Category Archives: Important Legal Filings

CCC’s: Brent Snyder’s Remarks On Individual Accountability for Antitrust Crimes

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Brent Snyder, the Antitrust Division’s Deputy Assistant Attorney General for Criminal Enforcement, made extended remarks today at the Yale Global Antitrust Enforcement Conference (here). Mr. Snyder emphasized that the Division has long believed, and acted on this belief, that holding individuals accountable for antitrust crimes was both appropriate and the best means of deterrence:

This emphasis on individual accountability is fundamental to Antitrust Division prosecutors. The division has long touted prison time for individuals as the single most effective deterrent to the “temptation to cheat the system and profit from collusion.” My predecessors ensured that this message was often repeated. To quote just one of them, Scott Hammond said that “[i]t is indisputable that the most effective deterrent to cartel offenses is to impose jail sentences on the individuals who commit them.”

Mr. Snyder also made the first remarks (I believe) on how the September 9, 2015 Yatesmemorandum (here) has affected Antitrust Division practices:

Our record with respect to individual accountability speaks for itself. But we are embracing the Deputy Attorney General’s directive to do even better. We have adopted new internal procedures to ensure that each of our criminal offices systematically identifies all potentially culpable individuals as early in the investigative process as feasible and that we bring cases against individuals as quickly as evidentiary sufficiency permits to minimize the risk that cases will be time-barred or that evidence will become stale from the passage of time. We are also undertaking a more comprehensive review of the organizational structure of culpable companies to ensure that we are identifying and investigating all senior executives who potentially condoned, directed, or participated in the criminal conduct.

It will be interesting to see how/if the Yates memo affects Division prosecution decisions in regard to how far down the cartel bench in a given company the Division may go to hold individuals accountable. After all, many cartels, particularly international cartels, can involve many employees (and former employees) of a firm.

It will also be interesting to see if the new policy memo has any effect on the Division’s Corporate Leniency Program. It can be argued that granting leniency to all culpable current employees of the leniency applicant is inconsistent with the Yates memo if the necessary cooperation could be gained at a lower cost. That may be a  topic covered in an upcoming ABA program: The DOJ Amnesty Program After The Yates Memo (here).

Thanks for reading.

PTC Inc. Subsidiaries Agree to Pay More Than $14 Million to Resolve Foreign Bribery Charges

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Two subsidiaries of Massachusetts software company PTC Inc. entered into a non-prosecution agreement and agreed to pay a $14.54 million penalty today to resolve the government’s investigation into whether the companies improperly provided recreational travel to Chinese government officials in violation of the Foreign Corrupt Practices Act (FCPA), announced Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division.

According to admissions made in the resolution documents, Parametric Technology (Shanghai) Software Company Ltd. and Parametric Technology (Hong Kong) Ltd. (collectively, PTC China), through local business partners, arranged and paid for employees of various Chinese state-owned enterprises to travel to the United States, ostensibly for training at PTC Inc.’s headquarters in Massachusetts, but primarily for recreational travel to other parts of the United States, including New York, Los Angeles, Las Vegas and Hawaii.  PTC China paid a total of more than $1 million through its business partners to fund these trips, while during the same time period, PTC China entered into more than $13 million in contracts with the Chinese state-owned entities.  Company employees typically accompanied the Chinese officials on these trips.  PTC China admitted that the cost of these recreational trips was routinely hidden within the price of PTC China’s software sales to the Chinese state-owned entities whose employees went on the trips.

As part of the non-prosecution agreement, PTC China agreed to pay the criminal penalty, to continue to cooperate with the department, to enhance its compliance program and to periodically report to the department on the implementation of its enhanced compliance program.  The department reached this resolution based on a number of factors.  Among other factors, PTC China did not receive voluntary disclosure credit or full cooperation credit because, at the time of its initial disclosure, it failed to disclose relevant facts that it had learned in connection with a prior internal investigation and did not disclose those facts until the department uncovered additional information independently and brought them to PTC China’s attention.  By the conclusion of the investigation, however, the companies had provided to the department all relevant facts known to them, including information about individuals involved in the FCPA misconduct.

In a related matter, PTC Inc. reached a settlement today with the U.S. Securities and Exchange Commission (SEC) under which it agreed to pay $11,858,000 in disgorgement plus $1.764 million in prejudgment interest.  Thus, the approximately $28 million in combined penalty and disgorgement far exceeds the $13 million in contracts associated with the improper payments.

