Considering Rewards for Environmental Whistleblowers

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There have been suggestions that the federal government add incentives for whistleblowers in a number of areas since the passage of Dodd-Frank. One area where I have not seen as much support as I would expect is for the payment of incentives to environmental whistleblowers.

We’re on the verge of the largest fine in history for the violation of the Clean Water Act.  If there was a time to push for it, now would be the time.  BP is facing a potential fine of up to $13.7 billion for violations of the Clean Water Act for the Gulf of Mexico oil spill in 2010.  Transocean already paid $1.4 billion to settle civil and criminal charges related to its role in the spill.

Calls for reform of whistleblower procedures in the securities industry gained momentum because of the unsuccessful efforts of a hedge fund manager to expose the fraud on investors perpetuated by Bernie Madoff.  The BP disaster, similarly, might have been prevented if complaints about the testing of blowout preventers at BP had been encouraged and heeded.

The Potential BP Whistleblower

An industry veteran accused BP of falsifying reports of blowout preventers passing state performance tests in Alaska. The accusations led to his testimony in a 2003 lawsuit. Alaska investigated but did not take action against the company. It only prosecuted one individual, a low level employee.

The BP spill has been blamed in part on problems with the blowout preventer at the Gulf of Mexico rig.  Would additional government scrutiny have led to changes company-wide at BP?  Would the government inspection of this aspect of the oil rig been more stringent after receiving a whistleblower report?

It is impossible to know what would have happened in this case.  Still, there could easily be other looming environmental problems that could be prevented if the EPA gave employees of the company an incentive to come forward.

The Other Environmental Pollution Trial

BP may be garnering all of the headlines, but it isn’t the only environmental trial happening right now.  Dupont is currently facing a trial in a lawsuit under the False Claims Act for failure to report the release of cancer-causing gas at a plant in Louisiana.  The lawsuit, brought by a whistleblower, is based on the company’s failure to report the release under the Toxic Substances Control Act.

Environmental lawsuits are only a small part of the False Claims Act.  More typically, FCA lawsuits have been brought in cases where contractors are paid to cleanup environmental disasters and do not perform the work or overcharge for it.

As it is interpreted by the courts, though, it is no substitute for an EPA whistleblower program.

Why aren’t There Calls for Reform??

The government uses rewards in other areas to encourage insiders and other individuals to bring misconduct to light.  After large oil spills, the need for a government investigation is clear.  So it isn’t an area where the government necessarily needs someone to come forward in order to spur an investigation.  The government may be concerned that parasitic tips will be provided that don’t substantially aid the investigation.

On the other hand, EPA enforcement actions led to $163 million in fines and penalties last year and companies agreed to pay $9.7 billion to clean up contaminated sites and control pollution.  Would the opportunity to prevent billions in environmental damage not be worth the rewards paid to individuals who helped stop them from continuing?

The EPA and Whistleblowers Now

The environmental laws and the EPA don’t totally ignore whistleblowers now.  The EPA website already contains a page to allow for the reporting of environmental violations.  The Clean Air Act, Clean Water Act, CERCLA and RCRA contain protections for whistleblowers who experience retaliation.

The Clean Air Act even authorizes awards of up to $10,000 for information about violations of the law. Unfortunately, an investigation into this provision by Public Employees for Environmental Responsibility last year turned up no evidence it has been used.

Are these measures enough?  Have they been successful?  It would be interesting to see a Governmental Accountability Office report in this area similar to the one done concerning antitrust whistleblowers.

Could it Work?

Corporations are no doubt committing violations of the nation’s environmental laws on a daily basis. Incentivizing whistleblowers have proven to be a cost effective tool to help the United States learn about violations of the fraud and securities laws.  It could similarly help the EPA enforce U.S. laws against environmental pollution.  The SEC and CFTC programs could prove a model for the EPA to implement.

