COMPANY AND PRINCIPALS CHARGED WITH FRAUDULENTLY RAISING INVESTMENT FUNDS

Photo:  Currency Sign.  Credit:  Wikimedia
FROM:  COMMODITIES FUTURES TRADING COMMISSION
CFTC Charges New York Firm Madison Dean, Inc., and its Principals, George Athanasatos and Laurence Dodge, with Forex Fraud

Washington, DC - The U.S. Commodity Futures Trading Commission (CFTC) today announced the filing of a civil enforcement action in the U.S. District Court for the Eastern District of New York charging Madison Dean, Inc. (Madison Dean), of Wantagh, N.Y., and its principals, George Athanasatos, also of Wantagh, and Laurence Dodge of Fresh Meadows, N.Y., with fraudulently soliciting approximately 19 persons to invest approximately $415,000 in managed trading accounts to trade off-exchange foreign currency (forex) contracts on a leverage or margined basis. None of the defendants has ever been registered with the CFTC.

The CFTC complaint, filed on May 8, 2012, alleges that from approximately December 2008 through approximately July 2010, defendants Madison Dean, Athanasatos, and Dodge, through an Internet website, written solicitation materials, and other actions, misrepresented and omitted material facts about Madison Dean, including the background and qualifications of Madison Dean employees and the firm’s performance record, to create a false impression that it was a well-established and successful company.

Specifically, according to the complaint, the defendants allegedly fraudulently claimed that 1) Madison Dean had been in existence since 1998, 2) Madison Dean’s customers included high net worth individuals, financial institutions, and institutional clients, 3) Madison Dean provided “professional money managers” who would be in charge of the forex trading for the customers’ managed accounts, and 4) Madison Dean had been making money for its customers for years.

Contrary to these claims, Madison Dean had not been making money for its customers for years, as it did not exist prior to December 2008, and its customers were “neither high net worth individuals, financial institutional or other institutional clients, hedge funds, nor millionaires,” according to the complaint. Also, according to the complaint, Madison Dean did not have professional money managers in charge of customer trading. Rather, Athansatos allegedly managed the trading of customer accounts, and on various occasions, Dodge and Athanasatos’ mother – neither a professional money manager – also traded customer accounts.

The complaint further alleges that Madison Dean’s customers lost approximately $250,000, “as a result of its poor trading.” As further alleged, after being in operation for a little over a year, during which time the firm collected approximately $112,000 in commissions and fees, Madison Dean shut down its operation with no notice to its customers and no way for those customers to contact the company or anyone associated with it.

In its continuing litigation, the CFTC seeks civil monetary penalties, restitution, disgorgement of ill-gotten gains, trading and registration bans, and preliminary and permanent injunctions against further violations of the Commodity Exchange Act, as charged.
The CFTC appreciates the assistance of the United Kingdom Financial Services Authority in this matter.

CFTC Division of Enforcement staff members responsible for this case are Alan I. Edelman, James H. Holl, III, Michelle Bougas, Gretchen L. Lowe, and Vincent McGonagle.

PHARMACIA CORP. AND BAYER CROP SCIENCE INC. AGREE TO PAY $4.25 MILLION TO CLEAN UP SUPERFUND SITE

FROM:  U.S. JUSTICE DEPARTMENT
Thursday, May 10, 2012
Companies Agree to $4.25 Million Natural Resource Damages Settlement at Industri-Plex Superfund Site, Woburn, Mass.
WASHINGTON – Pharmacia Corporation and Bayer Crop Science Inc. have agreed to pay $4.25 million to federal and state natural resource trustees to resolve claims for natural resource damages connected with the Industri-plex Superfund site located in Woburn, Mass., the Department of Justice announced today.

