Tag Archives: whistleblower

United Technologies Corporation Liable for Over $473 Million for Inflating Prices on Aircraft Engines Sold to Air Force

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The U.S. District Court for the Southern District of Ohio found United Technologies Corporation liable for over $473 million in damages and penalties arising out of a contract to provide the Air Force with fighter aircraft engines for F-15 and F-16 aircraft between 1985 and 1990, the Justice Department announced today.  United Technologies, which is based in Connecticut, provides a broad range of high-technology products and services to the global aerospace and building systems industries.

“The department will relentlessly pursue justice against those who knowingly submit false claims to the government and abuse the public contracting process,” said Stuart Delery, Acting Assistant Attorney General for the Civil Division.  “It is vital that companies who do business with the government provide full and accurate information, and if they do not, they will pay the consequences.”

The government alleged that UTC’s proposed prices for the engine contract misrepresented how UTC calculated those prices, resulting in the government paying hundreds of millions more than it otherwise would have paid for the engines.  Specifically, the government alleged that UTC failed to include in its price proposal historical discounts that it received from suppliers, and instead knowingly used outdated information that excluded such discounts.

The government filed suit against UTC in 1999 under the False Claims Act and the common law, and those claims were tried, without a jury, in 2004.  An initial decision by the district court in 2008 found UTC liable under the False Claims Act, but did not award any damages.  The district court also dismissed the government’s common law claims.  That decision was appealed by both the government and UTC.  In 2010, the Court of Appeals for the Sixth Circuit affirmed the district court’s finding that UTC was liable under the False Claims Act, but reversed and remanded the case to the district court to recalculate the government’s damages and to reconsider the government’s common law claims.

In yesterday’s ruling, the district court awarded the government False Claims Act damages and penalties of $364 million, which is the highest recovery obtained by the government in a case tried under the Act.  The court also awarded an additional $109 million in damages on the government’s common law claims.  With the addition of prejudgment interest on the latter claims, which the court has yet to calculate, the government anticipates that the total judgment against United Technologies could be well in excess of half a billion dollars.    This case is being handled by the Civil Division of the Department of Justice.  The lawsuit is captioned United States of America v. United Technologies Corp., No. 3:99-cv-093 (S.D. Ohio).

Axius CEO Roland Kaufmann Sentenced for Conspiracy to Pay Bribes in Stock Sales

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Roland Kaufmann, CEO of Axius Inc., was sentenced today to serve 16 months in prison for his role in a conspiracy to bribe purported stock brokers and manipulate the stock of a company he controlled, announced Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division and U.S. Attorney for the Eastern District of New York Loretta Lynch.

Kaufmann, 60, a Swiss citizen, was sentenced today by U.S. District Judge John Gleeson in the Eastern District of New York.  In addition to his prison term, Kaufmann was sentenced to serve three years of supervised release and ordered to pay a fine of $450,000.

Kaufmann pleaded guilty in January 2013 to one count of conspiracy to violate the Travel Act in connection with a scheme to bribe stock brokers to purchase the common stock of a company he controlled and to manipulate its stock price.  As part of his plea agreement, Kaufmann forfeited $298,740 gained through this crime.

According to court documents, Kaufmann controlled Axius, Inc., a purported holding company and business incubator located in Dubai.  As part of the scheme, the defendant and his co-conspirator, Jean Pierre Neuhaus, enlisted the assistance of an individual who they believed had access to a group of corrupt stock brokers, but who was, in fact, an undercover law enforcement agent.  Court documents reveal that they instructed the undercover agent to direct brokers to purchase Axius shares in return for a secret kickback of approximately 26 to 28 percent of the share price.  Kaufman and Neuhaus also instructed the undercover agent as to the price the brokers should pay for the stock and that the brokers were to refrain from selling the Axius shares they purchased on behalf of their clients for a one-year period.  By preventing sales of Axius stock, Kaufmann and Neuhaus intended to maintain the fraudulently inflated share price for Axius stock.

Jean Pierre Neuhaus has pleaded guilty and been sentenced for his role in the scheme.

The case is being prosecuted by Trial Attorney Justin Goodyear of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Ilene Jaroslaw, with assistance from Fraud Section Trial Attorney Nathan Dimock.  The case was investigated by the FBI New York Field Office and the Internal Revenue Service New York Field Office.  The Department also recognizes the substantial assistance of the U.S. Securities and Exchange Commission.

