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Category Archives: Uncategorized
Chief Executive Officer of Armored Vehicle Company Sentenced to More Than Five Years in Prison for Role in Scheme to Defraud the United States
Tuesday, February 20, 2018
The owner and chief executive officer of an armored vehicle company was sentenced today to 70 months in prison for his role in orchestrating a scheme to defraud the United States by providing the U.S. Department of Defense with armored gun trucks that did not meet ballistic and blast protection requirements set out in the company’s contracts with the United States.
Acting Assistant Attorney General John P. Cronan of the Justice Department’s Criminal Division, U.S. Attorney Rick A. Mountcastle of the Western District of Virginia, Special Agent in Charge Adam S. Lee of the FBI’s Richmond, Virginia, Field Office and Special Agent in Charge Robert E. Craig Jr. of the Defense Criminal Investigative Service’s (DCIS) Mid-Atlantic Field Office made the announcement.
William Whyte, 72, of King City, Ontario, the owner and CEO of Armet Armored Vehicles of Danville, Virginia, was sentenced by U.S. District Judge Jackson L. Kiser of the Western District of Virginia, who also ordered Whyte to serve three years of supervised release following his prison sentence and to pay restitution in the amount of $2,019,454.36.
On Oct. 9, 2017, after a two-week trial, Whyte was found guilty of three counts of major fraud against the United States, three counts of wire fraud and three counts of criminal false claims. Whyte was charged by an indictment in July 2012.
Evidence at trial demonstrated that Whyte executed a scheme to defraud the United States by providing armored gun trucks that were deliberately under-armored. Armet contracted to provide armored gun trucks for use by the United States and its allies as part of the efforts to rebuild Iraq in 2005. Despite providing armored gun trucks that did not meet contractual specifications, Whyte and his employees represented that the armored gun trucks were adequately armored in accordance with the contract, the evidence showed. Armet was paid over $2 million over the course of the scheme, the evidence showed.
The case was investigated by the FBI and DCIS. The case is being prosecuted by Trial Attorney Caitlin Cottingham of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Heather Carlton of the Western District of Virginia.
Spring cleaning
Over the last few weeks the rhetoric regarding the global trade environment has increased dramatically. Less than a month after he declared to the World Economic Forum that India was open for business, Prime Minister Narendra Modi has raised import duties to their highest in three decades, setting the stage for a protracted trade war. The U.S. administration announced it would look at reciprocal tax treatment.
The administration has also announced a 25% duty on steel and aluminum products to counteract what are considered unfair trade practices affecting those industries. This has caused allied trading partners to look at various U.S. made products for retaliation.
The renegotiation of the trilateral North American Free Trade Agreement continues and the Administration is taking another look at the Trans-Pacific Partnership agreement and discussing a possible model free trade agreement with an unnamed country in Africa.
The stage was set at the State of the Union address, when President Trump reiterated his position on trade. He stated “we expect trading relationships to be fair and to be reciprocal. We will work to fix bad trade deals and negotiate new ones. And we will protect American workers and American intellectual property, through strong enforcement of our trade rules.”
The pendulum is swinging sharply toward enforcement. Customs is using terms like intelligent enforcement and consequence delivery in order to effect deterrence.
With increased enforcement just around the corner, a good spring cleaning may be needed. Now is a good time to reorganize, clean up, and ensure that all systems are in good working order.
The compliance team should be asking the following questions:
Are corporate compliance manuals up to date?
Have all training materials been refreshed and have new employees been trained?
Have all employees been trained on any compliance changes within the company?
When was the last time the company did an internal audit to check that compliance procedures are working effectively?
Are vendors and suppliers knowledgeable about the importers compliance requirements?
When was the last time corporate internal controls were reviewed and updated?
When was the last time we talked with our broker about changes in sourcing, use of trade preference programs, and the introduction of new product lines?
Clearing out the compliance cobwebs now will undoubtedly pay off in the long run.
