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


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.

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


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).


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.)

Massive Currency Manipulation Settlement Expected Wednesday

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The Justice Department is expected to announce a multi-billion dollar settlement this week (reportedly Wednesday) with five financial institutions over manipulation of the currency market. Barclays, which was not a part of the November global forex settlement, is expected to also resolve investigations by the CFTC, NY DFS and UK FCA at the same time for a sum that may be as high as $3.1 billion.

The Department of Justice has been investigating the banks for antitrust violations related to their rigging of the forex markets. Traders at the banks reportedly used electronic chat rooms to manipulate the markets and foreign exchange benchmark rates.

JPMorgan, Royal Bank of Scotland, Citigroup and UBS are expected to settle in addition to Barclays. UBS is still talking with the DOJ about possible criminal charges, but subsidiaries of the other four banks are expected to plead guilty to criminal charges. The banks are expected to pay as much as $1 billion each as part of the DOJ settlement. The media is reporting that the DOJ is pushing for a Wednesday announcement but wrapping up all of the loose ends on the agreements might take another day or two.

JPM, RBS, Citi and UBS were all part of the November settlement which resolved investigations by the CFTC, OCC and UK FCA, but not the DOJ. That deal provided them with a discount for early settlement of the charges. According to the media, Barclays backed out of the deal in November because it could not reach agreement with the New York Department of Financial Services as well. This agreement will reportedly carve out the NYDFS investigation into its use of electronic trading programs to manipulate the forex market to allow that aspect to go forward.

Citigroup also announced today that the DOJ had declined to prosecute it for LIBOR rigging. Including the Deutsche Bank fines last month, a dozen financial institutions have paid a total of about $9 billion to resolve investigations into Libor manipulation.

The deadline for submitting a whistleblower claim on most of the first set of Notices of Covered Actions has passed, with only Citibank still open for a few more days. If there was a forex whistleblower behind any of these actions, the award would likely set a record for the Dodd-Frank whistleblower programs. The highest reward handed out so far was by the SEC – $30 million to an international whistleblower last year.

For questions about this and other aspects of the CFTC whistleblower program, as well as assistance reporting violations of the Commodity Exchange Act to the U.S Government, contact one of our whistleblower attorneys via our contact form or by calling 1-800-590-4116.

Photo Credit.

DOJ seeks Billions in Currency Manipulation Settlement Talks


Last year’s forex settlement may have just been the start of the fines from U.S. regulators for manipulating the currency market.

The Department of Justice and five banks are in discussions to resolve the U.S. Government’s investigation into currency manipulation at Barclays, Citigroup, JPMorgan, UBS and Royal Bank of Scotland. The DOJ is asking for an average of $1 billion from each bank in an coordinated settlement.

The Justice Department is also asking for guilty pleas from some of the banks for charges of antitrust violations and fraud.

In November, six banks paid worldwide regulators $4.3 billion for manipulation of benchmark rates in the forex markets. In the United States, the fines were levied by the Commodity Futures Trading Commission (CFTC) and the Office of the Comptroller of the Currency. Fines were also issued by the UK Financial Conduct Authority (FCA).

JPMorgan, Citigroup and Royal Bank of Scotland all participated in the November settlement and are facing additional fines.

The NY DFS Investigation

The New York Department of Financial Services is reportedly not a part of the most recent settlement talks. Last year, Barclays refused to settle with the FCA and the CFTC because the NY DFS would not also accept a settlement.

The NY DFS is reviewing Barclays and Deutsche Bank to determine whether the two banks used their forex trading algorithms to engage in currency manipulation. These banks may have designed their electronic trading programs to manipulate prices ahead of client trades.

New York has also subpoenaed Goldman Sachs, Credit Suisse, Societe Generale and BNP Paribas. They have not yet been accused of wrongdoing.

Investigation Leads to SEC Inquiry Into “Last Look” Policy

The currency investigation also uncovered a practice in the FX market known as last look. It allows the banks to back out of trades prior to execution if the market goes against them. It was developed during the era before computers when there was a substantial time lag before trades were confirmed. It remained in place even though the time lag disappeared in the electronic age. The “last look” is built into the Barclays electronic-trading platform, according to the reports.

