The United States Department of Justice and numerous state governments have intervened in numerous qui tam whistleblower suits, including one brought by Philadelphia based law firm McEldrew Young against INSYS Therapeutics, Inc. . The suit alleges, among other things, that INSYS engaged in a nationwide illegal scheme to increase profits from Subsys, a fentanyl sublingual spray and schedule II controlled substance.
The Department of Justice recovered more then $3.7 billion in settlements and judgments in Fiscal Year 2017 from the False Claims Act according to the press release issued last week. The majority of the funds recovered were in lawsuits initiated by whistleblowers. Qui tam lawsuits led to $3.4 billion of the $3.7 billion in settlements and judgments.
Whistleblowers received $392 million during FY2017 for bringing fraud to the attention of the United States and the Department of Justice. Whistleblower awards were down from last year, when the United States paid out $519 million to whistleblowers based on the recovery of $2.9 billion. The False Claims Act provides for awards of between 15 and 30 percent of funds recovered from False Claims Act lawsuits.
There were 669 qui tam lawsuits filed during the last fiscal year. The number is the fourth highest on record since the 1986 amendments of the False Claims Act. This number was down from Fiscal Year 2016, when there were 702 qui tam lawsuits filed. The highest number of new matters filed by whistleblowers was in Fiscal Year 2013. Many of these cases will still be working their way through the legal system as government investigations into matters may take years before litigation starts in earnest.
The majority of the funds recovered by the federal government in FY 2017 were from the health care industry. The government recovered $2.4 billion from health care fraud, the eighth consecutive year that civil health care fraud settlements and judgments exceeded $2 billion. These funds have usually been taken inappropriately from Medicare or Medicaid, although there are other federal funded health care programs that lose money from health care fraud such as TRICARE, which is the managed service healthcare program for service members, reservists and their dependents.
Over $900 million in recoveries were from the drug and medical device industry. The government’s press release cited settlements by Shire ($350 million) and Mylan ($465 million) as examples. Other health care lawsuit settlements mentioned were Life Care Centers of America ($145 million) and eClinicalWorks ($155 million).
The Government reported settlements and judgments of $543 million from housing and mortgage fraud in FY 2017. The press release specifically mentioned a jury verdict of $296 million against Allied Home Mortgage as well as settlements with Financial Freedom ($89 million) and PHH Mortgage ($65 million).
There were a variety of other matters resolved under the False Claims Act in FY 2017, including procurement fraud, grant fraud, fraudulently obtained small business contracts, and fraudulently obtained government subsidies for discounted mobile phone services to low-income consumers.
The recoveries detailed by these numbers include around 8.5 months during the Trump Administration and 3.5 months during the Obama Administration as the United States fiscal year runs from October 1, 2016 to September 30, 2017. In total, the United States has recovered more than $56 billion since 1986 when Congress amended the civil False Claims Act.
The United States has concluded its third-largest FCPA enforcement action with a settlement of $965 million in total penalties (including Dutch and Swedish penalties) by Telia Company AB and its subsidiary, Coscom. The Acting U.S. Attorney of the Southern District of New York called it “one of the largest criminal corporate bribery and corruption resolutions ever.”
This enforcement action involved allegations of bribery by Telia paid to the daughter of a government official through a shell company in order to gain entry into the Uzbek telecommunications market. Telecommunications provider VimpelCom previously entered into a global resolution of allegations that it also bribed the government official. In total, the investigation of this corruption has now resulted in over $1.76 billion in fines and disgorgement worldwide.
The Telia investigation resulted in a criminal fine by the DOJ of more than $508 million and SEC disgorgement of $457 million. Telia will get credit in the amount to the SEC for $40 million paid to the DOJ and up to $208.5 million paid to the Telia entered into a deferred prosecution agreement in response to charges of conspiracy to violate the FCPA. It must implement internal controls and cooperate fully with the Justice Department investigation as part of the terms of the deferred prosecution.
Telia received a 25 percent reduction from the bottom of the U.S. Sentencing Guideline fine range for cooperation with the DOJ and significant remedial measures undertaken. Telia did not receive additional credit because it did not voluntarily self-disclose the misconduct to the United States.
The SEC Order outlines several U.S. connections to establish jurisdiction under the FCPA. Although Telia is a corporation organized in Sweden, Telia was an issuer with shares traded on the NASDAQ from 2002 until September 5, 2007. Communications with the Government Official were conducted using U.S. based email servers, and transactions occurred in U.S. dollars.