3C’s Recommended Amicus Brief on Section One Summary Judgment Standard
Here is a link to a brief filed by a number of professors asking the Supreme Court to clarify the standard to be applied by districts courts to a defendant’s motion for summary judgment in a Section One antitrust case, evergreen – petition for certiorari – amicus brief – filed copy – 4.21.17 – evergreen partnering group v. pactiv corp. The petition notes:
“[C]ircuit courts are mired in an abiding difference of opinion concerning the appropriate interpretation of the summary judgment paradigm in cases brought under Section 1 of the Sherman Act as applied to circumstantial evidence.”
The professors are going to bat for plaintiff Evergreen, which had its group boycott claimed dismissed on summary judgment. The amicus brief argues that the First Circuit incorrectly applied the Matsushita standard that requires the plaintiff to produce evidence that “tends to exclude the possibility of independent conduct.” The brief goes on to argue say this strict standard should only be applied where the defendants’ conduct is arguably pro-competitive (like the price cutting in Matsushita). In this case, the brief argues, the correct standard, is found in Eastman Kodak Industry Co. v. Image Technical Services Inc.,: whether the plaintiff has produced evidence that the defendants’ conduct is unreasonable.
From the brief:
The Second, Third, Fifth, Sixth, Seventh, Ninth, and Tenth Circuits “have narrowed the application of Matsushita’s “tends to exclude the possibility of independent conduct” test to situations where the plaintiff ’s theory: (1) is implausible; and (2) challenges pro-competitive conduct….The First, Fourth, Eighth, and Eleventh Circuits, however, do not interpret Kodak as a limitation on Matsushita’s “tends to exclude” test. These courts universally apply the test to all motions seeking entry of summary judgment on a conspiracy claim under Section 1, regardless of whether plaintiff’s theory makes economic sense or there is little or no risk of chilling pro-competitive behavior.”
The brief notes that Judge Posner has been critical of the Matsushita “tends to exclude the possibility of independent conduct” standard for requiring the plaintiffs to disprove the defendants’ case with a “sweeping negative.” Richard Posner, Antitrust Law, 100 (2d ed. 2001). The brief also quotes a Judge Posner opinion:
“That would imply that the plaintiff in an antitrust case must prove a violation of the antitrust laws not by a preponderance of the evidence, not even by proof beyond a reasonable doubt (as indeed is required in criminal antitrust cases), but to a 100 percent certainty, since any lesser degree of certitude would leave a possibility that the defendant was innocent.”
In re Brand Name Prescription Drugs Antitrust Litig., 186 F.3d 781, 787 (7th Cir. 1999) (Posner, C.J.).
The brief concludes:
“In sum, the decision below illustrates and intensifies confusion among the lower courts about the Matsushita standard for Section 1 antitrust claims at summary judgment. The question is critical; private enforcement is essential to maintaining the correct balance between under and over deterrence to foster healthy competition. But when it comes to Matsushita, inconsistency in its application is now the rule, rather than the exception. For these reasons, the Court should clarify the standard, resolve the circuit split, and emphasize that the correct interplay between Matsushita and Kodak properly limits the “tends to exclude” summary judgment standard to cases where the alleged conspiracy is economically irrational and the conduct is pro-competitive.”
Whichever side of the “v.” you are on [plaintiff or defendant] the brief is a useful read for the discussion of the differences among the circuits on the proper standard for summary judgment.
Evergreen is represented by Richard Wolfram who earlier had filed a petition for certiorari with Supreme Court. A copy of the petition can be found here.
Thanks for reading.
Los Angeles Hospital Agrees to Pay $42 Million to Settle Alleged False Claims Act Violations Arising from Improper Payments to Physicians
Wednesday, June 28, 2017
PAMC Ltd., and Pacific Alliance Medical Center Inc., which together own and operate Pacific Alliance Medical Center, an acute care hospital located in Los Angeles, California, have agreed to pay $42 million to settle allegations that they violated the False Claims Act by engaging in improper financial relationships with referring physicians, the Justice Department announced today. Of the total settlement amount, $31.9 million will be paid to the Federal Government, and $10 million will be paid to the State of California.