The NY DFS has reportedly been pursuing this line of investigation. The SEC opened its own investigation to determine whether laws related to the disclosure of conflicts of interest are violated by the “last look” policy.  It’s unclear to what extent the DOJ investigation will include this practice.

Photo Credit: Philip Brewer.

If you found this item of interest, we encourage you to read more about our representation of CFTC whistleblowers.

Recent Qui Tam Cases Part 1: Medicare and Medicaid


A good way to understand what may qualify as a qui tam case is to consider some recent examples. Qui tam encompasses many, many areas (think about how many things the government pays individuals and companies to “git ‘r done”). We’ll try to focus on the hot areas that are seeing the most action right now.

First in this series is the white-hot area of Medicare and Medicaid fraud. There is big money at stake in this area, and it seems that some companies just can’t stop themselves from illicitly taking a huge helping of taxpayer dollars. Here are some recent cases.

McAllen Hospitals L.P., d/b/a/ South Texas Health System, a subsidiary of Universal Health Services Inc., announced in October 2009 that it would pay $27.5 million to settle a qui tam case. The qui tam whistleblower alleged that the hospital group illegally paid kickbacks to doctors in McAllen, Texas, to get the docs to refer patients to the group’s hospitals. These payments were disguised through a variety of sham contracts. Under the federal Stark Law, physicians are prohibited from referring Medicare/Medicaid patients to an entity with which the physician has a financial relationship (subject to a few exceptions).

Also in October 2009, four pharmaceutical companies agreed to pay $124 million to settle a qui tam suit alleging Medicare fraud. The companies, including Mylan Pharmaceuticals, UDL Laboratories, AstraZeneca Pharmaceuticals, and Ortho McNeil Pharmaceutical, were accused by a whistleblower of failing to pay rebates to state Medicaid programs. According to the Medicaid Drug Rebate Program, drugmakers must enter into a national rebate agreement with the Department of Health and Human Services in order for states to get federal funding for drugs (obviously drugmakers are eager to have their products dispensed in every state, so they agree to pay these rebates). The four drugmakin’ defendants failed to honor the rebates they were required to pay to the states, and this constituted fraud.

In November 2009, the DOJ intervened in a qui tam case against Virginia Medicaid providers. The suit alleged that the providers, Universal Health Services Inc., Keystone Marion LLC, and Keystone Education and Youth Services LLC committed Medicaid fraud while they were running a mental health treatment facility for young boys. Specifically, the providers were alleged to have provided substandard care in violation of state and federal Medicaid requirements, falsified records, and filed bogus Medicaid claims.

Also in November, the largest nursing home pharmacy in the country, Omnicare Inc., of Covington, Kentucky, and a drug company, IVAX Pharmaceuticals, agreed to pay a collective $112 million to settle claims that they were involved in kickback schemes to bilk Medicare in violation of the Anti-Kickback Statute. This qui tam suit alleged that the pharmacy solicited and received kickbacks from Johnson & Johnson in return for recommending to physicians that they prescribe J & J’s now-notorious anti-psychotic drug Risperdal to nursing home patients. The suit also alleged that the pharmacy got millions in kickbacks in exchange for agreeing to buy $50 million worth of drugs from IVAX.

Unfortunately for Johnson & Johnson, its kickback scheme with Omnicare has also led to a qui tam suit being filed against J & J itself. In January 2010, the government announced that it was joining the qui tam suit against J & J for paying kickbacks to Omnicare to push Risperdal and other drugs. That case is raising some other qui tam issues, mostly about which whistleblower was the first to file (each of the two whistleblowers who filed separate claims are maintaining that they filed first).

Finally, a dental management company that runs “Small Smiles Centers” across the country is probably not smiling after it agreed to pay $24 million to settle claims that it defrauded Medicaid by performing unnecessary services on children. FORBA Holdings LLC allegedly performed many dental procedures (e.g., root canals) on low-income kids that were either not medically necessary or were performed in a sub-standard manner. FORBA then submitted claims to Medicaid for reimbursement, hence the False Claims Act violation.

For additional information about about whistleblower law or a free case evaluation, please contact one of our False Claims Act lawyers.

