Monthly Archives: October 2017

New York Hospital Operator Agrees to Pay $4 Million to Settle Alleged False Claims Act Violations Arising from Improper Payments to Physicians

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Wednesday, September 13, 2017

MediSys Health Network Inc., which owns and operates Jamaica Hospital Medical Center and Flushing Hospital and Medical Center, two hospitals in Queens, New York, has agreed to pay $4 million to settle allegations that it violated the False Claims Act by engaging in improper financial relationships with referring physicians, the Justice Department announced today.

The settlement resolves allegations that the defendants submitted false claims to the Medicare program for services rendered to patients referred by physicians with whom the defendants had improper financial relationships. These relationships took the form of compensation and office lease arrangements that did not comply with the requirements of the Stark Law, which restricts the financial relationships that hospitals may have with doctors who refer patients to them.

“This recovery should help to deter other health care providers from entering into improper financial relationships with physicians that can taint the physicians’ medical judgment, to the detriment of patients and taxpayers,” said Acting Assistant Attorney General Chad A. Readler of the Justice Department’s Civil Division.

The lawsuit was filed by Dr. Satish Deshpande under the qui tam, or whistleblower, provisions of the False Claims Act. Under the Act, private citizens can bring suit on behalf of the United States and share in any recovery. Dr. Deshpande will receive $600,000 as his share of the recovery.

“Health care providers who enter into improper financial relations with referring physicians compromise the referral process and encourage over-utilization of services, to the potential detriment of both patients and taxpayers,” said Acting U.S. Attorney Bridget M. Rohde for the Eastern District of New York. “We will hold health care providers accountable for their violations of federal law.”

“When hospital operators provide financial incentives to doctors for patient referrals, individuals rightfully wonder whose best interests are being served,” said Special Agent in Charge Scott J. Lampert for U.S. Department of Health and Human Services Office of Inspector General (HHS-OIG). “We will continue to investigate such entities who fraudulently bill government health programs.”

The case, United States ex rel. Deshpande, et al. v. The Jamaica Hospital Medical Center, et al., Case No. 13-cv-4030 (E.D.N.Y.), was handled by Senior Trial Counsel David T. Cohen of the Civil Division’s Commercial Litigation Branch, Assistant U.S. Attorney Kenneth M. Abell of the U.S. Attorney’s Office for the Eastern District of New York and Associate Counsel David Fuchs from HHS-OIG. The claims settled by this agreement are allegations only, and there has been no determination of liability.

California Internet Sales Company President Sentenced to Prison for Embezzlement and False Tax Returns

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Monday, September 11, 2017

A Manhattan Beach, California resident was sentenced to nine months in prison for wire fraud and filing false tax returns, announced Acting Deputy Assistant Attorney General Stuart M. Goldberg of the Justice Department’s Tax Division and Acting U.S. Attorney Alana W. Robinson for the Southern District of California.

According to the evidence presented at trial, James Miller, a California attorney, was the president and managing partner of MWRC Internet Sales LLC, an online sales company. As part of his duties, Miller had check signing authority for the company’s business bank account. From January 2009 through October 2012, Miller wrote unauthorized checks to himself from MWRC’s account, embezzling more than $300,000. Miller used this money to pay for personal expenses and did not report it on his individual tax returns for 2009 through 2012, causing a tax loss of approximately $58,000.

In addition to the term of prison imposed, U.S. District Judge George Wu ordered Miller to serve two years of supervised release and to pay $64,329 in restitution to the Internal Revenue Service (IRS).

Acting Deputy Assistant Attorney General Goldberg and Acting U.S. Attorney Robinson commended special agents of FBI and IRS Criminal Investigation, who conducted the investigation, and Assistant U.S. Attorney Rebecca Kanter and Trial Attorney Benjamin Weir of the Tax Division, who prosecuted the case.

Additional information about the Tax Division’s enforcement efforts can be found on the division’s website.

CCC’s: It’s Time For an Antitrust Whistleblower Statute

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Kimberly Justice and I have written an article arguing that it is time for an “Antitrust Whistleblower Statute.”  The article was published in Global Competition Review, but is behind a paid firewall (here).  Kimberly and I will be expanding on this idea in Cartel Capers blog posts over the next two weeks.  The first installment will be on Monday and explain why cartels are a great pond to be fishing in for informants, but a little “whistleblower” bait is needed. Other topics will include:
1)      An evaluation of the objections to an antitrust whistleblower statute;
2)      A survey of whistleblower related incentives offered by foreign competition agencies;
3)      A preview of what an antitrust whistleblower statute should look like; and
4)      If we receive comments/feedback, we’d like to collect and post them together.
Stay tuned.  Thanks for reading.

