Bradford L. Geyer is reading enforcement agency tea leaves and he is seeing signs of enhanced enforcement involving grant fraud and procurement fraud at grantfraud.com. His latest note regarding an extensive credit card fraud scheme can be found here.
Category Archives: Grant Fraud
GrantFraud.Com: Former DHS Employee Inprisoned for Stealing USDA Funds
As part of our effort to track white collar enforcement trends with the new Administration we will be tracking developments in grant fraud enforcement and procurement fraud enforcement over at GrantFraud.Com that is under construction and open. You may click the title below to see a new USDA grant fraud case filing. For a variety of reasons that Brad Geyer will be blogging about, we are projecting emboldened grant fraud and procurement fraud enforcement moving forward
CCC: Recommended Blog: “Grand Jury Target”
Recommended Blog: “Grand Jury Target”
I’ve been following a blog for a while that I find informative and interesting: Grand Jury Target: Tracking Federal Prosecutions of Corporate Executives. The blog is by Sara Kropf, a trial lawyer in Washington, D.C. A March 8th post was titled: “Why Are we Falling for the Department of Justice’s Sales Pitch? The blog recounted Ms. Kropf’s experience at the recent White Collar Crime seminar, including the constant pitches by DOJ officials to rush in to confess.
This approach—to quickly rush to DOJ to win cooperation credit—seems to be the sad reality of current white collar practice when you represent large companies. (Don’t even get me started in the antitrust amnesty program and the problematic incentives that program creates.)
Check out the blog. I think you’ll be well rewarded for your time.
Thanks for reading this one too!
Big Brothers Big Sisters of America to Pay $1.6 Million to Resolve Allegations of False Claims For Federal Grants
– Big Brothers Big Sisters of America Corporation (Big Brothers) has agreed to pay the United States $1.6 million to resolve allegations of false claims for funds under Department of Justice grants awarded to help children at risk, announced United States Attorney Zane David Memeger and Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division. Big Brothers is a not-for-profit organization that provides mentoring services to boys and girls throughout the United States. The organization, originally based in Philadelphia, Pennsylvania, now is headquartered in Tampa, Florida.
Big Brothers is a national organization that acts through approximately 300 independent affiliate agencies across the United States. Since 2004, Big Brothers has received millions of dollars in grants from the Justice Department to support initiatives on behalf of children at risk. As a condition of those grants, Big Brothers was required to maintain sound accounting and financial management systems in accordance with federal regulations and guidelines designed to ensure that grant funds would be properly accounted for and used only for appropriate purposes.
The United States alleges that Big Brothers violated these regulations and guidelines with respect to three grants awarded by the Justice Department from 2009 to 2011, by commingling the grant funds with general operating funds, failing to segregate expenditures to ensure that the funds for each grant were used as intended, and failing to maintain internal financial controls to safeguard the proper use of grant funds. These allegations were documented in a 2013 audit of the three grants performed by the Department of Justice Office of the Inspector General. Since 2013, Big Brothers has replaced its management team and begun implementing policies aimed at correcting deficiencies in its management and accounting of federal grant funds.
“The US Attorney’s office is committed to protecting federal grants and ensuring that the funds are appropriately spent,” said Memeger. “Federal grant recipients must administer these grants with transparency and diligence, and the compliance measures implemented pursuant to this settlement agreement will help to achieve those goals.”
“Organizations such as Big Brothers have an obligation to the populations they serve as well as to the taxpayer to ensure that government grant funds are used for their intended purpose,” said Mizer. “The settlement announced today exemplifies the Department’s commitment to hold those who mishandle such funds accountable.”
“We appreciate the support of the U.S. Attorney for the Eastern District of Pennsylvania and the Civil Division in working with us on these kinds of cases,” said Department of Justice Inspector General Michael E. Horowitz. “The OIG’s auditors and investigators will continue to work with each other closely to uncover misuses of grant funds, and with our law enforcement partners to ensure that justice is served.”
In addition to paying the United States $1.6 million, Big Brothers has agreed to institute a strict compliance program that requires the organization to engage in regular audits, both internally and by independent auditors; establish a compliance team, an employee code of conduct, whistleblower policies, and a disciplinary policy for employees who engage in or fail to disclose abuses of federal grant funds; provide regular employee training on these policies; and employ risk assessment tools to detect abuses that might otherwise go undetected.