Operations at the Industri-plex Superfund site from the 1850s to the 1960s contaminated the Aberjona River, as well as associated wetlands and the Mystic Lakes, with arsenic, chromium and other hazardous substances.  Under the Comprehensive Environmental Response, Compensation, and Liability Act, parties that have disposed of hazardous substances at a site are liable for damages for injury to, destruction of, or loss of natural resources, including the reasonable costs of assessing such injury, destruction or loss.  In this case, the federal natural resource trustees, which include the U.S. Department of the Interior, through the U.S. Fish and Wildlife Service, and the National Oceanic and Atmospheric Administration, as well as the state natural resource trustee, the Massachusetts Executive Office of Energy and Environmental Affairs, determined that the hazardous substances disposed of by the settling defendants or their predecessors had degraded wetland, river and lake habitat used by a variety of wildlife, including  fish, turtles, amphibians and migratory birds, such as great blue herons, black ducks and kingfishers.

In settlement of the trustees' natural resource damages claims, the defendants have agreed to pay $4.25 million.  Of this amount, $3,812,127 will be used by the trustees to implement natural resource restoration projects to compensate for injury caused by the hazardous substances disposed of at the site.  The trustees have not determined which particular projects will be implemented, but examples of potential projects include the creation of new wetlands and the restoration, enhancement or protection of existing wetlands.  The remaining amount of the settlement figure – $437,873 –  will reimburse federal and state trustees for damages assessment costs.

“This is good news for the environment and the resources that depend on wetlands for habitat,” said Acting Assistant Secretary of the Interior for Fish and Wildlife and Parks Rachel Jacobson.  “After many years and much hard work, this agreement will enable the Department of the Interior to work closely with other co-trustees to restore habitat that was contaminated by industrial activities for decades.”

“This settlement will ensure that those responsible for damaging the environment will pay to replace the injured natural resources,” said Massachusetts Attorney General Martha Coakley.  “Massachusetts rivers and wetlands deserve our rigorous protection and our environmental laws provide a remedy for harm to natural resources no matter how long ago the violations occurred.”

“The U.S. Fish and Wildlife Service is proud to be one step closer to restoring the Aberjona River area to a cleaner, healthier environment for wildlife and people,” said Wendi Weber, U.S. Fish and Wildlife Service Northeast Regional Director.  “We look forward to working with local communities to select and implement restoration projects that will be funded by the responsible parties without cost to the taxpayer.”

“We're proud to join with our federal and municipal partners to hold industry accountable for environmental harm.  Protecting our precious environmental resources is important work for our communities, our wildlife and for the benefit of future generations,” said Massachusetts Energy and Environmental Affairs Secretary Rick Sullivan.

“We will ensure that stakeholders active in the Mystic River watershed will be active participants in the process to use these NRD funds to restore the injured natural resources,” said Commissioner Kenneth Kimmell of the Massachusetts Department of Environmental Protection, which will staff the Trustee Council for the Commonwealth.

During the period from the late 1850s to the 1960s, predecessors of Pharmacia Corporation and Bayer CropScience manufactured various products at the site, including sulfuric acid, arsenic insecticides, organic chemicals, munitions, and glue.  Those predecessors include the Merrimac Chemical Company and the Stauffer Chemical Company, among others.  

The settling defendants have entered into prior consent decrees approved by the U.S. District Court of the District of Massachusetts in 1989 and 2008, under which they have agreed to implement remedies selected for the site by the U.S. Environmental Protection Agency.  These prior settlements did not address the trustees' natural resource damages claims.

COMPANY SETTLES WITH JUSTICE OVER SELLING CERTAIN FOREIGN PRODUCTS TO AGENCIES

FROM:  U.S. DEPARTMENT OF JUSTICE
Tuesday, May 8, 2012
Direct Resource Inc. Agrees to Pay $450,000 to Settle Allegations of Selling Foreign Products to Federal AgenciesColumbus, Ohio Firm Allegedly Sold Products from Country That Does Not Have Reciprocal Trade Agreement with U.s.

Direct Resource Inc. has agreed to pay the government $450,000 to resolve allegations that the company falsely claimed payment in violation of the Trade Agreements Act (TAA), which prohibits the sale of products to federal agencies from countries that do not have a reciprocal trade agreement with the United States, the Justice Department announced today.    The Columbus, Ohio, company allegedly knowingly sold products from China, a country that does not have such an agreement with the United States.  