This prosecution was the result of efforts 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.

Former Security Contractor Executives Sentenced for Illegally Obtaining More Than $31 Million Intended for Disadvantaged Small Businesses

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Two executives at a Virginia-based security contracting firm were sentenced in the Eastern District of Virginia for their roles in using a front company to obtain more than $31 million intended for disadvantaged small businesses as part of the Small Business Administration’s (SBA) Section 8(a) program. This program allows qualified small businesses to receive sole-source and competitive-bid contracts set aside for minority-owned and disadvantaged small businesses.

 Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division; U.S. Attorney Neil H. MacBride of the Eastern District of Virginia; National Aeronautics and Space Administration (NASA) Inspector General Paul K. Martin; SBA Inspector General Peggy E. Gustafson; Defense Criminal Investigative Service (DCIS) Special Agent in Charge of Mid-Atlantic Field Office Robert E. Craig; General Services Administration (GSA) Inspector General Brian D. Miller; and Department of Homeland Security (DHS) Deputy Inspector General Charles K. Edwards made the announcement after sentencing by United States District Judge Leonie M. Brinkema.

Joseph Richards, 52, of Arlington, Va., and David Lux, 66, of Springfield, Va., were sentenced today to 27 and 15 months in prison, respectively, after pleading guilty in March 2013 to conspiracy to commit major government fraud. Both men were ordered to complete community service as part of their supervised release following their prison terms. Richards was ordered to pay $120,378 in restitution, and Lux was ordered to forfeit $115,556.

According to court documents, Richards and Lux were executives at an Arlington-based security contracting firm referred to as Company A in court records. In approximately 2001, Keith Hedman, 53, of Arlington, formed Company A, which was approved to participate in the 8(a) program based on the 8(a) eligibility of its listed president and CEO, an African-American female. When the listed president and CEO left Company A in 2003, Hedman became its sole owner, and the company was no longer 8(a)-eligible.

In 2003, Hedman created Company B, another Arlington-based security contractor, to ensure that he could continue to gain access to 8(a) contracting preferences for which Company A was no longer qualified. Prior to applying for Company B’s 8(a) status, Hedman selected an employee, Dawn Hamilton, 48, of Brownsville, Md., to serve as a figurehead owner based on her Portuguese heritage and history of social disadvantage. In reality, the new company was managed by Hedman and Company A senior leadership in violation of 8(a) rules and regulations. To deceive the SBA, the co-conspirators falsely claimed that Hamilton formed and founded the company and that she was the only member of the company’s management. Based on those misrepresentations, Company B obtained 8(a) status in 2004. From 2004 through February 2012, Hedman – not Hamilton – impermissibly exercised ultimate decision-making authority and control over Company B by directing its finances, allocation of personnel, and government contracting activities.

Richards and Lux joined the scheme in 2005 and 2008, respectively. Hedman offered Richards and Lux ownership stakes in Company B in exchange for their assistance in misleading the SBA and other U.S. government agencies, and both men accepted. Once they joined the conspiracy, Richards and Lux took a variety of actions to further the fraud against the United States. In 2008, for example, both Richards and Lux helped Company B overcome a protest by another company that accused Company A and Company B of improperly obtaining a $48 million Coast Guard contract.

From 2008 to 2010, Richards moved to Company B’s payroll to help Hedman illegally operate Company B. In 2010, Lux helped Hedman withdraw more than $1 million in cash from Company B’s accounts, which Hedman then disbursed to various conspirators, including $100,000 in cash to both Richards and Lux. Richards and Lux also assisted Hedman, Hamilton, and other co-conspirators prepare false documents, including annual reviews, to submit to SBA and other government agencies.

In total, the scheme netted government contracts valued at more than $153 million, from which Company B obtained more than $31 million in contract payments. The various conspirators netted more than $6.1 million that they were not entitled to receive from those payments.