The investigation was conducted by the Department of Justice Office of the Inspector General. The settlement was handled by Assistant U.S. Attorneys Joel M. Sweet and Scott W. Reid in coordination with Trial Attorney David W. Tyler of the Justice Department’s Civil Division, Commercial Litigation Branch. The claims resolved by this settlement are allegations only; there has been no determination of liability.
New Grant Fraud Case Filed (Americorps)
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.
Virginia-Based Move Management Company Pays More Than $500,000 to Settle Overbilling Claims in Connection with Transportation of Personal Property in Relocating Federal Employees
Virginia-Based Move Management Company Pays More Than $500,000 to Settle Overbilling Claims in Connection with Transportation of Personal Property in Relocating Federal Employees
RE/MAX Allegiance Relocation Services, a Virginia-based move management company, has agreed to pay the government $509,807 to resolve allegations that it violated the False Claims Act by overbilling for transportation services, the Department of Justice announced today.
“Today’s settlement demonstrates our continuing vigilance to ensure that those doing business with the government do so legally and honestly and that taxpayer funds are not misused,” said Assistant Attorney General for the Civil Division Stuart F. Delery. “Government contractors who seek to profit at the expense of taxpayers will be held accountable.”
The settlement relates to allegations involving contracts to transport personal property of federal employees relocating duty stations within the United States and between the United States and Canada. The government alleged that the defendant charged for move management services that were not provided and overbilled agencies on other moves by charging inapplicable tariff rates.
“We encourage whistleblowers to provide us with useful information to help us combat all manners of fraud on the U.S. Government,” said U.S. Attorney for the Eastern District of Virginia Dana J. Boente.
“We will continue to investigate allegations of federal contractors fraudulently maximizing their profits at the expense of American taxpayers,” said U.S. General Services Administration Acting Inspector General Robert C. Erickson.
The settlement resolves allegations filed in a lawsuit by Michael Angel, a former employee of RE/MAX Allegiance Relocation Services, in federal court in Alexandria, Virginia. The lawsuit was filed under the qui tam, or whistleblower, provisions of the False Claims Act, which permit private individuals to sue on behalf of the government for false claims and to share in any recovery. The act also allows the government to intervene and take over the action, as it did in this case. Angel will receive $86,667.
The settlement was the result of a coordinated effort by the Civil Division of the Department of Justice, the U.S. Attorney’s Office for the Eastern District of Virginia, the General Services Administration Office of Inspector General, U.S. Department of Homeland Security Office of Inspector General, Department of Agriculture Office of Inspector General and NASA Office of Inspector General.
The case is captioned United States ex rel. Michael Angel v. Franconia Real Estate Services, Inc., d/b/a RE/MAX Allegiance Relocation Services; No. 1:12cv764 (E.D.Va.). The claims resolved by the settlement are allegations only; there has been no determination of liability.
Antitrust Division Increasing Procurement Fraud Footprint Once Again
The Antitrust Division announced that a former owner and operator of a Florida-based airline fuel supply service company was sentenced today to serve 50 months in prison for participating in a scheme to defraud Illinois-based Ryan International Airlines, the Department of Justice announced.
This is a legacy case reassigned from the shuttered Atlanta Field Office suggesting a successful and a smooth transition of its assignment to the Washington 1 Criminal Office (formerly the National Criminal Enforcement Section). For any tea leaf readers, AAG Bill Baer’s comments in this press release (reprinted below) suggest renewed focus by the Antitrust Division into procurement fraud and an increasing willingness to open, investigate and charge matters that involve non Title 15 U.S.C Section 1 offenses in all types of procurements. The “tell” here is subtle, but it is very significant.
Baer’s quote today:
“Awarding government contracts in exchange for payoffs is a crime the Antitrust Division takes seriously,” said Bill Baer, Assistant Attorney General in charge of the Department of Justice’s Antitrust Division. “Today’s sentence reaffirms the division’s commitment to vigorously prosecute individuals who engage in this behavior.”
