Category Archives: Compliance

CEO’s Say the Darndest Things (and salespeople too)

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CEO’s Say the Darndest Things (and salespeople too)  

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Since I spent over 30 years with the Antitrust Division, US Department of Justice, people sometimes ask me how investigations get started. This blog post addresses one way: “loose lips sink ships” or put another way “CEO’s Say the Darndest Thing (and salespeople too).”

This is a story from down under. The Chairman of Australia’s Fortescue Metals, Andrew Forrest, was at a business dinner on March 24th when he expressed his frustration that his main rivals, BHP Billiton and Rio Tinto were driving down the prices of iron ore with excess production. Mr. Forrest declared:

“I’m absolutely happy to cap my production right now. All of us should cap our production now and we’ll find the iron ore price will go straight back up to $70, $80, $90 and the tax revenues which that will generate will build more schools, more hospitals, more roads, more of everything which Australia needs — universities etc. I’m happy to put that challenge out there: let’s cap our production right here and start acting like grown-ups.”(full story here)

OOPS. The Australian Competition & Consumer Commission (which has the great shorthand name: A-Triple C) started an investigation. The ACCC just announced it would no take action against Mr. Forrest because of the “context and circumstances” of his remarks.  The ACCC Chairman Rod Sims warned: “However, it is important that the business community understands that public statements calling for competitors to agree to limit production or to raise prices may constitute a serious cartel ­offence.”  (full statement here).

In the United States an offer to fix prices, even if not accepted, can and has been, prosecuted by the Antitrust Division as mail and/or wire fraud.  And the Federal Trade Commission has charged price-fixing/bid rigging solicitations as violations of Section 5 of the FTC Act. That is not to say that either agency would have charged Mr. Forrest for the remarks he made, but with different circumstances, prosecutions have been brought for what are called “invitations to collude.” (A Sherman Act prosecution requires an actual agreement between the competitors, so unless an offer to collude is accepted, it can be prosecuted, but not under the Sherman Act.)  Mr. Forrest’s statement was also problematic because if competitors did raise prices, even if they had already been planning to do so, suspicion of collusion would be high.  And civil law suits may well have followed.

I am going to be making a presentation on this very subject with my friend Barbara Sicalides at the Society of Corporate Compliance and Ethics (SCCE’s) annual Compliance & Ethics Institute (October 4-7th) in Las Vegas. This is the SCCE’s primary education and networking event for professionals working in the Compliance and Ethics profession across all industries around the world. Sessions at the 2015 conference will offer the latest compliance information on hot topics and current events.   Our session is titled:  CEO’s (and salespeople too) Say The Darndest Things: How an Ill-Advised Statement or Email Can Start an Antitrust Investigation or Lawsuit – Robert E. Connolly, Partner, GeyerGorey LLP; Barbara T. Sicalides, Partner, Pepper Hamilton LLP.  We will have numerous examples, sometimes funny, sometimes not so funny and very expensive, of how companies and individuals have found themselves under investigation and/or charged with antitrust violations for things that simply never should have been said/written.  It should be a good session on how to counsel the unsuspecting of the potential perils of off the cuff remarks.

Hope to see you there.

Thanks for reading.

Former ExIm Bank Officer Pleads to Accepting Over $78,000 in Bribes

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The nation’s most experienced Export Import Bank Fraud prosecutors, Senior Litigation Counsel Patrick M. Donley and Trial Attorney William H. Bowne of the Criminal Division’s Fraud Section, continue in their efforts.

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A former loan officer at the Export-Import Bank of the United States (Ex-Im Bank) pleaded guilty in federal court today for accepting more than $78,000 in bribes in return for recommending the approval of unqualified loan applications to the bank, among other misconduct.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, Acting Inspector General Michael T. McCarthy of the Export-Import Bank of the United States and Assistant Director in Charge Andrew G. McCabe of the FBI’s Washington Field Office made the announcement.

