THREE PLEAD GUILTY IN ONGOING ELECTROLYTIC CAPACITOR PRICE FIXING INVESTIGATION

FROM:  U.S. JUSTICE DEPARTMENT 

Monday, August 22, 2016

Three Companies Agree to Plead Guilty for Fixing Prices of Electrolytic Capacitors

Rubycon, Elna and Holy Stone Are Latest Companies to Plead Guilty in Ongoing Investigation

Rubycon Corporation, Elna Co., Ltd. and Holy Stone Holdings Co., Ltd. will plead guilty for their roles in a conspiracy to fix prices for electrolytic capacitors sold to customers in the United States and elsewhere, the Department of Justice announced today.

“The Antitrust Division has now charged five companies and one individual for their participation in this international price-fixing conspiracy,” said Deputy Assistant Attorney General Brent Snyder of the Justice Department’s Antitrust Division.  “The electrolytic capacitors conspiracy affected millions of American consumers who use electronic devices containing capacitors every day.”

Electrolytic capacitors store and regulate electrical current in a variety of electronic products, including computers, televisions, car engine and airbag systems, home appliances and office equipment.

The division filed one-count felony charges against each of the three companies in U.S. District Court in San Francisco today.  In addition to pleading guilty to the charges against them, each company has agreed to pay a criminal fine and cooperate with the division’s ongoing investigation.  The plea agreements are subject to court approval.

Previously, NEC TOKIN Corp. and Hitachi Chemical Co. Ltd. pleaded guilty to participating in the same worldwide conspiracy.  NEC TOKIN was sentenced to pay a fine of $13.8 million in January 2016, and Hitachi Chemical was sentenced to pay a fine of $3.8 million in June 2016.  On March 12, 2015, a grand jury indicted Takuro Isawa, a former Global Sales General Manager for one of the capacitor manufacturers, for his alleged participation in the conspiracy.

The charges today results from an ongoing federal antitrust investigation being conducted by the Antitrust Division’s San Francisco Office and the FBI’s San Francisco Field Office into price fixing, bid rigging and other anticompetitive conduct in the capacitor industry.

DOJ ANNOUNCES HARLEY-DAVIDSON TO STOP SALES OF ILLEGAL DEVICES TO INCREASE AIR POLLUTION

FROM:  U.S. JUSTICE DEPARTMENT

 Department of Justice

Office of Public Affairs

FOR IMMEDIATE RELEASE

Thursday, August 18, 2016

Harley-Davidson to Stop Sales of Illegal Devices That Increased Air Pollution from the Company’s Motorcycles

The Department of Justice and the U.S. Environmental Protection Agency (EPA) today announced a settlement with Harley-Davidson Inc., Harley-Davidson Motor Company Group LLC, Harley-Davidson Motorcycle Company Inc. and Harley-Davidson Motor Company Operations Inc. (collectively Harley-Davidson), that requires the companies to stop selling and to buy back and destroy illegal devices that increase air pollution from their motorcycles and to sell only models of these devices that are certified to meet Clean Air Act emissions standards.  Harley-Davidson will also pay a $12 million civil penalty and spend $3 million to mitigate air pollution through a project to replace conventional woodstoves with cleaner-burning stoves in local communities.

The government’s complaint, filed today along with the settlement, alleges that Harley-Davidson manufactured and sold approximately 340,000 illegal devices, known as “super tuners,” that, once installed, caused motorcycles to emit higher amounts of certain air pollutants than what the company certified to EPA.  Aftermarket defeat devices like these super tuners alter a motor vehicle’s emissions controls and are prohibited under the Clean Air Act for use on vehicles that have been certified to meet EPA emissions standards.  Harley-Davidson also made and sold more than 12,000 motorcycles that were not covered by an EPA certification that ensures a vehicle meets federal clean air standards.

“Given Harley-Davidson’s prominence in the industry, this is a very significant step toward our goal of stopping the sale of illegal aftermarket defeat devices that cause harmful pollution on our roads and in our communities,” said Assistant Attorney General John C. Cruden, head of the Justice Department’s Environment and Natural Resources Division.  “Anyone else who manufactures, sells, or installs these types of illegal products should take heed of Harley-Davidson’s corrective actions and immediately stop violating the law.”

“This settlement immediately stops the sale of illegal aftermarket defeat devices used on public roads that threaten the air we breathe,” said Assistant Administrator Cynthia Giles of EPA’s Office of Enforcement and Compliance Assurance.  “Harley-Davidson is taking important steps to buy back the ‘super tuners’ from their dealers and destroy them, while funding projects to mitigate the pollution they caused.”

Since January 2008, Harley-Davidson has manufactured and sold two types of tuners, which when hooked up to Harley-Davidson motorcycles, allow users to modify certain aspects of a motorcycles’ emissions control system.  These modified settings increase power and performance, but also increase the motorcycles’ emissions of hydrocarbons and nitrogen oxides (NOx).  These tuners have been sold at Harley-Davidson dealerships across the country.

The Clean Air Act requires motor vehicle manufacturers to certify to EPA that their vehicles will meet applicable federal emissions standards to control air pollution and every motor vehicle sold in the U.S. must be covered by an EPA-issued certificate of conformity.  The Clean Air Act prohibits manufacturers from making and selling devices that bypass, defeat, or render inoperative a motor vehicle’s EPA-certified emissions control system.  The act also prohibits any person from removing or rendering inoperative a motor vehicle’s certified emissions control system and from causing such tampering.  The complaint alleges violations of both these provisions.