Six other defendants have pleaded guilty in the scheme:

• Hedman is scheduled to be sentenced by U.S. District Judge Gerald Bruce Lee on June 21, 2013. • Hamilton is scheduled to be sentenced by U.S. District Judge T. S. Ellis, III on June 28, 2013. • David Sanborn, 60, of Lexington, S.C., Company A’s former president, is scheduled to be sentenced by U.S District Judge Claude M. Hilton on July 19, 2013. • John Hertogs, 42, of Winter Springs, Fl., Company B’s former director of operations, is scheduled to be sentenced by Judge Hilton on July 12, 2013, for submitting a fraudulent 8(a) application for a follow-on company that Hedman and Hamilton intended to use once Company B graduated from the 8(a) program. • Derek Matthews, 47, of Harwood, Md., former Regional Director for the National Capital Region of the Federal Protective Service, is scheduled to be sentenced by Judge Brinkema on July 19, 2013, for a related bribery scheme in which Hedman agreed to pay Matthews $50,000 and a percentage of new business in exchange for Matthews helping Company B obtain contracts. • Michael Dunkel, 59, of Merritt Island, Fl., is scheduled to be sentenced by Judge Lee on Oct. 4, 2013, for obtaining more than $4.4 million in payments by using Company B as a pass-through company on NASA contracts.

This case is being investigated by NASA Office of the Inspector General (OIG), the SBA -OIG, DCIS-OIG, GSA-OIG, and DHS-OIG, with assistance from the Defense Contract Audit Agency. Assistant U.S. Attorneys Chad Golder and Ryan Faulconer, a former Trial Attorney for the Criminal Division’s Fraud Section, are prosecuting the 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.).

County Commissioner Sentenced for Attempted Extortion and Bribery

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Al J. Hurley, a former county commissioner in Sumter County, Ga., was sentenced today to 36 months in prison stemming from his acceptance of illicit payments in exchange for his official efforts to secure government contracts for a private contractor, Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division and Middle District of Georgia U.S. Attorney Michael J. Moore announced.

Hurley, 55, of Americus, Ga., was sentenced today by U.S. District Judge W. Louis Sands.  On Dec. 3, 2012, a federal jury sitting in the Albany Division of the Middle District of Georgia found Hurley guilty of one count each of attempted extortion and federal program bribery.

Hurley was first elected to the five-member Sumter County board of commissioners in 1999.  As the primary governing body for the county, the board presided over a variety of official matters, including the bidding process for and award of various county contracts.

Evidence at trial showed that from September to December 2011, Hurley, in his capacity as a county commissioner, solicited and agreed to accept cash payments – including $5,000 on Oct. 23, 2011, and $15,000 on Dec. 19, 2011 – from a private contractor, in exchange for Hurley’s repeated promises to use official action and influence to help facilitate the award of county contracting work to the contractor.

In particular, Hurley told the contractor that he would help him win a $100,000 depot renovation contract in a city within Hurley’s district.  Trial testimony also established that, in order to drive up the bribe amount, Hurley invented two inside contacts that he claimed to have at a new racetrack project in his district, and claimed the contacts could influence the award of related contracting work in favor of the contractor.  Hurley, who testified, admitted the contacts did not exist.

This case was investigated by the FBI. This case was prosecuted by Trial Attorney Eric G. Olshan of the Criminal Division’s Public Integrity Section and Assistant U.S. Attorney K. Alan Dasher of the Middle District of Georgia.

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.).

GGLLP Alert: Changes to the False Claims Act Under the Patient Protection and Affordable Care Act

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Changes to the False Claims Act Under the Patient Protection and Affordable Care Act

The 2010 Patient Protection and Affordable Care Act (PPACA) made a number of significant changes to the False Claims Act, including the following:

Original Source Requirement.  A plaintiff may now overcome the public disclosure if he or she qualifies as an “original source.”  The PPACA revised the definition of this term.  Previously, an original source had to have “direct and independent knowledge of the information on which the allegations [were] based.”  Now, an original source may be a person who merely has “knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions.”  See 31 U.S.C. 3730(e)(4)(B).

Changes to the Public Disclosure Bar.  Previously, relators were precluded from proceeding if there had been a public disclosure of information.  This disclosure could have occurred in news reports, a Freedom of Information Act response, court proceedings or in any number of ways.  Thus, the public disclosure bar often served as a basis for dismissal.  The PPACA amended the False Claims Act to allow the government to have the final say on whether a court could properly dismiss a case based on a public disclosure.  The statute now provides that “the court shall dismiss an action unless opposed by the Government, if substantially the same allegations or transaction alleged in the action or claim were publicly disclosed.”  See 31 U.S.C. 3730(e)(4)(A).

