It must be the last weekend before Christmas because health care companies are looking to resolve government investigations into their wrongdoing before we leap into the new year! In the last two days, we’ve now seen four multi-million dollar settlement announcements in False Claims Act cases.
Education Management Corp, a for-profit college company often abbreviated as EDMC, has settled a whistleblower lawsuit brought under the False Claims Act alleging illegal recruiting practices for $95.5 million.
This has been quite a week for settlement announcements in the world of the False Claims Act. In the past two days, the Department of Justice has announced an additional $375 million in settlements initiated by whistleblower lawsuits. This follows the earlier Novartis announcement that it would pay $390 million to resolve.
Another hospital has settled allegations of violations of the Stark Law that were brought by a whistleblower lawsuit under the False Claims Act. This time, it was Tuomey Healthcare System, which had previously lost at trial, resulting in an order to pay $277 million for violations of the law, and in its Fourth Circuit appeal. It ultimately settled the case for $72.5 million from the South Carolina hospital system, which will be sold to Palmetto Health.
In this case, the hospital entered into contractual relationships with area specialty physicians after becoming concerned that it would lose referrals of surgical procedures from them. The part-time employment agreements required them to send their cases to Tuomey and paid bonuses based in part on their referrals. The Stark Law prohibits the payment of anything of value to physicians based on their referrals of business paid for by the federal healthcare programs. One of the individuals that Tuomey offered a contract to reported them to the Department of Justice.
Many people have the mistaken impression that only an individual who works for a company can bring a whistleblower lawsuit. This is not true. Any individual that has nonpublic information sufficient to demonstrate fraud can file a lawsuit. However, insiders are typically the most likely individuals to have such information so they have gotten. Job seekers, industry experts, consultants, competitors and other individuals can also report health care fraud to the U.S. Government.
The resolution to this case came after a long legal battle, with two trials in a U.S. District Court and two appeals. The first verdict led to an order of payment of $45 million for Stark Law violations but was overturned on appeal. The second jury found Tuomey liable for additional misconduct under the False Claims Act. Tuomey began exploring a sale of the company while facing the largest potential penalty levied against a community hospital. The board and management determined a sale was its best option due to financial difficulties. Based on the discounted recovery, it seems likely that the Justice Department took these into account when reducing the fine against the community hospital.
In September, there were two other hospital settlements of cases under the False Claims Act for kickbacks in violation of the Stark Law. These two settlements totaled almost $200 million in recoveries for the United States Government.
China has been on the radar of U.S. businesses, investors and the SEC for some time now. And we aren’t just talking about it as a cause of the recent stock market tumble. China is the leading country for allegations of violations of the Foreign Corrupt Practices Act, and the SEC has been seeking information about Chinese companies to investigate potential accounting fraud. In light of these concerns and less advantage to being listed on a U.S. exchange, numerous Chinese companies have been delisting or entering going private transactions.
The agreement to settle an SEC investigation into Focus Media and its CEO over inaccurate disclosures to investors for $55.6 million isn’t surprising in that light, but it probably will open some eyes in China. Focus Media is a large Chinese advertising companies with displays in public locations such as elevators and outdoors. It was taken private in 2013 in a leveraged buyout.
In connection with the settlement, a SEC official in the New York office indicated that the SEC wasn’t going to let the geographic location of companies prevent them from ensuring public companies make accurate statements to investors. This is obviously aimed at sending a message to companies located outside of the United States that they can’t take advantage of the U.S. financial markets with impunity.
For whistleblower rewards, the SEC does not distinguish between the geographic location or citizenship of the source of the tip. Chinese whistleblowers can earn an award under the Dodd-Frank program the same as United States citizens.
Photo Credit. I have no idea if that is a Focus Media billboard or not, but I thought it was appropriate. Of course, I haven’t translated it.
Twenty-two municipal underwriting firms agreed to pay SEC penalties of between $20,000 and $500,000 for inaccurate disclosures to investors concerning the continuing disclosure obligations and compliance of municipal bond issuers. It is the second round of settlements against underwriters via the Municipalities Continuing Disclosure Cooperation (MCDC) Initiative.
The program was announced by the Securities and Exchange Commission in March 2014 and offered standardized, favorable settlements for self-reported inaccuracies in bond offerings concerning compliance with continuing disclosure obligations specified in Rule 15c2-12 of the Exchange Act. This summer, the SEC brought enforcement actions against more than 30 municipal bond underwriters for material misstatements and omissions in offering documents voluntarily self-reported pursuant to the Initiative which was only open for a limited time.
Rule 15c2-12 requires information about an issuer’s failure to materially comply with continuing disclosure commitments for the past 5 years. It also prohibits underwriters from purchasing or selling municipal securities unless the issuer has committed to continuing disclosures. The Kings Canyon Joint Unified School District in California was the first to settle under the program in July 2014 for inaccurate investor disclosures in a 2010 bond offering.
The investment banks fined in this wave of announcements included PNC Capital Markets, UBS, Fifth Third Securities and Edward D. Jones & Co., among others.
The Department of Justice has resolved its criminal investigation into General Motor’s conduct concerning the sale of cars with defective ignition switches and the delayed recall of those vehicles. The result is an agreement by GM to pay $900 million
GM’s $900 million penalty was 25 percent less than the fine handed out to Toyota Motors in 2014. The DOJ indicated that once the company came forward, the speed of its internal investigation and the fact that it took responsibility for its behavior allowed it to settle the case much faster than the one against Toyota. GM also paid $35 million previously to resolve violations of regulations enforced by the NHTSA requiring companies to announce recalls in a timely fashion. GM paid the maximum fine for a single violation.