The FBI’s Boston Field Office investigated the case.  Trial Attorney Aisling O’Shea of the Criminal Division’s Fraud Section prosecuted the case.  The U.S. Attorney’s Office of the District of Massachusetts and the SEC also provided assistance during the investigation.

Fifty-One Hospitals Pay United States More Than $23 Million to Resolve False Claims Act Allegations Related to Implantation of Cardiac Devices

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The Department of Justice has reached settlements with 51 hospitals in 15 states for more than $23 million related to cardiac devices that were implanted in Medicare patients in violation of Medicare coverage requirements, the Department of Justice announced today.  These settlements represent the final stage of a nationwide investigation into the practices of hundreds of hospitals improperly billing Medicare for these devices.  With these additional agreements, the Justice Department’s investigation has now yielded settlements with more than 500 hospitals totaling more than $280 million.

“These settlements demonstrate the Department’s continued vigilance in pursuing hospitals and health systems that violate Medicare’s national coverage rules,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division.  “We will hold accountable those who do not abide by the government’s rules in order to protect the federal fisc and, more importantly, patient health.”

An implantable cardioverter defibrillator, or ICD, is an electronic device that is implanted near and connected to the heart.  It detects and treats chaotic, extremely fast, life-threatening heart rhythms, called fibrillations, by delivering a shock to the heart, restoring the heart’s normal rhythm.  It is similar in function to an external defibrillator (often found in offices and other buildings) except that it is small enough to be implanted in a patient’s chest.  Only patients with certain clinical characteristics and risk factors qualify for an ICD covered by Medicare.

Medicare coverage for the device, which costs approximately $25,000, is governed by a National Coverage Determination (NCD).  The Centers for Medicare and Medicaid Services implemented the NCD based on clinical trials and the guidance and testimony of cardiologists and other health care providers, professional cardiology societies, cardiac device manufacturers and patient advocates.  The NCD provides that ICDs generally should not be implanted in patients who have recently suffered a heart attack or recently had heart bypass surgery or angioplasty.  The medical purpose of a waiting period – 40 days for a heart attack and 90 days for bypass/angioplasty – is to give the heart an opportunity to improve function on its own to the point that an ICD may not be necessary.  The NCD expressly prohibits implantation of ICDs during these waiting periods, with certain exceptions.  The Department of Justice alleged that from 2003 to 2010, each of the settling hospitals implanted ICDs during the periods prohibited by the NCD.

“The settlements announced last October and today demonstrate the Department of Justice’s commitment to protect Medicare dollars and federal health benefits,” said U.S. Attorney Wifredo A. Ferrer of the Southern District of Florida.  “Guided by a panel of leading cardiologists and the review of thousands of patients’ charts, the extensive investigation behind the settlements was heavily influenced by evidence-based medicine.  In terms of the number of defendants, this is one of the largest whistleblower lawsuits in the United States and represents one of this office’s most significant recoveries to date.   Our office will continue to vigilantly protect the Medicare program from potential false billing claims.”

“We will not stand idly by while Medicare coverage rules are ignored,” said Inspector General Daniel R. Levinson of the U.S. Department of Health and Human Services Office of Inspector General (HHS-OIG).  “OIG worked closely with the Department of Justice to ensure such violators made substantial payments to settle these false billing claims.”

The department previously settled with 457 hospitals for more than $250 million.

The settlements announced today involve 51 hospitals, which are listed on the attached chart.  Most of the settling defendants were named in a qui tam, or whistleblower, lawsuit brought under the False Claims Act, which permits private citizens to bring lawsuits on behalf of the United States and receive a portion of the proceeds of any settlement or judgment awarded against a defendant.  The lawsuit was filed in federal district court in the Southern District of Florida by Leatrice Ford Richards, a cardiac nurse and Thomas Schuhmann, a health care reimbursement consultant.  The whistleblowers have received more than $3.5 million from the settlements announced today.

The settlements were the result of a coordinated effort among the Civil Division’s Commercial Litigation Branch, the U.S. Attorney’s Office of the Southern District of Florida and HHS-OIG’s Office of Investigations and Office of Counsel to the Inspector General.

This settlement illustrates the government’s emphasis on combating health care fraud and marks another achievement for the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which was announced in May 2009 by the Attorney General and the Secretary of Health and Human Services.  The partnership between the two departments has focused efforts to reduce and prevent Medicare and Medicaid financial fraud through enhanced cooperation.  One of the most powerful tools in this effort is the False Claims Act.  Since January 2009, the Justice Department has recovered a total of more than $27.4 billion through False Claims Act cases, with more than $17.4 billion of that amount recovered in cases involving fraud against federal health care programs.