Given the support among environmental groups for protection of the environment and major prosecutions of Kerr-McGee and BP, it’s surprising that there haven’t been more calls for expanded use of whistleblowers in this area. Let’s hope that this is an area that gains additional support. The enforcement of our environmental laws for clean air, water and soil is a worthy place to encourage people to tip off the government to misconduct.

Retina Institute Settles with Government for $6.65 Million Over Allegations of False Claims Act Violations

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On October 2, 2019, Retina Institute of California Medical Group (RIC), along with its former CEO and several physicians, agreed to pay $6.65 million to resolve allegations of False Claims Act violations. RIC is a medical partnership of ophthalmologists with multiple locations in California. The medical group was alleged to have defrauded government health care programs by billing for unnecessary exams, improperly waiving Medicare copayments, and other regulatory violations. Eric Young, managing partner of McEldrew Young Purtell Merritt’s whistleblower practice, worked on the case with attorneys from the law firm of Berger Montague.

The case, United States ex rel. Smith and Rogers v. Chang, No. 13-CV-3772-DMG (C.D. Cal.), was filed in May 2013. The complaint was unsealed in July 2016 after the government elected not to intervene in the case. The two Relators were both former employees of RIC who provided substantial documentation to support allegations in the complaint. Bobette Smith was the CEO of the practice group from June 2012 to January 2013, and Susan Rogers worked as the manager of the billing department over the same six month period. The allegations in the complaint were based on information discovered by the Relators during the course of their employment, as well as their personal observations and investigation into what they believed to be fraud against the federal government and the State of California.

Routine Waiver of Medicare Deductibles and Copayments Can Result in False Claims Act Violations

Medical service providers are required to collect copayments and deductibles from all Medicare beneficiaries, except in specific cases of financial hardship. Any incentive that generates improper referrals, particularly where a medical service provider offers free or discounted items or services to Medicare beneficiaries, or promotes overutilization of medical services can constitute the submission of false claims to the federal government. Thus, a service provider that routinely waives cost-sharing amounts for Medicare beneficiaries, but bills Medicare for the full allowable amount, can be face substantial penalties under the False Claims Act.

The Office of Inspector General for the Department of Health and Human Services set forth detailed guidance on this issue back in 1994:

“Routine waiver of deductibles and copayments by charge-based providers, practitioners or suppliers is unlawful because it results in (1) false claims, (2) violations of the anti-kickback statute, and (3) excessive utilization of items and services paid for by Medicare.

*  *  *  *

A provider, practitioner or supplier who routinely waives Medicare copayments or deductibles is misstating its actual charge. For example, if a supplier claims that its charge for a piece of equipment is $100, but routinely waives the copayment, the actual charge is $80. Medicare should be paying 80 percent of $80 (or $64), rather than 80 percent of $100 (or $80). As a result of the supplier’s misrepresentation, the Medicare program is paying $16 more than it should for this item.

In certain cases, a provider, practitioner or supplier who routinely waives Medicare copayments or deductibles also could be held liable under the Medicare and Medicaid anti-kickback statute . . . When providers, practitioners or suppliers forgive financial obligations for reasons other than genuine financial hardship of the particular patient, they may be unlawfully inducing that patient to purchase items or services from them.

One important exception to the prohibition against waiving copayments and deductibles is that providers, practitioners or suppliers may forgive the copayment in consideration of a particular patient’s financial hardship. This hardship exception, however, must not be used routinely; it should be used occasionally to address the special financial needs of a particular patient. Except in such special cases, a good faith effort to collect deductibles and copayments must be made. Otherwise, claims submitted to Medicare may violate the statutes discussed above and other provisions of the law.”

Retina Institute’s Alleged Systematic Waiver of Medicare Copayments and Deductibles

According the allegations in the complaint, the defendants attempted to induce referrals by routinely waiving Medicare copayments and deductibles for patients without properly investigating or documenting their financial status. In order to disguise the practice, the defendants sometimes allegedly had patients complete a financial hardship form; however, most deductible and copayment waivers were allegedly granted without the completed form. On those limited occasions when the form was used, patients often signed the forms, allegedly without providing any information regarding their financial status.

