Final Rules Relating to Cross-Border Security-Based Swap Activities

Final Rules Relating to Cross-Border Security-Based Swap Activities

SEC ANNOUNCES VERDICT AGAINST STOCK PUMP-AND-DUMPSTER

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Securities and Exchange Commission v. BIH Corporation, et al., Civil Action No. 2:10-CV-577-FTM-29DNF (M.D. FL)

Jury Finds Orchestrator of Microcap Stock Pump-And-Dump Scheme Liable in SEC Enforcement Case

A federal court jury in Fort Myers, Fla., returned a unanimous verdict on August 8 finding Edward W. Hayter of Brooklyn, N.Y., liable for five counts of violating the federal securities laws in connection with a scheme to pump up the stock of a microcap corporation purportedly headquartered in Fort Myers in which Hayter profited by approximately $500,000. Hayter was the lone remaining defendant in the SEC's enforcement case filed in 2010.

Evidence at the trial showed that among other things, press releases that Hayter and BIH issued in 2008 and 2009 falsely claimed BIH was purchasing a restaurant services corporation that purportedly had contracts with such major corporations as Citi Field and Applebee's Restaurants. Other evidence showed that in order to hide his involvement in the scheme, Hayter and others created a fictitious businessman named Cris Galo who was allegedly an accomplished entrepreneur running BIH. Evidence showed all of BIH's contact information traced back to Hayter and an associate in New York, with the Fort Myers office being only a mail drop. Trading records showed the false press releases contributed to BIH's stock rising more than 2,700 percent in a matter of months, allowing colleagues of Hayter to sell stock and funnel approximately $500,000 in proceeds to his own corporations.

The SEC filed its complaint against Hayter, BIH, Wayne A. Burmaster Jr. on Sept. 20, 2010, alleging that they had engaged in fraud and illegal sales of securities. The SEC also alleged securities registration violations by Christopher L. Astrom and his company Bimini Reef Real Estate Inc., Damian B. Guthrie and his company Riverview Capital Inc., and Burmaster's company North Bay South Corporation. The SEC named Baron International Inc., Beaver Creek Financial Corporation, and The Caddo Corporation as relief defendants.

According to the SEC's complaint, Burmaster and Hayter released false information about BIH's operations and business relationships, the company's stock and dividend payments, and the identity of the individuals directing BIH's affairs. The SEC alleged that as part of the scheme, Burmaster and Hayter illegally distributed BIH's stock to North Bay, Bimini Reef, and Riverview, and those entities then dumped more than $1 million of BIH's stock and divided illegally obtained sales proceeds among the defendants and relief defendants.

On Oct. 25, 2010, the Honorable John E. Steele, United States District Court Judge for the Middle District of Florida, entered judgments of permanent injunction and other relief against Astrom and Bimini Reef Real Estate as well as Guthrie and Riverview Capital, enjoining them from violating Sections 5(a) and 5(c) of the Securities Act of 1933. In addition to injunctive relief, the judgments order them to pay disgorgement, prejudgment interest, and penalties in amounts to be determined at a later date. Astrom and Guthrie are barred from participating in the offering of any penny stock. They consented to the entry of the judgments without admitting or denying the allegations in the complaint.

On Sept. 26, 2012, the court entered a default judgment against BIH and North Bay South Corporation and relief defendants The Caddo Corporation and Beaver Creek Financial, ordering disgorgement with a penalty against BIH and North Bay South Corporation to be determined at a later date. On Dec. 17, 2012, the court entered a default judgment against Baron International.

On July 14, 2014, the court entered a default judgment of permanent injunction and other relief against Burmaster, enjoining him from violating Sections 5(a), 5(c) and 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act and Rule 10b-5. In addition to injunctive relief, the judgment orders Burmaster to pay, jointly and severally, disgorgement and prejudgment interest of $1,349,158 and a penalty in an amount to be determined at a later date. Burmaster is barred from participating in the offering of any penny stock.

The SEC's investigation was conducted by Julie Russo and Timothy Galdencio, with the assistance of paralegal Raynalda Milord, under the supervision of Gary Miller and Eric Busto. The SEC's litigation was conducted by Christopher Martin and Patrick Costello, with the assistance of paralegal Lilia Gonzalez, under the supervision of Robert Levenson.

Labor Department News Releases Update

Labor Department News Releases Update

NLRB News: Southern Bakeries, LLC ordered to recognize Union, bargain in good faith

NLRB News: Southern Bakeries, LLC ordered to recognize Union, bargain in good faith

SEC CHARGES BAHAMAS-BASED BROKERAGE WITH FRAUD

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission charged a Bahamas-based brokerage firm and its president for enabling a fraud that was halted when the SEC charged the hedge fund manager at the center of the scheme.