Overpayments.  In the prior law, there was confusion as to the “obligation” under the False Claims Act not to retain overpayments and when such overpayments had to be returned after their discovery.  Now, under the PPACA, overpayments under Medicare and Medicaid must be reported and returned within 60 days of discovery, or the date a corresponding hospital report is due.  The failure timely to report and return an overpayment exposes a provider to False Claims Act liability.

Statutory Anti-Kickback Liability. The federal Anti-Kickback Statute, 42 U.S.C. 1320a-7b(b) (AKS), makes it a crime for any person to solicit, receive, offer or pay remuneration (monetary or otherwise) in exchange for referring patients to receive certain services that are paid for by the government.  Previously, many courts had interpreted the False Claims Act to mean that claims submitted as a result of AKS violations were false claims and therefore gave rise to liability under the False Claims Act (in addition to AKS penalties). Even though this was the majority rule, some courts held otherwise and the issue was always present in every case.  The PPACA changed the language of the AKS to provide that claims submitted in violation of the AKS automatically constitute false claims for purposes of the False Claims Act.  Further, the new language provides that “a person need not have actual knowledge … or specific intent to commit a violation” of the AKS.

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.

Par Pharmaceutical Companies Inc. Pleads Guilty, Admits Misbranding Of Megace® Es

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Agrees to Pay $45M to Resolve Criminal and Civil Investigations

NEWARK, N.J. – New Jersey-based Par Pharmaceutical Companies Inc. (“Par”) pleaded guilty in federal court today and agreed to pay $45 million to resolve its criminal and civil liability in the company’s promotion of its prescription drug Megace® ES for uses not approved as safe and effective by the Food and Drug Administration (FDA) and not covered by federal health care programs, the Justice Department announced.

Chief Executive Officer Paul V. Campanelli pleaded guilty on behalf of Par before U.S. Magistrate Judge Madeline Cox Arleo earlier today in Newark federal court. Judge Arleo imposed sentence today, fining Par $18 million and ordering $4.5 million in criminal forfeiture. Par also agreed to pay $22.5 million to resolve its civil liability.

“The FDA requires drug makers to go through a stringent approval process before new drugs – or new uses for existing drugs – are made available to doctors and their patients,” U.S. Attorney Paul J. Fishman said. “Today, Par admitted that it chose to ignore that process in pursuit of more sales and greater profits. It is paying the price for its choice.”

“Today’s resolution emphasizes the importance of the U.S. government’s coordinated efforts to combat health care fraud. We expect companies to make honest, lawful claims about the drugs they sell. We will be vigorous in our enforcement efforts when they break the law, to ensure that they are held accountable,” said Stuart F. Delery, Principal Deputy Assistant Attorney General for the Justice Department’s Civil Division.

“Individual accountability of Par’s board and executives is required under the comprehensive five-year integrity agreement OIG has with the company,” said Daniel R. Levinson, Inspector General of the U.S. Department of Health and Human Services.  “For example, company executives may have to forfeit annual bonuses if they or their subordinates engage in significant misconduct, and sales representatives may not be paid incentive compensation for the drug involved in the case, or successor branded versions of that drug.”

“The public has been well served by this investigation and the FDA commends the efforts of the U.S. Attorney’s Office in New Jersey, the Department of Justice and the other law enforcement agencies that worked with us to vigorously pursue this matter,” said Mark Dragonetti, Special Agent In Charge of the FDA’s Office of Criminal Investigation’s New York Field Office. “Today’s settlement demonstrates the FDA’s continued commitment to target companies that disregard the safeguards of the drug approval process and promote drugs for uses before they have been proven to be safe and effective.”