Johnny Gutierrez, 50, of Stafford, Virginia, pleaded guilty before U.S. District Judge Gladys Kessler of the District of Columbia to one count of bribery of a public official.  A sentencing hearing is scheduled for July 20, 2015.

“Gutierrez risked both taxpayer dollars and the integrity of the Ex-Im Bank for his personal financial gain,” said Assistant Attorney General Caldwell.  “Those charged with serving the public will be held accountable when they seek personal enrichment at the public’s expense.”

“Gutierrez betrayed the trust and confidence of the hardworking Ex-Im Bank employees and the U.S. taxpayers,” said Acting Inspector General McCarthy.  “The Office of Inspector General will continue to aggressively and diligently investigate all allegations of waste, fraud, and abuse related to Ex-Im Bank programs.”

“In his role as a loan officer, Gutierrez betrayed the trust that was placed in him by fellow citizens and took bribes in exchange for providing favorable action on loan applicants,” said Assistant Director in Charge McCabe.  “The FBI, with our partners, will continue to investigate and expose fraudulent schemes that tarnish the good and ethical work of the U.S. government.”

According to his plea agreement, Gutierrez was a loan officer for the Ex-Im Bank based in Washington, D.C.  The Ex-Im Bank is the federal agency responsible for promoting the export of U.S. goods to foreign countries through the guarantee of domestic loans to foreign buyers.  As an Ex-Im Bank loan officer, Gutierrez was responsible for conducting credit underwriting reviews for companies and lenders submitting financing applications to the Ex-Im Bank.

As part of his guilty plea, Gutierrez admitted that on 19 separate occasions between June 2006 and December 2013, he accepted bribes totaling more than $78,000 in return for recommending the approval of unqualified loan applications and improperly expediting other applications.

Specifically, Gutierrez admitted that he intentionally ignored the fact that one company had previously defaulted in 10 previous transactions guaranteed by the bank, causing the Ex-Im Bank to lose almost $20 million.  Despite these defaults, Gutierrez accepted bribes to continue to recommend the approval of the company’s loan applications.  Additionally, Gutierrez admitted that he accepted bribes from a financing broker to expedite applications submitted by the broker, and that he privately assisted the broker to improve its applications before submission to the bank.  In exchange, Gutierrez was to receive half of the broker’s profit on the transactions financed by the bank.  Further, Gutierrez disclosed to the broker inside information about financing applications submitted to the Ex-Im Bank, so that the broker could solicit the applicants as clients.

The case was investigated by the Inspector General of the Export-Import Bank of the United States and the FBI, with significant assistance provided by the Internal Revenue Service-Criminal Investigation’s (IRS-CI) Washington Field Office.  The case is being prosecuted by Senior Litigation Counsel Patrick M. Donley and Trial Attorney William H. Bowne of the Criminal Division’s Fraud Section.

Medtronic to Pay $4.41 Million in USDOJ-CIV Case

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The Justice Department announced today that Medtronic plc and affiliated Medtronic companies, Medtronic Inc., Medtronic USA Inc., and Medtronic Sofamor Danek USA Inc., have agreed to pay $4.41 million to the United States to resolve allegations that they violated the False Claims Act by making false statements to the U.S. Department of Veterans Affairs (VA) and the U.S. Department of Defense (DoD) regarding the country of origin of certain Medtronic products sold to the United States.

“Today’s settlement demonstrates our commitment to ensure that our service members and our veterans receive medical products that are manufactured in the United States and other countries that trade fairly with us,” said Acting Assistant Attorney General Benjamin C. Mizer of the Justice Department’s Civil Division.  “The Justice Department will take action to hold medical device companies to the terms of their government contracts.”

“Domestic manufacture is a required component of many military and Veterans Administration contracts,” said U.S. Attorney Andrew M. Luger of the District of Minnesota.  “Congress has mandated that the United States use its purchasing power to buy goods made in the United States or in designated countries.  We take that mandate seriously and will not hesitate to take appropriate legal action to ensure compliance.”