The SEC alleges that Julian R. Brown and his firm Alliance Investment Management Limited (AIM) purported to be the “custodian” for assets under the management of Nikolai Battoo.  The SEC obtained a court-ordered freeze over Battoo’s assets after charging him in 2012 with defrauding investors around the world by hiding major losses while falsely boasting that their investments were performing remarkably during the financial crisis. 

According to the SEC’s complaint filed today against Brown and AIM in federal court in Chicago, they misrepresented themselves to investors as Battoo’s custodian when, since at least 2009, their firm did not have custody of most of the assets listed on investor account statements.  Brown and AIM allowed Battoo to create false account statements on AIM letterhead that vastly overstated the value of investors’ assets by more than $150 million.  Brown and AIM then routinely provided the false account statements to auditors and others acting on behalf of Battoo’s investors. 

The SEC further alleges that Brown and AIM permitted Battoo to misappropriate at least $45 million of investor funds by transferring money at Battoo’s behest from investor accounts to Battoo’s direct control.  Battoo used investor funds to pay AIM and Brown more than $5 million in return for their critical assistance.

“We allege that Brown and his firm enabled Battoo’s scheme by providing investors with false assurances about who was holding their money and how much money they had in their accounts,” said Timothy Warren, associate director of the SEC’s Chicago Regional Office.

The SEC’s complaint alleges that Brown and AIM violated Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and aided and abetted Battoo’s violations of the antifraud provisions of the federal securities laws. 

The SEC’s investigation, which is continuing, has been conducted by John D. Mitchell in the Chicago office, and assisted by Carlos CostaRodrigues, Marianne Olson, and Alberto Arevalo in the agency’s Office of International Affairs.  The litigation will be led by Daniel J. Hayes.  The SEC appreciates the assistance of the Securities Commission of the Bahamas, British Virgin Islands Financial Services Commission, and Guernsey Financial Services Commission.

NATION'S LARGES ACUTE CARE HOSPITAL OPERATOR TO PAY $98.15 MILLION TO SETTLE FALSE CLAIM ACT ALLEGATIONS

FROM:  U.S. JUSTICE DEPARTMENT 

Monday, August 4, 2014

Community Health Systems Inc. to Pay $98.15 Million to Resolve False Claims Act Allegations

The Justice Department announced today that Community Health Systems Inc. (CHS), the nation’s largest operator of acute care hospitals, has agreed to pay $98.15 million to resolve multiple lawsuits alleging that the company knowingly billed government health care programs for inpatient services that should have been billed as outpatient or observation services.  The settlement also resolves allegations that one of the company’s affiliated hospitals, Laredo Medical Center (LMC), improperly billed the Medicare program for certain inpatient procedures and for services rendered to patients referred in violation of the Physician Self-Referral Law, commonly known as the Stark Law.  CHS is based in Franklin, Tennessee, and has 206 affiliated hospitals in 29 states.

“Charging the government for higher cost inpatient services that patients do not need wastes the country’s health care resources,” said Assistant Attorney General Stuart F. Delery for the Justice Department’s Civil Division.  “In addition, providing physicians with financial incentives to refer patients compromises medical judgment and risks depriving patients of the most appropriate health care available.  This department will continue its work to stop this type of abuse of the nation’s health care resources and to ensure patients receive the most appropriate care.”

The United States alleged that from 2005 through 2010, CHS engaged in a deliberate corporate-driven scheme to increase inpatient admissions of Medicare, Medicaid and the Department of Defense’s (DOD) TRICARE program beneficiaries over the age of 65 who originally presented to the emergency departments at 119 CHS hospitals.  The government further alleged that the inpatient admission of these beneficiaries was not medically necessary, and that the care needed by, and provided to, these beneficiaries should have been provided in a less costly outpatient or observation setting.  CHS agreed to pay $89.15 million to resolve these allegations.  The settlement does not include hospitals that CHS acquired from Health Management Associates (HMA) in January 2014.

In addition, the government alleged that from 2005 through 2010, one of CHS’s affiliated hospitals, LMC in Laredo, Texas, presented false claims to the Medicare program for certain cardiac and hemodialysis procedures performed on a higher cost inpatient basis that should have been performed on a lower cost outpatient basis.  The government also alleged that from 2007 through 2012, LMC improperly billed Medicare for services referred to LMC by a physician who was offered a medical directorship at LMC, in violation of the Stark Law.  The Stark Law prohibits a hospital from submitting claims for patient referrals made by a physician with whom the hospital has an improper financial relationship, and is intended to ensure that a physician’s medical judgment is not compromised by improper financial incentives, and is instead based on the best interests of the patient.  CHS agreed to pay $9 million to resolve the allegations involving LMC.

