Tag Archives: Stuart F. Delery

The Department of Justice Files Suit Against Louisiana Pharmaceutical Company for Distributing Unapproved and Misbranded Prescription and Over-the-counter Drugs

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Acting Assistant Attorney General Stuart F. Delery announced today that the Department of Justice, on behalf of the Food and Drug Administration (FDA), has filed suit in the U.S. District Court for the Western District of Louisiana against Sage Pharmaceuticals, Inc. (Sage), its president Dr. Jivn-Ren Chen, and its Director of Corporate Quality, Charles L. Thomas, all of Shreveport, Louisiana.  According to the Complaint, the defendants violated the Federal Food, Drug, and Cosmetic Act (FDCA) by manufacturing and distributing unapproved and misbranded drug products.  Under the FDCA, before a company can sell a new drug product to consumers, it must submit and receive approval of a new drug application from the FDA.  The purpose of this approval process is to ensure that drugs manufactured and distributed to consumers are safe and effective for their intended uses.  Furthermore, the FDA requires all drug labeling to have adequate directions for use.

“Today’s action furthers the FDA’s mission of ensuring that all drugs sold to the public are safe and effective, and those companies that undermine this mission will be held accountable,” said Stuart Delery, Acting Assistant Attorney General for the Civil Division.

U.S. Attorney for the Western District of Louisiana Stephanie A. Finley said, “This lawsuit demonstrates that this office will make every effort to protect public health by filing enforcement actions against companies that are identified as violating federal law.”

This is the second injunctive case that the government has brought against Sage alleging the distribution of unapproved new drugs.  In 2000, the government obtained an injunction against the company banning the manufacture and distribution of two unapproved new drugs.  Since that time, FDA inspections revealed that defendants continue to manufacture and distribute other drug products—including prescription pain relievers, over-the-counter (OTC) cough and cold remedies, and OTC wound cleansers—without first obtaining the requisite FDA approvals.  As a result, the defendants’ products are unapproved new drugs and misbranded drugs under the FDCA, and potentially unsafe and ineffective.

Despite numerous warnings from FDA, the defendants have failed to bring their operations into compliance with the law. The Justice Department will seek a permanent injunction requiring the defendants to cease all receiving, processing, manufacturing, preparing, packaging, labeling, holding, and distributing activities until they comply with applicable FDA regulations.

The FDA referred this matter to the Department of Justice.  The Consumer Protection Branch of the Justice Department’s Civil Division together with the U.S. Attorney’s Office for the Western District of Louisiana brought this case on behalf of the United States.

Science Applications International Corporation Pays $11.75 Million to Settle False Claims Allegations

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The Justice Department and U.S. Attorney Kenneth J. Gonzales of the District of New Mexico announced today that Science Applications International Corporation (SAIC) has paid $11.75 million to settle allegations filed in the U.S. District Court for the District of New Mexico that it violated the False Claims Act by charging inflated prices under grants to train first responder personnel to prevent and respond to terrorism attacks.  SAIC provides scientific, engineering, and technical services to commercial and government customers and is headquartered in Northern Virginia.

Between 2002 and 2012, the New Mexico Institute of Mining and Technology (New Mexico Tech) received six federal grants from the Department of Justice, the Department of Homeland Security, and the Federal Emergency Management Agency to train first responder personnel to prevent and respond to terrorism events involving explosive devices.  New Mexico Tech awarded subgrants to SAIC to provide course management, development, and instruction.  The United States alleged that SAIC’s cost proposals falsely represented that SAIC would use far more expensive personnel to carry out its efforts than it intended to use and actually did use, resulting in inflated charges to the United States.

“To ensure that federal tax dollars are properly spent, federal grant recipients and contractors must provide cost proposals and estimates that reflect their honest judgment about project costs,” said Stuart F. Delery, Acting Assistant Attorney General for the Civil Division of the Department of Justice.  “We will continue to ensure that funds designated for vital programs such as this one are properly used for their intended purpose.”

The False Claims Act is sometimes referred to as “Lincoln’s Law” because it was enacted at the urging of President Lincoln to combat widespread fraud which was being perpetrated on the Union Army by Civil War defense contractors.  While originally enacted to combat defense contractor fraud, the False Claims Act has long been successfully employed to combat false claims against the United States in many other contexts, including healthcare fraud.  The Act prohibits the submission of false claims for government money or property and allows the United States to recover up to three times the actual damages and penalties for a violation.

The lawsuit against SAIC was originally filed under the whistleblower provisions of the False Claims Act by Richard Priem, SAIC’s former project manager for the first responder training program.  Under the Act’s whistleblower provisions, a private party may file suit on behalf of the United States and share in any recovery, and the United States may elect to intervene and take over the case, as it did here.  Mr. Priem’s share has not yet been determined.

“The False Claims Act is a critical tool for weeding out fraud and protecting taxpayers,” said U.S. Attorney Kenneth J. Gonzales of the District of New Mexico.  “The Act provides an incentive for individuals with knowledge of fraud against the government to disclose that information.  When whistleblowers bring fraud allegations to the government’s attention and assist us in this public-private partnership to fight fraud, the public benefits and potential fraudsters are deterred.”

The case was jointly handled by Trial Attorneys Don Williamson and Daniel Hugo Fruchter of the Commercial Litigation Branch of the Justice Department’s Civil Division and Assistant U.S. Attorney Howard R. Thomas and Auditor Julie A. Ford of the U.S. Attorney’s Office for the District of New Mexico.  The claims resolved by this settlement are allegations only and there has been no determination of liability.  The case is United States ex rel. Priem v. SAIC, No-12-cv-148 (D.N.M.).