According to the settlement agreement, between 2007 and 2014, Medtronic sold to the VA and DoD products it certified would be made in the United States or other designated countries.  The Trade Agreements Act of 1979 (TAA) generally requires companies selling products to the United States to manufacture them in the United States or in another designated country.  The United States alleged that Medtronic sold to the United States products manufactured in China and Malaysia, which are prohibited countries under the TAA.

The specific Medtronic products at issue included anchoring sleeves sold with cardiac leads and used to secure the leads to patients, certain instruments and devices used in spine surgeries, and a handheld patient assistant used with a wireless cardiac device.  The agreement covers the period from Jan. 1, 2007, to Dec. 31, 2013, and for one device (the handheld patient assistant), the period from Jan. 1, 2014, to Sept. 30, 2014.

The settlement resolves allegations originally brought in a lawsuit filed by three whistleblowers under the qui tam provisions of the False Claims Act, which allow private parties to bring suit on behalf of the government and share in any recovery. The relators will receive a total of $749,700 of the recovered funds.

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 the Attorney General and the Secretary of Health and Human Services.  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 $23.9 billion through False Claims Act cases, with more than $15.2 billion of that amount recovered in cases involving fraud against federal health care programs.

The case was handled by the U.S. Attorney’s Office of the District of Minnesota with assistance from the Civil Division, DoD, Defense Logistics Agency and Defense Criminal Investigative Service and the VA’s Office of General Counsel.

The underlying case is United States of America ex rel. Samuel Adam Cox, III, Meayna Phanthavong, and Sonia Adams v. Medtronic, Inc., Medtronic USA, Inc., and Medtronic Sofamor Danek USA, Inc., Civil No. 12-cv-2562 (PAM/JSM).

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

3C’s: A Flurry of Activity by the CCI–India Update

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Today’s guest post by Avinash Amarnath reports on several actions by the Competition Commission  of India

India update 2015 Vol 3

Its been quite a busy fortnight for the Competition Commission of India (CCI) especially on the cartel front. The CCI has issued three substantive decisions (two infringement decisions and one decision finding no infringement after a detailed investigation) last week which I have analysed below.

Another chemist and druggist association penalised

In its ninth decision against various chemist and druggist trade associations in India, the Competition Commission of India (CCI) fined the Himachal Pradesh (a state in India) Chemist and Druggist Association 10% of its average turnover for imposing rules requiring:

  • a no-objection certificate from it before a pharmaceutical company could appoint a stockist in the state of Himachal Pradesh; and
  • requiring compulsory payment of ‘product information service’ charges by the pharmaceutical company before launching a drug in the state.

The CCI found that these rules cumulatively resulted in limiting supply in the market and restricted pharmaceutical companies’ ability to launch new drugs onto the market. The president of the trade association was fined 8% of his average income for his liability as an individual.

An interesting takeaway from this decision is the CCI’s analysis of whether pharmaceutical companies can also be found liable for forming an agreement with the trade association to deny stockistship and limit supplies for the want of a no-objection certificate from the trade association. The CCI found that agreements between pharmaceutical companies and the trade association would not qualify as horizontal agreements (falling under Section 3(3) of the Competition Act) or as vertical agreements (falling under Section 3(4) of the Competition Act) as they are neither engaged in identical or similar trade of goods or provision of services  nor operating at different stages or levels of the production chain. However, relying on a previous decision (Ramakant Kini v. Hirandandani Hospital and Ors, a discussion on which appeared in my first post on Cartel Capers), the CCI observed that such agreements could nonetheless be examined under the general prohibition on anti-competitive agreements (Section 3(1) of the Competition Act) and would be subject to a rule of reason analysis. However, in the instant case, the pharmaceutical companies were not found liable as there was no evidence to indicate an agreement between them and the trade association.

The full order of the CCI can be accessed here.

For the Rest of the CartelCapers Story, Click Here:

Seventh Circuit affirms that physician referral includes certification.