If you know the history of Title 18 procurement prosecutions, Baer’s commitment to bringing future procurement fraud cases is significant. The Antitrust Division was a significant player during the Bush years’ National Procurement Fraud Task Force. Besides domestic kickback and other Title 18 cases, the Division brought many overseas contingency operations (then “WarZone”) prosecutions for bidding corruption and grant fraud. In fact, the Division had wide berth to investigate and prosecute cases that involved “corruption of the bidding or award process.” This was a wider mandate than simply bringing cases of horizontal collusion among competitors. The National Procurement Fraud Task Force was incorporated into the Financial Fraud Enforcement Task Force early in the Obama administration and resources were reallocated to new enforcement priorities in the wake of the financial crisis in 2008. As everyone viewed their new enforcement mission through a financial crimes prism, the focus of the Antitrust Division returned to a more restrictive view of its mission, i.e., bringing Sherman Act cases under 15 U.S.C. Section 1. At the height of this limitation, for an investigation to receive authority to be opened, it had to include evidence that on its face could be construed classic horizontal bid rigging conduct.
It is beyond the scope of this blog entry, but there is much that goes into the press release process that provides insights into enforcement agency gestalt, resource allocation, drive to open cases, and willingness to keep cases open and to charge cases, particularly marginal ones. A press release also can provide insight into the AAG’s mindset and, sometimes, even more importantly from an agency effectiveness perspective, what people reporting to the AAG think his mindset is.
Today’s quote from AAG Baer is instructive. It is in an active, broad and forceful voice. In a sweeping statement it links “kickbacks” and “the Antitrust Division” in the same sentence and suggests direct Antitrust Division intervention. Most importantly, it suggests an interest in crimes involving the payment of kickbacks to award contracts (a Title 18 offense where a Section 1 agreement between competitors is usually not present). It then states that when offenses like these are committed they will be “tak[en] seriously…[and will be vigorously prosecut[ed]” by the Antitrust Division.
Contrast this with Baer’s statement in September 2013 regarding another case on the same investigation:
“Today’s sentence should serve as a stiff deterrent to executives who might be tempted to solicit a kickback from their supplies in exchange for their honest services,” said Bill Baer, Assistant Attorney General in charge of the Antitrust Division. “The Antitrust Division is committed to ensuring that contracts are won based on competition and not collusion.”
The 2013 AAG quote literally suggests that deterrence is provided by the length of this sentence rather than by any threat of immediate action by the Antitrust Division. It then links to a general principle that references the blanket requirement imposed earlier in the Administration that a horizontal agreement between competitors had to be present to justify resources. It also should be recognized that “collusion” is a primarily a term of art within the Antitrust Division directed at collusion among competitors rather than collusion with a contract officer.
Baer’s current statement is forward-looking and reaffirms that procurement fraud as a Division priority. For all intents and purposes, AAG Baer has indicated to line attorneys and the outside world (most importantly, investigative agencies) that the Antitrust Division is again open for cases of “corruption of the bidding or award process.” This strongly suggests a move away from an exclusive focus on Invitation for Bids (IFB) contracting to the massively larger pie of “everything else” including cost plus contracts, prime vendor contracts, sole source contracts and even the issuance of grants.
To advise clients regarding risk analysis, GeyerGorey LLP has been tracking this progression because in many hidden, but key areas, the Antitrust Division provides disproportionate value to the government’s procurement fraud mission by supporting the agency mission, helping resource investigations and by providing continuity to long investigations and program management. This message has been received loud and clear by Antitrust Division rank and file and it is in the process of being received by the FBI, IRS-CID and 38 Inspectors General who immediately recognize that they can bring cases to Antitrust that require extensive resourcing or which have been declined. With history as a guide, we expect procurement fraud investigation openings to increase substantially and we expect current investigations to be prolonged or rekindled as resources are reallocated with Antitrust Division resources.
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Former airline fuel owner sentenced in fraud scheme
Executive Sentenced to Serve 50 Months in Prison
A former owner and operator of a Florida-based airline fuel supply service company was sentenced today to serve 50 months in prison for participating in a scheme to defraud Illinois-based Ryan International Airlines, the Department of Justice announced.
Sean E. Wagner, the former owner and operator of Aviation Fuel International Inc. (AFI), was sentenced in the U.S. District Court for the Southern District of Florida in West Palm Beach to serve 50 months in prison and to pay $202,856 in restitution. On Aug. 13, 2013, a grand jury returned an indictment against Wagner and AFI, charging them for their roles in a conspiracy to defraud Ryan. On March 6, 2014, Wagner pleaded guilty to one count of conspiracy to commit honest services wire fraud. According to court documents, from at least as early as December 2005 through at least August 2009, Wagner and others at AFI made kickback payments to Wayne Kepple, a former vice president of ground operations for Ryan, totaling more than $200,000 in the form of checks, wire transfers, cash and gift cards in exchange for awarding business to AFI. The charges against AFI were dismissed on Feb. 21, 2014.