Top Government Settlements from 2014


As the calendar year wraps up, we thought it would be interesting to take a look back at the companies paying more than $1 billion in 2014 to resolve investigations into corporate misconduct.  Twelve companies agreed to these large fines (if we include Suntrust which fell just shy of $1 billion) for a total of more than $45 billion in penalties to the US (and a handful to the UK from the forex settlement).  A few things worthy of note:

  • Only 2 companies were not financial institutions.
  • Only 5 cases involved mortgage fraud.
  • Not one pharmaceutical company is on the list.
  • We only used the calendar year.  J&J and JPMorgan Chase both had large settlements that would have qualified if we used Fiscal Year 2014.

Bank of America – $16.65 Billion in August
The largest civil settlement with a single entity in American history was agreed to by the financial institution to resolve misconduct by Countrywide, Merrill Lynch and BofA stemming from .  The $5 billion penalty imposed under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) is the largest under the law, eclipsing the $4 billion paid by Citigroup only a month before.  Four whistleblowers in this case were paid approximately $170 million in total under the False Claims Act and FIRREA.

BNP Paribas – $8.9 Billion in June
The French bank agreed to a guilty plea to charges it violated US economic sanctions by providing dollar clearing services to individuals and entities dealing with Sudan, Cuba and Iran between 2004 and 2012.  Three individuals helped the government make their case agains BNP.

Citigroup – $7 Billion in July
The settlement covered misrepresentations made to investors regarding the quality of mortgage securities.  It paid a short-lived record $4 billion as a civil penalty to settle the Justice Department claims under FIRREA.  It also paid $208.25 million to the Federal Deposit Insurance Corporation (FDIC) and nearly $300 million to five states participating in the agreement.  The remaining $2.5 billion was earmarked for consumer relief.

Anadarko – $5.15 Billion in April
Anadarko agreed to pay the largest recovery for the cleanup of environmental contamination.  It resolves the liability of Kerr-McGee, an Anadarko subsidiary acquired in 2006, for legacy liabilities spun off in an inadequately funded company which filed for bankruptcy in 2009.

Goldman Sachs – $3.15 Billion in August
Goldman agreed to pay the Federal Housing Finance Agency (FHFA) for securities law violations in the sale of private-label mortgage-backed securities to Freddie Mac and Fannie Mae between 2005 and 2007.

Credit Suisse – $2.6 Billion in May
The Swiss bank pleaded guilty to conspiracy to aid U.S. taxpayers in filing false income tax returns with the Internal Revenue Service.  It paid $1.8 billion to the Department of Justice for the U.S. Treasury, $100 million to the Federal Reserve, and $715 million to the New York State Department of Financial Services.  It also paid $196 million to the SEC earlier in the year for providing cross-border brokerage services without registering.

MF Global Holdings Ltd. – $1.3 Billion in December
A consent order in December 2014 requires the parent company of brokerage unit MF Global Inc. to pay $1.2 billion in restitution and $100 million in fines to the CFTC.  MF Global had liquidity problems in 2011 due to trading losses that caused its bankruptcy.

Morgan Stanley – $1.25 Billion in February
The FHFA settled its claims over private-label mortgage-backed securities sold to Freddie Mac and Fannie Mae between 2005 and 2007 for $625 million to each.

Toyota Motors – $1.2 Billion in March
Toyota agreed to the largest penalty for an automobile manufacturer to resolve allegations of misconduct related to its recall of vehicles for unintended acceleration.  The charges involved misleading statements made to consumers and regulators in 2009 and 2010 concerning the safety of its vehicles.

FOREX Manipulation – $4.3 Billion by six banks in November to three agencies in the US and UK.
Citigroup and JPMorgan each paid a total of about $1 billion in fines between the US Commodity Futures Trading Commission, Office of the Comptroller of the Currency and UK Financial Conduct Authority to resolve allegations its traders manipulated the FOREX market.  Four other banks paid amounts under $1 billion to resolve the investigations by these government agencies.  UBS, RBS, HSBC and Bank of America each paid between $250 million and $800 million.

