Category Archives: Fraud

CCC’s: The Bid Rigging Whistleblower –Part 2

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Should the Antitrust Division Have a Whistleblower Czar?

Well, no.  Without legislation to create a criminal antitrust whistleblower statute, the Czar might have little to do.  But, the Antitrust Division should make some effort, short of Czardom, to encourage bid rigging whistleblowers.  As I noted in Part I (here), there is already a mechanism for a whistleblower to claim a reward for prosecuting collusion among contractors/vendors on government contracts.  The bid rigging whistleblower can file a False Claims Act (qui tam) case on behalf of the government alleging that the government was ripped off by illegal collusion among the bidders.  If the government recovers damages, the person who brought the suit (the Relator) can receive a percentage (10-25%) of the recovery.

As I mentioned in Part I, the Antitrust Division has brought both criminal and civil suits as a result of filed whistleblower cases. This is a pretty well-kept secret because as far as I know, the Division has never encouraged anyone to come forward as a bid rigging whistleblower or done anything to publicize the fact that whistleblowers of collusion on government contracts can and have recovered a portion of the government’s damages.  The government should make some effort to attract bid rigging whistleblowers.  Doing so would benefit the Antitrust Division in obvious and non-obvious ways.  Below are a few ideas I think are worth discussing.

  1. Welcoming Bid Rigging False Claims Act cases
  • Special Counsel for False Claims Act Cases

Over the years there has been a proliferation of counselors to the Assistant Attorney General for the Antitrust Division.  One counsel, with a criminal and civil background, could be designated as the Special Counsel for False Claims Act cases.  This would at least be a message to the bar that the Antitrust Division does have an interest in promoting whistleblowing on collusion on federal government contracts.  This special counsel could also oversee whatever efforts the Antitrust Division does take to encourage bid rigging whistleblowing.

  • Create a False Claims Act web page

The Antitrust Division has a page on its website for the Leniency Program.  The Antitrust Division promotes the heck out of leniency.  This page is an excellent source of information about everything one would need to know about the Corporate and Individual Leniency Programs.   There is also a Report Violations page on the Antitrust Division’s website. A False Claims Act page would signal the Division’s interest in possible False Claims cases as well as provide information a potential whistleblower might need to begin.

  • Better Coordination with Civil Division and United States Attorney’s Offices

 When a False Claim Act case is filed, notice of the case and the evidence supporting it must be filed with the Attorney General of the United States.  From there, the case will be assigned according to the subject matter of the alleged fraud: (i.e. health care, defense, antitrust).  Perhaps this is already being done, but the Antitrust Division might be more aggressive in claiming its seat at the table for bid rigging on government contracts.  A whistleblower will not file a Sherman Act case if she has information about collusion on a government contract—because there is no provision for antitrust whistleblowers.  The case will be filed as a Conspiracy to Defraud the United States with the bid rigging constituting the fraud.  A review of cases False Claims Act Cases on the Department of Justice website indicates that there have been a variety of False Claims Act matters that involved bid rigging yet were handled by local United States Attorney’s offices and the Civil Division of the Department of Justice, instead of the Antitrust Division.[1]

It would be good public policy to have all potential government bid rigging cases be referred to the Antitrust Division. Pardon the institutional pride (I worked there for 34 years), but nobody can spot, investigate and prosecute a viable criminal antitrust violation (i.e. bid rigging) better than an experienced Antitrust Division Attorney.  What may look like a bid rig too small for government intervention, may be spotted as the tip of the iceberg by an Antitrust Division prosecutor.  Likewise, a case that may appear weak to someone else, may look quite viable to a Division prosecutor that has experience investigating cartels—and tools like the leniency program.  A special counselor for False Claims Act cases would raise the profile within the Antitrust Division, the Department of Justice (and the outside bar) and may spur additional viable False Claim Act cases being referred to the Antitrust Division for a decision on whether the government should intervene and take over the prosecution.

     2.      The Benefits to the Antitrust Division of a Higher Profile for False Claims                                      Act Cases

The Antitrust Division could benefit in both obvious and non-obvious ways from a higher profile on False Claim Act cases.

  • The Obvious

Filing a False Claims Act case is a risky proposition for any potential whistleblower.  The blowback from being a whistleblower will likely be severe and the chances for success, especially if the government does not intervene, are far from certain.  Modest changes like these suggestions are not going to lead to an avalanche of new cases.  (Thus, the need for an SEC like criminal antitrust whistleblower statute as I argue in this article (here)).  But, it is certainly worth a try.  Nothing suggested above, and others may have additional/better suggestions, costs the government a nickel and the return on the investment may be substantial, even if just one additional cartel is uncovered.  Also, while a different subject, many believe that the value of leniency has been decreasing and the number of viable leniency applications is down. While this may be coincidence, not causation, the Antitrust Division’s statistics for cases and jail sentences and fines are way down.  It may be an opportune time to launch a new, if modest, initiative.

  • Good Cases

One benefit of publicizing the potential benefits of being a bid rigging whistleblower is that even if only one new case emerges, these are great cases for staff to work on.  Here I speak from personal experience and my views may not be universally held, but I’m pretty sure they are held by most trial attorneys in the Antitrust Division. Government bid rigging cases are great cases to work on.  They are much lower profile than say a Forex or Libor or other international cartel matters.  These “big” cases have their own allure, but the front office, the Criminal Division, SEC, CFTC, foreign agencies, Batman and Robin and others all have a hand in these investigations.  While it is exhilarating to work on a matter that makes the front page of the Wall Street Journal, a staff member is a small cog in the big wheel. On a government contract matter, generally speaking, the staff has more responsibility and more ownership of the matter, including possible trial experience on manageable cases. It’s a great way to learn how to investigate, take chances and take ownership.  These cases also involve working with agents across the federal spectrum.  These relationships can last a career and produce results over a long period of time.