Under the settlement, Harley-Davidson will stop selling the illegal aftermarket defeat devices in the United States by August 23.  Harley-Davidson will also offer to buy back all such tuners in stock at Harley-Davidson dealerships across the country and destroy them.  The settlement requires the company to obtain a certification from the California Air Resources Board (CARB) for any tuners it sells in the United States in the future.  The CARB certification will demonstrate that the CARB-certified tuners do not cause Harley-Davidson’s motorcycles to exceed the EPA-certified emissions limits.  Harley-Davidson will also conduct tests on motorcycles that have been tuned with the CARB-certified tuners and provide the results to EPA to ensure that its motorcycles remain in compliance with EPA emissions requirements.  In addition, for any super tuners that Harley-Davidson sells outside the United States in the future, it must label them as not for use in the United States.

The complaint also alleges that Harley-Davidson made and sold more than 12,000 motorcycles from model years 2006, 2007 and 2008 that were not covered by an EPA certificate of conformity.  A certificate of conformity covers only the motorcycle models that were included in the certification application and that are listed on the certificate.  These 12,000 motorcycles were models that were not included in Harley-Davidson’s applications and that were not listed as covered by the relevant certificate.  Under the consent decree, Harley-Davidson will ensure that all of its future motorcycle models intended for sale in the United States are fully certified by EPA.

Hydrocarbon and NOx emissions contribute to harmful ground-level ozone and NOx also contributes to fine particulate matter pollution. Exposure to these pollutants has been linked with a range of serious health effects, including increased asthma attacks and other respiratory illnesses.  Exposure to ozone and particulate matter has also been associated with premature death due to respiratory-related or cardiovascular-related effects.  Children, the elderly and people with pre-existing respiratory disease are particularly at risk of health effects from exposure to these pollutants.  The woodstove project, which Harley-Davidson will undertake in conjunction with an independent third party, will eliminate excess air pollution caused by using the illegal tuners by providing cleaner-burning stoves to designated local communities, thereby assuring better air quality in the future.

EPA discovered the violations through a routine inspection and information Harley-Davidson submitted after subsequent agency information requests.

The settlement, a proposed consent decree lodged in the U.S. District Court for the District of Columbia, is subject to a 30-day public comment period before it can be entered by the court as final judgment.

DOJ ANNOUNCES CEMENT MAKER TO REDUCE AIR POLLUTION UNDER SETTLEMENT

FROM:  U.S. JUSTICE DEPARTMENT 

AIR POLLUTION, EPA, 

Wednesday, July 27, 2016

Cement Manufacturer Cemex to Reduce Harmful Air Pollution from Five Plants under Settlement with EPA and Justice Department

The Department of Justice and the U.S. Environmental Protection Agency (EPA) today announced a settlement with Cemex Inc., under which the company will invest approximately $10 million to cut emissions of harmful air pollution at five of its cement manufacturing plants in Alabama, Kentucky, Tennessee and Texas to resolve alleged violations of the Clean Air Act.  Under the consent decree lodged in the U.S. District Court for the Eastern District of Tennessee, Cemex will also pay a $1.69 million civil penalty, conduct energy audits at the five plants, and spend $150,000 on energy efficiency projects to mitigate the effects of past excess emissions of nitrogen oxides (NOx)from its facilities.

“The cement sector is a significant source of air pollution posing real health risks to the communities where they reside, including vulnerable communities across the U.S. who deserve better air quality than they have gotten over the years,” said Assistant Attorney General John C. Cruden for the Justice Department’s Environment and Natural Resources Division. “This agreement will require Cemex to pay a penalty and install important pollution controls to achieve reductions in harmful air emissions, thereby making  Cemex a better neighbor to local residents.”

“This settlement requires Cemex to use state of the art technology to reduce harmful air pollution, improving public health in vulnerable communities across the South and Southeast,” said Assistant Administrator Cynthia Giles for EPA’s Office of Enforcement and Compliance Assurance.  “EPA is committed to tackling clean air violations at the largest sources, cutting the pollutants that cause respiratory illnesses like asthma.”

The five Cemex facilities produce Portland cement, a key ingredient in concrete, mortar, and stucco are located in Demopolis, Alabama, Louisville, Kentucky, Knoxville, Tennessee, and New Braunfels and Odessa, Texas.  The Knox County, Tennessee, and Louisville air pollution control authorities participated in this settlement.

Cemex is required to install pollution control technology that will reduce emissions of  NOx and establish strict limits for sulfur dioxide (SO2) emissions, which will improve air quality in local communities.  Cemex will install and continuously operate a selective non-catalytic reduction system for controlling NOx at the five plants and meet emission limits that are consistent with the current best available control technology for NOx.  EPA estimates this will result in NOx emissions reductions of over 4,000 tons per year.  Each facility will also be subject to strict SO2 emission limits.

NOx and SO2, two key pollutants emitted from cement plants, have numerous adverse effects on human health and are significant contributors to acid rain, smog and haze.  The pollutants are converted in the air into fine particles of particulate matter that can cause severe respiratory and cardiovascular impacts and premature death.  Reducing these harmful air pollutants will benefit the communities located near the Cemex plants, particularly communities disproportionately impacted by environmental risks and vulnerable populations, including children.