The claims resolved by these settlements are allegations only and there has been no determination of liability.

Private Contractor Pleads Guilty to Bribing Former U.S. Postal Service Contracting Official

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A private contractor pleaded guilty today to paying bribes to a U.S. Postal Service (USPS) contracting official in order to receive contracts to deliver the mail.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Rod J. Rosenstein of the District of Maryland and USPS Inspector General David C. Williams made the announcement.

Barbara Murphy, 52, of Rocky Mount, North Carolina, pleaded guilty before U.S. District Judge George Jarrod Hazel of the District of Maryland, who set sentencing for June 13, 2016.

According to a factual stipulation filed with the court, Murphy was the sole owner of ER&R Transportation and MC&G Trucking LLC, which she used to bid for and perform on transportation contracts with USPS.  Murphy admitted that from January 2011 to July 2012, she bribed Gregory Cooper, a former USPS contracting officer representative.  These bribes included cash paid directly into Cooper’s bank accounts, automobile loan payments, college tuition for Cooper’s daughter, five cell phone bill payments, an airline ticket and fitness equipment, Murphy admitted.

According to the plea agreement, Murphy gave all of these benefits in exchange for Cooper’s favorable treatment of her companies when contracting opportunities with the USPS arose, in violation of Cooper’s lawful duty to the USPS.  Specifically, Cooper recommended to his superiors that 10 USPS contracts on which Murphy bid during the relevant time period be awarded to Murphy’s companies, she admitted.  Additionally, Murphy admitted that Cooper provided her with advice on how to address specific issues that arose from her contract performance and drafted documents that Murphy provided to the USPS.

On Nov. 15, 2015, Judge Hazel sentenced Cooper to 15 months in prison for bribery.

The USPS Office of the Inspector General investigated the case.  Trial Attorneys Mark Cipolletti and Monique Abrishami of the Criminal Division’s Public Integrity Section and Assistant U.S. Attorney David Salem of the District of Maryland are prosecuting the case.

MCC Construction Company Agrees to Pay Nearly $1.8 Million for Conspiring to Illegally Obtain Federal Contracts Meant for Small, Disadvantaged Businesses

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The Justice Department announced today that MCC Construction Company (MCC) has agreed to pay $1,769,294 in criminal penalties and forfeiture for conspiring to commit fraud on the United States by illegally obtaining government contracts that were intended for small, disadvantaged businesses.

The court agreement was announced today by Assistant Attorney General William J. Baer of the Justice Department’s Antitrust Division, U.S. Attorney Channing D. Phillips of the District of Columbia, Assistant Director in Charge Paul M. Abbate of the FBI’s Washington Field Office, Inspector General Peggy E. Gustafson of the Small Business Administration (SBA), Inspector General Carol Fortine Ochoa of the U.S. General Services Administration (GSA), Special Agent in Charge Brian J. Reihms of the Defense Criminal Investigative Service’s (DCIS) Central Field Office and Director Frank Robey of the U.S. Army Criminal Investigation Command’s Major Procurement Fraud Unit (MPFU).

“This conspiracy defrauded the government and denied small, disadvantaged businesses the opportunity to compete to do business with the United States,” said Assistant Attorney General Baer.  “We will continue to work with U.S. Attorney Phillips and his talented colleagues to protect the integrity of the government contracting process.”

“This prosecution shows that there will be consequences for companies that violate federal contracting rules meant to assist small, disadvantaged businesses,” said U.S. Attorney Phillips.  “MCC Construction Company secured millions of dollars in contracts by hiding behind two small businesses that did not perform labor on the projects.  Its conduct took away opportunities that could have gone to companies that truly are socially and economically disadvantaged and deserving of the work.”

“An uneven marketplace is created when businesses engage in illegal backroom deals to fraudulently obtain government contracts, placing competitors at an unfair disadvantage,” said Assistant Director in Charge Abbate.  “In this case, the FBI and our partners moved to protect the American taxpayer and ensure the integrity of the process.  Together, we will continue to work to protect federal contract opportunities for socially and economically disadvantaged businesses within our communities from unlawful conduct.”