Ryan provided air passenger and cargo services for corporations, private individuals and the U.S. government – including the U.S. Department of Defense and the U.S. Department of Homeland Security.
“Awarding government contracts in exchange for payoffs is a crime the Antitrust Division takes seriously,” said Bill Baer, Assistant Attorney General in charge of the Department of Justice’s Antitrust Division. “Today’s sentence reaffirms the division’s commitment to vigorously prosecute individuals who engage in this behavior.”
“This sentencing highlights the continuing commitment of the DCIS to thoroughly investigate and bring to justice any companies or individuals who engage in fraudulent and corrupt practices that undermine the integrity of Department of Defense procurement programs,” said John F. Khin, Special Agent in Charge of the Defense Criminal Investigative Service Southeast Field Office.
As a result of the ongoing investigation, five individuals, including Wagner, have pleaded guilty and have been ordered to serve sentences ranging from 16 to 87 months in prison and to pay more than $780,000 in restitution. An additional individual has pleaded guilty to obstructing the investigation and is currently awaiting sentencing.
The investigation is being conducted by the Antitrust Division’s Washington Criminal I office and the U.S. Department of Defense’s Office of Inspector General’s Defense Criminal Investigative Service, with assistance from the U.S. Attorney’s Office for the Southern District of Florida.
Former USAID contractor arrested on embezzlement charges
Afghan police working with American agents arrested an Afghan man on charges of stealing more than a half million dollars from an agricultural development fund supported by USAID. The suspect in custody is Abdul Khalil Qadery, a former employee of Development Alternatives Inc. (DAI), a Bethesda, Maryland company. The USAID press release can be found here. There seems to have been no public participation or press release issued by the United States Department of Justice. The likely explanations for this scenario, that often act in concert, are as follows: 1) the subject was an Afghan or a third party national, 2) there was insufficient evidence to charge the subject in United States courts and/or 3) there were extradition, removal or diplomacy considerations that applied. USAID agents are pragmatic and routinely think creatively and “outside the box” to investigate and get their cases prosecuted. Afghanistan prisons are known for being particularly harsh and a maximum sentence of three years in an Afghanistan prison is considered extraordinarily “hard time”
Antitrust and White-Collar Defense Luminary, Robert E. Connolly, Joins GeyerGorey LLP
GeyerGorey LLP announced today that Robert E. Connolly has joined the firm’s Washington, D.C. office as a partner. Connolly spent most of his career as a prosecutor with the Middle Atlantic Field Office of the Antitrust Division, Department of Justice. Connolly joined that office in 1980 and was Chief from 1994 until early 2013. More recently, Robert E. Connolly has been with DLA Piper in Philadelphia. Connolly will lead GeyerGorey’s corporate internal investigations practice. Founding partner Brad Geyer said “Bob is a natural fit for our culture, which requires constant disciplined teamwork and focus on client solutions that spring from the firm’s’ deep prosecutorial experience”
Connolly said: “I am excited to join my former DOJ colleagues. Collectively we have worked on many of the Division’s most significant criminal and civil matters. We have unique insights and experience to offer clients. The firm’s unique approach and rapid growth further strengthens our ability to serve clients faced with government investigations.”
“We expect Bob will be involved in much of the firm’s current portfolio of work, in addition to leading the corporate internal investigation practice,” said founding partner Hays Gorey. “Bob has a notable reputation for his representation in high-stakes matters. He will strengthen our ability to represent multinational clients in complex litigation, as well as in high-profile regulatory and enforcement agency investigations.” Connolly will be also be part of GeyerGorey’s compliance team, which blends its experience in enforcement, in-house counseling, criminal and civil defense, and qui tam litigation, to help companies efficiently identify, address, and mitigate litigation risks from the onset and develop an organizational culture that encourages ethical conduct and a commitment to comply with the law.
In his career with the Division, Connolly led major national and international white-collar crime investigations in the areas of antitrust, fraud and obstruction of justice. He is known for innovative investigative and trial strategy and a command presence in the courtroom. He left the government with one of the, if not the most successful, trial records in Antitrust Division history. Connolly was known for his building and leading effective teams that had an extraordinary commitment to successfully completing the mission.