Testech and Ceso Agree to Pay $2.88 Million to Resolve False Claims Act Allegations

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The Justice Department announced today that a number of related entities and individuals agreed to pay $2,883,947 to resolve allegations that they falsely claimed disadvantaged business status on a number of federally-funded transportation projects.  These entities are Dayton-based TesTech, Inc. and its owner, Sherif Aziz, and Dayton-based CESO Testing Technology, Inc., CESO International, LLC, and CESO, Inc. (collectively CESO), and their owners, David and Shery Oakes.

“The Disadvantaged Business Enterprises program helps businesses owned by minorities and women work on federal transportation projects,” said Stuart F. Delery, Acting Assistant Attorney General for the Civil Division of the Department of Justice.  “Those who falsely claim credits under the program to obtain federal funds victimize both the businesses that the program is designed to assist and the American taxpayer.”

The Department of Transportation’s Disadvantaged Business Enterprise (DBE) program encourages the use of woman- and minority-owned businesses on federally-funded transportation projects.  Contractors on such projects must make good-faith attempts to meet DBE participation goals as a condition of federal funding.

“DBE fraud harms the integrity of the program and adversely impacts law-abiding, small business contractors trying to compete on a level playing field,” said Michelle McVicker, regional Special Agent-in-Charge of the DOT’s Office of Inspector General. “Working with our Federal, State, and local law enforcement and prosecutorial colleagues, we will vigorously pursue those who violate the law, and expose and shut down fraud schemes that adversely affect public trust and DOT-assisted airport and highway programs.”

The settlement announced today resolves allegations that the defendants claimed DBE status for TesTech, a civil engineering firm, on numerous highway and airport construction projects in Ohio, Indiana, Michigan, and Kentucky.  The United States alleged that TesTech was owned and controlled by CESO, a non-DBE firm, and its owners, the Oakes, who falsely claimed that TesTech was owned by Aziz and qualified as a minority-owned business in order to take advantage of the DBE program.

“The message is that we will work to uphold the integrity of the Disadvantaged Business Enterprise (DBE) and similar programs,” US Attorney Carter Stewart said.  “Those who attempt to defraud the system will be held accountable.”

The allegations resolved by today’s settlement were initially alleged in a whistleblower lawsuit filed under the False Claims Act by Ryan Parker, a former employee of TesTech.  Under the False Claims Act, private citizens can sue on behalf of the United States and share in the recovery.  Mr. Parker will receive $562,370 of the settlement amount.

This case was handled by the Civil Division of the Department of Justice, the U.S. Attorney’s Office for the Southern District of Ohio, and the Department of Transportation Office of Inspector General.

The False Claims Act suit was filed in the United States District Court for the Southern District of Ohio, and is captioned United States ex rel. Parker v. TesTech et al., No. 2:10-cv-1028 (S.D. Ohio).  The claims settled in this case are allegations only; there has been no determination of liability.

For-Profit School in Texas to Pay United States up to $2.5 Million for Allegedly Submitting False Claims for Federal Student Financial Aid

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American Commercial Colleges Inc. (ACC) has agreed to pay the United States up to $2.5 million, plus interest, to resolve allegations that it violated the civil False Claims Act by falsely certifying that it complied with certain eligibility requirements of the federal student aid programs, the Justice Department announced today.

To maintain eligibility to participate in federal student aid programs authorized by Title IV of the Higher Education Act of 1965, for-profit colleges such as ACC must obtain no more than ninety percent of their annual revenues from Title IV student aid programs.  At least ten percent of their revenues must come from other sources, such as payments from students using their own funds or private loans independent of Title IV.  Congress enacted this “90/10 Rule” based on the belief that quality schools should be able to attract at least a portion of their funding from private sources, and not rely solely upon the Federal Government.  The civil settlement resolves allegations that ACC violated the False Claims Act when it orchestrated certain short-term private student loans that ACC repaid with federal Title IV funds to artificially inflate the amount of private funding ACC counted for purposes of the 90/10 Rule.  The short-term loans at issue in this case were not sought or obtained by students on their own; rather, the United States contends ACC orchestrated the loans for the sole purpose of manipulating its 90/10 Rule calculations.

“American taxpayers have a right to expect federal student aid to be used as intended by Congress —  to help students obtain a quality education from an eligible institution,” said Stuart F. Delery, Acting Assistant Attorney General for the Department of Justice’s Civil Division.  “The Department of Justice is committed to making sure that for-profit colleges play by the rules and that Title IV funds are used as intended.” Under the False Claims Act settlement, ACC, a privately-owned college operating several campuses in Texas, will pay the United States $1 million, plus interest, over five years, and could be obligated to pay an additional $1.5 million under the terms of the agreement.

“Misuse of taxpayers’ dollars cannot be tolerated – not only for the sake of taxpayers, but especially in the case of innocent individuals who seek to improve their lives through a quality education,” said U.S. Attorney for the Northern District of Texas Sarah R. Saldaña.

Today’s settlement resolves allegations brought by Shawn Clark and Juan Delgado, former directors of ACC campuses in Odessa and Abilene, respectively, under the qui tam, or whistleblower, provisions of the False Claims Act, which permit private citizens with knowledge of fraud against the government to bring an action on behalf of the United States and to share in any recovery.  Messrs. Clark and Delgado will receive $170,000 of the $1 million fixed portion of the government’s recovery, and would receive an additional $255,000 if ACC becomes obligated to pay the maximum $1.5 million contingent portion of the settlement.

This case was handled by the Civil Division of the Department of Justice, the U.S. Attorney’s Office for the Northern District of Texas; and the Department of Education’s Office of Inspector General and Office of General Counsel.