GM was accused of wire-fraud and a scheme to conceal a deadly safety defect. GM failed to fix the defect at issue, which has been blamed for more than 120 deaths, over a period of more than a decade. The DOJ has not closed the door on prosecuting specific employees yet, but indicated it may be difficult to hold them responsible. GM also reached a settlement agreement with over a thousand victims of the defect.
The House has yet to act to pass legislation to address the increase in misconduct by auto manufacturers. Several bills to address auto safety issues have been introduced but there has not been much momentum on them. Earlier this year, the Senate passed a bill to authorize monetary rewards for auto whistleblowers employed by auto manufacturers, parts dealers and suppliers if the government collects monetary sanctions as a result of the information. Unlike the Dodd-Frank Act, the payment of rewards is discretionary rather than mandatory to eligible individuals.
In other automaker news, the EPA has accused Volkswagen of evading the Clean Air Act emissions standards with a defeat device. The vehicles reportedly emitted nitrogen oxide well in excess of the legal limit but detected when an emissions test was being conducted in order to hide the air pollution from federal regulators. The maximum Clean Air Act fine is $37,500 per vehicle, leading to a potential fine of as much as $18 billion if the maximum penalty were to be handed out.
Mead Johnson was fined $12 million today by the SEC for violations of the books and records provisions of the Foreign Corrupt Practices Act.
The company’s majority owned subsidiary in China improperly compensated health care providers, who were foreign officials under the law because they were employees of state-owned hospitals, to recommend its infant formula to expectant and new mothers. The payments came from distributor allowance funds which acted like an off-the-books slush fund. Ultimately, the subsidiary paid approximately $2 million to health care providers and made approximately $8 million in profits from the 2008 until 2013 time period.
The payments made by the employees of Mead Johnson China were not accurately reflected in the books and records of the Chinese subsidiary which was consolidated into the publicly reported accounting records. Moreover, the company had inadequate internal accounting controls in place to detect the improper practices.
The company received a tip about possible violations of the FCPA in 2011 regarding the conduct at issue but the company did not turn up evidence of the misconduct and did not either self-report the allegation or disclose it to the SEC when it inquired in connection with this matter.
Do you have questions about this area of the law? We have put together an informational guide for FCPA whistleblowers. If you have questions after reviewing it, one of our FCPA whistleblower attorneys will answer any remaining questions. We can assist you in reporting your evidence of bribery by a publicly traded company or other covered entity. Please contact an attorney via our contact form or call 1-800-590-4116.
The Department of Justice has settled a False Claims Act case against VMware for $75.5 million. The lawsuit, initiated by a whistleblower, contained allegations that the company concealed its commercial pricing practices and overcharged the U.S. Government on products and services sold pursuant to the GSA Multiple Award Schedule contract entered into by VMWare and Carahsoft Technology Corporation.
The U.S. Government requires contractors to disclose the prices and discounts offered to commercial customers in order to ensure that government agencies are getting the supplier’s best price. The GSA regulations specify that prospective vendors applying for a MAS contract make After negotiation of the price(s) and establishment of the government contract, contractors must subsequently inform the government of changes to their pricing practices or discounts for commercial customers.
If they do not make accurate disclosures, the submission of claims for payment under the contracts can overcharge the federal government and violate the False Claims Act. In this case, the settlement resolved the allegations without a determination of liability.
The U.S. Government spends more than $80 billion a year on information technology currently. It is divided between civilian and defense spending, with civilian agency spending accounting for approximately $48 billion a year. With growing spending in this area, it seems like there is more False Claims Act litigation as well. Last summer, the Government intervened in another best price case brought by a whistleblower against CA Technologies.
The Department of Justice is expected to fine General Motors more than $1.2 billion in connection with its delayed recall of automobiles with faulty ignition switches. The DOJ is still considering whether to require a guilty plea to criminal charges or offer a deferred prosecution agreement. This includes a possible charge of criminal wire fraud for misleading statements and the concealment of the defect.
The amount of the fine may still change. Wall Street analysts have speculated that the fine may exceed $2 billion. GM has already paid a fine of $35 million, the maximum the auto regulator is currently allowed to penalize a company for these types of cases, to the National Highway Traffic Safety Administration. Federal prosecutors are hoping to resolve the matter by early fall.
The total number of deaths from defective ignition switches in GM vehicles is now 111, since two more claims were approved by the compensation fund last week. GM has also approved claims for 12 serious injuries and 179 other injuries. 191 claims are still being reviewed. The total cost of compensating victims is estimated at around $550 million. The deadline for submission was January 31st.
In March 2014, Toyota Motors was fined $1.2 billion by the Justice Department for misleading consumers about the unintended acceleration of its vehicles through deceptive public statements. This was the largest criminal fine ever levied against an automaker by the United States. Toyota initially blamed acceleration issues on floor mats becoming stuck under gas pedals as well as driver error. Toyota also entered into a deferred prosecution agreement with the Government.
Two internal reports from the Transportation Department have also identified mistakes made by the NHTSA. The agency reportedly missed clues about the defect and is revising its procedures in response to the reports. President Obama is also seeking to provide the NHTSA additional funding and lift the maximum cap on penalties issued by the agency.
The Senate has already passed the Motor Vehicle Safety Whistleblower Act sponsored by Senators Thune and Nelson to provide monetary incentives to auto whistleblowers employed by car manufacturers, dealers and part suppliers about delayed recalls and other violations of federal law. The House has yet to act on the proposals for auto safety legislation made in light of the recalls by Toyota, GM, and Takata.
To learn more about the proposed bill, contact one of our whistleblower attorneys via our contact form or by calling 1-800-590-4116.
Photo Credit: MDGovpics
Spring 2016 Update:
The Thune-Nelson proposal was signed into law by President Obama as part of the FAST Act in December 2015. For additional information, please visit our page dedicated to auto whistleblowers.