The settlement announced today resolves allegations brought in a whistleblower lawsuit that the defendants submitted false claims to the Medicare and MediCal Programs for services rendered to patients referred by physicians with whom the defendants had improper financial relationships. These relationships took the form of (1) arrangements under which the defendants allegedly paid above-market rates to rent office space in physicians’ offices, and (2) marketing arrangements that allegedly provided undue benefit to physicians’ practices. The lawsuit alleged that these relationships violated the Anti-Kickback Statute and the Stark Law, both of which restrict the financial relationships that hospitals may have with doctors who refer patients to them.
“This is another example of how the False Claims Act whistleblower provisions can help protect the public fisc,” said Acting Assistant Attorney General Chad A. Readler of the Justice Department’s Civil Division. “This recovery should help to deter other health care providers from entering into improper financial relationships with physicians that can taint the physicians’ medical judgment, to the detriment of patients and taxpayers.”
The lawsuit was filed by Paul Chan, who was employed as a manager by one of the defendants, under the qui tam provisions of the False Claims Act. Under the Act, private citizens can bring suit on behalf of the United States and share in any recovery. The United States may intervene in the lawsuit, or, as in this case, the whistleblower may pursue the action. Mr. Chan will receive over $9.2 million as his share of the federal recovery.
“Federal law prohibits improper financial relationships between hospitals that receive federal health care funds and medical professionals – this is to protect the doctor-patient relationship and to ensure the quality of care provided,” said Acting U.S. Attorney Sandra R. Brown for the Central District of California. “Patients deserve to know their doctors are making health care decisions based solely on medical need and not for any potential financial benefit.”
“This settlement is a warning to health care companies that think they can boost their profits by entering into improper financial arrangements with referring physicians,” said Special Agent in Charge Christian J. Schrank of the Department of Health and Human Services, Office of Inspector General (HHS-OIG). “Working with our law enforcement partners, we will continue to crack down on such deals, which work to undermine impartial medical judgement, drive up health care costs, and corrode the public’s trust in the health care system.”
The case, United States ex rel. Chan v. PAMC, Ltd., et al., Case No. 13-cv-4273 (C.D. Cal.), was monitored by the Civil Division’s Commercial Litigation Branch, the U.S. Attorney’s Office for the Central District of California, and HHS-OIG. The claims settled by this agreement are allegations only, and there has been no determination of liability.
Owner of New England Compounding Center Sentenced for Racketeering Leading to Nationwide Fungal Meningitis Outbreak
Monday, June 26, 2017
Outbreak Was the Largest Public Health Crisis Ever Caused by a Pharmaceutical Product
The owner and head pharmacist of New England Compounding Center (NECC) was sentenced today to nine years in prison in connection with the 2012 nationwide fungal meningitis outbreak, the Department of Justice announced today.
Barry Cadden, 50, of Wrentham, Massachusetts, was sentenced by U.S. District Court Judge Richard G. Stearns to serve 108 months in prison and three years of supervised release, and forfeiture and restitution in an amount to be determined later. In March 2017, Cadden was convicted by a federal jury of racketeering, racketeering conspiracy, mail fraud and introduction of misbranded drugs into interstate commerce with the intent to defraud and mislead.
“Barry Cadden put profits ahead of patients,” said Acting Assistant Attorney General Chad A. Readler of the Justice Department’s Civil Division. “Under his direction, employees assured customers that they were getting safe drugs, while Cadden ignored grave environmental failures, used expired active ingredients, and took innumerable other production shortcuts that led to numerous, entirely preventable deaths. As Cadden’s sentence reflects, the Justice Department’s Consumer Protection Branch is committed to prosecuting those who put the health of Americans at risk.”
“Barry Cadden put profits over patients,” said Acting U.S. Attorney William D. Weinreb for the District of Massachusetts. “He used NECC to perpetrate a massive fraud that harmed hundreds of people. Mr. Cadden knew that he was running his business dishonestly, but he kept doing it anyway to make sure the payments kept rolling in. Now he will have to pay for his crimes.”