The lawsuit is captioned United States ex rel. Clark, et al., v. American Commercial Colleges, Inc., No. 5:10-cv-00129 (N.D. Tex.).  The claims settled by this agreement are allegations only, and there has been no determination of liability.

ISTA Pharmaceuticals Inc. Pleads Guilty to Federal Felony Charges; Will Pay $33.5 Million to Resolve Criminal Liability and False Claims Act Allegations

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Pharmaceutical company ISTA Pharmaceuticals, Inc. pled guilty earlier today to conspiracy to introduce a misbranded drug into interstate commerce and conspiracy to pay illegal remuneration in violation of the Federal Anti-Kickback Statute, the Department announced today.  U.S. District Court Judge Richard J. Arcara accepted ISTA’s guilty pleas.  The guilty pleas are part of a global settlement with the United States in which ISTA agreed to pay $33.5 million to resolve criminal and civil liability arising from its marketing, distribution and sale of its drug Xibrom.

ISTA pled guilty in the Western District of New York to criminal charges that the company conspired to illegally introduce a misbranded drug, Xibrom, into interstate commerce.  Under the Food, Drug and Cosmetic Act (FDCA), it is illegal for a drug company to introduce into interstate commerce any drug that the company intends will be used for uses not approved by the Food and Drug Administration (FDA).  Xibrom is an ophthalmic, nonsteroidal, anti-inflammatory drug that was approved by FDA to treat pain and inflammation following cataract surgery.  In order to expand sales of Xibrom outside of its approved use, ISTA conspired to introduce misbranded Xibrom into interstate commerce.

Between 2005 and 2010, some ISTA employees promoted Xibrom for unapproved new uses, including the use of Xibrom following Lasik and glaucoma surgeries, and for the treatment and prevention of cystoid macular edema.  The evidence showed that continuing medical education programs were used to promote Xibrom for uses that were not approved by the FDA as safe and effective, and that post-operative instruction sheets for unapproved uses were paid for by some company employees and provided to physicians.  These activities are evidence of intended uses unapproved by FDA, which rendered the drug misbranded under the FDCA.

ISTA pled guilty to a felony based on evidence that some ISTA employees were told by management not to memorialize in writing certain interactions with physicians regarding unapproved new uses, and not to leave certain printed materials in physicians’ offices relating to unapproved new uses.  These instructions were given in order to avoid having their conduct relating to unapproved new uses being detected by others.  ISTA agreed that this conduct represented an intent to defraud under the law.

In addition, ISTA pled guilty to a conspiracy to knowingly and willfully offering or paying remuneration to physicians in order to induce those physicians to prescribe Xibrom, in violation of the federal Anti-Kickback Statute.  Under the law, it is illegal to offer or pay remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to physicians to induce them to refer individuals to pharmacies for the dispensing of drugs, for which payments are made in whole or in part under a Federal health care program.  In this matter, certain ISTA employees, with the knowledge and at the direction of ISTA, offered and provided physicians with free Vitrase, another ISTA product, with the intent to induce such physicians to refer individuals to pharmacies for the dispensing of the drug Xibrom.  In addition, ISTA provided other illegal remuneration, including a monetary payment to sponsor an event of a non-profit group associated with a particular physician, a golf outing, a wine-tasting event, paid consulting or speaker arrangements, and honoraria for participation in advisory meetings which were intended to be marketing opportunities, with the intent to induce physicians to refer individuals to pharmacies for the dispensing of the drug Xibrom.

Under the terms of the plea agreement, ISTA will pay a total of $18.5 million, including a criminal fine of $16,125,000 for the conspiracy to introduce misbranded Xibrom into interstate commerce, $500,000 for the conspiracy to violate the Anti-Kickback Statute, and $1,850,000 in asset forfeiture associated with the misbranding charge.

ISTA also entered into a civil settlement agreement under which it agreed to pay $15 million to the federal government and states to resolve claims arising from its marketing of Xibrom, which caused false claims to be submitted to government health care programs.  The civil settlement resolved allegations that ISTA promoted the sale and use of Xibrom for certain uses that were not FDA-approved and not covered by the Federal health care programs, including prevention and treatment of cystoid macular edema, treatment of pain and inflammation associated with non-cataract eye surgery, and treatment of glaucoma.  The United States further alleged that ISTA’s violations of the Anti-Kickback Statute resulted in false claims being submitted to federal health care programs.  The federal share of the civil settlement is $14,609,746.16, and the state Medicaid share of the civil settlement is $390,253.84.  Except as admitted in the plea agreement, the claims settled by the civil settlement agreement are allegations only, and there has been no determination of liability as to those claims.

“As today’s global resolution demonstrates, the Department of Justice is committed to making sure that pharmaceutical companies play by the rules,” said Stuart F. Delery, Acting Assistant Attorney General for the Civil Division.  “Health care fraud in any form undermines the integrity of our health care system and can drive up costs for all of us.”

“Today’s resolution sends a clear message that pharmaceutical companies cannot put profit ahead of people, by disregarding laws designed to protect the health of the American public,” said United States Attorney William J. Hochul, Jr.  “The fact that ISTA offered doctors illegal inducements – such as a wine tasting, golf outing, and payments to attend what were in essence marketing sessions – makes the company’s illegal conduct particularly deserving of the hefty penalty ISTA has agreed to pay.”

“It is especially concerning when companies actively take steps to conceal improper conduct which may jeopardize public health,” said Antoinette V. Henry, Special Agent in Charge, Metro-Washington Field Office, FDA Office of Criminal Investigations. “We will continue to work tirelessly with the Department of Justice and our law enforcement counterparts to uncover such conduct.”