“Fraudulently passing work through eligible small businesses to a large business does not provide taxpayers the best value and certainly does not support the role of small businesses as engines of economic development and job creation,” said Inspector General Gustafson.  “In fact, it subverts the purpose of SBA’s preferential contracting programs and harms the small businesses the programs are designed to assist.  I want to thank the U.S. Attorney’s Office and our law enforcement partners for their leadership and dedication to serving justice.”

“We will continue our work on behalf of taxpayers and legitimate small business owners to expose and punish nationwide small business fraud schemes such as this,” said Inspector General Ochoa.

“The Defense Criminal Investigative Service is committed to working with our partner agencies to combat fraud impacting the Department of Defense’s vital programs and operations and maintain the integrity of the procurement system,” said Special Agent in Charge Reihms.

“This settlement is a testament to our steadfast and continued commitment to working closely with our law enforcement partners in rooting out this type of activity,” said Director Robey.

MCC was a construction management company and general contractor headquartered in Colorado.

A criminal information was filed last month in the U.S. District Court for the District of Columbia charging MCC with one count of knowingly and willfully conspiring to commit major fraud on the United States.  MCC waived the requirement of being charged by way of federal indictment, agreed to the filing of the information and accepted responsibility for its criminal conduct and that of its employees.  U.S. District Judge Ketanji B. Jackson accepted the company’s guilty plea today.  The plea agreement is subject to the court’s approval at a sentencing hearing scheduled for March 15, 2016.

According to court documents, MCC conspired with two companies that were eligible to receive federal government contracts set aside for small, disadvantaged businesses with the understanding that MCC would, illegally, perform all of the work.  In so doing, MCC was able to win 27 government contracts worth over $70 million from 2008 to 2011.  The scope and duration of the scheme resulted in a significant number of opportunities lost to legitimate small and disadvantaged businesses.

Under the illegal agreement, the companies awarded these government contracts were allowed to keep 3 percent of the value of the contracts for allowing MCC to use the companies small business status to win the contracts.

Court documents state that MCC violated the provisions of the SBA 8(a) program.  The SBA 8(a) development program is designed to award contracts to businesses that are owned by “one or more socially and economically disadvantaged individuals.”  To qualify for the 8(a) program, a business must be at least 51 percent owned and controlled by a U.S. citizen (or citizens) of good character who meet the SBA’s definition of socially and economically disadvantaged.  The firm must also be a small business (as defined by the SBA) and show a reasonable potential for success.  Participants in the 8(a) program are subject to regulatory and contractual limits.  Also, under the program, the disadvantaged business is required to perform a certain percentage of the work.  For the types of contracts under investigation here, the SBA 8(a)-certified companies were required to perform 15 percent or more of the work with its own employees.

MCC, along with the two 8(a) companies used to illegally obtain the contracts, engaged in and executed a scheme to defraud the SBA by, among other things:

  • Allowing the two 8(a) companies to retain a guaranteed percentage of each contract for simply obtaining the contracts for MCC;
  • Allowing the two 8(a) companies to perform no labor on these projects;
  • Performing the accounting and government reporting for the two 8(a) companies on certain projects;
  • Falsely representing to the government that MCC employees were in fact employees of the 8(a) companies;
  • Obtaining certain contracts on behalf of the 8(a) companies without first informing those 8(a) companies prior to bidding; and
  • Conspiring with the 8(a) companies to hire straw employees for the 8(a) companies whose labor and salaries were paid for by MCC.

For the contracts obtained through this scheme on which MCC made a profit, MCC’s profit was at least $1,269,294.  The criminal penalty in this case includes a $500,000 fine and a forfeiture money judgment of $1,269,294.

The investigation is being conducted by the FBI’s Washington Field Office, the Inspector General for the SBA, the Inspector General of the U.S. GSA, the DCIS’ Central Field Office, and the MPFU.

New Jersey Pipe Supply Company Owner Sentenced to 32 Months in Prison for Role in Fraud and Bribery Conspiracy in Power Generation Industry

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Company Sentenced to Pay a Total of Over $1.7 Million in Fines and Restitution

A New Jersey industrial pipe supply company and its owner were sentenced today for conspiring to commit fraud and pay bribes to a purchasing manager at Consolidated Edison of New York in return for the manager’s efforts to steer contracts to the company, the Department of Justice announced.

Andrew Martingano, of Staten Island, New York, was sentenced by U.S. District Judge Deborah A. Batts of the Southern District of New York to 32 months and a day in prison.  American Pipe Bending and Fabrication Co. Inc. of Edison, New Jersey, was sentenced to pay a $150,000 criminal fine.  Martingano and American Pipe were also sentenced to pay over $1.6 million in restitution, jointly and severally with their co-conspirators, to the victim, Con Ed.  The company and its owner pleaded guilty to committing wire fraud and conspiring to defraud Con Ed on Aug. 15, 2012.