A ophthalmologist who maintained a general practice near one of RIC’s locations allegedly told an RIC ophthalmologist he expected that copays for Medicare patients to be waived, and that he would not refer patients if copays were not waived. The Relators had records which identified the patients who were referred to RIC by this particular ophthalmologist. The documents showed the receipts for those patients amounted to only 80% of the Medicare allowable amount. Without consideration of financial hardship or any documents to verify such designations, the copayments for these patients were allegedly waived as a matter of course.

Relators independently investigated several patients whose records indicated a financial hardship waiver. They discovered that some of those patients lived in expensive homes, including one residence valued in the millions of dollars.

The Relators each separately explained to Dr. Tom Chang, one of RIC’s physician/owners, that the policy and practice of routinely waiving Medicare copays and deductibles did not comply with Medicare regulations. Dr. Chang allegedly responded, on more than one occasion, that he would prefer to continue using the financial hardship waivers to ensure that RCI did not lose any referrals or patients. Dr. Chang allegedly said he would simply pay the fines if Medicare ever learned about the practice. In light of his former position as a Medicare compliance officer for the Department of Ophthalmology at the University of Southern California School of Medicine, Dr. Chang’s alleged comments and lack of concern are quite noteworthy.

Relator Smith made several attempts to advise RIC’s partners about changing the manner in which financial hardship cases were handled. She even made a presentation to the RIC senior management team and Executive Committee warning of the potential adverse consequences of continuing with the current practice. During the presentation, Dr. Chang allegedly repeated that he would pay the fines if Medicare ever discovered the way in which RCI handled the waivers.

The History and Purpose of the Anti-Kickback Statute

The Anti-Kickback Statute, 42 U.S.C. § 1320a-7b(b) (“AKS”), prohibits any person or entity from offering, making, soliciting, or accepting remuneration, in cash or in kind, directly or indirectly, to induce or reward any person for purchasing, ordering, or recommending or arranging for the purchasing or ordering of federally-funded medical goods or services. The statute was enacted in 1972 to address concerns that remuneration provided to those who influence health care decisions would result in services that were medically unnecessary, of poor quality, or harmful to a vulnerable patient population. Congress therefore passed the AKS to prohibit the payment of kickbacks in any form. The statute was amended in 1977, and again in 1987, to ensure that kickbacks could not be disguised as legitimate transactions to circumvent the law.

Retina Institute’s Alleged Violations of the Anti-Kickback Statute

A physician who refers a patient for medical services to an entity in which the physician has a financial interest violates the AKS unless the referral falls within the “safe harbor” regulations.

The physician defendants named in the complaint had financial ownership interests in an ambulatory surgery center known as the San Gabriel Surgery Center. Those physician defendants, as well as other RIC physicians, routinely referred RIC patients in need of surgery to the San Gabriel Surgery Center.  Such referrals would only be covered by the safe harbor regulations if the physician’s investment interest was fully disclosed to the patient.

According to the allegations in the complaint, RIC physicians did not advise their patients that RIC principals had an investment interest in the San Gabriel Surgery Center.  Patients were allegedly given a brochure instead that stated, “The ownership for San Gabriel Ambulatory Surgery Center may be obtained by contacting the center at (626) 300 – [XXXX].”

In order to ascertain whether accurate information was disseminated, Relator Smith asked the scheduling agent at RIC to call the phone number on the brochure to learn who owned the surgery center. The scheduling agent allegedly reported to Relator Smith that the individuals who responded to the call could not provide any information about the ownership of the center nor could they find anyone who could answer the question.