United States Files Civil Fraud Complaint Against Former Deutsche Bank Head of Subprime Mortgage Trading

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Monday, September 11, 2017

Defendant Involved in the Sale of Over $1 Billion in Deutsche Bank Residential Mortgage-Backed Securities

The United States today filed a civil complaint in federal court in Brooklyn, New York, against Paul Mangione, former Deutsche Bank head of subprime trading. In its complaint, the United States alleges that Mangione engaged in a fraudulent scheme to misrepresent the characteristics of loans backing two residential mortgage-backed securities (RMBS) that Deutsche Bank sold to investors that resulted in hundreds of millions of dollars in losses. This suit is brought pursuant to the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) and seeks an appropriate civil penalty.

As alleged in the complaint, Mangione engaged in a fraudulent scheme to sell ACE 2007-HE4 (HE4) — a $ 1 billion security — and ACE 2007-HE5 (HE5) — a $400 million security — by misleading investors about the quality of the loans backing the securitizations. The complaint further alleges that Mangione also misled investors about the origination practices of Deutsche Bank’s wholly-owned subsidiary, DB Home Lending LLC (DB Home) (f/k/a Chapel Funding LLC), which was the primary originator of loans included in the deals. Mangione approved offering documents for HE4 and HE5 even though he knew they misrepresented key characteristics of the loans, including compliance with lending guidelines, borrowers’ ability to pay, borrowers’ fraud and appraisal accuracy.

The HE4 and HE5 offering documents also falsely represented that DB Home had “developed internal underwriting guidelines that it believe[d] generated quality loans” and that DB Home had instituted a quality control process that “monitor[ed] loan production with the overall goal of improving the quality of loan production,” among numerous other representations designed to instill in investors trust in DB Home’s underwriting processes. As alleged in the complaint, Mangione knew that these statements were false.

“The defendant fraudulently induced investors, including pension plans, religious organizations, financial institutions and government-sponsored entities, to name only a few, to invest nearly a billion and a half dollars in HE4 and HE5 RMBS, and caused them to suffer extraordinary losses as a result,” stated Acting U.S. Attorney Bridget M. Rohde for the Eastern District of New York. “We will hold accountable those who seek to deceive the investing public through fraud and misrepresentation.”

“The government’s complaint alleges that Mr. Mangione knew that certain of Deutsche Bank’s RMBS contained unsound mortgages that did not meet the credit or appraisal standards that the bank represented,” said Acting Assistant Attorney General Chad A. Readler of the Justice Department’s Civil Division. “By allegedly misleading investors about the riskiness of these securities, Mr. Mangione prioritized his and his employer’s bottom line over principles of honesty and fair dealing. The Department of Justice will continue to pursue those who engage in fraud as a way to conduct business.”

“As alleged in today’s filing, this individual knowingly took steps during the lead up to the financial crisis to sell defective mortgage loans while hiding the poor quality of the loans from investors,” said Deputy Inspector General for Investigations Rene Febles for the Federal Housing Finance Agency Office of the Inspector General. “This conduct was deliberately fraudulent and resulted in significant losses for the investors. We are committed to working with the U.S. Department of Justice and the U.S. Attorney’s Office for the Eastern District of New York to hold accountable those who engaged in fraud in the secondary market for mortgages.”

In January 2017, the Department of Justice settled a related RMBS matter with Deutsche Bank.

The United States’ case is being handled by Assistant U.S. Attorneys Edward K. Newman and Ryan M. Wilson. Acting U.S. Attorney Bridget M. Rohde and Acting Assistant Attorney General Readler thanked the Office of the Inspector General for the Federal Housing Finance Administration for its assistance in conducting the investigation in this matter.

The Case number is E.D.N.Y. Docket No. 17-CV-5305 (NGG).