Direct Resource sells a variety of products to U.S. agencies, including office supplies. The General Services Administration (GSA) contracts at issue require that all products sold to the U.S. government be manufactured in one of a list of designated countries deemed to trade fairly with the United States.    
     
“It is central to the mission of the Department of Justice to protect the federal procurement process from improper charges and false claims,” said Stuart F. Delery, Acting Assistant Attorney General for the Department of Justice’s Civil Division. “Contractors who undermine U.S. trade interests will be held accountable for their actions.”

The allegations regarding the company arose from a whistleblower lawsuit filed in a federal court in the District of Columbia under the qui tam, or whistleblower, provisions of the False Claims Act. Those provisions allow private individuals known as “relators” to sue on behalf of the United States and to share in the proceeds of any settlement or judgment if the suit is successful. The relator, Louis Scutellaro, in this case will receive $67,500 of the total recovery as a statutory award.

“American businesses must get a fair shake in the government contracting process,” said Ronald C. Machen Jr., U.S. Attorney for the District of Columbia. “When contractors violate the Trade Agreements Act, we will step in to hold them accountable. This settlement makes clear the depth of our commitment to ensuring that government contractors play by the rules.”  
         
“Passing off unauthorized foreign products to GSA contract users cheats them out of the products they actually contracted for,” declared GSA Inspector General Brian Miller.

The claims settled by this agreement are allegations only, and there has been no determination of liability.    The matter was investigated by GSA’s Office of the Inspector General, the U.S. Attorney’s Office for the District of Columbia and the Justice Department’s Civil Division.

ABBOT LABS SETTLES $1.5 BILLION TO RESOLVE CRIMINAL AND CIVIL OBLIGATIONS IN OFF-LABEL PROMOTIONS CASE

FROM:  U.S. DEPARTMENT OF JUSTICE
Monday, May 7, 2012
Abbott Labs to Pay $1.5 Billion to Resolve Criminal & Civil Investigations of Off-label Promotion of DepakoteCompany Maintained Specialized Sales Force to Market Drug for Off Label Purposes; Targeted Elderly Dementia Patients in Nursing Homes

Global Health Care Company Abbott Laboratories Inc. has pleaded guilty and agreed to pay $1.5 billion to resolve its criminal and civil liability arising from the company’s unlawful promotion of the prescription drug Depakote for uses not approved as safe and effective by the Food and Drug Administration (FDA), the Justice Department announced today.  The resolution – the second largest payment by a drug company – includes a criminal fine and forfeiture totaling $700 million and civil settlements with the federal government and the states totaling $800 million.  Abbott also will be subject to court-supervised probation and reporting obligations for Abbott’s CEO and Board of Directors.

“Today’s settlement shows further evidence of our deep commitment to public health and our determination to hold accountable those who commit fraud,” said James M. Cole, Deputy Attorney General.  “We are resolute in stopping this type of activity and today’s settlement sends a strong message to other companies.”

The FDA is responsible for approving drugs as safe and effective for specified uses. Under the Food, Drug and Cosmetic Act (FDCA), a company in its application to the FDA must specify each intended use of a drug.  A company’s promotional activities must be limited to only the intended uses that FDA approved.   In fact, promotion by the manufacturer for other uses – known as “off-label” uses – renders the product misbranded.

Abbott has pleaded guilty to misbranding Depakote by promoting the drug to control agitation and aggression in elderly dementia patients and to treat schizophrenia when neither of these uses was FDA approved.   In an agreed statement of facts filed in the criminal action, Abbott admits that from 1998 through 2006, the company maintained a specialized sales force trained to market Depakote in nursing homes for the control of agitation and aggression in elderly dementia patients, despite the absence of credible scientific evidence that Depakote was safe and effective for that use.   In addition, from 2001 through 2006, the company marketed Depakote in combination with atypical antipsychotic drugs to treat schizophrenia, even after its clinical trials failed to demonstrate that adding Depakote was any more effective than an atypical antipsychotic alone for that use.
         