The Government Relies on the Assistance of Whistleblowers

This case illustrates the important role that whistleblowers play in identifying and reporting fraud.  Due to the enormity of claims processed under government-funded health care programs, it is impossible for every instance of fraud to be detected.  Employees are often in the best position to observe fraud and gather evidence to corroborate their observations. The government depends on such individuals to come forward and report what they reasonably believe to be fraud.

The False Claims Act permits a private individual to sue on behalf of the United States and share in any recovery. The government may intervene in the action, in which case a Relator may receive a reward of 15 percent to 25 percent of any monetary recovery.  In cases such as this one, where the government declines to intervene, the whistleblower may pursue the action on their own and can receive a reward of 25 percent to 30 percent of any monetary recovery.

If you have evidence of fraud being committed against the government by an employer, business competitor or contractor, call the experienced whistleblower attorneys McEldrew Young Purtell Merritt at (215) 367-5151 for a free, no-obligation consultation.

Record Breaking Settlement of Declined False Claims Act Lawsuit

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DaVita Healthcare Partners agreed to pay up to $495 million to settle a False Claims Act lawsuit brought by two whistleblowers, a doctor and a nurse, that worked at DaVita. It is the largest settlement ever in a case where the Department of Justice chose to decline intervention. The company has now agreed to pay nearly $1 billion to settle allegations of Medicare and Medicaid fraud since 2012.

DaVita provides dialysis services to patients with chronic kidney failure and end stage renal disease.  The lawsuit concerned allegations that DaVita wasted medicine in vials and billed Medicare for it. The CDC since 2002 has allowed the reuse of single-use vials in the drugs at issue if proper procedures are followed. The company billed Medicare for the unused portions of the drugs which it discarded.

What is a declined case? The government, after conducting an investigation on the merits of the litigation, generally intervenes and takes over prosecution of the civil claims in around 20 percent of cases brought under the False Claims Act. The rest of the whistleblowers receive a declination letter from the Department of Justice which informs the relator (as a whistleblower under the FCA is known) that they may continue the lawsuit on the government’s behalf (this is what is meant by qui tam, which you may often see in this context).

There have only been five years in the history of the False Claims Act where non-intervened cases reached settlements or judgments exceeding $100 million. Looking at the statistics since 1987, none of the annual totals of these cases exceeded $200 million.

In the past, relatively few non-intervened cases reached a successful settlement or judgment. Some whistleblowers evaluate the situation and decide that they are not interested in prosecuting it themselves if the government isn’t interested in vindicating the fraud against them. However, the success ratio may be improving as more law firms have decided to take these cases and run with them against the large corporations that they challenge.

When False Claims Act cases like these settle, the whistleblowers who file them typically get between 15 and 30 percent of the settlement. The law mandates these percentages, but there are few situations where the amount paid could be less than the minimum award. However, the Department of Justice, on behalf of the U.S. Government, investigated the relator’s claims and declined to intervene in it. In a declined case, the mandated percentage by the law is between 25 and 30 percent.

If you have additional questions about how these lawsuits worker, or have evidence of misconduct by a company which you wish to report, contact one of our Philadelphia FCA attorneys.

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LOUISIANA SETTLES FALSE CLAIMS ACT CLAIM WITH OPTOMETRIST’S OFFICE

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On November 18, 2013, the Department of Justice announced a settlement with Sabine Optical, an optometry office located in Baton Rouge, Louisiana, based on allegations of Medicaid fraud.  According to the details of the case, Sabine Optical (“Sabine”) which does business as The Vision Center, engaged in a pattern of billing behavior designed to garner illegal U.S. and Louisiana Medicaid payments.

The qui tam lawsuit, filed under the False Claims Act, was brought by whistleblower and former Sabine employee William Y. Guess.  Mr. Guess claims that Sabine employed a number of traditional fraud schemes, commonly seen in False Claims Act cases.  Mr. Guess alleges that the tactics ran the gamut, from billing Medicaid for procedures that were never performed to falsification of Medicaid patients’ prior authorization forms.  Mr. Guess also contends that Sabine routinely billed Medicaid using another provider’s Medicaid number.