Notably, Connolly led the international graphite electrodes cartel grand jury investigation, which resulted in seven corporate and three individual convictions and approximately $437 million in fines, including what was then the largest post-trial criminal fine in Antitrust Division history. The investigation was capped by charging, trying and convicting a foreign corporation of aiding and abetting the cartel. Connolly, as lead trial attorney, along with GeyerGorey’s Wendy Norman, received the DOJ’s highest litigation honor, the John Marshall Award for Outstanding Legal Achievement for Trial Litigation. More recently, Connolly’s office led the historic effort to extradite Ian Norris to the United States from Britain to stand trial on obstruction of justice charges, of which Norris was later convicted.
In addition to his prosecutorial experience, Connolly was the Victor Kramer Fellow at Yale University in 1989-1990. He has served as an adjunct professor of antitrust law at Rutgers-Camden Law School and later Drexel School of Law. He currently serves on the Advisory Board for the ABA Cartel and Criminal Practice committee and since leaving the Antitrust Division in 2013, has authored more than a dozen articles on U.S. and international competition law practice.
Justice Department Recovers $3.8 Billion from False Claims Act Cases in Fiscal Year 2013
The Justice Department secured $3. 8 billion in settlements and judgments from civil cases involving fraud against the government in the fiscal year ending Sept. 30, 2013, Assistant Attorney General for the Civil Division Stuart F. Delery announced today. This dollar amount, which is the second largest annual recovery of its type in history, brings total recoveries under the False Claims Act since January 2009 to $ 17 billion – nearly half the total recoveries since the Act was amended 27 years ago in 1986.
The Justice Department’s fiscal year 2013 efforts recovered more than $3 billion for the fourth year in a row and are surpassed only by last year’s nearly $5 billion in recoveries. As in previous years, the largest recoveries related to health care fraud, which reached $2. 6 billion. Procurement fraud (related primarily to defense contracts) accounted for another $ 890 million – a record in that area.
“It has been another banner year for civil fraud recoveries, but more importantly, it has been a great year for the taxpayer and for the millions of Americans, state agencies and organizations that benefit from government programs and contracts,” said Assistant Attorney General Delery. “The $3. 8 billion in federal False Claims Act recoveries in fiscal year 2013, plus another $443 million in recoveries for state Medicaid programs, restores scarce taxpayer dollars to federal and state governments. The government’s success in these cases is also a strong deterrent to others who would misuse public funds, which means government programs designed to keep us safer, healthier and economically more prosperous can do so without the corrosive effects of fraud and false claims.”
The False Claims Act is the government’s primary civil remedy to redress false claims for government funds and property under government contracts, including national security and defense contracts, as well as under government programs as varied as Medicare, veterans benefits, federally insured loans and mortgages, transportation and research grants, agricultural supports, school lunches and disaster assistance. In 1986, Congress strengthened the Act by amending it to increase incentives for whistleblowers to file lawsuits on behalf of the government, which has led to more investigations and greater recoveries.
Most false claims actions are filed under the Act’s whistleblower, or qui tam, provisions, which allow private citizens to file lawsuits alleging false claims on behalf of the government. If the government prevails in the action, the whistleblower, known as a relator, receives up to 30 perc ent of the recovery. The number of qui tam suits filed in fiscal year 2013 soared to 752 –100 more than the record set the previous fiscal year. Recoveries in qui tam cases during fiscal year 2013 totaled $2. 9 billion , with whistleblowers recovering $345 million.
Health Care Fraud
The $2. 6 billion in health care fraud recoveries in fiscal year 2013 marks four straight years the department has recovered more than $2 billion in cases involving health care fraud. This steady, significant and continuing success can be attributed to the high priority the Obama Administration has placed on fighting health care fraud. In 2009, Attorney General Eric Holder and Health and Human Services Secretary Kathleen Sebelius announced the creation of an interagency task force, the Health Care Fraud Prevention and Enforcement Action Team (HEAT), to increase coordination and optimize criminal and civil enforcement. This coordination has yielded historic results: From January 2009 through the end of the 2013 fiscal year, the department used the False Claims Act to recover $12 .1 billion in federal health care dollars. Most of these recoveries relate to fraud against Medicare and Medicaid. Additional information on the government’s efforts in this area is available at StopMedicareFraud.gov, a webpage jointly established by the Departments of Justice and Health and Human Services.