In addition to the criminal fines and asset forfeiture, ISTA’s parent company, Bausch+Lomb, Incorporated (B+L), has agreed to maintain a Compliance and Ethics Program.  B+L has agreed that it will maintain policies and procedures that: (1) prohibit the involvement of sales and marketing personnel and others on the businesses’ commercial team in the final decision-making process with respect to educational grants in the United States, while also ensuring that the educational programming is focused on objective scientific and educational activities and discourse; (2) require sales agents to discuss only those product uses that are consistent with what is indicated on the product’s approved package labeling and to forward requests for information regarding uses of B+L’s products not approved by FDA to a Medical Affairs Professional; and (3) prohibit the company from engaging in any conduct that violates the Anti-Kickback Statute, including the offering or paying of any remuneration to any person to induce such person to prescribe any drug for which payment may be made in whole or in part under a Federal health care program.  The Program also requires that B+L’s President of Global Pharmaceuticals conduct an annual review of the effectiveness of B+L’s Program as it relates to the marketing, promotion, and sale of prescription pharmaceutical products, and certify that to the best of his or her knowledge, the Program was effective in preventing violations of Federal health care program requirements and the FDCA regarding sales, marketing, and promotion of B+L’s prescription pharmaceutical products.

The civil settlement resolves two lawsuits filed under the whistleblower provisions of the False Claims Act, which permit private parties to file suit on behalf of the United States for false claims and obtain a portion of the government’s recovery.  The civil lawsuits were filed in the Western District of New York and are captioned United States ex rel. Keith Schenker v. ISTA Pharmaceuticals, Inc. and United States, et al., ex rel. DJ PARTNERSHIP 2011, LLP  v. ISTA Pharmaceuticals, Inc.  As part of today’s resolution, Mr. Schenker will receive approximately $2.5 million from the federal share of the civil recovery.

Upon conviction for the criminal charges described above, ISTA will face mandatory exclusion from Federal healthcare programs.  Exclusion will mean that on the effective date of the exclusion, any ISTA labeled drugs in ISTA’s possession would no longer be reimbursable by Medicare, Medicaid, or other Federal healthcare programs.  In June 2012, B+L acquired ISTA.  Simultaneous with the False Claims Act settlement and the entry of the plea, the U.S. Department of Health and Human Services’ Office of Inspector General, ISTA, and B+L will enter into a Divestiture Agreement under which ISTA agrees to be excluded for 15 years, effective six months after the date of the settlement.  Under the terms of the Divestiture Agreement, ISTA will transfer all assets to B+L or a B+L subsidiary and will stop shipping ISTA labeled drugs within six months of the Divestiture Agreement.  Six months after the effective date of the Divestiture Agreement, all ISTA labeled drugs in the possession of ISTA or B+L will no longer be reimbursable by Medicare, Medicaid, and other Federal healthcare programs.  Those ISTA labeled drugs in the stream of commerce at that time will continue to be reimbursable.

“We agreed to enter into this Divestiture Agreement based on the facts of this case, including that B+L did not have a corporate relationship with ISTA during the improper conduct,” said Daniel R. Levinson, Inspector General of the U.S. Department of Health and Human Services.  “In addition, B+L acquired ISTA more than a year after the improper conduct ended, and B+L did not hire any of ISTA’s executives or senior management.”

The criminal case was prosecuted by Assistant Director Jeffrey Steger of the Consumer Protection Branch of the Civil Division of the Department of Justice and Assistant United States Attorney MaryEllen Kresse of the Office of the U.S. Attorney for the Western District of New York.  They were assisted by Associate Chief Counsel Kelsey Schaefer of the Food and Drug Division, Office of General Counsel, Department of Health and Human Services.  The case was investigated by the Food and Drug Administration’s Office of Criminal Investigations and Health and Human Services Office of Inspector General.  The civil settlement was handled by Trial Attorneys Colin Huntley and Benjamin Young of the Commercial Litigation Branch of the Civil Division of the Department of Justice and Assistant United States Attorney Kathleen Lynch of  the Office of the U.S. Attorney for the Western District of New York.

This resolution is part of the government’s emphasis on combating health care fraud and another step for the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which was announced by Attorney General Eric Holder and Kathleen Sebelius, Secretary of the Department of Health and Human Services in May 2009. 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 that effort is the False Claims Act, which the Justice Department has used to recover more than $10.4 billion since January 2009 in cases involving fraud against federal health care programs. The Justice Department’s total recoveries in False Claims Act cases since January 2009 are over $14.3 billion.

U.S. Renal Care to Pay $7.3 Million to Resolve False Claims Act Allegations

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U.S. Renal Care, headquartered in Plano, Texas, has agreed to pay $7.3 million to resolve allegations that Dialysis Corporation of America (DCA) violated the False Claims Act by submitting false claims to the Medicare program for more Epogen than was actually administered to dialysis patients at DCA facilities, the Justice Department announced today.  U.S. Renal Care, which acquired DCA in June 2010, owns and operates more than 100 freestanding outpatient dialysis facilities throughout the United States.

Epogen is an intravenous medication that is used to treat anemia, a common condition afflicting patients with end-stage renal disease.  Epogen vials contain a small amount of medication in excess of the labeled amount, known as “overfill,” to compensate for medication that may remain in the vial after extraction and in the syringe upon administration.  The United States contends that from January 2004 through May 2011, DCA billed for 10-11% overfill whenever it administered Epogen.  However, because of the types of syringes DCA used, the United States alleges that DCA was not able to withdraw and administer 10-11% overfill every time it administered Epogen to patients, and thus submitted false claims to Medicare that overstated the amount of Epogen that it was actually providing.