Fiscal year 2017 ended for the United States on September 30, 2017, so that will certainly pad the statistics for FCPA enforcement this year despite the slow start during President Trump’s administration.
Disaster-relief fraud and Initial Coin Offering (ICO) fraud are two areas that have been making headlines recently. Based on communications reported in the media from government agencies, both areas will be the subject of government scrutiny in the next few years. With regard to disaster fraud, the Justice Department recently notified its personnel to improve efforts to fight it. The SEC has also created a Cyber Unit to improve its ability to address electronic and online violations of the federal securities laws, including ICO fraud.
The Justice Department has directed U.S. attorney’s offices to target disaster relief fraud following Hurricane Harvey, Irma and Maria. In light of this direction, we expect they will be very interested in False Claims Act lawsuits involving disaster-relief funds. If you have evidence of disaster fraud, please call us at 1-800-590-4116 for a free, confidential consultation.
This has been a particularly severe hurricane season, so disaster fraud will be up. Hurricane Harvey caused devastating flooding in Texas as it produced record rainfall for the continental United States. Hurricane Irma brought extreme wind throughout Florida and knocked out power to million. Hundreds of thousands were still without power nine days after the hurricane hit. U.S. territory Puerto Rico was hit by the most recent Hurricane, Maria, which was a Category 4 when it caused severe damage there. Damage from the Hurricane Harvey and Hurricane Irma is expected to exceed $150 billion, about the same as Hurricane Katrina. Estimates of the damage from Hurricane Maria have not been released yet.
The United States has already authorized the spending of $15 billion dollars in disaster relief to Texas. Ultimately, the federal government’s aid to Texas, Florida and Puerto Rico could reach north of $100 billion. The National Flood Insurance Program could pay out as much as $11 billion to homeowners who purchased flood insurance. In response to Hurricane Katrina, the United States Government spent around $120 billion.
The National Center for Disaster Fraud has received more than 400 complaints so far of people trying to defraud FEMA. Following Hurricane Katrina, more than 1,400 people were charged with disaster fraud.
There were also a number of False Claims Act lawsuits filed following Katrina, alleging such things as that insurance companies classified wind damage as flood damage in order to cause the Government’s flood insurance to pay rather than the private homeowner’s insurance. We expect there will be more filed over the next few years if corporations involved in disaster-relief attempt to defraud the government.
Last week, the SEC announced the creation of a Cyber Unit to address online violations of the securities laws. In the press release announcing the new unit, Stephanie Avakian, Co-Director of the SEC’s Enforcement Division, called cyber-related threats and misconduct among the greatest risks facing investors and the securities industry.
The group will take on a variety of misconduct, including:
Market Manipulation: Fake news spread through social media or other online channels. There have been several noteworthy attempts already to manipulate stock prices through online announcements or tweets that deceptively appear to be legitimate news organizations or corporate press releases.
Hacking: The acquisition of material nonpublic information for trading as well as electronic intrusions into retail brokerage accounts.
Initial Coin Offerings: ICOs have been a hot topic in startup fundraising in 2017 and estimates are that ICOs have collectively raised over $1 billion this year. In July, the SEC cautioned market participants that an ICO sale of tokens by “The DAO” was a securities offering subject to the federal securities law’s registration requirements. Although the SEC declined to bring charges against the company, the exploding usage of initial coin offerings creates the potential for ICO Fraud. Fraud can occur either by (1) publicly traded companies hyping their share price through exaggeration of their exposure to cryptocurrency as a service provider; or (2) startups promoting ICOs through deceptive disclosures. In August, the SEC suspended trading in four-OTC companies over questions about their ICOs and issued a warning about scams and “pump and dump” schemes by companies in this area.
Dark Web: The dark web is an overlay network on the World Wide Web that requires specific software, configurations, or authorization to access. The dark web has for some time been a code word for nefarious activity beyond normal internet websites. The SEC didn’t specify precisely what conduct concerned it on the dark web, but a Fortune article published in January of this year suggested that corporate insiders were selling confidential corporate information on the dark web. The insider trading implications of this conduct are obvious.
Threats to Trading Platforms and Other Critical Operations: The regulations of automated trading has been an important topic over the past few years as more electronic trading controlled by computer programs is happening. When those programs go awry, they can result in threats to the market.