Some of the largest recoveries this past fiscal year involved allegations of fraud and false claims in the pharmaceutical and medical device industries. Of the $2. 6 billion in federal health care fraud recoveries, $1.8 billion were from alleged false claims for drugs and medical devices under federally insured health programs that, in addition to Medicare and Medicaid, include TRICARE, which provides benefits for military personnel and their families, veterans’ health care programs and the Federal Employees Health Benefits Program. The department recovered an additional $443 million for state Medicaid programs.
Many of these settlements involved allegations that pharmaceutical manufacturers improperly promoted their drugs for uses not approved by the Food and Drug Administration (FDA) – a practice known as “off-label marketing.” For example, drug manufacturer Abbott Laboratories Inc. paid $1.5 billion to resolve allegations that it illegally promoted the drug Depakote to treat agitation and aggression in elderly dementia patients and schizophrenia when neither of these uses was approved as safe and effective by the FDA. This landmark $1.5 billion settlement included $575 million in federal civil recoveries, $225 million in state civil recoveries and nearly $700 million in criminal fines and forfeitures. In another major pharmaceutical case, biotech giant Amgen Inc. paid the government $762 million, including $598.5 million in False Claims Act recoveries, to settle allegations that included its illegal promotion of Aranesp, a drug used to treat anemia, in doses not approved by the FDA and for off-label use to treat non-anemia-related conditions. For details, see Abbott, Abbott sentencing, and Amgen.
The department also settled allegations relating to the manufacture and distribution of adulterated drugs. For example, generic drug manufacturer Ranbaxy USA Inc. paid $505 million to settle allegations of false claims to federal and state health care programs for adulterated drugs distributed from its facilities in India. The settlement included $237 million in federal civil claims, $118 million in state civil claims and $150 million in criminal fines and forfeitures. For details, see Ranbaxy.
Adding to its successes under the False Claims Act, the Civil Division’s Consumer Protection Branch, together with U.S. Attorneys across the country, obtained 16 criminal convictions and more than $1. 3 billion in criminal fines, forfeitures and disgorgement under the Federal Food, Drug and Cosmetic Act (FDCA). The FDCA protects the health and safety of the public by ensuring, among other things, that drugs intended for use in humans are safe and effective for their intended uses and that the labeling of such drugs bears true, complete and accurate information.
In other areas of health care fraud, the department obtained a $237 million judgment against South Carolina-based Tuomey Healthcare System Inc., after a four-week trial, for violating the Stark Law and the False Claims Act. The Stark Law prohibits hospitals from submitting claims to Medicare for patients referred to the hospital by physicians who have a prohibited financial relationship with the hospital. Tuomey’s appeal of the $237 million judgment is pending. If the judgment is affirmed on appeal, this will be the largest judgment in the history of the Stark Law. For the court’s opinion, see Tuomey.
The department also recovered $26.3 million in a settlement with Steven J. Wasserman M.D., a dermatologist practicing in Florida, to resolve allegations that he entered into an illegal kickback arrangement with Tampa Pathology Laboratory that resulted in increased claims to Medicare. Tampa Pathology Laboratory previously paid the government $950,000 for its role in the alleged scheme. The $26.3 million settlement is one of the largest with an individual in the history of the False Claims Act. For details, see Wasserman.
Procurement Fraud
Fiscal year 2013 was a record year for procurement fraud matters. The department secured more than $887 million in settlements and judgments based on allegations of false claims and corruption involving government contracts. Prominent among these successes was the department’s $664 million judgment against Connecticut-based defense contractor United Technologies Corp. (UTC). A federal court found UTC liable for making false statements to the Air Force in negotiating the price of a contract for fighter jet engines. In 2004, the department had won a smaller judgment after a three-month trial. Both sides appealed, but the government’s arguments prevailed, resulting in the case being returned to the trial court to reassess damages. The $664 million judgment, which UTC has appealed, is the largest judgment in the history of the False Claims Act and, if the appellate court affirms, will be the largest procurement recovery in history. For details, see UTC.