“Protecting Americans from unsafe and contaminated drugs is at the core of our mission,” said FDA Commissioner Scott Gottlieb, M.D. “Patients should not have to worry about the safety and sterility of the drugs they are prescribed. Since this tragedy, Congress has given the FDA important new authorities, and the agency has implemented key policies, all to provide a greater assurance of safety over compounded medicines. As part of these efforts, we will continue to hold accountable those who violate the law and put patients at risk.”
“Today, Barry Cadden was held responsible for one of the worst public health crises in this country’s history, and the lives of those impacted because of his greed, will never be the same,” said Special Agent in Charge Harold H. Shaw of the FBI, Boston Field Division. “This deadly outbreak was truly a life-changing event for hundreds of victims, and the FBI is grateful to have played a role, alongside our law enforcement partners, in bringing this man to justice.”
In 2012, 753 patients in 20 states were diagnosed with a fungal infection after receiving injections of preservative-free methylprednisolone acetate (MPA) manufactured by NECC. Of those 753 patients, the U.S. Centers for Disease Control and Prevention (CDC) reported that 64 patients in nine states died. The outbreak was the largest public health crisis ever caused by a pharmaceutical product.
Specifically, Cadden directed and authorized the shipping of contaminated MPA to NECC customers nationwide. In addition, he authorized the shipping of drugs before test results confirming their sterility were returned, never notified customers of nonsterile results, and compounded drugs with expired ingredients. Furthermore, certain batches of drugs were manufactured, in part, by an unlicensed pharmacy technician at NECC. Cadden also repeatedly took steps to shield NECC’s operations from regulatory oversight by the FDA by claiming to be a pharmacy dispensing drugs pursuant to valid, patient-specific prescriptions. In fact, NECC routinely dispensed drugs in bulk without valid prescriptions. NECC even used fictional and celebrity names on fake prescriptions to dispense drugs, such as “Michael Jackson,” “Freddie Mae” and “Diana Ross.”
“Today’s sentencing demonstrates the ongoing commitment of the Defense Criminal Investigative Service (DCIS) to protect the integrity of TRICARE, the U.S. Defense Department’s health care program,” stated Special Agent in Charge Leigh-Alistair Barzey of DCIS, Northeast Field Office. “DCIS will continue to work with its law enforcement partners to identify and investigate individuals who disregard pharmaceutical and drug regulations and endanger the health and safety of U.S. military members and their families.”
“No veterans receiving VA care were harmed by the fungal meningitis outbreak,” said Special Agent in Charge Donna L. Neves for the Department of Veterans Affairs, Office of Inspector General (VA-OIG). “The VA Office of Inspector General, together with its law enforcement partners, will persist in working drug adulteration cases to ensure veterans continue to receive safe and effective medications for the purpose of healing their ailments.”
“Today’s sentencing is an example of the dedicated work of law enforcement, along with the U.S. Attorney’s Office Health Care Fraud Unit in their steadfast pursuit of justice in the largest public health crisis caused by a pharmaceutical product in this nation’s history,” said Inspector in Charge Shelly Binkowski of the U.S. Postal Inspection Service. “The U.S. Postal Inspection Service will continue to be vigilant in investigating cases where the U.S. mail is used to put our nation’s citizens at risk.”
Assistant U.S. Attorneys George P. Varghese and Amanda P.M. Strachan of Weinreb’s Health Care Fraud Unit and Trial Attorney John W.M. Claud of the Justice Department’s Consumer Protection Branch prosecuted the case.
International Shipping Executives Indicted for Colluding on Bids and Rates
Tuesday, June 27, 2017
Eleven Executives and Four Companies Have Been Charged in Ocean Shipping Investigation
An indictment of three shipping executives was unsealed in U.S. District Court in Baltimore, the Department of Justice announced today.
Anders Boman, Arild Iversen, and Kai Kraass have been charged with participating in a long-running conspiracy to allocate certain customers and routes, rig bids, and fix prices for the sale of international ocean shipments of roll-on, roll-off cargo to and from the United States and elsewhere, including the Port of Baltimore. A federal grand jury returned the indictment in November 2016.