The SEC already has been taking on these challenges, but the creation of the Cyber Unit will consolidate the enforcement efforts and expertise of the agency in one place.
If you have evidence of fraud involving either disaster-relief funds or violations of federal securities laws through online means, please call us at 1-800-590-4116 for a free, confidential initial consultation. Both the False Claims Act and the SEC whistleblower program pay rewards to eligible whistleblowers who provide information to the U.S. Government that leads to fines or the recovery of government funds.
At the end of July, the U.S. Securities and Exchange Commission announced a $29.2 million settlement against Halliburton for payments made to a local Angola company in the course of winning lucrative oilfield services contracts. The corporate settlement was the first under the Foreign Corrupt Practices Act (FCPA) since President Trump’s inauguration, although there have been two declinations with disgorgement reached by the DOJ.
There was much speculation around the vigor which the new administration would pursue violations of the FCPA at the start of the year due to Trump’s comments a few years back that it is a horrible law which stifles American business. Attorney General Jeff Sessions sought to dispel such suggestions earlier this year with public remarks that the law would continue to be enforced by the Justice Department.
The SEC settlement was not the only action taken recently. At the end of July, the DOJ secured a jury verdict of guilty against a Chinese billionaire for FCPA violations and money laundering. The defendant is expected to appeal to the Second Circuit.
It is too early to say whether the first six months of the administration will be typical of the rest of the term. The Obama Administration announced quite a few settlements of large government investigations before leaving office. The gap in enforcement actions could also be attributed in part to a transition period for new leadership. A quarterly report prepared by The Foreign Corrupt Practices Act Clearinghouse and published in the Wall Street Journal online indicates that this has not been the longest gap between enforcement actions in the history of the law.
There may be other factors at play as well. The Supreme Court decision in Kokesh to limit disgorgement to five years will obviously reign in some of the larger settlements under the law. FCPA investigations typically take years as the government typically relies on a mix of government resources and internal corporate cooperation. They will no doubt be impacted by the Supreme Court interpretation.
Because the FCPA presents fertile ground for whistleblowers, we will continue to follow developments in this area of the law closely. If you wish to discuss reporting evidence of corruption through a whistleblower tip to the SEC, please call 1-800-590-4116 for a free, confidential initial consultation.
Attorney General Jeff Sessions reaffirmed the Justice Department’s commitment to enforce the Foreign Corrupt Practices Act spoke last Monday in a speech at the Ethics and Compliance Initiative Annual Conference. Statements by President Trump before running for office ridiculing the anti-bribery law had put the administration’s enthusiasm for enforcing the law into doubt.
According to Sessions, “We will continue to strongly enforce the FCPA and other anti-corruption laws.” Sessions indicated both that the DOJ has a duty to uphold the rule of law as well as that enforcing the law protects honest businesses being put at a disadvantage because they do the right thing while their competitors break the rules. Sessions said, “This type of corruption harms free competition, distorts prices, and often leads to substandard products and services coming into this country.”
It also appears that the DOJ under Sessions will continue to (1) attempt to hold individuals accountable for corporate misconduct; and (2) reward companies with good compliance programs that self-disclose wrongdoing, cooperate with government investigations, and take steps to remediate problems.
Trevor McFadden, acting principal deputy assistant attorney general of the criminal division of the Justice Department, also rejected the notion that FCPA enforcement was dead under President Trump in a recent speech. McFadden said that he hoped to speed up FCPA investigations so that they could be completed in months, not years, but that the FCPA is “as alive as ever.” The average FCPA case now takes four years to reach a resolution.
These comments are only one piece of the equation as the DOJ handles criminal enforcement under the FCPA while the SEC hires civil enforcement against publicly-traded companies. Nevertheless, it seems likely that the government will continue to enforce the law despite President Trump’s previous comments.
The Justice Department is reportedly investigating efforts by Barclays CEO Jes Staley to unmask a whistleblower who sent two anonymous letters to the bank’s board of directors complaining about the hiring of a mid-level executive. Barclays reportedly asked the U.S. Postal Service for assistance in tracking down the sender of the letters, though it claims that it never learned the identity of the individual. It is now being investigated for possible criminal charges and/or violations of the Dodd-Frank Act. The New York State Department of Financial Services is also investigating.
Barclays, based in the United Kingdom and operating in the United States as well as many other countries, falls under a wide range of regulations that protect whistleblowing. U.K., for example, requires big banks to permit employees to raise issues in confidence and appoint a whistleblowing champion among senior managers. Clearly, this message has not been conveyed to the top levels of management, since Barclays internal investigation has concluded the CEO honestly but mistakenly thought he was permitted to track down the sender of the letter.