The case was filed under both the Federal False Claims Act and its Louisiana counterpart, demonstrating once again the value of individual states’ false claims laws.  Pursuant to the settlement, Sabine will pay $1.2 million in damages, $819,960.00 to the U.S. and $380,040.00 to Louisiana.  For his efforts, Mr. Guess will receive twenty percent of the total recovery.

Young Law Group is a nationwide leader in whistleblower representation and has successfully represented numerous clients in some of the nation’s largest qui tam cases for over a decade.  For a free confidential consultation, please call Eric L. Young, Esquire at (800) 590-4116 or complete the online form here.

TEVA Agrees to Pay $54 Million to Settle McEldrew Young False Claims Act Qui Tam Whistleblower Lawsuit

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Attorney Eric. L. Young announced today that Teva Pharmaceuticals USA, Inc., Teva Neuroscience, Inc., and Teva Sales and Marketing, Inc. (hereinafter collectively referred to as “TEVA”) have settled allegations in a qui tam complaint filed by McEldrew Young, Attorneys-at-Law, and co-counsel, Shepherd, Finkelman, Miller & Shah, LLP (“SFMS”), on behalf of two relators, Charles Arnstein and Hossam Senousy, both of whom previously worked as sales representatives for TEVA.

The allegations in the qui tam complaint focused on a scheme to induce physicians to write prescriptions for the drugs Copaxone and Azilect by paying them as “speakers” or “consultants,” when, in reality, many of the programs at issue were sham events. As a result of TEVA’s allegedly illegal payments, the physicians prescribed Copaxone, which treats relapsing-remitting multiple sclerosis, and Azilect, which treats symptoms of Parkinson’s disease, and influenced other prescribers to do the same.

According to the complaint, physicians who participated in the alleged sham speaker programs wrote prescriptions for the two drugs that were filled at pharmacies across the country.  After filling and dispensing the prescriptions, the pharmacies then submitted claims for reimbursement to various government-funded health care programs.  The pharmacies’ claims resulted in payments by the government for prescriptions that were allegedly induced through fraud, i.e., TEVA’s alleged illegal payments to physicians who wrote the prescriptions.  Since TEVA’s actions allegedly caused the submission of false claims to the government via the dispensing pharmacies, those actions constituted violations of the False Claims Act (“FCA”), 31 U.S.C. §§ 3729-3733.

The complaint also alleged violations of the Anti-Kickback Statute (“AKS”), 42 U.S.C. § 1320a -7b, which, among other things, criminalizes “knowingly or willingly” offering or paying a person “remuneration,” in the form of  kickbacks, bribes, or rebates, to “induce” that person to “recommend” the purchase of a drug covered by a “Federal health care program.” 42 U.S.C. § 1320a-7b(b)(2).  Simply stated, the AKS prohibits a pharmaceutical manufacturer from offering, directly or indirectly, any remuneration to induce a physician to prescribe, or a Medicare patient to purchase, that manufacturer’s drugs.

The AKS was amended in 2010 to explicitly state that “a claim that includes items and services resulting from a violation of [the AKS] constitutes a false or fraudulent claim for purposes of [the FCA].”  42 U.S.C. § 1320a-7b(g). Thus, a claim submitted to a government-funded health care program for a prescription drug in violation of the AKS also constitutes a violation of the FCA.  The 2010 amendments also reduced the standard for “intent” under the AKS, such that “a person need not have actual knowledge of [the AKS] or specific intent to commit a violation of [the AKS].”  42 U.S.C. § 1320a-7b(h).

Background

McEldrew Young and SFMS filed the original qui tam complaint on behalf of the relators in May 2013.  The complaint alleged that, beginning in 2003, TEVA provided bogus honoraria or speaking fees to physicians for participation in numerous sham speaker programs in connection with the drugs Azilect and Copaxone.

