate drug product, was approved by the FDA to treat anorexia, cachexia, or other significant weight loss suffered by patients with AIDS (the “AIDS Indication”). The Megace® ES distributed nationwide by Par was criminally misbranded because its FDA-approved labeling lacked adequate directions for use in the treatment of non-AIDS-related geriatric wasting, a use that was intended by Par but never approved by the FDA. The FDCA requires companies such as Par to specify the intended uses of a product in an application to the FDA. Once approved, a drug may not be distributed in interstate commerce for unapproved or “off-label” uses until the company receives FDA approval for the new intended uses. In addition to the criminal fine and forfeiture, the plea agreement mandates that Par implement several compliance measures and annually provide the U.S. Attorney’s Office with a sworn certification from its chief executive officer that the company has not unlawfully marketed any of its pharmaceutical products.

The civil settlement agreement requires Par to pay $22.5 million to the federal government and various states to resolve claims arising from its off-label marketing. The civil settlement resolves allegations that Par, by promoting the sale and use of Megace® ES for uses that were not FDA-approved and not covered by Federal health care programs, caused false claims to be submitted to these programs. The United States further alleged that Par deliberately and improperly targeted sales to elderly nursing home residents with weight loss, whether or not such patients suffered from AIDS, and launched a long-term care sales force to market to this population. During this marketing campaign, Par was allegedly aware of adverse side effects associated with the use of megestrol acetate in elderly patients, including an increased risk of deep vein thrombosis, toxic reactions in elderly patients with impaired renal function, and mortality. The United States alleged that Par made unsubstantiated and misleading representations about the superiority of Megace® ES over generic megestrol acetate for elderly patients to encourage providers to switch patients from generic megestrol acetate to Megace® ES, despite having conducted no well-controlled studies to support a claim of greater efficacy for Megace® ES. Except as admitted in the plea agreement, the claims settled by the civil settlement agreement are allegations only, and there has been no determination of liability as to those claims.

In addition to the criminal and civil resolutions, Par also agreed to enter into a five-year Corporate Integrity Agreement with the Office of the Inspector General of the Department of Health and Human Services (“HHS-OIG”) that requires enhanced accountability, increased transparency, and wide-ranging monitoring activities conducted by both internal and independent external reviewers.

The plea agreement and CIA include provisions that require Par to implement changes to the way it does business.  The plea agreement and CIA prohibit Par from providing compensation to sales representatives or their managers based on the volume of sale of Megace ES, and in the CIA, based on the volume of Megace ES and any branded successor megestrol acetate drug.  Under the CIA, Par is also required to change its executive compensation program to permit the company to recoup annual bonuses from covered executives if they, or their subordinates, engage in significant misconduct.

The settlement resolves three lawsuits filed under the whistleblower provisions of the False Claims Act, which permit private parties to file suit on behalf of the United States and obtain a portion of the government’s recovery. The civil lawsuits were filed in the District of New Jersey and are captioned U.S. ex rel. McKeen and Combs v. Par Pharmaceutical, et al., U.S. ex rel. Thompson v. Par Pharmaceutical, et al., and U.S. ex rel. Elliott & Lundstrom v. Bristol-Myers Squibb, Par Pharmaceutical, et al. As part of today’s resolution, relators McKeen and Combs will receive $4.4 million.

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 more than $10.2 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 $14.1 billion.

History of Megace® ES and Par’s Failed Attempts to Obtain FDA Approval 
of a Geriatric Wasting Indication for Megace® ES

According to the Information, a drug named Megace® OS – a predecessor to Megace® ES – was approved by the FDA in 1993 for the AIDS Indication. Between 2002 and 2005, Par’s market research showed that practitioners prescribed Megace® OS 1 for uses that were inconsistent with the approved labeling, including geriatric weight loss, and that the overwhelming majority of Megace® OS prescriptions were written for such off-label uses.

In 2002, Par first approached the FDA and discussed the company’s plan to seek approval of a new formulation of Megace® OS as a treatment option for geriatric patients with malnutrition. Par did not thereafter seek approval for that patient population. Instead, in June 2004, Par relied on the Megace® OS safety and effectiveness data in seeking approval for Megace® ES for the AIDS indication, i.e., the same indication as Megace® OS. Less than two months after the FDA approved Megace® ES for the AIDS indication, Par requested a meeting with the FDA to discuss Par’s intent to seek approval of Megace® ES for certain non-AIDS geriatric patients. Par never sought approval for that patient population, nor did Par ever conduct drug trials in the geriatric population.