Suntrust Mortgage – $968 Million in June
The mortgage company settled claims involving problems with improper mortgage origination, servicing and foreclosure arising between 2006 and 2012.  The settlement involved the Justice Dept., Housing and Urban Development (HUD), Consumer Financial Protection Bureau (CFPB) and 49 states plus the District of Columbia.  The deal was agreed to in principal in late 2013 but announced in 2014.

Other Settlements of Interest

While we were doing our research, we found a few other record settlements that we thought you would find interesting.

Alstom – The French engineering company agreed to the largest criminal tax penalty for an FCPA violation imposed by the Department of Justice, $772 million, in December 2014.  Alstom used consultants to pay $75 million in bribes to secure $4 billion in projects with state-owned companies in five countries.

Hyundai Motor and Kia Motors – The two related auto manufacturers agreed to a $100 million penalty, the largest ever for violation of the Clean Air Act, in November 2014.  They overstated the fuel economy and understated the greenhouse gas emissions of their cars and SUVs in 2012 and 2013.

AT&T Mobility – The $105 million settlement with the Federal Communications Commission over cramming unauthorized third party subscriptions and premium text messaging onto customer bills was the largest enforcement action in the FCC’s history.

We are aware of ten whistleblowers involved in four of these cases.  At this point, only payments to the individuals in the Bank of America case have become public knowledge.

There may have been additional cases involving insiders where the details have not yet been made publicly available.  For example, the CFTC has not yet issued a notice of covered action for the fines issued to the banks in the forex case.

JP Morgan Reported To Be Close To Finalizing A $13 Billion Settlement With Department Of Justice


October 21, 2013 – It is being widely reported that the Department of Justice and JP Morgan are finalizing the details of a $13 billion settlement relating to the 2008 financial meltdown.  JP Morgan has already paid close to $6 billion dating back to 2010 in other fines and penalties arising out of the 2008 financial crisis.  Reports are that this settlement will encompass numerous open investigations into the bank’s fraudulent sale of toxic mortgage back securities.  If consummated, this settlement will be one of the largest settlements ever involving one of the nation’s largest financial institutions.  Reports are that the deal will include $9 billion in fines and provide relief to consumers totaling approximately $4 billion.  It is also being reported that this deal will not insulate JP Morgan from criminal charges.  While this amount seems to be substantial in the eyes of the average American, then certainly the largest penalty ever imposed on a U.S. corporation, however, it is less than half of the $21 billion profit JP Morgan recorded in 2012.

In addition, the bank previously set aside $28 billion to cover the legal costs in connection with the government investigations that have apparently led to the reported settlement.  The reality is that while these settlement amounts appear to be very large, they pale in comparison to the amount of money spent by the federal government to prop up these firms, including JP Morgan, in the aftermath of the 2008 mortgage meltdown.  For example, $4 billion will reportedly go to settle a suit by the Federal Housing Finance Agency against JP Morgan for knowingly making false statements and omitting material information with regard to the sale of $33 billion in worthless mortgage bonds to government-sponsored mortgage finance companies.  However, that is only about two percent (2%) of the almost $2 billion in taxpayer money the government spent so far to prop up JP Morgan and others for this misconduct.  The New York Times reported, “the government also prefers to settle with big companies rather than indict them, fearing that criminal charges can unnerve the broader economy.”

Attorney General Holder has been quoted as saying, “If we do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy.”  As such, the government appears to be concerned that if it levies harsh criminal sanctions against banks, including JP Morgan, that it will rattle the financial markets, and therefore, the government apparently shies away from taking such direct action to eradicate the type of misconduct that led to the 2008 collapse.  Does such an approach make sense?  Considering that these penalties appear to be nothing more than a slap on the wrist, when considering the damage that was caused and the profits that JP Morgan and others have made since 2008, isn’t it time that our government takes a tougher stance?  Unfortunately, it appears that the financial privileged in our country are above the law.  Until our government prosecutes corporations and executive who devise and carry out the fraudulent schemes, this type of misconduct will continue because it is profitable to do so.  In other words, it is the cost of doing business.

So long as these companies and their executives know that they will not be held to account for fraudulent misconduct, so long as that conduct is profitable, they will continue to engage in it.