CCC’s: Valspar Seeks Third Circuit En Banc Rehearing on Summary Judgment Standard

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In a recent guest post, Richard Wolfram discussed his objections to recent First and Third Circuit decisions on summary judgment in antitrust collusion cases.  See Supreme Court Dodges Question of Antitrust Summary Judgment Standard, Higher Bar to Reach Jury Splitting Circuits, Will Valspar Be Up Next?  Mr. Wolfram wrote:

As Evergreen [First Circuit case] explained in its petition, and as applies equally in Valspar [Third Circuit case], to require that the plaintiff show by a preponderance of evidence on summary judgment that a jury would find in its favor effectively pre-empts the role of the jury, infringes on the Seventh Amendment right of the plaintiff, and is illogical, in effect raising the bar by requiring that the plaintiff satisfy the preponderance standard at both the summary judgment phase and at trial.  Inquiring minds may wonder — will Valspar be the vehicle where the Court finally addresses these issues?

The plaintiff in Valspar just filed a Petition for Panel Rehearing and Rehearing En Banc in the Third Circuit.  Echoing the comments made by Mr. Wolfram, appellant’s petition states:

En banc review is necessary because the panel’s decision eviscerates the protections of Section 1 of the Sherman Antitrust Act by making an unprecedented summary judgment standard for plaintiffs trying to prove a price-fixing conspiracy by circumstantial evidence in the Third Circuit. A majority of the panel incorrectly created a new “more likely than not” standard to evaluate circumstantial evidence at summary judgment.

Valspar’s petition is here: Valspar en banc petition.

Stay tuned.  Thanks for reading

CCC’s: A New Article on Algorithmic Collusion (Guest Post by Ai Deng PhD.)

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Below is a post by valued guest contributor, Ai Deng, PhD. of Bates White Economic Consulting.

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In a new article I published in Law360 last week, I discussed the following four reasons why the scope of colluding algorithms, even if they are technologically possible, could be limited:

  • Algorithmic asymmetry
  • Robust compliance
  • Observable collusive outcomes
  • Risk of class actions

The paper is titled “Four Reasons We May Not See Colluding Robots Anytime Soon” and is available here. If you do not have a subscription to Law360 but would like to have a copy, please feel free to email me at [email protected]

As always, I appreciate your thoughts and comments. You can reach me at the email above or connect with me on LinkedIn [here].

Thanks for reading.

CCC’s: Evergreen: Supreme Court Dodges Question of Antitrust Summary Judgment Standard, Higher Bar to Reach Jury Splitting Circuits. Will Valspar be Next Up?

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Below is a Guest Post by Richard Wolfram, counsel for Evergreen Partnering Group, Inc.  Evergreen filed suit alleging polystyrene converters and their trade association engaged in a concerted refusal to deal with the company in violation of the Sherman Act. The United States District Court for the District of Massachusetts initially dismissed the action.  Evergreen appealed and the First Circuit vacated and remanded. 720 F. 3d 33 (1st Cir. 2013).  The district court then entered summary judgment in favor of the defendants. 116 F. Supp. 3d 1.  (D. Mass. 2015). Evergreen again appealed and the First Circuit upheld the dismissal of the action.  Evergreen Partnering Group v. Pactiv Corp, et. al., 832 F. 3d 1 (1stCir. 2017).  After the First Circuit denied without comment Evergreen’s petition for rehearing, Evergreen filed a petition for certiorari with the U.S. Supreme Court.  Respondents filed an Opposition brief at the request of the Court and Evergreen filed a Reply.  (No. 16-1148.)

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On October 2, 2017, the U.S. Supreme Court denied Evergreen’s petition for certiorari in its concerted refusal to deal case from the First Circuit.  Evergreen contended that the court of appeals, in dismissing the case, misinterpreted and misapplied the summary judgment standard in antitrust, and that the standard itself is the source of significant confusion and inconsistent reasoning among the federal circuits and thus calls for clarification by the Court.  Evergreen’s petition was supported by an amicus brief submitted by 12 professors of antitrust law and economics.

The Court, as is customary, gave no explanation for denying Evergreen’s petition.  The Court lost an important and timely opportunity to clarify an issue that has created tremendous confusion and inconsistency among the circuits — the proper tools for applying the summary judgment standard in antitrust.  Although the Court understandably focuses on issues of law and not fact for petitions that it accepts, one has to wonder what set of facts — with the lower court here improperly weighing evidence and making credibility determinations and applying the much-criticized equal inferences rule — would serve as a better vehicle for resolving this question.  This issue is not going away, and anyone who practices antitrust knows that. Click here and here for articles about the decision.