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In U.S. v. Patel, the U.S. Court of Appeals for the Seventh Circuit upheld a Chicago doctor’s criminal conviction under the Anti-Kickback Statute for accepting payments from a home health agency finding that a referral includes not just a recommendation to visit a specific business but also a certification allowing that visit to be billed to the federal government.

“A narrow definition of the term would defeat the central purposes of the [statute],” the circuit panel wrote.

The appellant physician had provided his patients a wide variety of agencies to choose from and only accepted inducements from one home health care agency.  Still , the Circuit Court ruled that that conduct was still improper because it implied a quid pro quo every time Patel filled out the forms necessary for the home health care agency to receive reimbursements from the government.

“Patel argues that he … played no role in his patients’ initial selection of Grand (the health care agency) or their decision to continue using Grand,” the court said. “True, but Patel chose whether his patients could go to Grand at all, which we think is just as important.”

The panel noted that federal Stark Law, which restricts physician self-referrals, defines the term to cover “certifying or recertifying” the need for care.  Rejecting the loophole offered by the appellant physician in his appeal, the Circuit Court recognized that “the possibility of a kickback for each recertification incentivizes the physician to keep recertifying, even if further treatment is unnecessary or if treatment by a different provider would be in the patient’s best interest….”

Doctor Indicted On Charges He Illegally Distributed Drugs (EDPA)

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PHILADELPHIA – Dr. Jeffrey Bado, 59, of Philadelphia, PA, was charged today by indictment with illegally distributing pain medications from his Philadelphia and Bryn Mawr medical offices, announced United States Attorney Zane David Memeger.  Bado is charged with two counts of maintaining a drug-involved premises, 200 counts of illegally distributing oxycodone, a Schedule II controlled substance, outside the usual course of professional practice and for no legitimate medical purpose, as well as 33 counts of health care fraud and four counts of making false statements to federal agents.

 

According to the indictment, Bado, a doctor of Osteopathic Medicine, gave prescriptions for large numbers of oxycodone pills to “patients” who paid in cash for an “office visit” during which the “patient” would receive at most a cursory physical examination and little other medical care or treatment.  During their first visit to Bado’s practice, new patients would still get prescriptions for large amounts of oxycodone even though they provided little or no recent medical records to verify their claim of pain, or provided medical records that were not consistent with their claims of pain.

 

The indictment alleges that Bado’s prescribing mirrored the needs of drug addicts and drug traffickers.  Bado would allegedly comply with patient requests for pills with specific concentrations of oxycodone, and Bado would allegedly switch patients to pills with a higher street value even though there was no medical justification for the switch.  Bado allegedly continued to prescribe high amounts of oxycodone even when he knew that his patients were addicted to oxycodone, were using illegal drugs, or were not even taking the oxycodone pills as prescribed.

 

The indictment further alleges that Bado committed health care insurance fraud by billing Medicare and private insurers for patient visits that occurred in February 2010, when Bado was out of the office and traveling in Haiti.  Bado allegedly directed residents, nurses and other staff to see patients while he was away, and allegedly directed that they provide the patients with prescriptions that Bado had already filled out and signed.  Before departing for his trip, Bado allegedly made notations in and signed medical charts to make it appear as though he had seen the patients when in fact he was away in Haiti during their appointments.  Bado then allegedly had his office staff submit fraudulent claims to these patients’ health care insurers for the cost of the patients’ office visit as if Bado had seen these patients.  It is alleged that Bado subsequently made several materially false statements to federal agents regarding the arrangements he made before leaving for Haiti, including falsely claiming that he had not filled out in advance out any medical records for the patient appointments that occurred while he was in Haiti.

 

If convicted of all charges, Bado faces an estimated sentencing guideline range of at least 24 years in prison with a maximum sentence of 20 years in prison for each count of oxycodone distribution and maintaining a drug premises counts, 10 years in prison for each count of health care fraud, and five years in prison for each count of making false statement counts.  He also faces substantial fines and criminal forfeiture.