Par pleaded guilty to an Information charging it with a criminal misdemeanor for misbranding Megace® ES in violation of the Federal Food, Drug, and Cosmetic Act (“FDCA”). Megace® ES, a megestrol acetate drug product, was approved by the FDA to treat anorexia, cachexia, or other significant weight loss suffered by patients with AIDS (the “AIDS Indication”). The Megace® ES distributed nationwide by Par was criminally misbranded because its FDA-approved labeling lacked adequate directions for use in the treatment of non-AIDS-related geriatric wasting, a use that was intended by Par but never approved by the FDA. The FDCA requires companies such as Par to specify the intended uses of a product in an application to the FDA. Once approved, a drug may not be distributed in interstate commerce for unapproved or “off-label” uses until the company receives FDA approval for the new intended uses. In addition to the criminal fine and forfeiture, the plea agreement mandates that Par implement several compliance measures and annually provide the U.S. Attorney’s Office with a sworn certification from its chief executive officer that the company has not unlawfully marketed any of its pharmaceutical products.

The civil settlement agreement requires Par to pay $22.5 million to the federal government and various states to resolve claims arising from its off-label marketing. The civil settlement resolves allegations that Par, by promoting the sale and use of Megace® ES for uses that were not FDA-approved and not covered by Federal health care programs, caused false claims to be submitted to these programs. The United States further alleged that Par deliberately and improperly targeted sales to elderly nursing home residents with weight loss, whether or not such patients suffered from AIDS, and launched a long-term care sales force to market to this population. During this marketing campaign, Par was allegedly aware of adverse side effects associated with the use of megestrol acetate in elderly patients, including an increased risk of deep vein thrombosis, toxic reactions in elderly patients with impaired renal function, and mortality. The United States alleged that Par made unsubstantiated and misleading representations about the superiority of Megace® ES over generic megestrol acetate for elderly patients to encourage providers to switch patients from generic megestrol acetate to Megace® ES, despite having conducted no well-controlled studies to support a claim of greater efficacy for Megace® ES. 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.

In addition to the criminal and civil resolutions, Par also agreed to enter into a five-year Corporate Integrity Agreement with the Office of the Inspector General of the Department of Health and Human Services (“HHS-OIG”) that requires enhanced accountability, increased transparency, and wide-ranging monitoring activities conducted by both internal and independent external reviewers.

The plea agreement and CIA include provisions that require Par to implement changes to the way it does business.  The plea agreement and CIA prohibit Par from providing compensation to sales representatives or their managers based on the volume of sale of Megace ES, and in the CIA, based on the volume of Megace ES and any branded successor megestrol acetate drug.  Under the CIA, Par is also required to change its executive compensation program to permit the company to recoup annual bonuses from covered executives if they, or their subordinates, engage in significant misconduct.

The settlement resolves three lawsuits filed under the whistleblower provisions of the False Claims Act, which permit private parties to file suit on behalf of the United States and obtain a portion of the government’s recovery. The civil lawsuits were filed in the District of New Jersey and are captioned U.S. ex rel. McKeen and Combs v. Par Pharmaceutical, et al., U.S. ex rel. Thompson v. Par Pharmaceutical, et al., and U.S. ex rel. Elliott & Lundstrom v. Bristol-Myers Squibb, Par Pharmaceutical, et al. As part of today’s resolution, relators McKeen and Combs will receive $4.4 million.

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 $10.2 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 $14.1 billion.

History of Megace® ES and Par’s Failed Attempts to Obtain FDA Approval 
of a Geriatric Wasting Indication for Megace® ES

According to the Information, a drug named Megace® OS – a predecessor to Megace® ES – was approved by the FDA in 1993 for the AIDS Indication. Between 2002 and 2005, Par’s market research showed that practitioners prescribed Megace® OS 1 for uses that were inconsistent with the approved labeling, including geriatric weight loss, and that the overwhelming majority of Megace® OS prescriptions were written for such off-label uses.

In 2002, Par first approached the FDA and discussed the company’s plan to seek approval of a new formulation of Megace® OS as a treatment option for geriatric patients with malnutrition. Par did not thereafter seek approval for that patient population. Instead, in June 2004, Par relied on the Megace® OS safety and effectiveness data in seeking approval for Megace® ES for the AIDS indication, i.e., the same indication as Megace® OS. Less than two months after the FDA approved Megace® ES for the AIDS indication, Par requested a meeting with the FDA to discuss Par’s intent to seek approval of Megace® ES for certain non-AIDS geriatric patients. Par never sought approval for that patient population, nor did Par ever conduct drug trials in the geriatric population.