Confirming this comment, and on the same day, a panel of the Third Circuit Court of Appeals publicly issued a decision affirming summary judgment dismissal of a Sherman Act Section 1 oligopoly conspiracy case despite findings of 31 uniform price increases by defendants over 11 years, well over any increase in costs and despite declining demand and excess capacity.  Valspar Corp. v. Dupont,  (3d Cir., 10/2/17). Arguably pre-empting the role of the trier of fact, just as Evergreen alleged the First Circuit did in its case, the Third Circuit panel required that the plaintiff provide inferences that the alleged conspiracy was “more likely than not” rather than applying the general summary judgment standard, as repeated by the Supreme Court in Kodak, that the plaintiff show simply that a jury could reasonably find in favor of the plaintiff.  The plaintiff’s burden at trial is to prove its case by a preponderance of evidence (51%), whereas its burden on summary judgment is simply to show that a jury could reasonably find in its favor — which the Supreme Court itself has explained is less than the preponderance standard. As Evergreen explained in its petition, and as applies equally in Valspar, to require that the plaintiff show by a preponderance of evidence on summary judgment that a jury would find in its favor effectively pre-empts the role of the jury, infringes on the Seventh Amendment right of the plaintiff, and is illogical, in effect raising the bar by requiring that the plaintiff satisfy the preponderance standard at both the summary judgment phase and at trial.  Inquiring minds may wonder — will Valspar be the vehicle where the Court finally addresses these issues?  For more information on Valspar, see write-up by the American Antitrust Institute, which filed an amicus in support of the plaintiff (here).

Richard Wolfram  [email protected]

CCC’s: Antitrust Division DAAG Delivers Remarks at International Conference

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The Antitrust Division’s Deputy Assistant Attorney General for International Affairs, Roger Alford delivered a speech on October 3, 2017 in San Paolo, Brazil. (here).  There were no groundbreaking announcements in the speech, but since it was the first delivered since Makan Delrahim took over as head of the Antitrust Division, I thought it might be of interest.

There were two aspects of the talk worth noting.  First, Mr. Alford highlighted the Division’s longstanding focus on holding individuals accountable:

As my colleagues at the Antitrust Division have explained before, “[h]olding companies accountable and assessing large fines, alone, are not the only means, or even the most effective way, to accomplish our goal of deterring and ending cartels. Individuals commit the crimes for which corporate offenders pay. Every corporate crime involves individual wrongdoing.” For that reason, we at the Antitrust Division have a long history of holding individuals accountable for antitrust crimes, and we have consistently touted prison time for individuals as the single most effective deterrent to criminal collusion.

The other item that caught my eye in the speech was the Mr. Alford’s reference to two Antitrust Division recent prosecutions:

  • In June of this year, Yuval Marshak was sentenced to 30 months in prison for participating in a scheme to defraud the U.S. Department of Defense.
  • In 2016, we tried and obtained the conviction of John Bennett for fraud against the United States as a result of a kickback scheme in the procurement of environmental clean-up services. He was ultimately sentenced to five years in prison.

These examples of “fraud prosecutions” are interesting because there is sometimes an internal debate in the Antitrust Division about whether only Sherman Act, (i.e. price fixing or bid rigging) charges should be brought or whether the Division has a broader mandate to prosecute what is sometimes called “corruption of the bidding process.” A “corruption of the bidding process” example would be bribing a procurement official to tailor bid specifications to favor one company.  In a hybrid case, there may be both a bribe of a procurement official and collusion among the favored bidders.

At times, investigation and prosecution of collusion on public contracts such as defense, roads, and schools has been a priority for the Division.  Public contracts are typically where collusion and bribery turn up–and jail sentences tend to be long.  The Division has limited resources, however, so when international cartels dominate, there may be few resources left to devote to public contracts.

The interesting thing about public contract investigations, is that the Division has some ability to be proactive in generating new investigations (as opposed to being reactive to leads/leniencies that come into the Division.)  When resources are available, the Division will often beat the bushes talking to federal agents and procurement officials looking for tips on possible worthwhile investigations.  It will be worth watching to see if there is any noticeable shift in emphasis under the new Antitrust Division leadership.

Thanks for reading.