Reports are that the Justice Department’s case against JP Morgan is being bolstered in part by the involvement of a whistleblower from inside the bank who is aiding the government.  The Wall Street Journal has reported that, “the cooperating person has provided information – including emails – suggesting the bank vastly overstated the quality of mortgages that were being bundled into securities and sold to investors before the financial crisis, the people said.”  The Wall Street Journal also reported, “Justice Department lawyers are embolded by documents, uncovered in the course of their investigation, that point to JP Morgan knowingly peddling mortgage back securities whose underlying loans were of lesser quality than pitched to investors, according to people familiar with the investigation.”  Reports of insider assistance to the government in pursuing a case against JP Morgan further highlights the critical nature that whistleblowers play in allowing our system to self-correct.  The simple matter is, without the assistance of an insider such as the person being reported to be assisting the Justice Department in the JP Morgan case, the government would be at a severe disadvantage at the pre-litigation stage in leveraging any meaningful resolution.

Whistleblowers provide detailed uncontroverted evidence that otherwise would be unavailable to the government.  It is believed that this insider may have filed a claim under the Federal False Claims Act, which includes a qui tam provision that enables individual citizens to bring claims on behalf of the taxpayers against companies such as JP Morgan, who are alleged to have defrauded our government.  To encourage such whistleblowers to come forward, the False Claims Act includes bounty provisions that compensate whistleblowers for the courageous efforts that are necessary for someone to step forward and report powerful corporate interest, such as those in the JP Morgan case.  These bounties can range anywhere between 15 and 30 percent of civil penalties and fines collected by the federal government as a result of the underlying qui tam action.

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, please call Eric L. Young, Esquire at (215) 367-5151 or email to


Considering Rewards for Environmental Whistleblowers


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.

Record Penalties Under FIRREA Boost Justice Department Collections to $24 Billion in FY2014


Record penalties under FIRREA helped make financial fraud the largest source of money collected by the Department of Justice through enforcement efforts in Fiscal Year 2014.  The DOJ statistics released today revealed that agency led enforcement actions and negotiated civil settlements resulted in collections of more than $24 billion during the fiscal year ending in September.

FIRREA had fallen into disuse until prosecutors began bringing enforcement actions against banks for conduct surrounding the financial crisis of 2008.  Now, it has become the nation’s leading tool against mortgage fraud.  It resulted in settlement amounts of $2 billion (JPMorgan), $4 billion (Citigroup) and $5 billion (Bank of America) over the past year as banks sought to put their misconduct involving residential mortgage backed securities behind them.  JPMorgan and Citigroup were cited by the DOJ as paying significant sums in 2014, with Bank of America unnamed.  Because the BofA settlement happened toward the end of the fiscal year, it may not have paid the money to the U.S. Government yet.

FIRREA’s increasing importance also led Attorney General Eric Holder to call for an increase in the law’s incentives for whistleblowers just days before he announced he was stepping down.  Rewards are currently capped at a maximum of $1.6 million.  The False Claims Act, SEC and IRS programs are all uncapped, with payments potentially reaching over $100 million on large cases.

In the press release, the Justice Department credited whistleblowers under the False Claims Act for bringing many of the cases leading to large civil collections.  Whistleblowers were involved in a number of large cases reaching a resolution in 2014, including investigations into Bank of America and JPMorgan Chase in the financial arena and Johnson & Johnson in health care.

The DOJ press release added another financial crime to the list of penalties paid by financial institutions: LIBOR manipulation.  UBS Securities Japan and RBS Securities Japan paid large amounts to end investigations into their manipulation of the London Interbank Offered Rate.

The $24 billion number includes money paid during FY2014 even if the settlement or enforcement action happened in a preceding year.  It excludes settlements agreed to in 2014 but not paid during the government’s fiscal year.  The DOJ received $13.7 billion while its civil and criminal enforcement efforts helped other federal agencies, states and additional parties receive another $11 billion.  It’s unclear to us how much, if any, overlaps with the $7 billion collected by the CFTC and SEC.

The amount was more than three times the $8.1 billion collected in 2013.  The ongoing antitrust investigation into the auto parts industry, environmental cleanups of pollution and criminal penalties for violations of the FCPA also led to significant collections.  Significant antitrust and environmental cases also led to more than $1 billion in 2013.