  • Deterrent Effect

Finally, one of the most important reasons for robust antitrust prosecutions is deterrence. If the Antitrust Division starts whistleblowers and prosecuting bid rigging cases, it should have a deterrent effect on all the bid riggers out there that are not currently being detected. Whistleblower awards on bid rigging matters should be well-publicized. There is great satisfaction in seeing taxpayer money restored (with appropriate penalties) if a successful case is brought.  In a cartel case like capacitors the price of an input is raised but the impact on the final cost to consumers is small.  The cumulative harm is great (and should be prosecuted), but it is very diffused.  With bid rigging on government contracts the harm is focused and the recovery can be significant with both criminal and civil penalties.  Also, many government bid rigging investigations can lead to finding more bid rigging and what often looks like a small matter can proliferate into a major investigation.  Road construction, school milk, Defense Department contracts are just a few of the government contract cases that led to uncovering “way of life” collusion in certain industries.

Part III

 Special Issues with A Big Rigging Whistleblower

 Thanks for reading. Please come back for Part III.

Bob Connolly

CCC’s: The Bid Rigging Whistleblower–Part 1

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I have been writing, along with my co-author Kimberly Justice, about the desirability of a criminal antitrust whistleblower statute.  Besides many blog posts, we have written a few articles such as It’s a Crime There Isn’t an Antitrust Whistleblower Statute, Wolters Kluwer, Antitrust Law Daily, April 8, 2018.

A principle objection to an antitrust whistleblower statute is that it would undermine the credibility of a witness if she received compensation for exposing a cartel.  Superficially that sounds right but doesn’t hold up when you consider the success of the Antitrust Division’s Corporate Leniency Program. Simply change “leniency applicant” to “whistleblower” and one can see that the Antitrust Division already has a form of whistleblowing; the Corporate Leniency Program which bestows rich rewards on the whistleblower.  As the Antitrust Division has stated repeatedly, the value of leniency is the tens of millions of dollars it can save a company.   Leniency/whistleblowing saves not only the leniency company money, but it can save multiple culpable executives from jail time in return for their cooperation: “When Calculating The Costs And Benefits Of Applying For Corporate Amnesty, How Do You Put A Price Tag On An Individual’s Freedom?” So, the government is rightfully not skittish about paying for information. It’s a necessary evil to breaking up secret cartels and hopefully deter their inception.

The reward of leniency does, of course, undermine the credibility of witnesses just as a whistleblower reward will ding the credibility of any whistleblower who testifies.  If the government has only the cooperation of a leniency applicant, it is likely to: a) not bring a case; or b) lose the case it brings.  But, that flaw in leniency that does not outweigh the benefits!  Leniency whistleblowing almost always leads to cooperation from other subjects of the investigation.  The value of leniency whistleblowing is that it starts the dominos falling of companies/individuals coming in to cooperate for the next best deal available. You don’t see many criminal antitrust trials based on a grant of leniency, because the grant of leniency to one company leads to many guilty pleas and an overwhelming case against whomever is left.[1] A criminal antitrust whistleblower statute for individuals will work the same way.

Pardon the advertisement for a criminal antitrust whistleblower statute because this post is not about that.  In writing about the need for a whistleblower statute, I may have given the impression that it is not currently possible to be a whistleblower on cartel cases.  This is not true.  An individual whistleblower already has a way to help the government recover damages from bidding collusion, while at the same time getting some reward for the great expense and risk in doing this.  If there is bid rigging or price-fixing and the federal government is a victim of the collusion, a qui tam(whistleblower) suit can be brought seeking damages on behalf of the government.  A whistleblower can file a False Claims Act case alleging that a defendant (or group of defendants as in a cartel) obtained a federal contract by means of making a material false statement.  If a bid was rigged, the false statement would likely be the non-collusion affidavit filed with a vendor’s bid package.  This is typically referred to as a Certificate of Independent Price Determination, or something similar.  But, even without such a certification, in the context of a competitive bidding situation, there would be an implied certification that each vendor submitted his bid independently and without collusion with the other bidders, or even non-bidders if the scheme involved payoffs to a potential competitor to not bid).

A couple of things to note. To get a reward for this type of whistleblowing, it is not sufficient to simply go into the prosecutor’s office and lay out the evidence you have.[2]  Under the False Claims Act, the “Relator” [as the whistleblower is called] must file a qui tamsuit on behalf of the government alleging the government suffered damages as a result of the fraud.[3]  If damages are awarded as a result of the qui tamsuit, the Relator is entitled to between 15-25% of the amount the government recovers as a result of the bid rigging.  As an example, if a Relator files a qui tamaction alleging bid rigging on a $50 million contract and the contractor repays the government $10 million in overcharges, the whistleblower should recover between $1.5 million and $2.5 million.[4]

Once a qui tam suit is filed, the Relator’s attorneys must present the evidence they have to the government.  The government will decide whether they want to intervene and take over prosecution of the fraud.  If the government declines to intervene, (and the reason for declination can range from the government thinks your case is weak, or your case is fine, but they are just too busy with other matters).  Even if the government declines to intervene, the Relator can still prosecute the case, and some do, but it is obviously more difficult without the government’s assistance.  And in some fairly rare instances, the government can seek to have the Relator’s case dismissed if they believe it is without evidentiary merit or based on a legal theory the government doesn’t agree with.