This settlement is part of EPA’s National Enforcement Initiative to control harmful emissions from large sources of pollution, which includes cement manufacturing plants, under the Clean Air Act’s Prevention of Significant Deterioration requirements.  The total combined SO2 and NOx emission reductions secured from cement plant settlements under this initiative will exceed 75,000 tons each year once all the required pollution controls have been installed and implemented.

US Labor Department sues Enterprise Rent-A-Car of Baltimore for racial discrimination against applicants for management trainee - United States Department of Labor

US Labor Department sues Enterprise Rent-A-Car of Baltimore for racial discrimination against applicants for management trainee - United States Department of Labor: BALTIMORE – Enterprise RAC Company of Baltimore, LLC, a subsidiary of one of the world’s largest vehicle rental companies and a federal contractor, is discriminating against African-American applicants pursuing entry-level management trainee positions, the U.S. Department of Labor alleges in a lawsuit filed recently.

Subsidiary of Ashland Inc., leading chemical company, settles charges of hiring discrimination with US Labor Department - United States Department of Labor

Subsidiary of Ashland Inc., leading chemical company, settles charges of hiring discrimination with US Labor Department - United States Department of Labor: RICHMOND, Va. – A subsidiary of one of the world’s leading specialty chemical companies has entered into a conciliation agreement with the U.S. Department of Labor’s Office of Federal Contract Compliance Programs to resolve allegations of race-based hiring discrimination.

NATIONAL CONSULTING COMPANY TO PAY $11 MILLION RESOLVING FALSE CLAIMS ALLEGATIONS

FROM:  U.S. JUSTICE DEPARTMENT 

Tuesday, May 31, 2016

Deloitte Consulting LLP Agrees to Pay $11 Million for Alleged False Claims Related to General Services Administration Contract

The Department of Justice announced today that Deloitte Consulting LLP (Deloitte) has agreed to pay $11.38 million to resolve allegations under the False Claims Act that it submitted false claims under a General Services Administration (GSA) contract.  Deloitte is a nationwide consulting company headquartered in New York City.

“Contractors are expected to deal fairly with federal agencies when receiving taxpayer funds,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division.  “As this settlement demonstrates, we will take action against those who knowingly fail to live up to the terms of their government contracts.”  

In 2000, GSA awarded Deloitte a contract for the provision of information technology services.  The contract required Deloitte to reduce the prices it charged the government if it offered lower prices to specific commercial customers during the course of the contract.  This settlement resolves allegations that between 2006 and 2012, Deloitte failed to comply with the price reductions clause in its contract, resulting in government customers paying more for Deloitte’s services than comparable commercial customers.

“American taxpayers deserve fair deals and prices from GSA contractors,” said GSA Inspector General Carol Fortine Ochoa.  “I appreciate the hard work and dedication that led to this significant recovery.”

This case was handled by the Civil Division’s Commercial Litigation Branch and the GSA Office of Inspector General.

The claims resolved by the settlement are allegations only; there has been no determination of liability.

CORNING INTERNATIONAL K.K. WILL PAY $66.5 MILLION FOR PRICE FIXING

FROM:  U.S. JUSTICE DEPARTMENT 

Monday, May 16, 2016

Corning International Kabushiki Kaisha to Pay $66.5 Million for Fixing Prices of Automotive Parts

Corning International Kabushiki Kaisha (Corning International K.K.) has agreed to plead guilty and pay a $66.5 million criminal fine for conspiring to fix prices, rig bids and allocate the market for ceramic substrates sold in the United States and elsewhere, and used in catalytic converters supplied to automobile manufacturers in the United States and elsewhere, the Justice Department announced today.

According to the felony charge filed today in U.S. District Court for the Eastern District of Michigan, Corning International K.K., based in Tokyo, conspired to fix prices, rig bids and allocate the market for ceramic substrates, from at least as early as July 1999 until on or about July 2011.  The products were installed in automotive emissions control systems and supplied to automobile manufacturers including Ford Motor Company, General Motors LLC, Honda Motor Company Ltd., and certain of their subsidiaries, affiliates, and suppliers in the United States and elsewhere.  Corning International K.K. agreed to cooperate in the department’s ongoing investigation.  The plea agreement will be subject to court approval.

“Corning International K.K. – and Nobuhiko Niwa, its former executive, who was indicted last week – spent more than a decade colluding on sales of an important component of emissions systems for use in cars made and sold in the United States and elsewhere,” said Deputy Assistant Attorney General Brent Snyder of the Justice Department’s Antitrust Division.  “But they have now been held accountable for the competitive harm they caused.”

“Corning International K.K.'s conspiracy to rig bids and fix prices brought the company increased revenues at a cost to auto manufacturers, suppliers, and ultimately, consumers,” said Special Agent in Charge David P. Gelios of the FBI’s Detroit Division.  “Attempts to thwart the free market system are damaging to our economy, and thereby its consumers, and will be actively investigated and prosecuted.”