According to court documents, Martingano and others agreed to pay approximately $510,000 in cash bribes to James M. Woodason, a department manager of the purchasing department at Con Ed.  In exchange for the bribes, Woodason steered Con Ed industrial pipe supply contracts to American Pipe by secretly providing Martingano with confidential competitor bid information, thereby causing Con Ed to pay higher, non-competitive prices for materials.  At the time of Woodason’s arrest in August 2010, Woodason had already received approximately $45,000 in cash bribes from Martingano and American Pipe.

The department said the conspiracy took place from approximately January 2009 to August 2010.  In addition, Martingano and American Pipe defrauded Con Ed by requesting a 14 percent price increase and basing that request on a fake email purporting to document a “Steel Mill” price increase that American Pipe was passing on to Con Ed.  These false and fraudulent price increase requests caused actual losses to Con Ed in the amount of approximately $1.4 million and intended losses of approximately $9.4 million.

Con Ed is a regulated utility headquartered in Manhattan.  It provides electric service to approximately 3.2 million customers, and gas service to approximately 1.1 million customers in New York City and Westchester County, New York.  Con Ed received more than $10,000 in federal funding each year between 2003 through 2010, and cooperated with the department’s investigation.

Including Martingano and American Pipe, a total of five individuals and two companies have been charged as part of this investigation and have been ordered to serve a total of more than 16 years in prison and to pay criminal fines and restitution of more than $3 million.

The charges arose from an ongoing federal antitrust investigation of bid rigging, bribery, fraud and tax-related offenses in the power generation industry.  The investigation is being conducted by the Antitrust Division’s New York Office, with assistance from the FBI and the Internal Revenue Service-Criminal Investigation.  Anyone with information concerning bid rigging, bribery, tax offenses or fraud in the power generation industry should contact the FBI’s New York Division at 212-384-3720 or the Antitrust Division’s New York Office at 212-335-8000, or visit www.justice.gov/atr/contact/newcase.htm.

CCC’s: Hong Kong Shipping Association Seeks Liner Exemption

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The Hong Kong Liner Shipping Association has submitted to the Hong Kong Competition Commission for consideration a block exemption for liner shipping agreements.  The HK Commission gave interested parties until March 24 to comment on the Association’s request. Hong Kong’s new Competition Ordinance, which bans cartel and other anticompetitive agreements, took effect just last month (see blog post Hong Kong Competition Ordinance Takes Effect), and without an exemption would presumably prohibit the types of agreements proposed under the exception request.

In the summary of its application (here), the Hong Kong Shipping Association says it seeks immunity for two types of agreements: (i) voluntary discussion agreements (“VDAs”); and (ii) vessel sharing agreements (“VSAs”). VDAs are commercial agreements between carriers whereby parties exchange and review market data and trade flows, supply/demand forecasts and business trends to better inform business decisions.  They may discuss, develop and agree to recommend voluntary guidelines for rates, charges, service contract or tariff terms and other similar commercial issues. Contracts with shippers are then negotiated and agreed by individual carriers (not the VDA), who may or may not follow the VDA’s guidelines. VDAs bring about: rate stability; service stability; and rate and surcharge transparency, all of which represent efficiencies that benefit customers (and ultimately the wider Hong Kong economy) by enabling better planning and budgeting of long-term shipping costs. VSAs, by contrast, are operational and similar to airline code-sharing agreements, with carriers discussing and agreeing on “technical and operational arrangements relating to the provision of liner shipping services, including the coordination or joint operation of vessel services, and the exchange or charter of vessel space.

The HK Competition Commission is calling for interested parties to submit their views in relation to the application (here). In particular, the Commission said it is seeking comment on experiences with using the two types of agreements in Hong Kong business operations, specific concerns related to either agreement, economic efficiencies related to either and broad market conditions in the industry, “including the state of competition.”  The decision could be critical to the continuation of Hong Kong’s shipping industry, as discussed in this Journal of Commerce article (here).