 

The case was investigated by the Federal Bureau of Investigation, the Department of Health and Human Services Office of the Inspector General, the Haverford Township Police Department and the Philadelphia Police Department.  It is being prosecuted by Assistant U.S. Attorneys Nancy Beam Winter and Andrew J. Schell.

An Indictment is an accusation.  A defendant is presumed innocent unless and until proven guilty.

3C’s: Why Motorola Mobility was a Good Decision for Global Cartel Enforcement

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Why Motorola Mobility was a Good Decision for Global Cartel Enforcement

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Back in September I wrote an article for Competition Policy International (CPI) on the FTAIA and the now vacated Motorola Mobility I decision.  That article can be read here.  I was honored to have that article quoted at length by Judge Posner in the subsequent decision:Motorola Mobility v. AU Optronics Corp, 2015 WL 137907 (7th Cir., decided Nov 26, 2015, amended January 12, 2015). In this decision, the Seventh Circuit held that purchases made by Motorola Mobility’s foreign subsidiaries of LCD panels, which the subsidiary then incorporated into products sold to the parent for sale in the U.S., did not give rise to a damage claim under the FTAIA. The Court found that the cartel victims were Motorola Mobility’s foreign subsidiaries. The key fact was Motorola Mobility’s claim that it purchased more than $5 billion worth of LCD panels from cartel members. The Court responded: “That’s a critical misstatement. All but 1 percent of the purchases were made by Motorola’s foreign subsidiaries.”

Since there is little doubt that the defendants did fix prices, the dismissal of 99% of Motorola’s claims seemed like a windfall for the cartelists, and a decision that could lead to under deterrence of global cartel enforcement. Motorola Mobility has expressed its intent to seek review in the United States Supreme Court. Because of the ambiguity of the FTAIA and the myriad fact patterns that can arise, policy consideration will play a large role in ultimately deciding the scope of the FTAIA. I thought Motorola Mobility was rightly decided and that the decision is actually pro-cartel enforcement. I explained why I thought that was so in a recent article CPI published as part of an “Motorola Mobility Redux” issue. My paper is titled: “Why the Motorola Mobility Decision Was Good For Cartel Enforcement and Deterrence” can be found here without charge.  (There are other excellent articles in the CPI issue but they require a subscription to view.). Below are excerpts of my thoughts on why I thought theMotorola Mobility decision was good for cartel enforcement.

* * * * * Click Here for the Rest of the Story * * * * *

3C’s: CCI fines Port Owner’s Association and Individuals for Price Fixing

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CCI fines Port Owner’s Association and Individuals for Price Fixing

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Today’s guest post is from Avinash Amarnath.

India Update 2015 Vol. 2

Trade associations continue to be the flavor of the day in the cartel space in India.

On 21 January 2015, the Competition Commission of India (CCI) imposed a penalty on the Dumper Owner’s Association (DOA), a trade association of dumper and hywa [unloading] machinery providers for intra-port transportation of cargo at Paradip Port and its individual officers for controlling the supply of dumpers and hywas at Paradip Port and fixing supply prices. The trade association was fined 8% of its average turnover (for the last 3 years) while the individual officers were fined 5% of their average income (for the last 3 years).

The complaint was brought by Swastik Stevedores Private Limited (the Informant), a company engaged in the business of stevedoring and intra-port transportation of cargo alleging that the DOA, in connivance with the Paradip Port Trust (PPT), the government authority managing Paradip Port had been refusing to provide dumpers and hywas to it.

In particular, the CCI found that:

  1. The DOA had been entrusted with the authority to issue gate passes for dumpers and hywas at Paradip Port by the PPT which gave it a unique advantage in controlling supply at the port as no machinery could enter the port without a gate pass. Further, the members of the DOA owned a substantial number of the dumpers used at Paradip Port. The DOA used this control over the supply of dumpers and hywas to refuse supply to the Informant thereby limiting output through collective action in violation of the Competition Act, 2002 (Competition Act); and
  2. The DOA collectively fixed the rates to be charged for provision of dumpers and hywas. The members       were forced to abide by such rates and were not allowed to individually negotiate rates. This resulted in determination of sale prices through collective action in violation of the Competition Act.