Including Corning International K.K., 40 companies have been charged in connection with this investigation and have agreed to pay more than $2.7 billion in criminal fines.  In addition, 59 individuals have been charged, including a former executive of Corning International K.K.  On May 11, 2016, a federal grand jury in the Eastern District of Michigan returned an indictment against Nobuhiko Niwa, a Japanese national, for his role in the conspiracy.  Niwa was charged with participating in the conspiracy from at least as early as July 1999 until on or about July 2011.

This charge results from an ongoing investigation conducted by the Antitrust Division’s Washington Criminal I Section and the FBI’s Detroit Division with the assistance of the FBI Headquarters’ International Corruption Unit.

SHIPPING COMPANY WILL PAY $2.5 MILLION FOR OIL DISCHARGE

FROM:  U.S. JUSTICE DEPARTMENT 

Friday, April 8, 2016

Norwegian Shipping Company Sentenced in Alabama to Pay $2.5 Million for Illegally Discharging Oil into the Ocean

The Norwegian shipping company DSD Shipping (DSD) was sentenced to pay a total corporate penalty of $2.5 million as a result of its convictions in Mobile, Alabama, for obstructing justice, violating the Act to Prevent Pollution from Ships (APPS), tampering with witnesses and conspiring to commit these offenses.  The company was ordered to pay $500,000 of the penalty to the Dauphin Island Sea Lab Foundation to fund marine research and enhance coastal habitats in the Gulf of Mexico and Mobile Bay.

In addition, DSD was placed on a three year term of probation and was ordered to implement an environmental compliance plan to ensure the company’s vessels obeyed domestic and international environmental regulations in the future.  The sentence was announced by Assistant Attorney General John C. Cruden for the Justice Department’s Environment and Natural Resources Division and U.S. Attorney Kenyen R. Brown for the Southern District of Alabama.

The operation of commercial marine vessels generates large quantities of waste oil, oil-contaminated waste water and garbage.  International and U.S. law forbid the discharge of waste oil and garbage into the ocean and require that these vessels use pollution prevention equipment, known as an oily-water separator, to prevent the discharge of oil-contaminated waste water.  Should any overboard discharges occur, they must be documented in either an oil record book or a garbage record book, logs that are regularly inspected by the U.S. Coast Guard.

The evidence demonstrated at trial that DSD operated the M/T Stavanger Blossom, a 56,000 gross ton crude oil tanker, from 2010 to 2014 without an operable oily-water separator as required by law.  On Jan. 29, 2010, an internal corporate memorandum written by a vessel engineer warned DSD that the pollution prevention equipment did not work.  The memo further warned that if the problem was not addressed, “some day, it might end up that someone is getting caught for polluting.”  However, rather than repair or replace the oily-water separator, DSD operated the vessel illegally for the next 57 months before the conduct was identified by U.S. Coast Guard inspectors in November 2014.  As the testimony at trial revealed, DSD illegally discharged approximately 20,000 gallons of oil-contaminated waste water and plastic bags containing 270 gallons of sludge into the ocean during the last two-and-a-half months of the vessel’s operation.

The evidence also established that DSD lied about these activities by maintaining fictitious record books aboard the vessel.  These records omitted the illegal discharges of oil and garbage and falsely claimed that pollution prevention equipment was used when it was not.  Further, when the U.S. Coast Guard examined the ship, DSD’s senior ship officers lied about the discharges and ordered their subordinates to do the same.

In court documents filed prior to sentencing, prosecutors informed the court that despite convictions for eight felony offenses, DSD continued to deny wrongdoing in Norwegian press accounts.  Prosecutors also noted that previous deficiencies in the operation of pollution prevention equipment had been identified in other DSD vessels while they were in international ports.

Three senior engineering officers employed by DSD to operate the ship were also sentenced.  Defendant Bo Gao, chief engineer of the vessel, and Xiaobing Chen, second engineer of the vessel, were both sentenced to six months imprisonment as a result of their conduct.  Defendant Xin Zhong, fourth engineer of the vessel, was sentenced to two months imprisonment.  All three also face the loss of their marine engineering license and exclusion from employment in the merchant marine.  A fourth DSD employee, Daniel Paul Dancu, pleaded guilty in October 2015, and will be sentenced on April 11, 2016.

“We will continue to aggressively prosecute and hold accountable those shipping companies who flout the laws that protect our oceans and coastal waterways from harmful vessel pollution and waste,” said Assistant Attorney General Cruden.  “It is fitting that a portion of this penalty will go towards repairing and protecting the Gulf coastal environment that is threatened by these illegal discharges.  This egregious abuse of the seas we share as a nation and an international community must stop.”

“We are very pleased with the fines and custody sentences imposed by the court in the case today,” announced U.S. Attorney Brown. “The fine and probation imposed against DSD, and the custody sentence imposed on the engineering officers reflect the seriousness of the offenses committed against the United States and the environment.  The U.S. Attorney’s Office will continue to investigate and prosecute environmental crimes.  It is incumbent upon all individuals and corporations to protect our environment and the resources along the Northern Gulf of Mexico.”

“The Coast Guard will not tolerate the pollution of our marine environment,” said Rear Admiral Dave Callahan for the Eighth Coast Guard District Commander.  “The individuals committing environmental crimes are putting our natural resources at risk and they must be held accountable.  I am thankful for the hard work and dedication that Coast Guard Sector Mobile, the Coast Guard Investigative Service, the Department of Justice, and the Environmental Protection Agency have put into the investigation and prosecution of this case.”