“Today’s settlement shows that the Justice Department will aggressively pursue those health care providers who cut corners at the expense of the American taxpayers, such as by billing for items and services that were not provided,” said Stuart F. Delery, Acting Assistant Attorney General for the Justice Department’s Civil Division.  “We will continue to protect scarce Medicare dollars.”

“Medical care providers who submit false claims for services and products that were not actually delivered threaten the financial viability of the Medicare Trust Fund,” said Rod J. Rosenstein, U.S. Attorney for the District of Maryland.

“Health providers billing for phantom services cheat taxpayers, cheat programs straining to pay for vitally needed care, and cheat patients who pay inflated copayments,” said Nick DiGiulio, Special Agent in Charge, Office of Inspector General, U.S. Department of Health and Human Services for the region including Maryland.  “We will continue to work with the Department of Justice to ensure health professionals get reimbursed only for services they actually provide”

This resolution is part of the government’s emphasis on combating health care fraud and another step for the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which was announced by Attorney General Eric Holder and Kathleen Sebelius, Secretary of the Department of Health and Human Services in May 2009. 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 that effort is the False Claims Act, which the Justice Department has used to recover $10.2 billion since January 2009 in cases involving fraud against federal health care programs. The Justice Department’s total recoveries in False Claims Act cases since January 2009 are over $14.2 billion.

The allegations settled today arose from a lawsuit filed by Laura Davis against DCA under the qui tam, or whistleblower, provisions of the False Claims Act. The Act allows private citizens with knowledge of fraud to bring civil actions on behalf of the United States and share in any recovery.  Ms. Davis will receive $1,314,000 as part of today’s settlement.

This case was handled by the Civil Division of the Department of Justice and the U.S. Attorney’s Office for the District of Maryland with assistance from the Office of Inspector General for the Department of Health and Human Services.  The claims settled by this agreement are allegations only, and there has been no determination of liability.  The whistleblower suit is captioned United States ex rel. Laura Davis v. Dialysis Corporation of America, No. 1:08-cv-2829 (D. Md.).

Eighth Individual Sentenced in Connection with Costa Rica-Based Business Opportunity Fraud Ventures

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Sean Rosales, a dual United States and Costa Rican citizen, was sentenced today in connection with a series of business opportunity fraud ventures based in Costa Rica, the Justice Department and the U.S. Postal Inspection Service announced today.  Rosales was sentenced by U.S. District Court Judge Ursula M. Ungaro in Miami to 97 months in prison and 5 years supervised release.  Rosales was also ordered to pay more than $7.3 million in restitution.

On March 20, Rosales pled guilty to one count of an indictment pending against him, charging conspiracy to commit mail and wire fraud.  Rosales was arrested in Chicago, Illinois late last year following his indictment by a federal grand jury in Miami on Nov. 29, 2011.   The indictment alleged that Rosales and his co-conspirators purported to sell beverage and greeting card business opportunities, including assistance in establishing, maintaining and operating such businesses.  The charges form part of the government’s continued nationwide crackdown on business opportunity fraud.

Prior to Rosales’ sentencing today, eleven other individuals were charged in connection with business opportunity fraud ventures based in Costa Rica.  Rosales is the eighth of those individuals to be convicted and sentenced in the United States.

“Many Americans dream of owning and operating their own small business, but fraud schemes such as the one perpetrated by this defendant can turn that dream into a nightmare,” said Stuart F. Delery, Acting Assistant Attorney General for the Justice Department’s Civil Division. “The Department of Justice will continue to be aggressive in prosecuting those who take advantage of innocent, hardworking Americans through business opportunity fraud.”

Beginning in May 2005, Rosales and his coconspirators fraudulently induced purchasers in the United States to buy business opportunities in USA Beverages Inc., Twin Peaks Gourmet Coffee Inc., Cards-R-Us Inc., Premier Cards Inc., The Coffee Man Inc., and Powerbrands Distributing Company.  The business opportunities cost thousands of dollars each, and most purchasers paid at least $10,000.  Each company operated for several months, and after one company closed, the next opened.  The various companies used bank accounts, office space and other services in the Southern District of Florida and elsewhere.

Rosales, using aliases, participated in a conspiracy that used various means to make it appear to potential purchasers that the businesses were located entirely in the United States.  In reality, Rosales operated out of Costa Rica to fraudulently induce potential purchasers in the United States to buy the purported business opportunities.

The companies made numerous false statements to potential purchasers of the business opportunities, including that purchasers would likely earn substantial profits; that prior purchasers of the business opportunities were earning substantial profits; that purchasers would sell a guaranteed minimum amount of merchandise, such as greeting cards and beverages; and that the business opportunity worked with locators familiar with the potential purchaser’s area who would secure or had already secured high-traffic locations for the potential purchaser’s merchandise stands.  Potential purchasers also were falsely told that the profits of some of the companies were based in part on the profits of the business opportunity purchasers, thus creating the false impression that the companies had a stake in the purchasers’ success and in finding good locations.

The companies employed various types of sales representatives, including fronters, closers and references.  A fronter spoke to potential purchasers when the prospective purchasers initially contacted the company in response to an advertisement.  A closer subsequently spoke to potential purchasers to finalize deals.  References spoke to potential purchasers about the financial success they purportedly had experienced since purchasing one of the business opportunities.  The companies also employed locators, who were typically characterized by the sales representatives as third parties who worked with the companies to find high-traffic locations for the prospective purchaser’s merchandise display racks.

Rosales, using aliases, was a fronter for USA Beverages, a fronter and reference for Twin Peaks, a fronter and reference for Cards-R-Us, a fronter, locator and reference for Premier Cards, a locator for Coffee Man, and a locator for Powerbrands.