Illegal Promotion of Depakote to Control Agitation and Aggression in Dementia Patients
       The FDA approved Depakote for only three uses: epileptic seizures, bipolar mania and the prevention of migraines.  The FDA never approved the drug as safe and effective for the off-label use of controlling behavioral disturbances in dementia patients.  In 1999, Abbott was forced to discontinue a clinical trial of Depakote in the treatment of dementia due to an increased incidence of adverse events, including somnolence, dehydration and anorexia experienced by the elderly study participants administered Depakote.
Abbott trained its sales force to promote Depakote to health care providers and employees of nursing homes as advantageous over antipsychotic drugs for controlling agitation and aggression in elderly dementia patients because Depakote was not subject to certain provisions of the Omnibus Budget Reconciliation Act of 1987 (OBRA) and its implementing regulations designed to prevent the use of unnecessary medications in nursing homes.   Exploiting the fact that certain OBRA provisions did not yet apply to Depakote, Abbott sales representatives stated that by using Depakote, nursing homes could avoid the administrative burdens and costs of complying with OBRA.

Abbott’s off-label promotion of Depakote was multifaceted.   The company entered into contracts that provided long-term care pharmacy providers with payments of rebates based on increases in the use of Depakote in nursing homes serviced by the providers.   In addition to using its sales force to promote the drug to health care providers and employees of nursing homes, Abbott created programs and materials to train the pharmacy providers’ consultant pharmacists about the off-label use of Depakote to encourage them to recommend the drug for this unapproved use.   Under these contracts, Abbott paid millions of dollars in rebates to the pharmacy providers.

 “Not only did Abbott engage in off-label promotion, but it targeted elderly dementia patients and downplayed the risks apparent from its own clinical studies,” said Acting Associate Attorney General Tony West.  “As this criminal and civil resolution demonstrates, those who put profits ahead of patients will pay a hefty price.”

Illegal Off-Label Promotion of Depakote for Schizophrenia
In the agreed statement of facts, Abbott also admitted that from 2001 through 2006, the Company misbranded Depakote by marketing the drug to treat schizophrenia.  Abbott funded two studies of the use of Depakote to treat schizophrenia, and both failed to meet the main goals established for the study.  When the second study failed to show a statistically significant treatment difference between antipsychotic drugs used in combination with Depakote and antipsychotic drugs alone, Abbott waited nearly two years to notify its own sales force about the study results and another two years to publish those results.  During this time, Abbott continued to promote Depakote off-label to treat schizophrenia.

 “ Today’s settlement demonstrates our continued scrutiny of the sales and marketing practices of pharmaceutical companies that put profits ahead of patient health,” said U.S. Food and Drug Administration Commissioner Margaret Hamburg, M.D.  “The FDA will continue its due diligence and hold pharmaceutical companies accountable for marketing practices that undermine the drug approval process.”

Criminal Plea
Today’s global resolution has criminal, civil and administrative components.   First, Abbott has pleaded guilty to a criminal misdemeanor for misbranding Depakote in violation of the FDCA.  Under the plea agreement, Abbott will pay a criminal fine of $500 million, forfeit assets of $198.5 million, and submit to a term of probation for five years.   In addition, Abbott will also pay $1.5 million to the Virginia Medicaid Fraud Control Unit.   As a condition of probation, Abbott will report any probable FDCA violations to the probation office, its CEO will certify compliance with this reporting requirement, and its board will report annually on the effectiveness of the company’s compliance program.   In addition, Abbott agrees that during the term of probation, the company will not compensate sales representatives for off-label sales, will ensure that continuing medical education grant-making decisions are not controlled by sales and marketing, will require that letters communicating medical information to healthcare providers be accurate and unbiased, and will have policies designed to ensure that clinical trials are approved by the company’s medical or scientific organizations and published in a consistent and transparent manner.   Abbott’s guilty plea and sentence are not final until accepted by the U.S. District Court for the Western District of Virginia.