“This is the largest False Claims Act settlement in this district and it reaffirms this office’s commitment to investigate and pursue health care fraud that compromises the integrity of our health care system,” said U.S. Attorney David Rivera for the Middle District of Tennessee.  “This office is committed to ensuring that all companies billing government healthcare programs are responsible corporate citizens and that hospital providers do not engage in schemes to increase medically unnecessary in-patient admissions of government healthcare program beneficiaries in order to increase profits.”

“This settlement demonstrates our commitment to working with our law enforcement partners and with the Department of Justice to protect the integrity of our nation’s health care system,” said U.S. Attorney Kenneth Magidson of the Southern District of Texas.  “Put simply, these types of fraudulent practices will not be tolerated and the investigation and resolution of such claims will continue to be a high priority of this office.”

“Health care providers should make treatment decisions based on patients’ medical needs, not profit margins,” said U.S. Attorney Anne M. Tompkins for the Western District of North Carolina.  “We will not allow this type of misconduct to compromise the integrity of our health care system.”

As part of today’s agreement, CHS entered into a Corporate Integrity Agreement with the U.S. Department of Health and Human Services - Office of Inspector General (HHS-OIG), requiring the company to engage in significant compliance efforts over the next five years.  Under the agreement, CHS is required to retain independent review organizations to review the accuracy of the company’s claims for inpatient services furnished to federal health care program beneficiaries.

“In an effort to ensure the company’s fraudulent past is not its future, CHS agreed to a rigorous multi-year Corporate Integrity Agreement requiring that the company commit to compliance with the law,” said Inspector General Daniel R. Levinson, of the U.S. Department of Health and Human Services.  “The dedicated work of OIG’s investigators, auditors, and attorneys, in concert with our law enforcement partners, has again resulted in the recovery of taxpayer dollars and better protection against fraud in the future.”

The settlement resolves lawsuits filed by several whistleblowers under the qui tam provisions of the False Claims Act, which permit private parties to file suit on behalf of the government and obtain a portion of the government’s recovery.  Those relators are Kathleen Bryant, former Director of Health Information Management at CHS’s Heritage Medical Center in Shelbyville, Tennessee; Rachel Bryant, former nurse at CHS’s Dyersburg Hospital in Dyersburg, Tennessee; Bryan Carnithan, former Emergency Medical Services Coordinator at CHS’ Heartland Hospital in Marion, Illinois; Amy Cook-Reska, former coder for CHS’ LMC in Laredo; Sheree Cook, former nurse at CHS’s Heritage Medical Center in Shelbyville; James Doghramji, former internal medicine and emergency room physician at CHS’s Chestnut Hill Hospital in Philadelphia; Thomas Mason, former emergency room physician at Lake Norman Regional Medical Center in Mooresville, North Carolina; Scott Plantz, former emergency room physician at CHS’s Longview Regional Medical Center in Longview, Texas; and Nancy Reuille, former nurse and Supervisor of Case Management at CHS’s Lutheran Hospital in Fort Wayne, Indiana.  The relators’ share of the settlement has not yet been determined.

This settlement illustrates the government’s emphasis on combating health care fraud and marks another achievement for the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which was announced in May 2009 by Attorney General Eric Holder and the Secretary of Health and Human Services.  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 this effort is the False Claims Act.  Since January 2009, the Justice Department has recovered a total of more than $20.2 billion through False Claims Act cases, with more than $14 billion of that amount recovered in cases involving fraud against federal health care programs.
         
This settlement was the result of a coordinated effort by the U.S. Attorney’s Offices for the Middle District of Tennessee, Southern District of Texas, Northern and Southern Districts of Illinois, Northern District of Indiana and Western District of North Carolina; the Civil Division’s Commercial Litigation Branch; HHS-OIG; DOD’s Defense Health Agency - Program Integrity Office and the FBI.

The lawsuits are captioned United States ex rel. Bryant v. Community Health Systems, Inc., et al., Case No. 10-2695 (S.D. Tex.);  United States ex rel. Carnithan v. Community Health Systems, Inc., et al., Case No. 11-cv-312 (S.D. Ill.);  United States ex rel. Cook-Reska v. Community Health Systems, Inc., et al., Case No. 4:09-cv01565 (S.D. Tex.);  United States ex rel. James Doghramji; Sheree Cook; and Rachel Bryant v. Community Health Systems Inc., et al., Case No. 3-11-cv-00442 (M.D. Tenn.);  United States ex rel. Mason v. Community Health Systems, Inc., et al., Case No. 3:12-cv-817 (W.D.N.C.);  United States ex rel. Plantz v. Community Health Systems, Inc., et al., Case No. 10C-0959 (N.D. Ill.);  United States ex rel. Reuille v. Community Health Systems Professional Services Corporation, et al., Case No. 1:09-cv-007RL (N.D. Ind.).  The claims resolved by this agreement are allegations only and there has been no determination of liability.