Each of the companies was registered as a corporation and rented office space to make it appear to potential purchasers that its operations were fully in the United States.  USA Beverages was registered as a Florida and New Mexico corporation and rented office space in Las Cruces, N.M.  Twin Peaks was registered as a Florida and Colorado corporation and rented office space in Fort Collins, Colo., and Cards-R-Us was registered as a Nevada corporation and rented office space in Reno, Nev.  Premier Cards was registered as a Colorado and Pennsylvania corporation and rented office space in Philadelphia, and The Coffee Man was registered as a Colorado corporation and rented office space in Denver.  Powerbrands was registered as a Wisconsin corporation and rented office space in Glendale, Wisconsin and Palm Beach Gardens, Fla.  “Fraudulent business opportunity sellers must realize that financial fraud victimizing Americans will be prosecuted vigorously, even if the fraudsters conduct their operations from abroad,” said Wifredo A. Ferrer, U.S. Attorney for the Southern District of Florida.  “Increased international law enforcement cooperation eliminates safe havens for those who seek to cheat Americans from overseas.”

“The success of this investigation shows that the U.S. Postal Inspection Service is committed to working with the Department of Justice and our law enforcement partners, both foreign and domestically, to protect Americans from the predatory nature of business opportunity frauds,” said Ronald Verrochio, U.S. Postal Inspector in Charge, Miami Division.

Acting Assistant Attorney General Delery commended the investigative efforts of the Postal Inspection Service.  The case was being prosecuted by Assistant Director Jeffrey Steger and trial attorney Alan Phelps with the U.S. Department of Justice Consumer Protection Branch.

Generic Drug Manufacturer Ranbaxy Pleads Guilty & Agrees to Pay $500 Million to Resolve False Claims Allegations, cGMP Violations and False Statements to the FDA

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In the largest drug safety settlement to date with a generic drug manufacturer, Ranbaxy USA Inc. , a subsidiary of Indian generic pharmaceutical manufacturer Ranbaxy Laboratories Limited, pleaded guilty today to felony charges relating to the manufacture and distribution of certain adulterated drugs made at two of Ranbaxy’s manufacturing facilities in India, the Justice Department announced today.   Ranbaxy also agreed to pay a criminal fine and forfeiture totaling $150 million and to settle civil claims under the False Claims Act and related State laws for $350 million.

 

The federal Food, Drug and Cosmetic Act (FDCA) prohibits the introduction or delivery for introduction into interstate commerce of any drug that is adulterated.   Under the FDCA, a drug is adulterated if the methods used in, or the facilities or controls used for, its manufacturing, processing, packing, or holding do not conform to, or are not operated or administered in conformity with, current Good Manufacturing Practice (cGMP) regulations.   This assures that a drug meets the requirements as to safety and has the identity and strength, and meets the quality and purity characteristics, which the drug purports or is represented to possess.

 

Ranbaxy USA pleaded guilty to three felony FDCA counts, and four felony counts of  knowingly making material false statements to the FDA.   The generic drugs at issue were manufactured at Ranbaxy’s facilities in Paonta Sahib and Dewas, India. Under the plea agreement, the company will pay a criminal fine of $130 million, and forfeit an additional $20 million.

 

“When companies sell adulterated drugs, they undermine the integrity of the FDA’s approval process and may cause patients to take drugs that are substandard, ineffective, or unsafe,” said Stuart F. Delery, Acting Assistant Attorney General for the Civil Division of the Department of Justice.  “We will continue to work with our law enforcement partners to ensure that all manufacturers of drugs approved by the FDA for sale in the United States, both domestic and foreign, follow the FDA guidelines that protect all of us.”

 

“This is the largest false claims case ever prosecuted in the District of Maryland, and the nation’s largest financial penalty paid by a generic pharmaceutical company for FDCA violations,” said U.S. Attorney for the District of Maryland Rod J. Rosenstein.  “The joint criminal and civil settlement, which reflects many years of work by FDA agents and federal prosecutors, holds Ranbaxy accountable for a pattern of violations and should improve the reliability of generic drugs manufactured in India by Ranbaxy.”

 

Ranbaxy USA admitted to introducing into interstate commerce certain batches of adulterated drugs that were produced at Paonta Sahib in 2005 and 2006, including Sotret, gabapentin, and ciprofloxacin.   Sotret is Ranbaxy’s branded generic form of isotretinoin, a drug used to treat severe recalcitrant nodular acne; gabapentin is a drug used to treat epilepsy and nerve pain; ciprofloxacin is a broad-spectrum antibiotic.   In a Statement of Facts filed along with the Information, Ranbaxy USA acknowledged that FDA’s inspection of the Paonta Sahib facility in 2006 found incomplete testing records and an inadequate program to assess the stability characteristics of drugs.   “Stability” refers to how the quality of a drug varies with time under the influence of a variety of factors, such as temperature, humidity, and light.  Such testing is used to determine appropriate storage conditions and expiration dates for the drug, as well as to detect any impurities in the drug.

Ranbaxy also acknowledged that the FDA’s 2006 and 2008 inspections of the Dewas facility found the same issues with incomplete testing records and an inadequate stability program, as well as significant cGMP deviations in the manufacture of certain active pharmaceutical ingredients and finished products.   Ranbaxy USA also acknowledged that in 2003 and 2005 the company was informed of cGMP violations by consultants it hired to conduct audits at the Paonta Sahib and Dewas facilities.   Those cGMP violations resulted in the introduction into interstate commerce of some adulterated drugs.