“As the agreed statement of facts filed in court today demonstrates, Abbott promoted Depakote to control behaviors in elderly dementia and schizophrenia patients without significant evidence of its effectiveness for that use, and even after clinical data established that it was not effective,” said Timothy Heaphy, U.S. Attorney for the Western District of Virginia.   “The resolution announced today includes a self-policing mechanism by which Abbott’s board of directors will monitor compliance with the law and report any violations, as well as a period of probation and court supervision.   We credit Abbott’s acceptance of responsibility and encourage other pharmaceutical companies to impose the similar mechanisms to prevent off-label marketing, which damages health care consumers.”

Civil Settlement 
Under the civil settlement, Abbott has agreed to pay $800 million to the federal government ($560,851,357) and the states ($239,148,643) that opt to participate in the agreement to resolve claims that its unlawful marketing and illegal remuneration practices caused false claims to be submitted to government health care programs such as Medicare, Medicaid, TRICARE and to the Federal Employees Health Benefit Program, the Department of Veterans’ Affairs and the Department of Labor’s Office of Workers’ Compensation Programs.

The civil settlement addresses broader allegations by the United States that from 1998 through 2008, Abbott unlawfully promoted Depakote for unapproved uses, including behavioral disturbances in dementia patients, psychiatric conditions in children and adolescents, schizophrenia, depression, anxiety, conduct disorders, obsessive-compulsive disorder, post-traumatic stress disorder, alcohol and drug withdrawal, attention deficit disorder and autism.   .  Some of these unapproved uses were not medically accepted indications for which the United States and state Medicaid programs provided coverage for Depakote.  The United States contends that this promotion included, in part, making false and misleading statements about the safety, efficacy, dosing and cost-effectiveness of Depakote for some of these unapproved uses, and claiming use of Depakote to control behavioral disturbances in dementia patients would help nursing homes avoid the administrative burdens and costs of complying with OBRA regulatory restrictions applicable to antipsychotics.

The civil settlement also covers allegations that Abbott offered and paid illegal remuneration to health care professionals and long term care pharmacy providers to induce them to promote and/or prescribe Depakote and to improperly and unduly influence the content of company sponsored Continuing Medical Education programs, in violation of the Federal Anti-Kickback Statute.   The claims settled by the civil agreement are allegations only and there has been no determination of liability, except to the extent that Abbott has admitted facts in the civil settlement agreement or in the criminal plea and agreed statement of facts filed in the criminal action.

The civil settlement resolves four lawsuits pending in federal court in the Western District of Virginia under the qui tam, or whistleblower, provisions of the False Claims Act, which allow private citizens to bring civil actions on behalf of the United States and share in any recovery. As part of today’s resolution, the whistleblowers will receive $84 million from the federal share of the settlement amount.

Corporate Integrity Agreement

In addition to the criminal and civil resolutions, Abbott has also executed a Corporate Integrity Agreement (CIA) with the Department of Health and Human Services, Office of Inspector General (HHS-OIG).   The five-year CIA requires, among other things, that Abbott's board of directors review the effectiveness of the company's compliance program, that high-level executives certify to compliance, that Abbott maintain standardized risk assessment and mitigation processes, and that the company post on its website information about payments to doctors.   Abbott is subject to exclusion from federal health care programs, including Medicare and Medicaid, for a material breach of the CIA and subject to monetary penalties for less significant breaches.

 “As a result of OIG’s joint investigation with our federal and state partners, Abbott Laboratories will enter one of the pharmaceutical industry’s largest settlements and pay $1.5 billion for unlawfully promoting its drug Depakote, including to nursing home patients with dementia,” said HHS Inspector General Daniel R. Levinson.  “Our integrity agreement will hold Abbott accountable for preventing future violations of federal health care laws and FDA requirements, which will protect federal programs, taxpayers and our most vulnerable patients.”

A Multilateral Effort 
The criminal case is being prosecuted by the U.S. Attorney’s Office for the Western District of Virginia and the Civil Division’s Consumer Protection Branch.   The civil settlement was reached by the U.S. Attorney’s Office for the Western District of Virginia and the Civil Division’s Commercial Litigation Branch.   Assistance w as provided by representatives of the HHS Office of Counsel to the Inspector General; the Center for Medicare and Medicaid Services (CMS) and Office of the General Counsel, CMS Division; FDA’s Office of Chief Counsel; and the National Association of Medicaid Fraud Control Units.