On November 18, 2014, the United States, along with the various state and municipal governments that were also named as plaintiffs in the complaint, notified the Court of their decision to decline intervention in the case.  On March 12, 2015, the Court issued an Order unsealing the complaint while confirming that the various governments had declined to intervene in the action.

Despite the governments’ decision against intervention, McEldrew Young and SFMS were not deterred in prosecuting the case on behalf of their clients, as well as the federal, state and municipal governments that suffered damages as a result of TEVA’s allegedly illegal practices. “Although we were faced with an adversary of disproportionate size and considerably greater resources, we remained steadfast and aggressively prosecuted the case based on our belief in our clients and the correctness of our position,” said Eric Young, managing partner of McEldrew Young’s whistleblower practice. McEldrew Young and SFMS were assisted during litigation by co-counsel David J. Caputo and Joseph Trautwein of Youman & Caputo, LLC, and Heidi A. Wendel of Heidi Wendel Law.

Summary Judgment Motion

On February 27, 2019, Chief U.S. District Judge Colleen McMahon issued a Memorandum Decision and Order denying TEVA’s motion for summary judgment in its entirety.  In a detailed, seventy-page opinion, Judge McMahon rejected numerous arguments asserted by TEVA and ruled that all allegations of TEVA’s FCA violations would proceed to trial on the merits, which was scheduled to start on August 19, 2019.

In dismissing TEVA’s assertion that the AKS required evidence of a quid pro quo arrangement, the Court found that the relators’ complaint raised a genuine issue of material fact as to whether TEVA had violated the AKS.  The Court also ruled that there was a genuine issue of material fact regarding the efficacy of TEVA’s compliance program.  Although TEVA’s written compliance polices had “all of the right language,” the Court noted that the existence of those policies had no bearing on whether TEVA actually adhered to them.

Settlement of Complaint Allegations

“This settlement helps ensure that when a physician chooses a prescription drug for his or her patient, that choice will be motivated solely by the best interests of the patient and not tainted by any improper financial considerations,” said Eric Young.  Mr. Young added, “We were inspired by the level of our clients’ commitment to hold TEVA accountable for its alleged misconduct.  Today’s result is also a victory for American taxpayers who are the ultimate victims when unscrupulous individuals and companies defraud the government, oftentimes with impunity.”

As the managing partner of McEldrew Young’s whistleblower practice, Eric Young has a distinguished track record of success.  Mr. Young has recovered more than $2 billion dollars for the government on behalf of his whistleblower clients. McEldrew Young represents whistleblowers from across the country and abroad.  Many whistleblower cases are brought under the False Claims Act, which allows a private individual, known as a relator, to file a lawsuit on behalf of the United States government against an individual or company that has perpetrated a fraud against the government.  If a relator successfully recovers funds on behalf of the government, he or she may receive a reward of up to twenty-five percent (25%) of the civil monetary recovery if the government intervenes, and up to thirty percent (30%) if the government declines to intervene, such as in this case.

Case citation: United States ex rel. Arnstein and Senousy v. Teva Pharmaceuticals USA, Inc., No. 1:13-cv-03702-CM-OTW (S.D.N.Y.)

Merrill Fined $11 Million for Hard to Borrow Short Sales

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The SEC has announced an agreement with Merrill Lynch to resolve charges that it violated Regulation SHO because its trade execution platforms used outdated easy to borrow lists in the short sale of securities. Merrill did not update its hard to borrow lists used by these computer programs during the business day, resulting in the use of data that was more than 24 hours old. Even when Merrill learned that a stock’s supply was restricted and its brokers updated their lists, it continued to allow trades by its customers in stocks through these programs as if they were easy to borrow.