Par’s “Conversion” Strategy, False Superiority Claims, and Promotion of 
Megace® ES for Geriatric Wasting

Despite knowing that Megace® ES had a limited market for its approved use, Par set aggressive sales goals for the product launch. After failing to attain these goals, Par adopted and implemented a marketing strategy designed to promote Megace® ES to geriatric wasting patients – the same population Par had twice discussed with the FDA. Par devised sales call panels which required Par sales representatives to market Megace® ES in nursing homes, as well as to practitioners who treated geriatric patients. These call panels identified physicians with the highest number of Megace® OS prescriptions as the top targets to “convert” from the old Megace® OS to Par’s Megace® ES product. Some Par sales managers required that their subordinates visit 10 to15 nursing homes a week to promote Megace® ES, and told them there would be possible employment consequences, including termination, if they did not promote Megace® ES in nursing homes.

While targeting an audience of health care practitioners that treated the elderly or geriatric population, Par promoted Megace® ES by making false and/or misleading claims that Megace® ES was superior to Megace® OS, including:

  1. Despite having no clinical support for the claim, Par sales representatives promoted Megace® ES as more effective than Megace® OS;
  2. Despite having no clinical support for the claim, Par sales representatives claimed that Megace® ES worked faster and was more effective than other products, and used the phrase “speed and ease” to promote Megace® ES;
  3. Par sales representatives were taught to try and “flip” a nursing home by asking the homes to convert all Megace® OS patients in the nursing home to Megace® ES, despite knowing that the nursing homes contained very few, if any, AIDS patients and the requested patients would therefore be using the product for off-label purposes;
  4. Par trained and directed its sales force to minimize or eliminate mentioning altogether the FDA-approved indication for Megace® ES during promotional sales calls, so as to draw as little attention as possible to the fact that Megace® ES was not approved for geriatric wasting; and
  5. Par managers trained, directed, and encouraged their sales representatives to ask health care practitioners for patient information protected by the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), so that the representatives could request that certain patients who were using Megace® OS be switched to Megace® ES.

U.S. Attorney Fishman said the corporate guilty plea, the civil settlement, and the corporate integrity agreement are the culmination of a multi-year investigation conducted jointly by special agents from HHS-OIG, under the direction of Special Agent in Charge Tom O’Donnell, special agents from FDA-OIG, under the direction of Special Agent in Charge Mark Dragonetti, and criminal investigators and paralegals with the U.S. Attorney’s Office.

U.S. Attorney Fishman thanked the Defense Criminal Investigative Service; the Office of Personnel Management-Office of Inspector General; the Department of Veterans’ Affairs Office of Inspector General; and TRICARE Program Integrity for assisting in the investigation. He also thanked the National Association of Medicaid Fraud Control Units (NAMFCU), with assistance from the Medicaid Fraud Control Unit of the Ohio Attorney General’s Office for their help in coordinating the settlements with the various states.

The government is represented in the prosecution of the criminal case by Assistant U.S. Attorney Joseph Mack of the U.S. Attorney’s Office Health Care and Government Fraud Unit and Special Assistant U.S. Attorney Shannon M. Singleton from the FDA’s Office of Chief Counsel.  Paralegals Jeffrey Skonieczny and Doug Minotti with the U.S. Attorney’s Office and Trial Attorney David Frank of the Department of Justice’s Consumer Protection Branch assisted on the criminal side of the case. The government is represented in the civil settlement by Assistant U.S. Attorney David Dauenheimer and Trial Attorney Eva Gunasekera from the Department of Justice’s Commercial Litigation Branch. The corporate integrity agreement was negotiated by Christina McGarvey and Gregory Lindquist from the Department of Health and Human Service’s Office of Inspector General.

U.S. Attorney Fishman reorganized the health care fraud practice at the U.S. Attorney’s Office, District of New Jersey, including creating a stand-alone Health Care and Government Fraud Unit, which handles both criminal and civil investigations and prosecutions of health care fraud offenses. Since 2010, the Office has recovered more than $500 million in health care fraud and government fraud settlements, judgments, fines, restitution, and forfeiture under the False Claims Act, the Food, Drug and Cosmetic Act, and other statutes.