 “Crimes involving the misbranding of drugs for financial gain will not be tolerated,” stated Richard Weber, Chief IRS Criminal Investigation.  “The special agents of IRS Criminal Investigation will use all their investigative tools, including the use of asset forfeiture statutes, to combat financial crimes and hold corporations accountable for their actions.”

This matter was investigated by the Virginia Attorney General’s Medicaid Fraud Control Unit; the Internal Revenue Service - Criminal Investigation; the FDA - Office of Criminal Investigation; the Defense Criminal Investigative Service; the Health and Human Services - Office of Inspector General; the West Virginia State Police; the Office of Personnel Management - Office of Inspector General; the Department of Veterans’ Affairs Office of Inspector General; the Department of Labor - Office of Inspector General; and TRICARE Program Integrity.

This resolution is part of the government's emphasis on combating health care fraud and another step for the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which was announced in May 2009 by Attorney General Eric Holder and Kathleen Sebelius, Secretary of HHS.  The partnership between the two departments has focused efforts to reduce and prevent Medicare and Medicaid financial fraud through enhanced cooperation.  One of the most powerful tools in that effort is the False Claims Act, which the Justice Department has used to recover more than $7.4 billion since January 2009 in cases involving fraud against federal health care programs.  With the settlement announced today, the Justice Department's total recoveries in False Claims Act cases since January 2009 will exceed $10.2 billion.   During this same time, the department has secured $3.9 billion in criminal fines, forfeiture, disgorgement, and restitution relating to violations of the FDCA.

MAN AND COMPANY CHARGED WITH COMMODITY POOL FRAUD

FROM:  CFTC

CFTC Charges Illinois Resident Dimitry Vishnevetsky and His Company, Oxford Capital, LLC, with Commodity Pool Fraud

Federal court enters emergency order freezing defendants’ assets and protecting books and records

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that on May 1, 2012, the Honorable Ruben Castillo, of the U.S. District Court for the Northern District of Illinois, entered an order freezing the assets of defendants Dimitry Vishnevetsky of Chicago, Ill., and his company, Oxford Capital, LLC (OCL), a defunct Wisconsin limited liability company. The court’s order also prohibits the destruction of books and records.

The court’s order stems from a CFTC civil complaint also filed on May 1, 2012, charging Vishnevetsky and OCL with fraud in connection with the operation of two commodity pools and an additional commodity trading scheme. According to the complaint, from at least the fall of 2006 through the present, the defendants fraudulently solicited and accepted at least $1.74 million from pool participants and commodity customers.

The defendants allegedly defrauded pool participants by representing that their commodity pools had profitable performance records, based on audited results when, in fact, the defendants never conducted any trading for the pools. Vishnevetsky, individually and doing business as Hodges Trading LLC and Hodges Court Trading, also defrauded other pool participants by misrepresenting that Hodges issued Libor Notes and invested in commodity futures contracts to enhance the value of the purported Libor Notes, according to the complaint.

The complaint further alleges that the defendants misappropriated a portion of the pool participants’ monies and issued false account statements to them. The defendants defrauded customers by failing to open and fund commodity trading accounts for them, failing to place commodity trades for them, issuing fictitious account statements to them and misappropriating their monies, the complaint further alleges.

In its continuing litigation, the CFTC seeks civil monetary penalties, restitution, disgorgement of ill-gotten gains, permanent registration and trading bans, and preliminary and permanent injunctions against further violations of the federal commodities laws, as charged.

The CFTC appreciates the assistance of the Federal Bureau of Investigation and the U.S. Attorney’s Office for the Northern District of Illinois, which filed a criminal indictment against Vishnevetsky on May 1, 2012.

CFTC Division of Enforcement staff members responsible for this case are Diane M. Romaniuk, Heather Johnson, Ava M. Gould, Scott R. Williamson, Rosemary Hollinger, and Richard B. Wagner.