This obviously doesn’t bode well for whistleblowers. Despite both anti-retaliation protections and an internal whistleblower champion, the CEO of the 16th largest bank in the world (measured by total assets in 2016 by Relbanks) failed to respect the whistleblower process. And what happened to the whistleblower champion? The whistleblower is fortunate that he or she didn’t trust the bank’s internal process and mailed the letter anonymously.
This conduct unfortunately does not surprise us. We have been disappointed more than once by the conduct of large corporations with respect to whistleblowers. It is for this reason that we suggest all employees secure a lawyer before complaining of corporate wrongdoing, whether internally or externally. The laws and regulations are complicated and you do not want to make a mistake that leaves you open to retaliation without a remedy.
We hope that the U.S. Government will send a message to Barclays. The fact that they are investigating the bank for improprieties with respect to this employee is in and of itself a step in the right direction.
The United States has joined a lawsuit brought by whistleblowers under the False Claims Act accusing UnitedHealth Group of bilking Medicare by fraudulently boosting payments through the inflation of plan members’ risk scores under Medicare Advantage. In other words, UnitedHealth told the United States that patients were sicker than they were and collected more money from the government as a result. This is the first major government enforcement action unsealed under Attorney General Jeff Sessions and the New York Times called it a case of fraud that likely implicated “billions” of dollars in Medicare payments.
The UnitedHealth lawsuit centers around the risk score adjustment for UnitedHealth’s Medicare Advantage plan. Medicare Advantage plans are a popular opt-in alternate to Medicare run by private insurers under Medicare Part C. The insurer is paid by the government based on the level of sickness of their patients – the risk score. If patients are misclassified, the company can engage in a risk adjustment process.
The lawsuit claims the government paid for the treatment of beneficiaries based on:
- diagnoses patients did not have;
- more severe diagnoses than the patient had;
- previous conditions not currently under treatment; and/or
- diagnoses that did not meet the standard for adjusting the patient’s risk score.
Among the specific policies contributing to the fraud identified in the complaint are:
- The company employed coding specialists to mine patient records and requested higher government payments without an in-person evaluation of the patient’s conditions.
- The company created targets for employees to increase risk scores by defined percentages. They did not judge employees by the accuracy of their risk adjustment submissions.
- The company ignored information that that they were being overpaid for patient care. The company only attempted to increase risk scores without looking for patients where they were receiving too much money.
The decision to join the whistleblower lawsuit was made by President Trump’s administration. Although the President is planning to streamline business regulations, the rising cost of healthcare is one area where he has promised to confront business. The government’s decision to lead the lawsuit appears to be confirmation the Trump Administration will continue President Obama’s legacy of tackling health care fraud.
The media has published information about government investigations in this area for a few years now. Based on these reports, there may be other sealed cases against insurance companies running Medicare Advantage plans. There may still be potential lawsuits for other whistleblowers to bring as all companies engaged in these practices may not have had a False Claims Act lawsuit filed against them.
The end of the Obama Administration was one of the busiest in the resolution of government investigations ever. The SEC and DOJ wrapped up nine Foreign Corrupt Practice Act investigations in the course of two months. The enforcement actions involved:
- Odebrecht and Braskem: $3.5 billion (US, Brazil and Switzerland)
- Rolls Royce: $800 million (US, UK and Brazil)
- Teva: $519 million
- General Cable: $82 million
- Biomet: $30 million
- SQM: $15 million
- Mondelez: $13 million
- Orthofix: $7.4 million
- Las Vegas Sands: $6.96 million
It was a big part of a busy time in government enforcement. Overall, companies agreed to pay around $20 billion to resolve possible enforcement actions involving a broad range of violations from mortgage fraud to automobile manufacturing issues.
There has been a great deal of speculation whether the Obama Adminstration’s enforcement record would continue into the Trump Administration, particularly regarding FCPA enforcement under President Trump. In 2012, Trump declared the FCPA an outrageous law that criminalized activity beyond our borders. President Trump has nominated Jay Clayton to head the Securities and Exchange Commission. A few years ago, Clayton led a paper that criticized the DOJ and SEC for overaggressive enforcement of the law.