Boman, a citizen of Sweden, and Iversen, a Norwegian citizen, are former executives of Wallenius Wilhelmsen Logistics AS (WWL). Kraass, a German citizen, is a current WWL executive. Including the charges announced today, eleven executives have been charged in the investigation to date. Four have pleaded guilty and been sentenced to serve prison terms. Others remain international fugitives. WWL has pleaded guilty and been sentenced to pay a $98.9 million fine. Three other companies have also pleaded guilty, resulting in total collective criminal fines over $230 million.
The indictment alleges that Boman, Iversen, and Kraass conspired with their competitors to allocate certain customers and routes for the shipment of cars and trucks, as well as construction and agricultural equipment. The defendants accomplished their scheme by, among other things, attending meetings in Baltimore County and elsewhere during which they agreed not to compete against each other, by refraining from bidding or by agreeing on the prices they would bid for certain customers and routes. In addition, Boman, Iversen, and Kraass agreed with competitors to fix, stabilize, and maintain rates charged to customers of international ocean shipping services. The customers affected by the conspiracy included U.S. companies.
“The indictment unsealed today is yet another step in the Division’s efforts to restore competition in the shipping industry,” said Acting Assistant Attorney General Andrew Finch of the Justice Department’s Antitrust Division. “WWL has pleaded guilty. Now we are working to ensure that its executives who conspired to suppress competition at the expense of American consumers will be held accountable.”
“These indictments are the continuation of a long-term effort by the FBI’s Baltimore Field Office to secure our nation’s economy against collusion in the shipping industry, to ensure competition in the market place and to protect US companies from these deceptive practices.” said Special Agent in Charge Gordon B. Johnson.
Today’s announcement is the result of an ongoing federal antitrust investigation into price fixing, bid rigging, and other anticompetitive conduct in the international roll-on, roll-off ocean shipping industry, which is being conducted by the Antitrust Division’s Washington Criminal I Section and the FBI’s Baltimore Field Office, along with assistance from the U.S. Customs and Border Protection Office of Internal Affairs, Washington Field Office/Special Investigations Unit.
3C’s: What She [Sally Q. Yates] Said….
What She [Sally Q. Yates] Said….
I have written often about the need to reform the Sentencing Guideline for antitrust violations. U.S.S.G. 2R1.1. (here)(here)(here). My major beef is that the antitrust guideline measures culpability primarily by the volume of commerce subject to the agreement, to the exclusion of many other very relevant factors. The cartel boss who engages the firm in the illegal conduct is tagged with the same volume of commerce as the employee who is assigned the task of going to cartel meetings to work out the details.
Sally Q. Yates served in the Justice Department from 1989 to 2017 as an assistant U.S. attorney, U.S. attorney, deputy attorney general and, briefly this year, as acting attorney general. Ms. Yates described the problem with overweighting a quantifiable factor better than I ever have, though in a slightly different context:
“But there’s a big difference between a cartel boss and a low-level courier. As the Sentencing Commission found, part of the problem with harsh mandatory-minimum laws passed a generation ago is that they use the weight of the drugs involved in the offense as a proxy for seriousness of the crime — to the exclusion of virtually all other considerations, including the dangerousness of the offender.”
Sally Yates, Making America Scared Won’t Make us Safer. Washington Post, June 23, 2017
For the record, the issue of mandatory minimums is a far more serious issue than the problem of sentencing individual criminal antitrust offenders. While I hope for antitrust sentencing reform, it is not really a “need.” The antitrust sentencing guidelines are so divorced from actual culpability that virtually no individual–even a cartel boss–is sentenced to a guideline range term of imprisonment.
Thanks for reading.
War Against Global Warming Creates Major Enforcement Risks to Grantees
Despite what you hear about United States withdrawal from the Paris accords and increased grant enforcement from Inspector Generals at the EPA, Department of Energy, and NASA, government and corporate action and funding continues to coalesce around this issue cluster and that is not likely to change quickly if at all, even as the U.S. government reduces its “green” footprint.
However quickly you dismiss the political fight’s effect on the ultimate outcome of the war that is currently raging between global warming advocates and global warming deniers, you should not dismiss the effects this battle has on the risk profile of current government contractors and government grantees. In short, pushback by the current administration policy against “green” initiatives increase the perceived value of these grant fraud cases to enforcers.