“The Coast Guard Investigative Service is deeply committed to protecting our nation’s waters and ensuring that those within the commercial shipping industry are good stewards of the marine environment,” said Director Michael Berkow for the Coast Guard Investigative Service.  “Sadly, although entirely preventable, pollution from vessels remains all too common. We hope the sentences in this case deter others from committing similar conduct.  We are grateful to our investigative partners for their assistance in the prosecution of this case.”

“When a company fails to comply with our nation’s environmental laws, it can have a devastating effect on both public health and wildlife,” said Special Agent in Charge Andy Castro of EPA’s criminal enforcement program in Alabama.  “The defendants knowingly discharged oily waste from a vessel into the open water and then tried to cover up their crimes by falsifying entries in the vessel’s log books.  This successful prosecution is another example of the effective partnership between the Department of Justice, the Coast Guard and EPA to protect the environment and our natural resources.”

This case was investigated by the U.S. Coast Guard Sector Mobile, U.S. Coast Guard District Eight, the Coast Guard Investigative Service, and the EPA’s Criminal Investigations Division.  Assistant U.S. Attorney Michael D. Anderson, with the U.S. Attorney’s Office for the Southern District of Alabama, and Trial Attorney Shane N. Waller, with the Department of Justice’s Environmental Crimes Section, prosecuted the case.

AG LYNCH'S STATEMENT ON BP DEEPWATER HORIZON OIL SPILL AGREEMENT

FROM:  U.S. JUSTICE  DEPARTMENT A

Monday, April 4, 2016

Attorney General Loretta E. Lynch Statement on Agreement with BP to Settle for the Deepwater Horizon Oil Spill

Following the order today by U.S. District Judge Carl J. Barbier to enter the consent decree settling United States of America v. BP Exploration & Production Inc., et al., Attorney General Loretta E. Lynch released the following statement:

“The approval of this agreement will open a final, hopeful chapter in the six-year story of the Deepwater Horizon tragedy,” said Attorney General Loretta Lynch.  “Today’s action holds BP accountable with the largest environmental penalty of all time while launching one of the most extensive environmental restoration efforts ever undertaken.  I want to thank everyone who made this outcome possible, including my predecessor, Attorney General Eric Holder, and the federal agencies and states that developed the comprehensive restoration plan.  The Department of Justice will continue to stand with the people of the Gulf as they seek to rebuild and protect the marine life, coastal systems, and beautiful beaches that have made the region a treasured natural resource.”

SLEEP APNEA MASK COMPANY RESOLVES FALSE CLAIMS CASE FOR $34.8 MILLION

FROM:  U.S. JUSTICE DEPARTMENT 

Wednesday, March 23, 2016

Respironics to Pay $34.8 Million for Allegedly Causing False Claims to Medicare, Medicaid and Tricare Related to the Sale of Masks Designed to Treat Sleep Apnea

Respironics Inc., based in Murrysville, Pennsylvania, has agreed to pay $34.8 million to resolve alleged False Claims Act violations for paying kickbacks in the form of free call center services to durable medical equipment (DME) suppliers that bought its masks for patients with sleep apnea, the Department of Justice announced today.  

“The payment of illegal remuneration in any form to induce patient referrals threatens public confidence in the health care system,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division.  “Americans deserve to know that when they are prescribed a device to treat a serious health care problem, the supplier’s judgment has not been compromised by illegal payments from equipment manufacturers.

The Anti-Kickback Statute prohibits the knowing and willful payment of any remuneration to induce the referral of services or items that are paid for by a federal healthcare program, such as Medicare, Medicaid or TRICARE.  Claims submitted to these programs in violation of the Anti-Kickback Statute are also false claims under the False Claims Act.

The United States alleged that Respironics violated the Anti-Kickback Statute and the False Claims Act by providing free services to DME suppliers to induce them to purchase Respironics masks that treat sleep apnea.  Respironics allegedly provided DME companies with call center services to meet their patients’ resupply needs at no charge as long as the patients were using masks that Respironics manufactured; otherwise, the DME companies would have to pay a monthly fee based on the number of patients who used masks manufactured by a competitor of Respironics.  The government alleged that the conduct began in April 2012 and continued until November 2015.

“This office has made a substantial commitment to combating fraud,” said U.S. Attorney Bill Nettles of the District of South Carolina. “Our commitment has made this district one of the leaders on behalf of whistleblowers.  We hope that those who commit fraud will recognize that it is our goal to make the consequences more than just the cost of doing business.”

Respironics will pay roughly $34.14 million to the federal government and roughly $660,000 to various state governments based on their participation in the Medicaid program.

The settlement resolves a lawsuit originally brought by Dr. Gibran Ameer, who has worked for different DME companies, under the qui tam provisions of the False Claims Act.  The Act permits private citizens with knowledge of fraud against the government to bring a lawsuit on behalf of the United States and to share in any recovery.   Under the civil settlement announced today, Dr. Ameer will receive $5.38 million out of the federal share of the recovery.

“Medical equipment manufacturers that boost profits by providing kickbacks to suppliers will be held accountable for their improper conduct,” said Special Agent in Charge Derrick L. Jackson of the Department of Health and Human Services, Office of Inspector General (HHS-OIG).  “We will continue to investigate such business arrangements, which threaten the integrity of federal health care programs.”