Ranbaxy USA further admitted to failing to timely file required reports known to FDA as “field alerts” for batches of Sotret and gabapentin that had failed certain tests.   With respect to Sotret, Ranbaxy USA was aware in January 2003 that a batch of Sotret failed an accelerated dissolution stability test but continued to distribute the batch into the United States for another 13 months.   With respect to gabapentin, Ranbaxy USA was aware at various times between June and August 2007 that certain batches of gabapentin were testing out-of-specification, had unknown impurities, and would not maintain their expected shelf life.   Nevertheless, Ranbaxy USA did not notify FDA and institute a voluntary recall until October 2007.

Ranbaxy USA also admitted to making false, fictitious, and fraudulent statements to the FDA in Annual Reports filed in 2006 and 2007 regarding the dates of stability tests conducted on certain batches of Cefaclor, Cefadroxil, Amoxicillin, and Amoxicillin and Clavulanate Potassium, which were manufactured at the Dewas facility.   Ranbaxy USA was found to have conducted stability testing of certain batches of these drugs weeks or months after the dates reported to FDA.   In addition, instead of conducting some of the stability tests at prescribed intervals months apart, the tests were conducted on the same day or within a few days of each other.   This practice resulted in unreliable test results regarding the shelf life of the drugs.   Ranbaxy USA also acknowledged that drug samples waiting to be tested were stored for unknown periods of time in a refrigerator, which did not meet specified temperature and humidity ranges for an approved stability chamber, and that this was not disclosed to the FDA.

The criminal case is U.S. v. Ranbaxy USA, Inc., JFM-13-CR-0238 (D. Md.).

Under the civil settlement, Ranbaxy has agreed to pay an additional $350 million to resolve allegations that it caused false claims to be submitted to government health care programs between April 1, 2003, and September 16, 2010, for certain drugs manufactured at the Paonta Sahib and Dewas facilities.   The United States contends that Ranbaxy manufactured, distributed, and sold drugs whose strength, purity, or quality differed from the drug’s specifications or that were not manufactured according to the FDA-approved formulation.   The United States further contends that, as a result, Ranbaxy knowingly caused false claims for those drugs to be submitted to Medicaid, Medicare, TRICARE, the Federal Employees Health Benefits Program, the Department of Veterans Affairs, and the U.S. Agency for International Development (USAID), which administers the U.S. President’s Emergency Plan for AIDS Relief (PEPFAR).

The federal government’s share of the civil settlement amount is approximately $231.8 million, and the remaining $118.2 million will go to the states participating in the agreement.

The civil settlement resolves a lawsuit filed in U.S. District Court for the District of Maryland under the qui tam, or whistleblower, provisions of the False Claims Act, which allow private citizens to bring civil actions on behalf of the United States and share in any recovery.   As part of today’s resolution, the whistleblower, Dinesh Thakur, a former Ranbaxy executive, will receive approximately $48.6 million from the federal share of the settlement amount.   The case is U.S. ex rel. Thakur v. Ranbaxy Laboratories Limited, Case No. JFM-07-962 (D. Md.).

With the exception of the allegations to which Ranbaxy pleaded guilty in the Criminal Information, there has been no determination of liability as to the claims settled by the civil agreement.

Last year, FDA and Ranbaxy agreed to an injunction that prevents drugs produced at the Paonta Sahib and Dewas facilities from entering the U.S. market until the facilities have been brought into full compliance with the FDCA and its implementing regulations.

Since September 16, 2008, when the FDA placed drugs from those facilities on an Import Alert, Ranbaxy has not imported drugs from those facilities into the U.S.   In addition, the injunction requires Ranbaxy to review and verify data contained in Ranbaxy’s past drug applications to the FDA.   United States v. Ranbaxy Laboratories, Ltd., et al. , Case No. JFM-12-250 (D. Md).

“The FDA expects that companies will comply with the cGMP requirements mandated by law so that consumers can be assured that their medical products are safe and pure,” said John Roth, director of the FDA’s Office of Criminal Investigations. “The investigation that led to this settlement uncovered evidence showing that certain lots of specific drugs produced at the Paonta Sahib facility were defective, in that their strength differed from, or their purity or quality fell below, that which they purported to possess. The FDA and its law enforcement partners will continue to aggressively pursue companies and their executives who erode public confidence in the quality and safety of medical products by distributing products that do not comply with the law.”

“I would like to express my appreciation for the exceptional work of our investigators and that of their FDA and Department of Justice partners,” said Michael G. Carroll, USAID Deputy Inspector General.   “This settlement represents the culmination of years of investigative effort and signals our continuing commitment to the integrity of U.S. government systems and our determination to hold those who seek to defraud or mislead to account.”

The criminal case was prosecuted by the U.S. Attorney’s Office for the District of Maryland and the Civil Division’s Consumer Protection Branch.   The civil settlement was negotiated by the U.S. Attorney’s Office for the District of Maryland and the Civil Division’s Commercial Litigation Branch.   The case was investigated by agents from the FDA’s Office of Criminal Investigations and USAID’s Office of Inspector General.   The FDA’s Office of Chief Counsel, HHS Office of Counsel to the Inspector General, Office of the General Counsel-CMS Division, and the National Association of Medicaid Fraud Control Units also provided assistance.

This criminal and civil resolution is part of the government’s emphasis on combating health care fraud and another step for the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which was announced by Attorney General Eric Holder and Kathleen Sebelius, Secretary of the Department of Health and Human Services in May 2009. 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 that effort is the False Claims Act, which the Justice Department has used to recover more than $10.3 billion since January 2009 in cases involving fraud against federal health care programs. The Justice Department’s total recoveries in False Claims Act cases since January 2009 are over $14.3 billion.