The short sale of a stock, for those that aren’t familiar with the process, involves selling shares in stock that you do not own. The shares are borrowed from their actual owner and provided to the purchaser. The person who has sold short plans to buy them back in the market later and provide them to the owner who allowed his or her shares to be borrowed rather than the purchaser, who remains in possession of the owner’s original shares.

Normally, the borrowing happens behind the scenes at the clearing firm. But clearing firms are required to hold a percentage of their shares back from lending in case an actual owner wants to sell their shares. If too many of the shares in a stock have already been borrowed for short sale, then the stock may become hard to borrow. This typically requires the clearing company to find additional shares to borrow before a customer can sell them short.

Merrill’s trade platforms executed sales of 2.3 million shares of stock when it did not have sufficient securities in reserve to allow them to be borrowed. In the settlement with the SEC, Merrill admitted wrongdoing and agreed to pay $9 million in a civil penalty, a $1.6 million disgorgement and prejudgment interest.

The conduct at issue took place from 2008 to 2014. Merrill Lynch is a subsidiary of Bank of America.

If you have evidence of corporate wrongdoing similar to this conduct, contact one of our SEC whistleblower lawyers to discuss your options under the incentive program created by the Dodd-Frank Act. An attorney can be reached by our contact form or by phone at 1-800-590-4116.

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China’s Focus Media & CEO Get $55.6 Million SEC Fine

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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.

CAREMARK LLC SETTLES FALSE CLAIMS ACT CASE FOR $4.25 MILLION

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Yesterday the U.S. Department of Justice (“DOJ”) announced an agreement with Caremark, LLC to settle allegations filed that it defrauded the federal government and five states.  Caremark, LLC is a pharmacy benefit management company (“PBM”), operated by CVS Caremark, Corp. a company which is no stranger to the False Claims Act.  PBMs are third-party administrators, whose primary role is the payment and process of prescription drug claims on behalf of healthcare plans.

The allegations surfaced in a lawsuit filed by former Caremark employee, Janaki Ramadoss, pursuant to the qui tam provisions of the False Claims Act.  The details of the case allege that Caremark knowingly disregarded its obligations to reimburse Medicaid for the costs of prescription drugs received by Medicaid beneficiaries, which should have been covered under the beneficiaries’ private healthcare plans administered by Caremark.  Medicaid, commonly referred to as the payer of last resort, is not responsible for health care and prescription costs which are simultaneously covered by a private health care plan.  Individuals with overlapping coverage from Medicaid and a private plan are classified as “dual eligible.”  In addition to paying for the care and prescriptions of a “dual eligible” beneficiary, private insurers are required to reimburse claims erroneously paid by Medicare.  Assistant Attorney General for the Justice Department’s Civil Division, Stuart F. Delery, noted that, “it is vitally important that cash-strapped Medicaid programs receive reimbursement for costs they incur that should have been paid for by other insurers.”  By failing to do so, Caremark caused false claims for payment to be submitted to Medicaid.

In addition to the federal government, Arkansas, California, Delaware, Louisiana, and Massachusetts joined the case and will receive proceeds from the settlement.  The federal government will receive approximately $2.3 million, while the five states share $1.94 million.

The case is captioned United States ex rel. Ramadoss v. CVS Caremark Inc., SA-12-CA-929WRF (W.D. Texas).

Young Law Group is a nationwide leader in whistleblower representation and has successfully represented numerous clients in some of the nation’s largest qui tam cases for over a decade.  For a free confidential consultation, please call Eric L. Young, Esquire at (800) 590-4116 or complete the online form.

Morgan Stanley, MetLife Settle Government Investigations into Mortgage Fraud

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Morgan Stanley has announced an agreement in principle to settle the Justice Department investigation into its sales of mortgage-backed securities prior to the financial crisis. The $2.6 billion settlement comes only a few days after the Wall Street Journal published an article indicating that the talks were in an early stage. The deal has not been finalized.

The investigation related to Morgan Stanley’s involvement with subprime lender New Century Financial. New Century was the second largest subprime mortgage lender.