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 the Attorney General 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 $27.4 billion through False Claims Act cases, with more than $17.4 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 Civil Division’s Commercial Litigation Branch, the U.S. Attorney’s Office of the District of South Carolina, and HHS Office of Counsel to the Inspector General and Office of Investigations and the National Association of Medicaid Fraud Control Units.

The lawsuit is captioned United States et al. ex rel. Dr. Gibran Ameer v. Philips Electronics North America, et al., Case No. 2:14-cv-2077-PMD (D.S.C.).  The claims resolved by the settlement are allegations only, and there has been no determination of liability.

DOJ ANNOUNCES ENFORCEMENT ACTION AGAINST FOOD MANUFACTURER FOR ALLEGEDLY DISTRIBUTING ADULTERATED FOOD PRODUCTS

FROM:  U.S. JUSTICE DEPARTMENT 

Monday, March 21, 2016

United States Files Enforcement Action Against Kansas Food Manufacturer and Company’s Managers to Stop Distribution of Adulterated Food Products

A civil complaint was filed today in the U.S. District Court for Kansas against Native American Enterprises LLC, of Wichita, Kansas; its Vice President and part-owner, William N. McGreevy and is production manager, Robert C. Conner, to stop the distribution of adulterated food, the Department of Justice announced today.

Native American Enterprises LLC (NAE), manufactures and distributes food, namely ready-to-eat (RTE) refried beans and sauces.  The complaint alleges that the company’s RTE refried beans and sauces are adulterated in that they have been prepared, packed and/or held under insanitary conditions whereby the food may have become contaminated with filth or have been rendered injurious to health.  According to the complaint, the insanitary conditions include the presence of Listeria Monocytogene (L. mono) in NAE’s facility and insanitary employee practices.  The department filed the complaint at the request of the U.S. Food and Drug Administration (FDA).

“Insanitary conditions at food processing facilities can present significant risks to consumers and food manufacturers must take steps to minimize those risks,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division.  “The Department of Justice will continue to work aggressively with the FDA to combat and deter conduct that leads to the distribution of adulterated food to consumers.”

According to the complaint, FDA inspected NAE’s facility, located at 230 N. West Street in Wichita, in August 2015 and collected environmental samples and observed numerous insanitary practices, including the defendants’ failure to manufacture and package food under conditions necessary to minimize microorganism growth, take necessary precautions to protect against contamination and maintain buildings in good repair.  Specifically, according to the complaint, FDA observed rain water leaking through the roof in the packaging room, directly above where NAE employees packaged RTE refried beans.  In addition, FDA observed cracks and holes in the walls and floor junctures that allow water and debris to collect, prohibit adequate cleaning and could harbor Listeria, according to the complaint.

FDA inspected NAE’s facility twice in 2014.  As alleged in the complaint, FDA collected environmental samples during RTE refried bean production during each of the 2014 inspections and found Listeria in the facility.  In addition, as alleged in the complaint, FDA also observed a failure to maintain equipment in an acceptable condition through appropriate cleaning and sanitizing.

As alleged in the complaint, L. mono thrives in moist environments, such as food-manufacturing environments.  Unless proper precautions are taken, L. mono may become established and grow, and it is difficult to eliminate once it becomes established in a food-manufacturing environment.  It is capable of surviving and growing at refrigerated temperatures and in high-salt environments.  The complaint alleges that L. mono is a significant public health risk in RTE refried beans and sauces.

The government is represented by Trial Attorney Heide L. Herrmann of the Civil Division’s Consumer Protection Branch and Assistant U.S. Attorney Emily Metzger of the U.S. Attorney’s Office for the District of Kansas, with the assistance of Associate Chief Counsel for Enforcement Sonia W. Nath of the Food and Drug Division, Office of General Counsel, Department of Health and Human Services.

A complaint is merely a set of allegations that, if the case were to proceed to trial, the government would need to prove by a preponderance of the evidence.

U.S. GOV CONTRACTOR AGREES TO PAY $5 MILLION TO SETTLE ALLEGATIONS OF FALSE CLAIMS VIOLATIONS INVOLVING SERVICE-DISABLED VETERANS

FROM:  U.S. JUSTICE DEPARTMENT 

Monday, March 14, 2016

The Hayner Hoyt Corporation to Pay $5 Million to Resolve False Claims Act Liability

Government Contractor and Several Individuals Admit That They Violated Laws Designed to Enhance Contracting Opportunities for Our Nation’s Service-Disabled Veterans

Syracuse-based Hayner Hoyt Corporation has agreed to pay $5 million, plus interest, to resolve allegations that its chairman and chief executive officer, Gary Thurston, its president, Jeremy Thurston, employees, Ralph Bennett and Steve Benedict and Hayner Hoyt affiliates LeMoyne Interiors and Doyner Inc., engaged in conduct designed to exploit contracting opportunities reserved for service-disabled veterans.

The United States has long used government contracting to promote small businesses in general and specifically small businesses owned by veterans who have service-connected disabilities.  Congress has established a targeted procurement program for the U.S. Department of Veterans Affairs (VA), which requires the VA to set annual goals for contracting with service-disabled veteran-owned small businesses.  To be eligible for these contracts, an applicant must qualify as a “small business.”  In addition to being a small business, a service-disabled veteran must own and control the business and handle its strategic decisions and day-to-day management.