New York-Based Corning Incorporated to Pay U.S. $5.65 Million to Resolve False Claims Allegations

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Corning Incorporated has agreed to pay the U nited States $5.65 million to resolve claims that it knowingly presented false claims to the United States for laboratory research products sold to federal agencies through Corning’s Life Sciences division.   Corning, a New York based corporation, creates and makes glass and ceramic components for consumer electronics, mobile emissions controls, telecommunications and life sciences.

 

The settlement resolves claims relating to a contract entered into by Corning in 2005 to sell laboratory research products to federal government entities through the General Services Administration’s (GSA) Multiple Award Schedule (MAS) program.   The MAS program provides the government and other General Services Administration authorized purchasers with a streamlined process for procurement of commonly-used commercial goods and services. To be awarded a MAS contract, and thereby gain access to the broad government marketplace and the ease of administration that comes from selling to hundreds of government purchasers under one central contract, contractors must agree to disclose commercial pricing policies and practices, and to abide by the contract terms.

The settlement resolves allegations that, in contract negotiations and over the course of the contract’s administration, Corning knowingly failed to meet its contractual obligations to provide GSA with current, accurate and complete information about its commercial sales practices, including discounts offered to other customers, and that Corning knowingly made false statements to GSA about its sales practices and discounts .   The settlement further resolves allegations that Corning knowingly failed to comply with the price reduction clause of its GSA contract by failing to disclose to GSA discounts Corning gave to its commercial customers when they were higher than the discounts that Corning had disclosed to GSA, and by failing to pass those discounts on to government customers.   The United States alleged that, because of these improper dealings, it received lower discounts and ultimately paid far more than it should have for Corning products.

“This settlement shows that the United States expects all contractors participating in the MAS program to make full and accurate disclosures of their commercial pricing practices to the GSA and to act in good faith when dealing with the United States government,” said Stuart F. Delery, Principal Deputy Assistant Attorney General for the Department of Justice’s Civil Division.   “The failure to make full and accurate disclosures material to the government’s contracting processes will not be tolerated.”

 “At a time when our political leaders are making tough choices about how to rein in federal spending, government contractors need to understand that they will not get away with overbilling the taxpayer,” said U.S. Attorney for the District of Columbia Ronald C. Machen Jr.  “Companies that want to take advantage of federal contracts are obligated to deal openly and fairly with their government customers.  When contractors fail to meet their obligations, we will hold them accountable and seek to make the taxpayer whole.”

“Contractors need to be honest and follow through with their promises to the federal government – or pay the consequences,” said Brian D. Miller, Inspector General for the General Services Administration.

The settlement resolves a lawsuit filed in the U.S. District Court for the District of Columbia by a former Corning Life Sciences sales representative Kevin Jones under the qui tam, or whistleblower provisions, of the False Claims Act.   Under the Act, private citizens may bring suit for false claims on behalf of the United States and share in any recovery obtained by the government.   Mr. Jones will receive $904,000 as his share of the government’s recovery.

 

This settlement was the result of a coordinated effort by the U.S. Attorney’s Office for the District of Columbia; the Department of Justice, Civil Division, Commercial Litigation Branch; and the GSA’s Office of Inspector General in investigating the allegations in this case.   The claims settled by this agreement are allegations only, and there has been no determination of liability.

CIA Contractors Settle False Claims Act and Kickback Allegations for $3 Million United States Alleges Companies Provided Government Employees with Meals and Entertainment to Steer Contract Award

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The Justice Department announced today that American Systems Corporation,  International Inc., and Corning Cable Systems LLC have agreed to pay the United States $3 million to settle allegations that they violated the False Claims Act and the Anti-Kickback Act in bidding on a contract with the CIA.

The settlement announced today resolves claims against these contractors related to a CIA contract awarded to American Systems in early 2009 to provide supplies and services.  American Systems teamed with Anixter to bid on the contract with Corning as a supplier.   The United States alleged that American Systems, Anixter and Corning provided gratuities, including meals, entertainment, gifts and tickets to sporting and other events, to CIA employees and outside consultants in order to influence contract specifications that would favor the three companies in the award of the contract. The settlement also resolves allegations that the three companies improperly received source selection information from a CIA employee to whom they had provided gratuities, and that they had concealed the gratuities prior to award.

“This settlement shows that the United States will protect the integrity of the federal procurement process from the wrongful activities of unscrupulous contractors,” said Stuart F. Delery, Principal Deputy Assistant Attorney General for the Department of Justice, Civil Division.   “Plying government officials with meals and entertainment to gain favorable treatment in the award of federal contracts corrupts the procurement process and will not be allowed.”  

 “Improper gifts and gratuities paid to government officials are a corrupting influence on government contracts. Combating this type of conduct is a high priority in the Eastern District of Virginia,” said U.S. Attorney for the Eastern District of Virginia Neil MacBride.

“This case clearly reflects that the CIA will respond effectively to allegations of fraud affecting agency programs,” said CIA Inspector General David B. Buckley. “My office treats contract fraud and related employee misconduct as one of our top investigative priorities, and we work closely with agency employees and the Department of Justice to ensure that illegal acts are addressed in an effective manner.”

The allegations resolved by the settlement were initiated by a lawsuit filed in the Eastern District of Virginia under the qui tam, or whistleblower, provisions of the False Claims Act by former Anixter sales representative, William Jones. Under the False Claims Act, private citizens may sue on behalf of the United States for false claims and share in any recovery obtained by the government. Jones will receive $585,000 as his share of the government’s recovery.

This settlement was the result of a coordinated effort by the United States Attorney’s Office for the Eastern District of Virginia; the Department of Justice, Civil Division, Commercial Litigation Branch; and the CIA, Office of Inspector General. The claims settled by this agreement are allegations only; there has been no determination of liability.