The Antitrust Division has actually had successful criminal prosecutions that began based on evidence provided by a whistleblower who had filed a False Claims Act suit. The Antitrust Division neither publicizes the fact that whistleblowing rewards are available for exposing bid rigging on government contracts (and most states have similar False Claims Act statutes) and does not publicize when a whistleblower has successfully recovered damages for the government or himself.  When I was Chief of the Philadelphia Office of the Antitrust Division we prosecuted several cases where the investigation began as a result of a whistleblower False Claims Act case.  A publicly documented example of this was in 2012 when the Antitrust Division settled a civil bid rigging case where two companies were charged with rigging contracts for Bureau of Land Management gas leases.[5]  Because of the collusion, SG Interests and Gunnison Energy Corp. overcharged the government for leases by bidding less than they would have if they bid competitively. Each company paid a settlement of $550,000 in a civil case brought by the Antitrust Division.  The government’s case was based on a qui tamcase filed in 2009 by a former vice president of one of the companies.[6]  See, Justice Department Settlement Requires Gunnison Energy and SG Interests to Pay the United States a Total of $550,000 for Antitrust and False Claims Act Violations.

Also, there was a False Claim Act case filed in the Puerto Rican ocean shipping cartel matter.  That investigation resulted in the longest jail sentence ever received by an individual convicted of a Sherman Act violation–5 years[7].  Again, the fact that a whistleblower case was filed is not well known, but the following is an excerpt from an Antitrust Division appellate brief as Mr. Peake appealed his conviction:

Stallings, a former Sea Star executive, was the government’s first cooperator in its investigation into the shipping conspiracy, although he did not testify at Peake’s trial. Stallings’s [whistleblower] lawsuit sought damages for “injuries to the United States Government resulting from Defendants’ fraudulent course of conduct and conspiracy to allocate customers, rig bids, fix rates, surcharges and other fees for Puerto Rican Cabotage which resulted in the submission of false or fraudulent claims to the Government. [8]

The Antitrust Division noted in its brief:

The qui tam provisions of the False Claims Act permit whistleblowers (known as “relators”) to bring certain fraud claims on behalf of the United States. 31 U.S.C. § 3730(b). These actions “are filed under seal and remain that way for at least 60 days” to give “the government an opportunity to assess the relator’s complaint and decide whether to intervene and assume primary responsibility for prosecuting the case.” United States ex rel. Heineman-Guta v. Guidant Corp., 718 F.3d 28, 30 (1st Cir. 2013) (citing 31 U.S.C. § 3730(b)(2), (b)(4), (c)(1)). Regardless of whether the government intervenes, a relator is entitled to a portion of the proceeds from the lawsuit. 31 U.S.C. § 3730(d).

Coming Next in Part II:  Should There Be an Antitrust Division “Whistleblower Czar?”

Thanks for reading.  Please come back.  Bob Connolly  

[1]  To be honest, another reason there are so few criminal antitrust trials is the prohibitive cost and the draconian “trial penalty” a convicted defendant is likely to face for demanding his day in court.

[2]     It would be far more efficient if a whistleblower could simply provide the information he has to the government and cooperate in the investigation.  This is among the reasons Ms. Justice and I are advocating an SEC style whistleblower statute.

[3]     It is unquestioned that a scheme to rig bids not only violation the Sherman Act, but is a conspiracy to defraud the government where the government’s money is at stake.

[4]     31 U.S. Code § 3730 (d)Award to Qui Tam Plaintiff. — (1) If the Government proceeds with an action brought by a person under subsection (b), such person shall, subject to the second sentence of this paragraph, receive at least 15 percent but not more than 25 percent of the proceeds of the action or settlement of the claim, depending upon the extent to which the person substantially contributed to the prosecution of the action. Where the action is one which the court finds to be based primarily on disclosures of specific information (other than information provided by the person bringing the action) relating to allegations or transactions in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government  Accounting Office report, hearing, audit, or investigation, or from the news media, the court may award such sums as it considers appropriate, but in no case more than 10 percent of the proceeds, taking into account the significance of the information and the role of the person bringing the action in advancing the case to litigation. Any payment to a person under the first or second sentence of this paragraph shall be made from the proceeds. Any such person shall also receive an amount for reasonable expenses which the court finds to have been necessarily incurred, plus reasonable attorneys’ fees and costs. All such expenses, fees, and costs shall be awarded against the defendant.

[5]     https://www.justice.gov/atr/case-document/file/510616/download.

[6]     https://www.justice.gov/opa/pr/justice-department-settlement-requires-gunnison-energy-and-sg-interests-pay-united-states.

[7].   https://www.justice.gov/opa/pr/former-sea-star-line-president-sentenced-serve-five-years-prison-role-price-fixing-conspiracy.

[8]      US v. Frank Peake, Antitrust Division brief available at,https://www.justice.gov/atr/case-document/file/936611/download.

Utah Financial Advisor Sentenced To Prison For Tax Evasion, Securities Fraud And Wire Fraud

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June 8, 2018

A St. George, Utah, financial advisor was sentenced to 72 months in prison on June 4th for his role in selling fraudulent tax-avoidance and investment strategies to his clients, announced Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department’s Tax Division and U.S. Attorney John W. Huber for the District of Utah.