The settlement resolves allegations that the defendants orchestrated a scheme designed to take advantage of the service-disabled veteran-owned small business program to secure government contracts for a now-defunct company, 229 Constructors LLC, that Gary and Jeremy Thurston created and controlled and subcontracts for Hayner Hoyt and its affiliates.  The Thurstons – neither of whom is a veteran – exerted significant influence over 229 Constructors’ decision-making during the bid, award and performance of these contracts in various ways, including by staffing the company entirely with then-current and former Hayner Hoyt employees and their spouses.  They also provided 229 Constructors with considerable resources, which provided it with a competitive advantage over legitimate service-disabled veteran-owned small businesses neither affiliated with nor controlled by a larger, non-veteran owned corporation.  Hayner Hoyt officials caused false certifications and statements to be made to the government representing that 229 Constructors met all requirements to be a service-disabled veteran-owned small business when they knew, or should have known, that 229 Constructors did not meet such requirements.  By diverting contracts and benefits intended for our nation’s service-disabled veterans to Hayner Hoyt and its affiliates, the defendants undercut Congress’s intent of encouraging contract awards to legitimate service-disabled veteran-owned small businesses.

The investigation revealed that Bennett – a service-disabled veteran who allegedly ran 229 Constructors, served as its president and oversaw its $14.4 million government-contracts portfolio – was not involved in making important business decisions for the company.  He was instead responsible for overseeing Hayner Hoyt’s tool inventory and plowing snow from Hayner Hoyt’s property.  Jeremy Thurston set up an email account in Bennett’s name in such a way that all emails received by the veteran were automatically forwarded to him.  After the government began to question 229 Constructors’ affiliation with Hayner Hoyt, Gary Thurston wrote others that he and Jeremy Thurston would likely terminate operations of 229 Constructors.  A few months later, service-disabled veteran Bennett and Benedict, who was simultaneously the “co-owner” of 229 Constructors and listed on Hayner Hoyt’s website as one of its five “key” officials, transferred a total of $52,000 to Gary Thurston’s personal bank account allegedly to show their appreciation for the assistance he had provided.

Defendants make various admissions in the settlement agreement, including that their conduct violated federal regulations designed to encourage contract awards to legitimate service-disabled veteran-owned small businesses.  They also admit that 229 Constructors provided more than $1.3 million in service-disabled veteran-owned small business subcontracts to Hayner Hoyt, LeMoyne Interiors and Doyner and that those companies generated $296,819 in gross profits as a result.

“Those who do business with the federal government must do so honestly,” said U.S. Attorney Richard S. Hartunian for the Northern District of New York  “As today’s settlement demonstrates, this office will vigorously pursue those individuals and entities who game programs designed to help our nation’s veterans succeed in starting small businesses.”

“Federal contracting programs designed to help service-disabled veteran-owned small businesses should never be undermined by actions such as the ones taken by Hayner Hoyt Corporation officials to divert contracts to ineligible large firms,” said Inspector General Peggy E. Gustafson for the Small Business Administration (SBA).  “The Office of Inspector General (OIG) will continue to work with the U.S. Department of Justice and partnering agencies in using all available remedies to deter parties from taking advantage of contracting programs designed to assist deserving service-disabled veteran-owned small businesses.”

“This settlement demonstrates the Department of Veterans Affairs, Office of Inspector General’s continued commitment to aggressively pursue individuals and companies that misrepresent themselves as service-disabled veteran-owned small businesses and deny legitimate disabled veterans the opportunity to obtain VA set-aside contracts,” said Special Agent in Charge Jeff Hughes for the Office of Inspector General for the Department of Veteran Affairs (VA-OIG).  “The VA-OIG will continue to work diligently to protect the integrity of this important program, which is designed to aid disabled veterans.  I also want to thank the U.S. Attorney’s Office and our law enforcement partners in this effort.”

“This civil settlement is a positive result of a joint investigation that proved Department of Defense contractor Hayner Hoyt executed a scheme to exploit and violate SBA and VA regulations in order to obtain service-disabled veteran-owned small business set aside contracts,” said Special Agent in Charge Craig W. Rupert of the Defense Criminal Investigative Service’s (DCIS) Northeast Field Office for the U.S. Department of Defense Office of the Inspector General.  “Through these schemes, Hayner Hoyt denied small businesses, owned by legitimate service-disabled veterans, the opportunity to obtain government contracts.  Such schemes erode public confidence and undermine the mission of our government.  The DCIS and its law enforcement partners will continue to tirelessly pursue and investigate procurement fraud allegations in order to safeguard the American taxpayer and its military veterans.”

The government’s investigation was triggered by a whistleblower lawsuit filed under the qui tam provisions of the False Claims Act, which allows private persons, known as “relators,” to file civil actions on behalf of the United States and share in any recovery.  The relator in this case will receive $875,000 of the settlement proceeds.  The case is docketed with the U.S. District Court for the Northern District of New York under number 14-cv-830.

The investigation and settlement were the result of a coordinated effort among the U.S. Attorney’s Office for the Northern District of New York, SBA-OIG, VA-OIG and DCIS.  The United States was represented by Assistant U.S. Attorney Adam J. Katz.