TWO DEBT COLLECTORS SETTLE FTC COMPLAINT AND WILL PAY $2 MILLION IN CIVIL PENALTIES

FROM:  FEDERAL TRADE COMMISSION 

Debt Collectors in Memphis and New York State Settle with FTC Concerning Multiple Federal Law Violations

Two Operations to Pay Total of Two Million Dollars in Civil Penalties

A Memphis-based debt collector has agreed to stop deceiving and harassing consumers and otherwise violating federal debt collection laws, and will pay a $1.5 million civil penalty to settle Federal Trade Commission charges, while a debt collection operation headquartered outside New York City will pay $490,000 as a penalty to settle a separate FTC complaint.

“The FTC is committed to protecting consumers from all types of deceptive and harassing debt collection tactics,” said Jessica Rich, Director of the Commission’s Bureau of Consumer Protection.

Regional Adjustment Bureau

In its complaint against Regional Adjustment Bureau, the FTC charges that the Memphis-based company used unfair and deceptive collection tactics, such as repeatedly calling consumers and accusing them of owing debts that they did not owe, contacting consumers at work while knowing that their employers did not allow the calls, making unauthorized withdrawals from consumers’ bank accounts, and disclosing confidential information about debtors to third parties. The company collects on about a million consumer accounts a year and is charged with violating the FTC Act and the Fair Debt Collection Practices Act (FDCPA).

Under the proposed order settling the FTC’s charges Regional Adjustment Bureau is permanently prohibited from engaging in false, deceptive, unfair, and harassing debt collection practices. The order requires the company to address specific problematic conduct alleged in the Commission’s complaint -- whenever a consumer disputes the validity or the amount of a debt, Regional Adjustment Bureau must either close the account and end its collection efforts, or suspend collection, until it has conducted a reasonable investigation and verified that the information about the debt is accurate and complete. The order also restricts situations in which the company can leave voicemails that disclose the alleged debtor’s name and the fact that he or she may owe a debt.

The Commission is grateful for the critical assistance provided by the Tennessee State Attorney General’s Office during the course of its investigation of this matter.

Credit Smart, LLC

In the second case announced today, the complaint, which names Suffolk County-based Credit Smart, LLC and several associated companies and individuals, charges that Credit Smart used unfair and deceptive tactics, such as leaving pre-recorded messages for consumers that pretended to offer financial relief. The messages provided a number to call, and promised to provide information about a “Tax Season Relief Program,” a “stimulus relief package,” or a “balance transfer program.” In reality, there was no financial relief plan, and the messages were merely a ruse to get consumers on the line with debt collectors, according to the FTC.
The complaint also alleges that when collectors spoke to consumers, they would falsely threaten to sue them, which they had no plans to do; garnish their wages, which they could not do without a court order; or arrest them, which they had no legal right to do. The defendants also allegedly threatened to collect on old debts that were beyond the statute of limitations, refused to provide information about the debt that consumers were legally entitled to request, continued to attempt to collect on debts without a reasonable basis for telling consumers they owed the debt, told consumers they owed interest on debts when they didn’t, and revealed the debt to consumers’ relatives, employers, and coworkers. The FTC charges that Credit Smart’s tactics violated the FTC Act and the FDCPA.
Under the proposed order settling the FTC’s charges, the defendants must halt their illegal debt collection tactics, including making false threats to sue and arrest consumers and garnish their wages, pretending to be financial counselors, falsely insisting that consumers owed large amounts of interest, and otherwise violating the federal debt collection law. They also must provide consumers with a disclosure that explains their rights regarding the collection of time-barred debt, and another explaining how to file a complaint with the FTC if they feel they are being treated unfairly. The order also imposes a $1.2 million civil penalty. Due to the defendants’ inability to pay, however, all but $490,000 of the penalty is suspended.
For consumer information about dealing with debt collectors, see Debt Collection.

The Commission vote authorizing the staff to refer the Regional Adjustment Bureau complaint to the Department of Justice and to approve the proposed consent order was 4-0-1, with Commissioner Terrell McSweeny not participating. The DOJ filed the complaint and proposed consent decree on behalf of the Commission in the U.S. District Court for the Western District of Tennessee, Western Division, and it was entered on July 14, 2014.

The Commission vote authorizing the staff to refer the Credit Smart, LLC complaint to the DOJ and to approve the proposed consent order was 5-0. The Consumer Protection Branch of the Justice Department’s Civil Division, together with the U.S. Attorney’s Office for the Eastern District of New York, brought this case on behalf of the United States on August 5, 2014. The proposed order is subject to court approval.

NOTE: The Commission authorizes the filing of a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. Settlement orders have the force of law when signed by the District Court judge.