According to documents and information provided to the court, Henry Brock, pleaded guilty to tax evasion, securities fraud and wire fraud.  Brock founded a financial services company in 2009 and served as the president from 2009 through 2017.  As President, he marketed and sold a fraudulent tax scheme, called “IRA Exit Strategy,” to potential investors.  Brock promised investors that he could provide a way for them to avoid paying taxes on IRA withdrawals, which would otherwise be subject to Internal Revenue Service (IRS) penalties and taxes.  To implement his scheme, Brock caused his business to issue tax forms to his clients falsely representing that they were investors in his business who incurred losses, which served to offset the clients’ tax liabilities.  As a result, Brock caused clients to file fraudulent income tax returns claiming a total of approximately $3.8 million in bogus business losses and resulting in a tax loss of over $1.1 million.

During this period, Brock fraudulently raised more than $10.8 million in investments by making false representations to investors regarding the “IRA Exit Strategy,” the financial condition of his company and other matters.  On at least one occasion, Brock also transferred $196,323 of a client’s investment funds and used the money for his own personal and business expenses.

In addition to the term of imprisonment, U.S. District Court Judge Ted Stewart ordered Brock to serve three years of supervised release and to pay restitution in the amount of $12 million.

Principal Deputy Assistant Attorney General Zuckerman and U.S. Attorney Huber thanked special agents of IRS Criminal Investigation and the Utah Division of Securities, who conducted the investigation, and AUSA Trina Higgins and Trial Attorney Matthew Hoffman of the Tax Division, who are prosecuting this case.

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

Mississippi Physician Sentenced to Over Three Years in Prison for Role in $3 Million Compounding Pharmacy Fraud Scheme

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June 7, 2018

A Biloxi, Mississippi physician was sentenced today to 42 months in prison for his involvement in a $3 million compounding pharmacy fraud scheme.

Acting Assistant Attorney General John P. Cronan of the Justice Department’s Criminal Division; U.S. Attorney D. Michael Hurst Jr. of the Southern District of Mississippi; Special Agent in Charge Christopher Freeze of the FBI’s Jackson, Mississippi Field Division; Acting Special Agent in Charge Thomas J. Holloman III of IRS Criminal Investigation’s (IRS-CI) New Orleans Field Office and Special Agent in Charge John F. Khin of the Defense Criminal Investigative Service’s (DCIS) Southeast Field Office made the announcement.

Albert Diaz, M.D., was sentenced by U.S. District Judge Keith Starrett of the Southern District of Mississippi.  Restitution to TRICARE and other insurance companies will be determined at a later date. On March 2 after a five-day jury trial, Diaz was convicted of one count of conspiracy to commit health care fraud and wire fraud, four counts of wire fraud, one count of conspiracy to distribute and dispense a controlled substance, four counts of distributing and dispensing a controlled substance, one count of conspiracy to falsify records in a federal investigation and five counts of falsification of records in a federal investigation.

According to evidence presented at trial, between 2014 and 2015, Diaz participated in a scheme to defraud TRICARE and other insurance companies by prescribing medically unnecessary compounded medications, some of which included ketamine, a controlled substance, to individuals he had not examined.  The evidence further demonstrated that, based on the prescriptions signed by Diaz, Advantage Pharmacy in Hattiesburg, Mississippi, dispensed these medically unnecessary compounded medications and sought and received reimbursement from TRICARE and other insurance companies totaling more than $3 million. The trial evidence further demonstrated that in response to a TRICARE audit, Diaz falsified patient records to make it appear as though he had examined patients before prescribing the medications.

The FBI, IRS-CI, the Defense Criminal Investigative Service, the U.S. Department of Health and Human Services Office of Inspector General, the Mississippi Bureau of Narcotics and other government agencies investigated the case.  Trial Attorneys Kate Payerle and Jared Hasten of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Mary Helen Wall of the Southern District of Mississippi are prosecuting the case.

The Fraud Section leads the Medicare Fraud Strike Force, which is part of a joint initiative between the Department of Justice and HHS to focus their efforts to prevent and deter fraud and enforce current anti-fraud laws around the country.  The Medicare Fraud Strike Force operates in nine locations nationwide.  Since its inception in March 2007, the Medicare Fraud Strike Force has charged over 3,500 defendants who collectively have falsely billed the Medicare program for over $12.5 billion.

Department of Justice and Health and Human Services Return $2.6 Billion in Taxpayer Savings From Efforts to Fight Healthcare Fraud

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April 6, 2018 Departments Work to Stamp out Pill Mills and Opioid Overprescribing

Health and Human Services Secretary Alex Azar and Attorney General Jeff Sessions today released a fiscal year (FY) 2017 Health Care Fraud and Abuse Control Program report showing that for every dollar the federal government spent on healthcare related fraud and abuse investigations in the last three years, the government recovered $4. Additionally, the report shows that the departments’ FY 2017 Takedown event was the single largest healthcare fraud enforcement operation in history.

In FY 2017, the government’s healthcare fraud prevention and enforcement efforts recovered $2.6 billion in taxpayer dollars from individuals and entities attempting to defraud the federal government and Medicare and Medicaid beneficiaries. Some of these fraudulent practices include:

  • Providers operating “pill mills” out of their medical offices.
  • Providers submitting false claims to Medicare for ambulance transportation services.
  • Clinics submitting false claims to Medicare and Medicaid for physical and occupational therapy.
  • Drug companies paying kickbacks to providers to prescribe their drugs, and pharmacies soliciting and receiving kickbacks from pharmaceutical companies for promoting their drugs.
  • Companies misrepresenting capabilities of their electronic health record software to customers.