Par’s “Conversion” Strategy, False Superiority Claims, and Promotion of 
Megace® ES for Geriatric Wasting

Despite knowing that Megace® ES had a limited market for its approved use, Par set aggressive sales goals for the product launch. After failing to attain these goals, Par adopted and implemented a marketing strategy designed to promote Megace® ES to geriatric wasting patients – the same population Par had twice discussed with the FDA. Par devised sales call panels which required Par sales representatives to market Megace® ES in nursing homes, as well as to practitioners who treated geriatric patients. These call panels identified physicians with the highest number of Megace® OS prescriptions as the top targets to “convert” from the old Megace® OS to Par’s Megace® ES product. Some Par sales managers required that their subordinates visit 10 to15 nursing homes a week to promote Megace® ES, and told them there would be possible employment consequences, including termination, if they did not promote Megace® ES in nursing homes.

While targeting an audience of health care practitioners that treated the elderly or geriatric population, Par promoted Megace® ES by making false and/or misleading claims that Megace® ES was superior to Megace® OS, including:

  1. Despite having no clinical support for the claim, Par sales representatives promoted Megace® ES as more effective than Megace® OS;
  2. Despite having no clinical support for the claim, Par sales representatives claimed that Megace® ES worked faster and was more effective than other products, and used the phrase “speed and ease” to promote Megace® ES;
  3. Par sales representatives were taught to try and “flip” a nursing home by asking the homes to convert all Megace® OS patients in the nursing home to Megace® ES, despite knowing that the nursing homes contained very few, if any, AIDS patients and the requested patients would therefore be using the product for off-label purposes;
  4. Par trained and directed its sales force to minimize or eliminate mentioning altogether the FDA-approved indication for Megace® ES during promotional sales calls, so as to draw as little attention as possible to the fact that Megace® ES was not approved for geriatric wasting; and
  5. Par managers trained, directed, and encouraged their sales representatives to ask health care practitioners for patient information protected by the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), so that the representatives could request that certain patients who were using Megace® OS be switched to Megace® ES.

U.S. Attorney Fishman said the corporate guilty plea, the civil settlement, and the corporate integrity agreement are the culmination of a multi-year investigation conducted jointly by special agents from HHS-OIG, under the direction of Special Agent in Charge Tom O’Donnell, special agents from FDA-OIG, under the direction of Special Agent in Charge Mark Dragonetti, and criminal investigators and paralegals with the U.S. Attorney’s Office.

U.S. Attorney Fishman thanked the Defense Criminal Investigative Service; the Office of Personnel Management-Office of Inspector General; the Department of Veterans’ Affairs Office of Inspector General; and TRICARE Program Integrity for assisting in the investigation. He also thanked the National Association of Medicaid Fraud Control Units (NAMFCU), with assistance from the Medicaid Fraud Control Unit of the Ohio Attorney General’s Office for their help in coordinating the settlements with the various states.

The government is represented in the prosecution of the criminal case by Assistant U.S. Attorney Joseph Mack of the U.S. Attorney’s Office Health Care and Government Fraud Unit and Special Assistant U.S. Attorney Shannon M. Singleton from the FDA’s Office of Chief Counsel.  Paralegals Jeffrey Skonieczny and Doug Minotti with the U.S. Attorney’s Office and Trial Attorney David Frank of the Department of Justice’s Consumer Protection Branch assisted on the criminal side of the case. The government is represented in the civil settlement by Assistant U.S. Attorney David Dauenheimer and Trial Attorney Eva Gunasekera from the Department of Justice’s Commercial Litigation Branch. The corporate integrity agreement was negotiated by Christina McGarvey and Gregory Lindquist from the Department of Health and Human Service’s Office of Inspector General.

U.S. Attorney Fishman reorganized the health care fraud practice at the U.S. Attorney’s Office, District of New Jersey, including creating a stand-alone Health Care and Government Fraud Unit, which handles both criminal and civil investigations and prosecutions of health care fraud offenses. Since 2010, the Office has recovered more than $500 million in health care fraud and government fraud settlements, judgments, fines, restitution, and forfeiture under the False Claims Act, the Food, Drug and Cosmetic Act, and other statutes.