Last year, health care fraud topped the list of collections with large fines paid by Abbott and Amgen.  It’s absence from the list this year is noticeable because of the large amounts settlements gathered from this area in the past ten years for violations of the False Claims Act.

For additional information about today’s DOJ announcement, here is the press release.


Legality of High Frequency Trading Questioned as Authorities Pursue Companies Favoring Frequent Traders


A Special Counsel with the Division of Swap Dealer and Intermediary Oversight at the U.S. Commodity Futures Trading Commission (CFTC) has published an article in the Connecticut Law Review questioning the legality of “pinging” and “front running” in the futures market by high-frequency trading (HFT) firms. The author expressly notes that it is his personal opinion and that he is not writing in his official capacity at the CFTC. However, the commentary does appear to be part of a larger trend to reign in the industry as several investigations by the SEC have settled and New York State is proceeding with a lawsuit against Barclays.

The HFT practices at issue involves the use of small orders that are cancelled quickly, akin to the high-speed pinging of sonar. A few are filled, most are cancelled instantly, and they allow the HFT firm to detect whether there is an institutional investor seeking to fulfill a large order in a futures contract. Once it is aware of the large order to buy or sell, the HFT will trade ahead for its own profit and earn far more than it lost due to the initial “ping” orders.

The paper begins by examining the practices in the context of insider trading. The HFT firm is able to detect the large order faster than than the order is displayed to the public. It is thus trading on nonpublic information in a fashion. However, the Act doesn’t contain a prohibition on insider trading.

The paper then compares the practice to deceptive or manipulative trading practices such as banging the close, spoofing, and wash trading. It examines whether it would violate four provisions of the Commodity Exchange Act and a regulation promulgated by the CFTC under its authority to enforce the Act. The CEA provisions at issue are: § 4c(a)(2(B) on causing the reporting of non-bona fide prices; § 4c(a)5(C) prohibiting spoofing; § 9(a)(2) on delivering false or misleading market information; and § 6(c)(1) prohibiting market manipulation. The CFTC regulation at issue is Rule 180.1.

It is an interesting read for anyone interested in a potential whistleblower case related to high frequency trading:

The legality of HFT has been a hot topic on Wall Street over the past year. In March, author Michael Lewis published Flash Boys, a book about high frequency trading firms that received widespread publicity for its claim that the markets are rigged. SEC Chairman Mary Jo White testified on the practice before the House Financial Services Committee in April, indicating that the Commission was examining at least one issue: the fairness of the faster data feeds purchased by firms compared to the feeds available to the public. Her public comments a few months later proposed changes to level the fairness of the marketplace.

Unlike the law review article, which takes issue with the operations of the HFT firms themselves, most of the current cases in this arena have involved favoritism and improper disclosure by the investment banks and private stock exchanges catering to the frequent traders, their best customers. Last month, the SEC took aim at improprieties involving high frequency traders in three cases over the course of four days.

In one, UBS Group AG, a subsidiary of UBS, received a $14.4 million fine for violating rules on the execution of stock trades to favor professional market makers. UBS allowed traders to buy and sell stocks at unauthorized increments smaller than a penalty on its dark pool. It also failed to adequately disclose the handling of the trades to all investors.

In another, Bats Global Markets was ordered to pay $14 million for failure to adequately disclose the operation of price sliding rules and the handling of certain order types. We have previously discussed this action on the blog so more details can be found here.

The New York State lawsuit filed last by New York Attorney General Eric Schneiderman against Barclay’s for misleading investors about the operation of its dark pools is similar. Last week, Justice Kornreich of the State Supreme Court in Manhattan refused to dismiss the lawsuit. Although there will still be a ruling later on the issue of whether the lawsuit sufficiently states a claim under the Martin Act, the Justice did rule that traders have a right to rely on the material representations made by banks about the operation of their dark pools and their misrepresentations would shake investor confidence and undermine the integrity of the marketplace.

The defense of high frequency trading has typically claimed that it adds liquidity to the market. But as the controversial industry practices remain under the spotlight, it wouldn’t surprise me the SEC or the CFTC eventually takes a run at a firm for manipulation or deceptive practices similar to the arguments discussed in the law review article.

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