“Taxpayers work hard every day to help fund government programs for our fellow Americans,” Attorney General Sessions said. “But too many trusted medical professionals like doctors, nurses and pharmacists have chosen to violate their oaths and exploit this generosity to line their pockets, sometimes for millions of dollars.  At the Department of Justice, we have taken historic new actions to incarcerate these criminals and recover stolen funds, including executing the largest healthcare fraud enforcement action in American history.  These achievements are important, but the department’s work is not finished. We will keep up this pace and continue to prosecute fraudsters so that we can give financial relief to taxpayers.”

“Today’s report highlights the success of HHS and DOJ’s joint fraud-fighting efforts,” said HHS Secretary Azar. “By holding individuals and entities accountable for defrauding our federal health programs, we are protecting the programs’ beneficiaries, safeguarding billions in taxpayer dollars, and, in the case of pill mills, helping stem the tide of our nation’s opioid epidemic.”

The Departments of Justice (DOJ) and Health and Human Services (HHS), through the Health Care Fraud Prevention and Enforcement Action Team (HEAT) effort, use data analytics and surveillance to crack down on, prevent and prosecute healthcare fraud. While the program continues to be very successful, the return on investment fluctuates from year to year, in part because cases resulting in large settlements take multiple years to complete. Additionally, there has been a reduction in large monetary settlements as many of the large pharmaceutical manufacturers have entered into Corporate Integrity Agreements with the HHS Office of the Inspector General to establish protections against fraudulent activities.

With teams comprised of law enforcement agents, prosecutors, attorneys, auditors, evaluators and other staff, last year DOJ opened 967 new criminal healthcare fraud investigations of which federal prosecutors filed criminal charges in 439 cases involving 720 defendants.  A total of 639 defendants were convicted of healthcare fraud related crimes. In FY 2017, the DOJ and HHS joint Medicare Fraud Strike Force filed 253 indictments and charges against 478 defendants who allegedly billed federal healthcare programs more than $2.3 billion. The Strike Force obtained more than 290 guilty pleas, litigated 33 jury trials and won guilty verdicts against 40 defendants. The Fraud Strike Force secured prison sentences for more than 300 defendants, with an average sentence of 50 months. Since its inception in 2007, Strike Force prosecutors filed more than 1,660 cases charging more than 3,490 defendants who collectively billed the Medicare program more than $13 billion.

Beyond criminal prosecution, the HHS Office of Inspector General (OIG) remains vigilant in excluding providers and suppliers who committed fraud or engaged in the abuse or neglect of patients in federal health programs. A total of 3,244 individuals and entities were excluded in FY 2017. Others were excluded as a result of licensure revocations. These exclusions help to safeguard beneficiaries from future harm that could otherwise be inflicted by such convicted individuals or entities. HHS can also suspend Medicare payments to providers during investigations of credible allegations of fraud.  During FY 2017, there were 551 related payment suspensions.  More than 4 million claims are reviewed by Medicare each day; resulting in more than one billion claims processed annually for timely payments to healthcare providers and suppliers. Given the volume of claims processed by Medicare each day and the significant cost associated with conducting medical review of an individual claim, the Centers for Medicare and Medicaid Services uses automated edits to help prevent improper payments without the need for manual intervention.  The National Correct Coding Initiative consists of edits designed to reduce improper payments in Medicare Part B, and this program saved Medicare $186.9 million during the first nine months of FY 2017.

As the opioid epidemic continues to devastate communities and families across the nation, both DOJ and HHS are responding with new approaches. One out of every three beneficiaries received prescription opioids through Medicare Part D in 2016. Additionally, 401 prescribers were found to have questionable prescribing patterns for beneficiaries at serious risk of opioid misuse or overdose, based on an OIG analysis. Last July, DOJ and HHS announced the largest ever healthcare fraud enforcement action, involving 412 charged defendants across 41 federal districts, including 115 doctors, nurses and other licensed medical professionals, for their alleged participation in healthcare schemes involving approximately $1.3 billion in false billings. Of those charged, more than 120 defendants, including doctors, were charged for their roles in prescribing and distributing opioids and other dangerous narcotics.

In August, Attorney General Sessions announced the formation of the Opioid Fraud and Abuse Detection Unit, a new DOJ pilot program that will use data to help combat and prosecute individuals and entities involved in illegal activities that fuel the crisis. As part of that task force, the department funded 12 experienced assistant United States attorneys for a three-year term to focus solely on investigating and prosecuting healthcare fraud related to prescription opioids, including pill mill schemes and pharmacies that unlawfully divert or dispense prescription opioids for illegitimate purposes. Those prosecutors have already charged several with unlawful distribution of opioids, and their continued success is crucial in combatting this deadly epidemic.

For more details on the Health Care Fraud and Abuse Control Program and today’s report, visit: https://oig.hhs.gov/publications/docs/hcfac/FY2017-hcfac.pdf

CCC’s: DOJ Announces “Coordination of Corporate Resolution Penalties” Policy

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On May 9, 2018 Deputy Attorney General Rod Rosenstein delivered remarks to the New York City Bar White Collar Crime Institute. He announced a new Department policy that encourages coordination among Department components and other enforcement agencies when imposing multiple penalties for the same conduct.  The full prepared remarks are here.  Below is an excerpt:

Today, we are announcing a new Department policy that encourages coordination among Department components and other enforcement agencies when imposing multiple penalties for the same conduct.