    * * * * * Click Here for the Rest of the Story * * * * *

New Grant Fraud Case Filed (Americorps)

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Maricopa County Community College District Agrees to Pay $4 Million for Alleged False Claims Related to Award of AmeriCorps Education Awards

Maricopa County Community College District (MCCCD) has agreed to pay $4.08 million to resolve allegations under the False Claims Act that it submitted false claims to the Corporation for National and Community Service (CNCS) concerning AmeriCorps state and national grants, the Justice Department announced today.  MCCCD is the entity responsible for operating community colleges in Maricopa County, Arizona, and is based in Phoenix.

“Those who receive federal funds must deal with the government openly and honestly,” said Acting Assistant Attorney General Joyce R. Branda for the Justice Department’s Civil Division.  “The Department of Justice will ensure that financial assistance provided by the Corporation for National and Community Service is received only by eligible individuals who satisfy CNCS’s mission of promoting service and education.”

CNCS is an independent federal agency that administers AmeriCorps, among other national service programs.  MCCCD obtained AmeriCorps funding for Project Ayuda, a program that proposed to engage students in national service.  In order to receive an AmeriCorps education award, a student had to meet certain service-hour requirements.  MCCCD allegedly improperly certified that students had completed the required number of service hours so that they would earn an education award.  This resulted in CNCS providing education awards to these students.  MCCCD also allegedly improperly received grant funds from CNCS to administer the project.

“Our internal process uncovered MCCCD’s mismanagement, and we worked with the Justice Department to ensure that taxpayer dollars were recovered,” said CNCS’s General Counsel Valerie Green.  “This is an example of how interagency collaboration works.”

“Taxpayers are justifiably outraged when a community fails to receive promised services because national service funds were misused,” said CNCS’s Inspector General Deborah J. Jeffrey.  “We hope that this settlement will deter other grantees from similar misconduct.”

The allegations resolved by this settlement arose from a whistleblower lawsuit filed under the False Claims Act by Christine Hunt, an MCCCD employee.  Under the False Claims Act, private citizens can sue on behalf of the government and share in any recovery.  Hunt’s share of the settlement is $775,827.

This case was handled by the Commercial Litigation Branch of the Civil Division and CNCS’s Office of Inspector General and Office of General Counsel.

The lawsuit is captioned United States ex rel. Hunt v. Maricopa County Community College District; Paula and Richard Vaughn, No. 11-cv-2241 (D. Ariz.).  The claims resolved by the settlement are allegations only, and there has been no determination of liability.

Connolly Cartel Capers: Seven Japanese Executives Indicted In Auto Parts Cartel Investigation

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By: Robert Connolly

The Antitrust Division, through a federal grand jury, indicted seven Japanese executives for conspiring to fix prices in the long running auto parts investigation. There were two separate indictments. One charged executives from Mitsubishi Electric Corp. with conspiring to fix the prices of starter motors, alternators and ignition coils from at least 2000 through 2010. In the second indictment, four executives from Hitachi Automotive Systems were charged with conspiring to fix prices of multiple auto parts including starter motors, fuel injection systems, and ignition coils.

Atsushi Ueda, Minoru Kurisaki, and Hideyuki Saito of Mitsubishi Electric Corp. were charged with conspiring to fix the prices of certain automotive products sold to Ford Motor Company, General Motors LLC, Chrysler Group LLC, Fuji Heavy Industries Ltd., Nissan Motor Company Ltd., and Honda Motor Company Ltd. in the United States and elsewhere. This indictment also charged Kurisaki and Saito with knowingly conspiring to obstruct justice by destroying documents and corruptly persuading, and attempting to persuade others, to destroy documents. Saito was charged in an additional count with knowingly and corruptly persuading, and attempting to persuade, executives to destroy documents and delete electronic data that may contain evidence of antitrust crimes.

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