Former Social Security Administrative Law Judge Sentenced to Four Years in Prison for Role in $550 Million Social Security Fraud Scheme

Friday, August 25, 2017

A former social security administrative law judge (ALJ) was sentenced today to four years in prison for his role in a scheme to fraudulently obtain more than $550 million in federal disability payments from the Social Security Administration (SSA) for thousands of claimants.

Acting Assistant Attorney General Kenneth A. Blanco of the Justice Department’s Criminal Division, Special Agent in Charge Michael McGill of the Social Security Administration-Office of Inspector General’s (SSA-OIG) Philadelphia Field Division, Special Agent in Charge Amy S. Hess of the FBI’s Louisville Field Division, Special Agent in Charge Tracey D. Montaño of the IRS Criminal Investigation (IRS-CI) Nashville Field Office and Special Agent in Charge Derrick L. Jackson of the U.S. Department of Health and Human Services-Office of the Inspector General (HHS-OIG) Atlanta Regional Office made the announcement.

David Black Daugherty, 81, of Myrtle Beach, S.C., was sentenced by U.S. District Judge Danny C. Reeves of the Eastern District of Kentucky, who also ordered Daugherty to pay restitution of over $93 million to the SSA and HHS. Daugherty pleaded guilty in May 2017 to two counts of receiving illegal gratuities.

According to admissions made as part of his guilty plea, beginning in 2004, Daugherty, as an ALJ assigned to the SSA’s Huntington, W. Va., hearing office, sought out pending disability cases in which Kentucky attorney Eric Christopher Conn represented claimants and reassigned those cases to himself. Daugherty then contacted Conn and identified the cases he intended to decide the following month and further solicited Conn to provide medical documentation supporting either physical or mental disability determinations. Without exception, Daugherty awarded disability benefits to individuals represented by Conn – in some instances, without first holding a hearing. As a result of Daugherty’s awarding disability benefits to claimants represented by Conn, Conn paid Daugherty an average of approximately $8,000 per month in cash, until approximately April 2011. All told, Daugherty received more than $609,000 in cash from Conn for deciding approximately 3,149 cases.

As a result of the scheme, Conn, Daugherty, and their co-conspirators obligated the SSA to pay more than $550 million in lifetime benefits to claimants based upon cases Daugherty approved for which he received payment from Conn.

Daugherty was indicted last year, along with Conn and Alfred Bradley Adkins, a clinical psychologist. The defendants were charged with conspiracy, fraud, false statements, money laundering and other related offenses in connection with the scheme.

Conn pleaded guilty on March 24, to a two-count information charging him with theft of government money and paying illegal gratuities, and was sentenced in absentia on July 14 to 12 years in prison. Conn absconded from court ordered-electronic monitoring on June 2, and is considered a fugitive. He remains under indictment. On June 12, Adkins was convicted after a jury trial of one count of conspiracy to commit mail fraud and wire fraud, one count of mail fraud, one count of wire fraud and one count of making false statements. Adkins is scheduled to be sentenced on September 22.

The SSA-OIG, FBI, IRS-CI and HHS-OIG investigated the case. Trial Attorney Dustin M. Davis of the Criminal Division’s Fraud Section and Trial Attorney Elizabeth G. Wright of the Criminal Division’s Money Laundering and Asset Recovery Section are prosecuting the case, with previous co-counsel including Assistant U.S. Attorney Trey Alford of the Western District of Missouri and Investigative Counsel Kristen M. Warden of the Justice Department’s Office of the Inspector General.

California Resident Sentenced for Conspiracy to Commit Healthcare Fraud

Thursday, September 7, 2017

Acting U.S. Attorney Duane A. Evans announced that SUNYUP KIM, age 41, of Granada Hills, CA, was sentenced today after previously pleading guilty to conspiracy to commit healthcare fraud.

U.S. District Judge Eldon E. Fallon sentenced KIM to 1 year and 1 day in prison along with $93,927 in restitution.

On June 11, 2015, KIM was indicted along with three other defendants in an 8-count indictment charging approximately $38 million in Medicare fraud.

According to court documents, the $38 million fraud scheme centering on the distribution of “talking glucose meters” that were not medically necessary and were often not even requested. KIM, along with the other 3 defendants, operated Care Concepts, LLC, which was based in Metairie, and Choice Home Medical Equipment and Supplies (Choice), which was based in Chatsworth, California. KIM and the other 3 defendants, paid kickbacks to workers at call centers in California and South Carolina, from which operators would cold-call Medicare recipients to convince them to accept talking glucose meters and related supplies. From 2007 through 2015, KIM and the other 3 defendants caused thousands of claims to be submitted to Medicare through Care Concepts and Choice, virtually all of which were fraudulent.