The aim is to enhance relationships with our law enforcement partners in the United States and abroad, while avoiding unfair duplicative penalties.

It is important for us to be aggressive in pursuing wrongdoers. But we should discourage disproportionate enforcement of laws by multiple authorities. In football, the term “piling on” refers to a player jumping on a pile of other players after the opponent is already tackled.

Our new policy discourages “piling on” by instructing Department components to appropriately coordinate with one another and with other enforcement agencies in imposing multiple penalties on a company in relation to investigations of the same misconduct.

In highly regulated industries, a company may be accountable to multiple regulatory bodies. That creates a risk of repeated punishments that may exceed what is necessary to rectify the harm and deter future violations.

Sometimes government authorities coordinate well.  They are force multipliers in their respective efforts to punish and deter fraud. They achieve efficiencies and limit unnecessary regulatory burdens.

Other times, joint or parallel investigations by multiple agencies sound less like singing in harmony, and more like competing attempts to sing a solo.

Modern business operations regularly span jurisdictions and borders. Whistleblowers routinely report allegations to multiple enforcement authorities, which may investigate the claims jointly or through their own separate and independent proceedings.

By working with other agencies, including the SEC, CFTC, Federal Reserve, FDIC, OCC, OFAC, and others, our Department is better able to detect sophisticated financial fraud schemes and deploy adequate penalties and remedies to ensure market integrity.

But we have heard concerns about “piling on” from our own Department personnel. Our prosecutors and civil enforcement attorneys prize the Department’s reputation for fairness.

They understand the importance of protecting our brand. They asked for support in coordinating internally and with other agencies to achieve reasonable and proportionate outcomes in major corporate investigations.

And I know many federal, state, local and foreign authorities that work with us are interested in joining our efforts to show leadership in this area.

“Piling on” can deprive a company of the benefits of certainty and finality ordinarily available through a full and final settlement. We need to consider the impact on innocent employees, customers, and investors who seek to resolve problems and move on. We need to think about whether devoting resources to additional enforcement against an old scheme is more valuable than fighting a new one.

Our new policy provides no private right of action and is not enforceable in court, but it will be incorporated into the U.S. Attorneys’ Manual, and it will guide the Department’s decisions.

This is another step towards greater transparency and consistency in corporate enforcement. To reduce white collar crime, we need to encourage companies to report suspected wrongdoing to law enforcement and to resolve liability expeditiously.

There are four key features of the new policy.

First, the policy affirms that the federal government’s criminal enforcement authority should not be used against a company for purposes unrelated to the investigation and prosecution of a possible crime. We should not employ the threat of criminal prosecution solely to persuade a company to pay a larger settlement in a civil case.

That is not a policy change. It is a reminder of and commitment to principles of fairness and the rule of law.

Second, the policy addresses situations in which Department attorneys in different components and offices may be seeking to resolve a corporate case based on the same misconduct.

The new policy directs Department components to coordinate with one another, and achieve an overall equitable result. The coordination may include crediting and apportionment of financial penalties, fines, and forfeitures, and other means of avoiding disproportionate punishment.

Third, the policy encourages Department attorneys, when possible, to coordinate with other federal, state, local, and foreign enforcement authorities seeking to resolve a case with a company for the same misconduct.

Finally, the new policy sets forth some factors that Department attorneys may evaluate in determining whether multiple penalties serve the interests of justice in a particular case.

Sometimes, penalties that may appear duplicative really are essential to achieve justice and protect the public. In those cases, we will not hesitate to pursue complete remedies, and to assist our law enforcement partners in doing the same.

Factors identified in the policy that may guide this determination include the egregiousness of the wrongdoing; statutory mandates regarding penalties; the risk of delay in finalizing a resolution; and the adequacy and timeliness of a company’s disclosures and cooperation with the Department.

Cooperating with a different agency or a foreign government is not a substitute for cooperating with the Department of Justice. And we will not look kindly on companies that come to the Department of Justice only after making inadequate disclosures to secure lenient penalties with other agencies or foreign governments. In those instances, the Department will act without hesitation to fully vindicate the interests of the United States.

The Department’s ability to coordinate outcomes in joint and parallel proceedings is also constrained by more practical concerns.  The timing of other agency actions, limits on information sharing across borders, and diplomatic relations between countries are some of the challenges we confront that do not always lend themselves to easy solutions.

The idea of coordination is not new. The Criminal Division’s Fraud Section and many of our U.S. Attorney’s Offices routinely coordinate with the SEC, CFTC, Federal Reserve, and other financial regulators, as well as a wide variety of foreign partners. The FCPA Unit announced its first coordinated resolution with the country of Singapore this past December.

The Antitrust Division has cooperated with 21 international agencies through 58 different merger investigations during the past four years.

Here is a link to the policy on Coordination of Corporate Resolution Penalties.

As the Deputy Attorney General stated, coordination is not new.  The Antitrust Division routinely coordinates with other federal and state agencies on most investigations.  And some coordination always occurs on international investigations.  In the recent financial crimes investigations such as Libor and FOREX the amount of coordination was extensive among federal agencies such as the Antitrust Division, Criminal Division, FBI, SEC, CFTC, state AG office, as well as with many foreign jurisdictions.  It is rumored that meetings were held in the Great Hall at the Department of Justice since no conference room could hold the throngs of participating enforcers.