Nevertheless, there are reasons to believe that the government will continue to investigate and prosecute FCPA cases. First, Attorney General Nominee Jeff Sessions was asked directly whether in light of President Trump’s comments he would enforce the FCPA, and he indicated he would (with a few caveats).
Second, authorship of a paper while in private practice is not necessarily reflective of the positions that an attorney will set forth while in government office. For example, Andrew Weissmann, the Chief of the DOJ’s Fraud Section, co-authored a white paper for the U.S. Chamber of Commerce protesting overzealous FCPA enforcement in 2010 before entering government service. Yet, no one can look back on his period of government service and question the strength of FCPA enforcement.
President Trump and the Republican Party have a long list of priorities while in office, including replacing Obamacare and repealing portions of Dodd-Frank. While weakening the FCPA would follow through on the promise to get government out of the way of business, it is also in philosophical opposition to his mantra of cleaning up the swamp in Washington D.C. Will he truly be able to reconcile the
We are holding off judgment until we have more information, but it is definitely a subject of relevance to potential FCPA whistleblowers. If you are an individual with evidence of bribery by a business, we strongly urge you to consult with an attorney before internal or external reporting. To speak to one of our whistleblower attorneys, call 1-800-590-4116.
It was an interesting week on government enforcement as the Obama Administration is closing out its term with fines against auto industry manufacturers VW ($4.3 billion) and Takata (expected to be up to $1 billion). After the inauguration, these enforcement decisions will be in the hands of the Trump Administration.
President-elect Trump has promised change in Washington and a more business-friendly, pro-growth regulatory environment. So we could see a substantial change from President Obama, who led the government through some of its highest fines ever against corporations. As the inauguration is only a week away, and Trump has named many of the key players under his administration, we are now starting to get better insight into the future. Let’s take a look at a few key players, statements and policy announcements.
President-elect Donald Trump put pharmaceutical companies on notice this week that the days of unreasonable prices are over. In a press conference, Trump complained about high drug prices and said that pharma companies were “getting away with murder”. Trump specifically declared that he would allow Medicare to negotiate drug prices. It’s unclear what other changes in drug pricing will be pushed as part of the proposed repeal of the Affordable Care Act, but this is a good sign for the fight against fraud.
Trump isn’t expected to be a big fan of government regulatory enforcement against business. He has promised to ease regulations to allow businesses to grow and create jobs. But these comments suggest that Trump still isn’t going to allow pharmaceutical companies to fleece the country, which should be good for whistleblowers in the health care industry.
Attorney General Nominee Jeff Sessions on the False Claims Act
Trump’s nominee for Attorney General, U.S. Senator Jeff Sessions, testified before the Senate Judiciary Committee this week. In his opening remarks, he said he would make prosecuting fraud in federal program a “high priority” and that “[w]e cannot afford to lose a single dollar to corruption.”
Senator Grassley also questioned Sessions specifically on the False Claims Act. It turns out that Senator Sessions filed a qui tam as a lawyer.
The seal period for False Claims Act lawsuits was specifically discussed as well. It sounds like there will be more frequent updates to Congress on the cases that are under seal and perhaps internal pressure to conduct their investigations faster. Many whistleblowers have expressed dismay and learning how slow the wheels of justice can turn in these cases, so this isn’t necessarily bad for whistleblowers. However, our clients generally benefit from government intervention on a case
Awaiting More Information on SEC Chair Nominee Jay Clayton
The Volcker Rule and a partial repeal of the Dodd-Frank Act are also on Trump’s priority list. Following these reforms, whatever they may be, it will be up to Trump’s pick for SEC Chair, Walter “Jay” Clayton, to protect investors and limit the excesses of Wall Street.
Clayton was an attorney and partner at Sullivan & Cromwell. He advised Goldman Sachs during the financial crisis. But his history as defense counsel has also raised concerns that there won’t be aggressive enforcement against Wall Street and Big Business.
One law where we have specifically seen people express concern is with the Foreign Corrupt Practices Act. As an attorney, Clayton was involved in a report critical of the FCPA’s impact on American businesses operating around the globe.
We are reserving judgment at this point. The SEC just came out with its list of examination priorities for 2017, and they include many expected areas of concern including cybersecurity. We will be following the new administration closely to help determine where and how the new administration’s priorities differ from enforcement under outgoing chair Mary Jo White, which was responsible for the 2017 priority list. The Wall Street Journal called Clayton “a 180” from White. We will see soon if that applies to policy as well as background.