Why? Cases against grantees that received money under the last Administration’s priorities helps undermine the moral case for global warming. In fact, undermining the case for global warming through the development of “green” grant fraud cases is a smaller mountain to climb than having to disprove the so-called scientific consensus which, from their vantage point, was created through government grant funding. While it is hard to “prove the negative” (that man-made CO2 has no effect on temperature) it is easier to show that “green” research and development was subject to fraud, waste and abuse. Once the case is made that “green” grants involved fraud, waste and abuse, it is but a small step to establish in public opinion that the “green” technologies themselves are fraudulent.
The Trump Administration can pursue a blue print in the current struggle that was drafted by the Iraq anti-war movement that many believe adversely impacted what was then called the “War on Terror” resulting in what may be viewed as hasty withdrawal from Iraq. In 2005-2006, media accounts began circulating about fraud, waste and abuse in the “war zone.” In October 2006, the National Procurement Fraud Task Force was formed to marshal the efforts by agents and prosecutors. A similar effort involving Grant Fraud has already started today. In January 2007, there were perhaps a half-dozen “war-zone” cases filed. Within three years, there were over 100 warzone cases filed. The vast increase spilled over into fraud generally and in 2010 there had been perhaps 700 cases filed across the Department of Justice involving procurement fraud and grant fraud. There were probably ten to twenty times that number of inquiries, investigations, and qui tam suits filed.
Although it is impossible to factor the effect the public perceptions of fraud and corruption had on public opinion regarding the War in Iraq, no one can argue that its effect was negligible. Here the current Administration wants to undermine resolve in continuing to fight the “War Against a Heating Planet” so prosecutors looking to advance their careers under the new Administration already have begun beating the investigative bushes to see what complainants, informers, complaints and investigations are coming into the “green” fraud enforcement pipeline.
Physician and Wife to Pay $1.2 Million For False Claims Act Allegations that They Billed for Unapproved Drugs
Tuesday, June 27, 2017
Dr. Anindya Sen and Patricia Posey Sen will pay $1.208 million to resolve state and federal False Claims Act allegations that their medical practice billed Medicare and Tennessee Medicaid (TennCare) for anticancer and infusion drugs that were produced for sale in foreign countries and not approved by the U.S. Food and Drug Administration (FDA) for marketing in the United States, the Department of Justice announced today. Dr. Sen owns and operates East Tennessee Cancer & Blood Center and East Tennessee Hematology Oncology and Internal Medicine located in Greeneville and Johnson City, Tennessee. Mrs. Sen managed Dr. Sen’s medical practice from 2009 through 2012.
“Billing for foreign drugs that are not approved by the FDA undermines federal health care programs and could potentially risk patient safety,” said Acting Assistant Attorney General Chad A. Readler of the Justice Department’s Civil Division. “The Department of Justice is committed to maintaining the integrity of the health care system and ensuring that patient safety, not physician misconduct, determines health care decisions.”
“Medical providers and practitioners that distribute and disseminate unapproved and potentially unsafe drugs—especially those used in cancer treatment—put at risk the health and safety of the American consumer,” said U.S. Attorney Nancy Stallard Harr for the Eastern District of Tennessee. “This settlement reflects our ongoing commitment to safeguard the federal health care programs and vital care that they provide.”
The United States alleged that the unapproved drugs that the Sens provided to patients and billed to Medicare and TennCare were not reimbursable under those programs. The United States further alleged that the Sens purchased unapproved drugs because they were less expensive than the drugs approved by FDA for marketing in the United States. The Sens thus allegedly profitted by administering the cheaper unapproved drugs.
The United States’ investigation was a coordinated effort by the Civil Division’s Commercial Litigation Branch, the U.S. Attorney’s Office for the Eastern District of Tennessee, the Department of Health and Human Services Office of General Counsel, the Food and Drug Administration Office of Criminal Investigations and Office of Chief Counsel, the FBI’s Knoxville Division and the Tennessee Bureau of Investigation.