The department also settled allegations of false claims with two companies in connection with their contracts with the General Services Administration (GSA) to market their products through the Multiple Award Schedule (MAS) program. To be awarded a MAS contract, and thereby gain access to the broad government marketplace, contractors must provide GSA with complete, accurate and current information about their commercial sales practices, including discounts afforded to their commercial customers. The government alleged that W.W. Grainger Inc., a national hardware distributor headquartered in Illinois, and Ohio-based RPM International Inc. and its subsidiary, Tremco Inc., a roofing supplies and services firm, failed to disclose discounts given to their commercial customers, which resulted in government customers paying higher prices. The department recovered $70 million from W.W. Grainger in a settlement that also included allegations relating to a U.S. Postal Services contract and $61 million from RPM International Inc. and Tremco. For details, see Grainger, RPM/Tremco.
Other Fraud Recoveries
A $45 million settlement with Japan-based Toyo Ink S.C. Holdings Co. Ltd. and its Japanese and United States affiliates (collectively Toyo) demonstrates the breadth of cases the department pursues. This settlement resolved allegations that Toyo misrepresented the country of origin on documents presented to the Department of Homeland Security’s U.S. Customs and Border Protection to evade antidumping and countervailing duties on imports of the colorant carbazole violet pigment into the United States. These duties protect U.S. businesses by offsetting unfair foreign pricing and foreign government subsidies. For details, see Toyo.
The False Claims Act also is used to redress grant fraud. In a significant case involving a grant from the Department of Education, Education Holdings Inc. (formerly The Princeton Review Inc.) paid $10 million to resolve allegations that the company fabricated attendance records for thousands of hours of afterschool tutoring of students that was funded by the federal grant. For details, see Education Holdings.
Recoveries in Whistleblower Suits
Of the $3. 8 billion the department recovered in fiscal year 2013, $2. 9 billion related to lawsuits filed under the qui tam provisions of the False Claims Act. During the same period, the department paid out more than $345 million to the courageous individuals who exposed fraud and false claims by filing a qui tam complaint. (The average share paid to whistleblowers in fiscal year 2013 cannot be determined from these numbers because the awards paid to whistleblowers in one fiscal year do not always coincide with the fiscal year in which the case was resolved, and the fiscal year’s recoveries may include amounts to settle allegations outside the whistleblower’s complaint.)
Whistleblower lawsuits were in the range of three to four hundred per year from 2000 to 2009, when they began their climb from 433 lawsuits in fiscal year 2009 to 752 lawsuits in fiscal year 2013. Due to the complexity of fraud investigations generally, the outcomes of many of the qui tam cases filed this past fiscal year are not yet known, but the growing number of lawsuits filed since 2009 have led to increased recoveries. Qui tam recoveries exceeded $2 billion for the first time in fiscal year 2010 and have continued to exceed that amount every year since. Qui tam recoveries this past fiscal year bring the department’s totals since January 2009 to $13.4 billion. During the same period, the department paid out $1.98 billion in whistleblower awards.
“These recoveries would not have been possible without the brave contributions made by ordinary men and women who made extraordinary sacrifices to expose fraud and corruption in government programs,” said Assistant Attorney General Delery. “We are also grateful to Congress and its continued support of strengthening the False Claims Act, including its qui tam provisions, giving the department the tools necessary to pursue false claims.”
In 1986, Senator Charles Grassley and Representative Howard Berman led successful efforts in Congress to amend the False Claims Act to, among other things, encourage whistleblowers to come forward with allegations of fraud. In 2009, Senator Patrick J. Leahy, along with Senator Grassley and Representative Berman, championed the Fraud Enforcement and Recovery Act of 2009, which made additional improvements to the False Claims Act and other fraud statutes. And in 2010, the passage of the Affordable Care Act provided additional inducements and protections for whistleblowers and strengthened the provisions of the federal health care Anti-Kickback Statute.
Assistant Attorney General Delery also expressed his deep appreciation for the dedicated public servants who investigated and pursued these cases. These individuals include attorneys, investigators, auditors and other agency personnel throughout the Justice Department’s Civil Division, the U.S. Attorneys’ Offices, the Departments of Defense and Health and Human Services, the various Offices of Inspector General and the many other federal and state agencies that contributed to the department’s recoveries this past fiscal year.
“The department’s continued success in recovering fraudulent claims for taxpayer money this past fiscal year is a product of the tremendous skill and dedication of the people who worked on these cases and investigations and continue to work hard to protect against the misuse of taxpayer dollars,” said Delery.