Yesterday, a unit of MetLife also settled allegations brought under the False Claims Act that it allowed the FHA to underwrite hundreds of home loans failing to meet federal standards. MetLife Home Loans will pay $123.5 million. The company admitted that it became aware of home loans failing to meet federal standards through its internal quality control practices and yet it still stuck the government with the bill when the loans defaulted.

In other news from the mortgage fraud front:

Goldman Sachs has also been notified by the federal government of potential charges coming in the future because of its mortgage-backed securities practices. The New York Times called Goldman Sachs the last major bank to have unresolved allegations with the DOJ over the subprime crisis. In a securities filing, Goldman expanded the top end of its potential losses to $3 billion. It called this amount “reasonably possible.”

Settlement discussions have fallen apart between Wells Fargo and the DOJ over a potential resolution to the FHA lawsuit over improper certification of certain mortgage loans. According to the Wall Street Journal, there was almost an agreement last summer but the DOJ has asked for additional information. The previous discussions put the amount at issue under $500 million.

Additionally, New York’s Attorney General Eric Schneiderman is building support for a state law that will reward whistleblowers providing information about securities fraud. The law hasn’t been formally introduced but a spokesman for the attorney general told Bloomberg that sponsors of the bill have been lined up. We’ll detail this in a separate blog post shortly.

In a prior year, New York had a bill introduced to reward whistleblowers in the financial industry. The legislation proposed by State Senators James Steward and Joseph Griffo then would have rewarded individuals for information provided to the Department of Financial Services. More details can be found in our previous blog post about the legislation.

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SEC Loses Case Against Celebrity Mark Cuban

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The U.S. Securities and Exchange Commission has lost a high-profile but low-stakes case against billionaire celebrity investor Mark Cuban in a Federal Court in Dallas.  The SEC alleged that Cuban engaged in insider trading when he sold his 6.3% stake in Canadian internet company Mamma.com to avoid a $750,000 loss after Mamma.com executives came to him looking for financing.  The jury deliberated for less than five hours before reaching a verdict in Cuban’s favor.

Cuban sold his multimedia Web service to Yahoo Inc. for $4.7 billion in 1999.  He now owns the NBA’s Dallas Mavericks, the high definition television network HDNet and the Landmark Theater chain.

It would seem reasonable to wonder why the SEC would use its already strained resources to pursue a case that could most accurately be described as immaterial under almost any measure.  The $750,000 loss that was allegedly avoided by Cuban was clearly immaterial to his financial statements.  The fact that Mamma.com was seeking Cuban’s assistance because he was already the Company’s largest shareholder probably means this was a situation that was unlikely to ever be repeated.  The most obvious answer is that Cuban’s celebrity status guaranteed a large volume of media coverage related to the case.  Other than the anticipated media coverage, it is hard to see a reason why the SEC would pursue a weak case involving immaterial amounts in a situation where there was no allegation of ongoing harm.

Is anticipated media coverage an appropriate reason for the SEC to pursue a case? Perhaps it is an appropriate reason in a situation where a highly publicized SEC Enforcement action might deter others from engaging in similar misconduct.  However, the Cuban case is clearly a unique factual situation where any deterrent effect is hard to envision.  Young Law Group believes that the SEC would be better off using its resources to pursue important cases that would serve the purpose of increasing transparency in financial markets and deterring misconduct.  One reliable way to achieve this objective would be for the SEC to pursue strong cases based upon inside information it receives from whistleblowers with first-hand knowledge of wrongdoing in financial markets.

Young Law Group, P.C., represents whistleblowers in the United States and abroad, in a variety of cases, including IRS Whistleblowers, False Claims Act (Qui Tam), and SEC related fraud.  For a free confidential consultation with one of our SEC whistleblower lawyers, please call Eric L. Young, Esquire at (215) 367-5151 or email to eyoung@young-lawgroup.com.

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