Coordination by the Antitrust Division with enforcers from other federal, state and international enforcers is not new, but there is a continual debate about whether such coordination prevents “piling on.”  Of course, what a defense attorney may call piling on, the prosecutors may deem to be a hard but fair hit.  There is no referee or instant replay.  The question of piling on or double counting is a subject of continuing debate in antitrust circles.  It’s a tough question as foreign jurisdictions are injured by international cartels and they have stakeholders that want a significant penalty.  Sorting out proportional penalties among sovereign nations is a particularly tough ongoing challenge. This new policy document is not going to end that debate but a written policy document (while creating no new rights) could enhance defendants’ power of persuasion with the Department of Justice if they have some credible numbers to back up a “piling on” argument.

Thanks for reading.

PS.  Several publications have reported that Richard Powers will become the next Deputy Assistant Attorney General for Criminal Enforcement in the Antitrust Division.  The Antitrust Division has made no announcement yet.  One of the many qualifications Mr. Powers will bring to the position, if he is named as the Criminal Deputy, is his experience in multi-agency, international prosecutions. He worked on both Libor and Forex while a member of the Antitrust Division’s New York Field Office.

CCC’s: European Commission Sets EU-wide Whistleblower Protection Rules

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The European Union just announced proposed rules designed to guarantee protection to whistleblowers who report infringements of EU law.  The proposal requires approval from EU countries and the European Parliament before it can become law. Currently only 10 EU countries offer full protection to whistleblowers.

From the EU Press Release

Brussels, 23 April 2018

Recent scandals such as Dieselgate, Luxleaks, the Panama Papers or the ongoing Cambridge Analytica revelations show that whistleblowers can play an important role in uncovering unlawful activities that damage the public interest and the welfare of our citizens and society.

Today’s proposal will guarantee a high level of protection for whistleblowers who report breaches of EU law by setting new, EU-wide standards. The new law will establish safe channels for reporting both within an organisation and to public authorities. It will also protect whistleblowers against dismissal, demotion and other forms of retaliation and require national authorities to inform citizens and provide training for public authorities on how to deal with whistleblowers.

First Vice-President Frans Timmermans said: “Many recent scandals may never have come to light if insiders hadn’t had the courage to speak out. But those who did took enormous risks. So, if we better protect whistleblowers, we can better detect and prevent harm to the public interest such as fraud, corruption, corporate tax avoidance or damage to people’s health and the environment. There should be no punishment for doing the right thing. In addition, today’s proposals also protect those who act as sources for investigative journalists, helping to ensure that freedom of expression and freedom of the media are defended in Europe.”

Věra Jourová, Commissioner for Justice, Consumers and Gender Equality added: “The new whistleblowers’ protection rules will be a game changer. In the globalised world where the temptation to maximise profit sometimes at the expense of the law is real we need to support people who are ready to take the risk to uncover serious violations of EU law. We owe it to the honest people of Europe.

The European Commission also issued a press release on Whistleblower Protection: Frequently Asked Questions

My former Antitrust Division colleague, Kimberly Justice and I have been advocating strongly for a criminal antitrust whistleblower statute; one that would not only give retaliation protection to whistleblowers but would provide a financial incentive for information that leads to exposure and prosecution of a cartel.  See It’s a Crime There Isn’t an Criminal Antitrust Whistleblower Statute.

One objection I’ve heard to a criminal antitrust whistleblower statute is that a whistleblower statute would undermine the Corporate Leniency program.  I think the truth would be quite the opposite.  Once a whistleblower helps initiate a cartel investigation, the race would be on to be the first company to qualify for leniency.  Also, the fact that a whistleblower could come forward may also increase Type A Corporate Leniency—leniency for a company that self-reports before there is even an investigation. And, in the ideal world (except for those of us who make a living from cartel investigations), the threat of a whistleblower would prevent a cartel from forming in the first place.  This notion was expressed in a Reuters article about the proposed EU legislation (here):

The Association of Chartered Certified Accountants (ACCA) said increasing whistleblower protection will help businesses.

“Companies have to see speak-up as something that would help them manage risks and avoid more serious issues such as violation of law, inappropriate conduct, crime or any type of harms,” ACCA head of corporate governance Jo Iwasaki said.

Thanks for reading.  Bob Connolly

CCC’s: It’s A Crime There Isn’t a Criminal Antitrust Whistleblower Statute

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Kimberly Justice and I are continuing to write about what we believe is a very important issue in cartel fighting–the passing of criminal antitrust whistleblower legislation.  Below are the opening paragraphs of our latest article on the subject.  The full article, kindly posted by Wolters Kluwer in their Antitrust Law Daily, can be found here.

“The SEC’s wildly successful whistleblower program has returned hundreds of millions of dollars to investors as a result of actionable whistleblower information over the past six years.  The IRS paid one whistleblower more than $100 million for information that helped the government uncover a massive tax evasion scheme and led to a $780 million settlement.  The CFTC predicts that the results of its whistleblower program this year will be “huge.”  The Antitrust Division has paid $0 to whistleblowers and received $0 from cartels exposed by whistleblowers.  Or, as Charlie Brown would say, the Antitrust Division “got a rock.”