Liner agreements are common in the shipping industry because cooperation can have pro-competitive efficiency enhancing effects that can benefit customers through increased service and lower prices. The Hong Kong Shipping Association has documented the benefits of, and widespread acceptance of, shipping agreements in the international community (here).  But, even if the liner agreement exemptions are approved, it is critical for the industry to understand that the exemptions are limited to the specific terms of the immunity. Carriers that confer with one another on legal exemptions have to be particularly aware of the limitations of the immunity and the consequences of reaching broader or non-reported agreements.  Over the years, there have been enforcement actions brought against carriers in industries where the agreements reached extended beyond the limited scope of any immunity.  I myself led a prosecution of a worldwide ocean parcel tanker price fixing/customer allocation agreement that ran from at least 1998 into 2002.

More recently, the Antitrust Division of the United States Department of Justice has brought criminal actions against shippers and individuals in the auto roll off carrier industry for industry wide-price fixing. United States prosecutes cartels, include shipping cartels, as crimes, punishable by huge fines and jail sentences for individuals.  An employee of Japan-based NYK pled guilty and was sentenced to 15 months in a U.S. prison for his involvement in a conspiracy to fix prices, allocate customers and rig bids of international ocean shipping services for roll-on, roll-off cargo, such as cars and trucks, to and from the United States and elsewhere.  This was the third case against an individual in the Antitrust Division’s ocean shipping investigation, and the first against an individual from NYK.  Three corporations have agreed to plead guilty and to pay criminal fines totaling more than $136 million, including NYK, which has agreed to pay a criminal fine of $59.4 million.  See the DOJ press release here.   The investigation by the US DOJ has spurred enforcement actions by several other jurisdictions including the EU, China, South Africa and others, though the US is usually alone in seeking jail for individuals.  Here is a blog post I did on the huge fines recently imposed in China–China Fines 7 Shipping Companies $65 Million.

Briefly put, immunity for two carriers to discuss and agree on code sharing for a specific route is not a license for an industry wide agreement to fix prices. Or, on non-legal terms as my Mom used to say, “I said you could borrow the car; I didn’t say you could drive to Las Vegas.” [She said that to my brother; I was an angel.]

On a related note, I will be giving a talk before the American Chamber of Commerce in Hong Kong as part of a trade policy panel on February 1, 2016 (here). The topic will include how the US goes about prosecuting international cartels and how Hong Kong’s new Competition Commission begin its enforcement efforts.

Thanks for reading.

Big Brothers Big Sisters of America to Pay $1.6 Million to Resolve Allegations of False Claims For Federal Grants

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– 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.

Nation’s Largest Nursing Home Therapy Provider, Kindred/Rehabcare, to Pay $125 Million to Resolve False Claims Act Allegations

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Four Nursing Homes Using Kindred/RehabCare to Pay an Additional $8.225 Million

Contract therapy providers RehabCare Group Inc., RehabCare Group East Inc. and their parent, Kindred Healthcare Inc., have agreed to pay $125 million to resolve a government lawsuit alleging that they violated the False Claims Act by knowingly causing skilled nursing facilities (SNFs) to submit false claims to Medicare for rehabilitation therapy services that were not reasonable, necessary and skilled, or that never occurred, the Department of Justice announced today.

RehabCare Group Inc. and RehabCare Group East Inc. were purchased by the Louisville, Kentucky-based Kindred Healthcare Inc. in 2011 and they now operate under the name RehabCare as a division of Kindred.  RehabCare is the largest provider of therapy in the nation, contracting with more than 1,000 SNFs in 44 states to provide rehabilitation therapy to their patients.

“Medicare beneficiaries are entitled to receive care that is dictated by their clinical needs rather than the fiscal interests of healthcare providers,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division.  “All providers, whether contractors or direct billers of taxpayer-funded federal healthcare programs, will be held accountable when their actions cause false claims for unnecessary services.”

The government’s complaint alleged that RehabCare’s policies and practices, including setting unrealistic financial goals and scheduling therapy to achieve the highest reimbursement level regardless of the clinical needs of its patients, resulted in Rehabcare providing unreasonable and unnecessary services to Medicare patients and led its SNF customers to submit artificially and improperly inflated bills to Medicare that included those services.  Specifically, the government’s complaint alleged that RehabCare’s schemes included the following:

  • Presumptively placing patients in the highest therapy reimbursement level, rather than relying on individualized evaluations to determine the level of care most suitable for each patient’s clinical needs;
  • During the period prior to Oct. 1, 2011, boosting the amount of reported therapy during “assessment reference periods,” thereby causing and enabling SNFs to bill for the care of their Medicare patients at the highest therapy reimbursement level, while providing materially less therapy to those same patients outside the assessment reference periods, when the SNFs were not required to report to Medicare the amount of therapy RehabCare was providing to their patients (a practice known as “ramping”);
  • Scheduling and reporting the provision of therapy to patients even after the patients’ treating therapists had recommended that they be discharged from therapy;
  • Arbitrarily shifting the number of minutes of planned therapy among different therapy disciplines (i.e., physical, occupational and speech therapy) to ensure targeted therapy reimbursement levels were achieved, regardless of the clinical need for the therapy;
  • Especially after Oct. 1, 2011 and continuing through Sept. 30, 2013, providing significantly higher amounts of therapy at the very end of a therapy measurement period not due to medical necessity but rather to reach the minimum time threshold for the highest therapy reimbursement level, to enable SNFs to bill for the care of their Medicare patients accordingly, even though the patients were receiving materially less therapy on preceding days;
  • Inflating initial reimbursement levels by reporting time spent on initial evaluations as therapy time rather than evaluation time;
  • Reporting that skilled therapy had been provided to patients when in fact the patients were asleep or otherwise unable to undergo or benefit from skilled therapy (e.g., when a patient had been transitioned to palliative end-of-life care); and
  • Reporting estimated or rounded minutes instead of reporting the actual minutes of therapy provided.

“This False Claim Act settlement addresses allegations that RehabCare and its nursing facility customers engaged in a systematic and broad-ranging scheme to increase profits by delivering, or purporting to deliver, therapy in a manner that was focused on increasing Medicare reimbursement rather than on the clinical needs of patients,” said U.S. Attorney Carmen M. Ortiz for the District of Massachusetts.  “The complaint outlines the extent and sophistication of this fraud, and the government’s continuing work to ensure that the provision of care in skilled nursing facilities is based on patients’ clinical needs.”

“Health providers seeking to increase Medicare profits, rather than providing suitable, high-quality care, will be investigated and prosecuted,” said Inspector General Daniel R. Levinson for the U.S. Department of Health and Human Services (HHS).  “Under our robust compliance agreement, an outside review organization will scrutinize a random sample of medical records annually to assess the medical necessity and reasonableness of therapy services provided by RehabCare.”

In addition to RehabCare, the Department of Justice also announced settlements today with four SNFs for their role in submitting claims to Medicare that were false because they were based in part on therapy provided by RehabCare that was not reasonable, necessary and skilled, or that did not occur.  These settlements include:  A $3.9 million settlement with Wingate Healthcare Inc. and 16 of its facilities in Massachusetts and New York; A $2.2 million settlement with THI of Pennsylvania at Broomall LLC and THI of Texas at Fort Worth LLC; A $1.375 million settlement with Essex Group Management and two of its Massachusetts facilities, Brandon Woods of Dartmouth and Blaire House of Milford and a $750,000 settlement with Frederick County, Maryland, which formerly operated the Citizens Care skilled nursing facility.  The department had previously reached settlements with a number of other SNFs for similar conduct.  See http://www.justice.gov/opa/pr/two-companies-pay-375-million-allegedly-causing-submission-claims-unreasonable-or-unnecessary; http://www.justice.gov/opa/pr/episcopal-ministries-aging-inc-pay-13-million-allegedly-causing-submission-claims; http://www.justice.gov/usao-ma/pr/new-york-catholic-nursing-chain-pay-35-million-resolve-allegations-concerning-claims; http://www.justice.gov/usao-ma/pr/maine-nursing-home-pay-12-million-resolve-allegations-concerning-rehabilitation-therapy.

The settlement with RehabCare resolves allegations originally brought in a lawsuit filed under the qui tam, or whistleblower, provisions of the False Claims Act by Janet Halpin, a physical therapist and former rehabilitation manager for RehabCare and Shawn Fahey, an occupational therapist who worked for RehabCare.  The act permits private parties to sue on behalf of the government for false claims for government funds and to receive a share of any recovery.  The government may intervene and file its own complaint in such a lawsuit, as it has done in this case.  The whistleblowers will receive nearly $24 million as their share of the recovery from RehabCare.

The settlements announced today illustrate the government’s emphasis on combating health care fraud and marks another achievement for the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which was announced in May 2009 by the Attorney General and the Secretary of Health and Human Services.  The partnership between the two departments has focused efforts to reduce and prevent Medicare and Medicaid financial fraud through enhanced cooperation.  One of the most powerful tools in this effort is the False Claims Act.  Since January 2009, the Justice Department has recovered a total of more than $27.1 billion through False Claims Act cases, with more than $17.1 billion of that amount recovered in cases involving fraud against federal health care programs.  Tips and complaints from all sources about potential fraud, waste, abuse, and mismanagement, including the conduct described in the United States’ complaint, can be reported to the Department of Health and Human Services, at 800-HHS-TIPS (800-447-8477).