Acting U.S. Attorney Evans praised the work of the Federal Bureau of Investigation and the Office of Inspector General for the United States Department of Health and Human Services in investigating this matter. Assistant U. S. Attorneys Patrice Harris Sullivan and Jordan Ginsberg were in charge of the prosecution.

South Carolina Family Practice Chain, Its Co-Owner, and Its Laboratory Director Agree to Pay the United States $2 Million to Settle Alleged False Claims Act Violations for Illegal Medicare Referrals and Billing for Unnecessary Medical Services

Monday, September 11, 2017

Family Medicine Centers of South Carolina LLC (FMC), has agreed to pay the United States $1.56 million, and FMC’s principal owner and former chief executive officer, Dr. Stephen F. Serbin, and its former Laboratory Director, Victoria Serbin, have agreed to pay $443,000 to resolve a False Claims Act lawsuit alleging that they submitted and caused the submission of false claims to the Medicare and TRICARE programs. FMC is a physician-owned chain of family medicine clinics located in and around Columbia, South Carolina, whose practices include Springwood Lake Family Practice, Woodhill Family Practice, Midtown Family Medicine, Saluda Pointe Family Medicine, Lake Murray Family Medicine, and the now closed Rice Creek Family Medicine.

The settlements announced today resolve allegations that FMC, as directed by Dr. Serbin, submitted claims to the Medicare Program that violated the physician self-referral prohibition, commonly known as the Stark Law, which is intended to ensure that a physician’s medical judgment is not compromised by improper financial incentives. The Stark Law forbids a clinic from billing Medicare for certain services ordered by physicians who have a financial relationship with the entity. In this case, the government alleged that the Stark Law was violated by FMC’s incentive compensation plan that paid FMC’s physicians a percentage of the value of laboratory and other diagnostic tests that they personally ordered through FMC, which FMC then billed to Medicare. Dr. Serbin, FMC’s co-owner and chief executive, allegedly initiated this program and reminded FMC’s physicians that they needed to order tests and other services through FMC in order to increase FMC’s profits and to ensure that their take-home pay remained in the upper level nationwide for family practice doctors.

“Financial arrangements that compensate physicians for referrals can sometimes encourage physicians to make decisions based on financial gain rather than patient needs,” said Acting Assistant Attorney General Chad A. Readler of the Justice Department’s Civil Division. “The Department of Justice is committed to preventing illegal financial relationships that undermine the integrity of our public health programs and drive up the cost of healthcare for taxpayers.”

The settlements also resolve allegations that FMC, Dr. Serbin, and Victoria Serbin submitted and caused the submission of false claims to Medicare and TRICARE for medically unnecessary laboratory services by creating custom laboratory panels comprised of diagnostic tests not appropriate for routine measurement, performing these tests without an order from the treating physician, implementing standing orders to assure these custom panels were performed with defined frequency and not in reaction to clinical need, and programming FMC’s billing software to systematically change certain billing codes for laboratory tests to ensure payment by Medicare.

“Healthcare decisions should be made by physicians based on medical science and not with regard to maximizing the doctor’s own income,” said U.S. Attorney Beth Drake for the District of South Carolina. “Our goal in bringing this case was not only to recover money for improper healthcare claims, but also to deter similar conduct and promote health care affordability.”

The allegations settled today arose from a lawsuit filed by a physician formerly employed by FMC, Dr. Catherine A. Schaefer, under the whistleblower provisions of the False Claims Act. Under the act, private citizens can bring suit on behalf of the government for false claims and share in any recovery. Dr. Schaefer will receive $340,510.

As part of the settlement announced today, FMC and the Serbins have also agreed to enter into a Corporate Integrity Agreement with the Department of Health and Human Services, Office of Inspector General (HHS-OIG), which ensures the Serbins will have no management role in FMC for five years and obligates FMC to undertake other substantial internal compliance reforms, including hiring an independent review organization to conduct annual claims reviews.

“Patients and taxpayers should expect that doctors’ best medical judgement is not clouded by what amount to thinly-veiled bribes,” said Special Agent in Charge Derrick L. Jackson for HHS-OIG. “We will work tirelessly with our law enforcement partners to preserve government health funds by bringing violators to justice.”

“We applaud the Department of Justice and the U.S. Attorney for the District of South Carolina for holding this provider accountable for its actions,” said Deputy Director Guy Kiyokawa of the Defense Health Agency. “The provider’s actions targeted American service members, veterans and their families, diverting valuable resources through unnecessary tests. The Defense Health Agency continues to work closely with the Justice Department and other state and federal agencies to investigate all those who participated in these nefarious, fraudulent practices.”