There is no cartel whistleblower program and this should change now.  Price-fixing and bid-rigging conspiracies are felonies costing American consumers millions of dollars in the form of artificially high prices.  These fraudulent schemes are particularly suited to exposure by whistleblowers because senior corporate executives frequently use lower level employees (and potential whistleblowers) to carry out the illegal scheme.  The time is right for serious antitrust whistleblower legislation.”

 

Full article here

Thanks for reading.  If you have any reaction/comment you’d like to share please use the comment section or through LinkedIn (here).

Real Estate Investor Sentenced to 30 Months in Prison for Rigging Bids at Northern California Public Foreclosure Auctions

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Wednesday, March 21, 2018

A real estate investor was sentenced today for his role in conspiracies to rig bids at public real estate foreclosure auctions in Northern California, the Department of Justice announced.

Michael Marr was charged on Nov. 19, 2014, in an indictment returned by a federal grand jury in the Northern District of California.  He was convicted on June 2, 2017, of conspiring to rig bids at foreclosure auctions in Alameda and Contra Costa County.  Today, Marr was sentenced to serve 30 months in prison and to serve 3 years of supervised release.  In addition to his term of imprisonment, Marr was ordered to pay a criminal fine of $1,397,061.59.

“Michael Marr was a driving force behind a multi-year conspiracy to corrupt the public foreclosure auction process through a system of illegal payoffs,” said Assistant Attorney General Makan Delrahim of the Department of Justice’s Antitrust Division.  “Today’s sentence reflects the seriousness of that crime.”

The evidence at trial showed that the defendant conspired with others to rig bids to obtain hundreds of properties sold at foreclosure auctions.  The conspirators designated the winning bidders to obtain selected properties at the public auctions, and negotiated payoffs among themselves in return for not competing with one another.  They subsequently conducted private auctions among themselves at or near the courthouse steps where the public auctions were held, awarding the properties to the conspirators who submitted the highest bids in those private auctions.

As the CEO of Community Fund, LLC and Community Realty Property Management Inc., Marr sent multiple employees to the foreclosure auctions to rig bids on his behalf.  As part of the conspiracies, Marr’s agents purchased several hundred properties through the bid-rigging conspiracies and were owed payoffs on hundreds more.

When real estate properties are sold at public auctions, the proceeds are used to pay off the mortgage and other debt attached to the property, with the remaining proceeds paid to the homeowner.

The sentence is a result of an ongoing investigation into bid rigging at public real estate foreclosure auctions in California’s San Francisco, San Mateo, Alameda, and Contra Costa counties, which is being conducted by the Antitrust Division’s San Francisco Office and the FBI’s San Francisco Office.  Anyone with information concerning bid rigging or fraud related to public real estate foreclosure auctions should contact the Antitrust Division’s San Francisco Office at 415-934-5300 or call the FBI tip line at 415-553-7400.

Immigration Attorney Sentenced to More Than Six Years in Prison for Fraud Scheme and Identity Theft in Relation to Visa Applications

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Friday, March 9, 2018

An Indianapolis, Indiana immigration attorney was sentenced today to 75 months in prison for defrauding the U.S. Citizenship and Immigration Services (USCIS) and more than 250 of his clients by filing fraudulent visa applications and reaping approximately $750,000 in illegitimate fees.  Acting Assistant Attorney General John P. Cronan of the Justice Department’s Criminal Division and Special Agent in Charge James M. Gibbons of U.S. Immigration and Customs Enforcement’s Homeland Security Investigations (ICE-HSI) in Chicago made the announcement.

Joel Paul, 45, of Fishers, Indiana, was sentenced by U.S. District Judge Jane E. Magnus-Stinson of the Southern District of Indiana.  In addition to the prison sentence, Judge Magnus-Stinson sentenced Paul to serve three years of supervised release, and ordered that he pay up to $750,000 in restitution to his victims.  In November 2017, Paul pleaded guilty to one count each of mail fraud, immigration document fraud, and aggravated identity theft in connection with a scheme to submit fraudulent U-visa applications.

“Immigration fraud undermines not only the public’s faith in our institutions and the legal profession, it also jeopardizes public safety and compromises national security,” said Acting Assistant Attorney General Cronan.  “Attorneys who commit such egregious fraud on our legal system and their own clients will be held accountable.”

“Immigration fraud presents a serious threat to the national security of our country,” said Special Agent in Charge Gibbons. “Illegal schemes like this not only undermine the integrity of our nation’s legal immigration system, but they create potential security vulnerabilities while also cheating deserving immigrants of benefits they rightfully deserve.”

As part of his plea agreement, Paul admitted that from 2013 to 2017, he submitted more than 250 false Applications for Advance Permission to Enter as a Nonimmigrant on behalf of his clients and without their knowledge.  Those applications falsely asserted that Paul’s clients had been victims of a crime and had provided substantial assistance to law enforcement in investigating the crime.  With approximately 200 of the false applications, Paul submitted unauthorized copies of a certification he had obtained from the U.S. Attorney’s Office (USAO) for the Southern District of Indiana in 2013, using the certification without the USAO’s knowledge to falsely claim that the applicant had provided substantial assistance in a criminal prosecution.  In total, Paul charged his clients approximately $3,000 per application.

HSI investigated the case with the assistance of USCIS Fraud Detection and National Security Directorate.  Trial Attorneys Molly Gaston, Peter M. Nothstein and Amanda Vaughn of the Criminal Division’s Public Integrity Section prosecuted the case.