This matter was handled by the Civil Division’s Commercial Litigation Branch; the U.S. Attorney’s Office for the District of Massachusetts; HHS Office of Inspector General and the FBI.

The case is captioned United States ex rel. Halpin and Fahey v. Kindred Healthcare, Inc., et al., Case No. 1:11cv12139-RGS (D. Mass.).

The claims settled are allegations only, and there has been no determination of liability.

Former Idaho Construction Company President Sentenced to Prison for Fraud Scheme

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The former president and majority stockholder of a construction company was sentenced to five years in prison today following her plea of guilty to filing a false tax return and her conviction by a jury of conspiracy to defraud the United States, wire fraud, mail fraud, false statements, interstate transportation of property taken by fraud, conspiracy to obstruct justice and obstruction of justice, announced Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division and U.S. Attorney Wendy J. Olson for the District of Idaho.

Elaine Martin, 69, of Meridian, Idaho, was the president of MarCon Inc., a construction company based in Meridian.  In September 2013, after a 26-day jury trial, Martin was convicted of tax and fraud charges and sentenced to 84 months in prison.  In August 2015, the U.S. Court of Appeals for the Ninth Circuit vacated Martin’s sentence and her tax conviction and remanded for resentencing and further proceedings on the tax charge.  Today, Martin pleaded guilty to filing a false tax return and U.S. District Judge B. Lynn Winmill of the District of Idaho sentenced her to 60 months in prison on both the tax and fraud charges.  In addition to the prison term, Judge Winmill ordered Martin to pay restitution to the Internal Revenue Service (IRS) and Idaho Department of Transportation in the amount of $131,400.48, costs of prosecution in the amount of $22,859.60 and a forfeiture money judgment of $3,084,038.05, amounts Martin previously paid.

In the plea agreement, Martin admitted that she willfully signed false and fraudulent corporate income tax returns for Marcon Inc. for tax years 2005 and 2006.  Martin also admitted that she caused these tax returns to be false and fraudulent by keeping the unreported income off of the books and that she falsely told an IRS revenue agent, who was conducting a civil audit of Marcon, that all of Marcon’s gross receipts were deposited into its Wells Fargo operating account, when in fact, Martin was diverting and depositing gross receipts into Marcon’s Bank of Cascades account.  Martin withheld the records for Marcon’s Bank of Cascades from the individual who prepared her and Marcon’s tax returns for tax years 2005 and 2006.  Martin admitted that the total tax loss was $73,678.

Martin also admitted to conspiring to defraud the SBA 8(a) Program and the U.S. Department of Transportation, Disadvantaged Business Enterprise (DBE) Program, by submitting fraudulent tax returns and making false statements concerning her finances that caused Marcon to qualify and/or remain eligible for these programs.  Martin further admitted that her behavior affected the award of contracts pursuant to the 8(a) Program and DBE Programs.  For example, Marcon’s status as an Idaho DBE affected how and what DBE goals were set for particular construction projects and helped Marcon maintain a virtual monopoly in its geographic region between 2000 and 2006.  Marcon participated in the SBA 8(a) Program pursuant to direct negotiations with the awarding agency, rather than through fair and open competition.  Martin admitted that during the relevant time period, she would not have been awarded the 33 contracts at issue in the case but for the fraud.

As part of the plea agreement that Martin entered into today, she waived her right to further appeal.

Assistant Attorney General Ciraolo and U.S. Attorney Olson thanked special agents of IRS-Criminal Investigation, the FBI, the Office of Inspector General for the U.S. Small Business Administration and the Office of Inspector General for the U.S. Department of Transportation, who investigated the case and Trial Attorney Gregory Bernstein and former Trial Attorney Katherine Wong of the Tax Division and Assistant U.S. Attorney Raymond Patrico of the District of Idaho, who prosecuted the case.

Today’s announcement is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF), which was created in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes.  With more than 20 federal agencies, 94 U.S. attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud.  Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations.  Over the past three fiscal years, the Justice Department has filed more than 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,700 mortgage fraud defendants.  For more information on the task force, visit www.stopfraud.gov.