This case was handled by the Civil Division’s Commercial Litigation Branch, the U.S. Attorney’s Office for the District of South Carolina, HHS-OIG and the Defense Health Agency.

The litigation and settlement of this matter illustrates the government’s emphasis on combating health care fraud. One of the most powerful tools in this effort is the False Claims Act. Tips and complaints from all sources about potential fraud, waste, abuse, and mismanagement can be reported to the Department of Health and Human Services, at 800-HHS-TIPS (800-447-8477).

The claims resolved by this settlement are allegations only, and there has been no determination of liability. The case is captioned United States ex rel. Schaefer v. Family Medicine Centers of South Carolina, LLC, Stephen F. Serbin, M.D. and Victoria Serbin, No. 3:14-cv-342-MBS (D.S.C.).

Former Aurora Business Owner Indicted for $26 Million Fraud Schemes

Thursday, July 13, 2017

SPRINGFIELD, Mo. – Tom Larson, Acting United States Attorney for the Western District of Missouri, announced today that a former Aurora, Mo., business owner has been indicted by a federal grand jury today for fraud schemes by which he stole more than $26 million, as well as money laundering and other charges.

Russell Grundy, 48, of Hilton Head Island, S. Carolina, formerly of Aurora, was charged in a 30-count indictment returned by a federal grand jury in Springfield, Mo., on Tuesday, July 11, 2017. Grundy was arrested today.

Grundy was the owner of several companies that focused on advanced technologies, ranging from software development to computer security to addressing the software and hardware technological needs of its clientele. Grundy’s companies included Innovative Objects, LLC, PILR Technology, LLC, Choice Technologies, LLC, Wyerless, LLC, and Audio Input, LLC.

Land O’Lakes/Nutra Blend Fraud Scheme

Grundy (through his company Innovative Objects) was contracted by Land O’Lakes, Inc., and its subsidiary, Nutra Blend, LLC, from January 2004 to Sept. 27, 2015, to create propriety software to inventory, track, and coordinate the disbursement of products. Grundy also contracted with Land O’Lakes and Nutra Blend to provide equipment and technical support for the use, upkeep and maintenance of the software.

The indictment alleges that Grundy falsely told Land O’Lakes and Nutra Blend that third party software programs were built into that proprietary software and were essential to the successful operation of the software. Grundy allegedly claimed that some of the payments made to Innovative Objects were remitted to third party license holders. In reality, the indictment says, there were no third party licensee fees; instead, Grundy kept those payments for his personal or unrelated expenses.

The indictment charges Grundy with six counts of wire fraud related to a series of payments from August 2013 to April 2015, totaling $862,856.

Miami Nations Enterprise Fraud Scheme

Grundy engaged Miami Nations Enterprise in negotiations to provide financial assistance in the form of loans, and for Miami Nations Enterprise to purchase a controlling interest in all of Grundy’s technology-based companies.

According to the indictment, Grundy falsely told Miami Nations Enterprise that his companies had been awarded a $3.5 million contract from Wal-Mart Stores, Inc., to develop and provide information technology services. Grundy allegedly presented numerous e-mails, invoices, conditional award letters and other documents to support his false claims. From May 19, 2014, to June 24, 2015, Miami Nations Enterprise loaned Grundy the money to cover the costs associated with software and hardware purchases and training necessary to obtain the $3.5 million Wal-Mart contract.

On Aug. 24, 2014, Miami Nations Enterprise paid an additional amount to purchase a 70 percent interest in Grundy’s companies.

Officials with Miami Nations Enterprise later discovered that neither Grundy nor any of his companies had been awarded any contract with Wal-Mart, and determined that the e-mails, conditional contract award, invoices and bank deposits Grundy had used to support his claims were fraudulently created.

The indictment charges Grundy with 10 counts of wire fraud related to a series of payments from May 19, 2014, to April 12, 2015, totaling $5,990,000.

Additional Charges

In addition to the wire fraud schemes, the indictment charges Grundy with four counts of making a false statement on a loan application. Grundy applied for three loans from UMB Bank on Oct. 17, 2014, totaling $11,390,800. Grundy applied for a $1,850,000 loan from the People’s Bank of Seneca on Aug. 27, 2015. Grundy allegedly made material false statements in each of those loan applications.

Grundy is also charged with 10 counts of money laundering.

The indictment also contains a forfeiture allegation, which would require Grundy to forfeit to the government any property obtained as a result of the alleged wire fraud violations, including a money judgment of at least $26,060,000.

Larson cautioned that the charges contained in this indictment are simply accusations, and not evidence of guilt.

This case is being prosecuted by Assistant U.S. Attorneys Patrick Carney and Casey Clark. It was investigated by the FBI and IRS-Criminal Investigation.