U.S. SUES TELEMARKETER TO HALT ILLEGAL ROBOCALLS

FROM:  U.S. JUSTICE DEPARTMENT 

Thursday, March 10, 2016

United States Files Suit Against California Telemarketer to Halt Unlawful Robocalls Promoting Solar Panel Sales

The Department of Justice filed a civil complaint in the U.S. District Court for the Central District of California, to halt a telemarketing campaign that allegedly resulted in over a million illegal phone calls to consumers who had placed their phone numbers on the Do Not Call Registry, the Department of Justice announced today.

The complaint charges that KFJ Marketing, Sunlight Solar Leads LLC, Go Green Education and the owner of those companies, Francisco Salvat, violated the Telemarketing Sales Rule by operating a telemarketing campaign that delivered pre-recorded “robocall” messages warning consumers about a purported looming “14 percent increase” in their energy bill. The calls invited consumers to “press one” to lower their electric bill. Consumers who did were connected with one of the defendants’ employees, who asked about the consumer’s interest in solar panels.

If the consumer expressed interest in solar panels, the telemarketer scheduled an appointment with a private solar installation company and sold the consumer’s information to that company as a customer lead. When consumers asked the defendants not to call them again, the complaint alleges their requests were often ignored.

The complaint alleges that the defendants violated federal law by placing 1.3 million calls to phone numbers on the Do Not Call Registry and by failing to transmit accurate caller ID information.  

“Federal law protects the privacy interests of American consumers by prohibiting calls made to numbers on the national Do Not Call Registry and otherwise limiting calls made by telemarketers,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division. “The Department of Justice will continue to work with the Federal Trade Commission (FTC) to ensure entities like those named in today’s lawsuit are penalized when they make unwanted and unlawful phone calls.”

“Mr. Salvat’s companies ignored the Do Not Call Registry and made illegal robocalls,” said Jessica Rich, Director of the FTC’s Bureau of Consumer Protection. “Breaking the law isn’t a great way for a company to introduce itself to potential customers.”

The matter was investigated by the FTC and referred to the Department of Justice’s Consumer Protection Branch after the FTC determined it had reason to believe the defendants’ conduct was violating the law and that a proceeding would be in the public interest.  The complaint seeks civil penalties as well as injunctive relief.

The matter is being handled by Trial Attorney Jacqueline Blaesi-Freed of the Civil Division’s Consumer Protection Branch, with assistance from Sarah Schroeder and Sylvia Kundig from the FTC.

MAKING ILLEGAL PAYMENTS TO DOCTORS, HOSPITALS WILL COST MEDICAL EQUIPMENT COMPANY $646 MILLION

FROM:  U.S. JUSTICE DEPARTMENT 

Tuesday, March 1, 2016

Medical Equipment Company Will Pay $646 Million for Making Illegal Payments to Doctors and Hospitals in United States and Latin America

Olympus Corp. of the Americas, Nation’s Largest Distributor of Endoscopes, Also Agrees to Reforms and Subsidiary Admits to Foreign Bribery

The United States’ largest distributor of endoscopes and related equipment will pay $623.2 million to resolve criminal charges and civil claims relating to a scheme to pay kickbacks to doctors and hospitals, U.S. Attorney Paul J. Fishman of the District of New Jersey and Principal Deputy Assistant Attorney General Benjamin C. Mizer of the Justice Department’s Civil Division announced today.  U.S. Attorney Fishman and Principal Deputy Assistant Attorney General David Bitkower of the Justice Department’s Criminal Division also announced that a subsidiary of the distributor will pay $22.8 million to resolve criminal charges relating to the Foreign Corrupt Practices Act (FCPA) in Latin America.

Anti-Kickback Statute Violations

Olympus Corp. of the Americas (OCA) was charged in a criminal complaint filed today in Newark, New Jersey, federal court with conspiracy to violate the Anti-Kickback Statute (AKS), which prohibits payments to induce purchases paid for by federal health care programs.  OCA has entered into a three-year deferred prosecution agreement (DPA) that will allow it to avoid conviction if it complies with the reform and compliance requirements outlined in the agreement.

“For years, Olympus Corporation of the Americas and Olympus Latin America dropped the compliance ball and failed to have in place policies and practices that would have prevented the substantial kickbacks and bribes they paid,” said U.S. Attorney Fishman. “It is appropriate that they be punished for that.  At the same time, the deferred prosecution agreement takes into account the companies’ cooperation and commitment to fully functional corporate compliance.”

As a result of the conduct outlined in the government’s criminal complaint and DPA, OCA has agreed to pay a $312.4 million criminal penalty and an additional $310.8 million to settle civil claims under the federal and various state False Claims Acts, the largest total amount paid in U.S. history for violations involving the AKS by a medical device company.

“The Department of Justice has longstanding concerns about improper financial relationships between medical device manufacturers and the health care providers who prescribe or use their products,” said Principal Deputy Assistant Attorney General Mizer.  “Such relationships can improperly influence a provider’s judgment about a patient’s health care needs, result in the use of inferior or overpriced equipment, and drive up health care costs for everybody.  In addition to yielding a substantial recovery for taxpayers, this settlement should send a clear message that we will not tolerate these types of abusive arrangements, and the pernicious effects they can have on our health care system.”

In a separate DPA, Olympus Latin America Inc. (OLA), a subsidiary of OCA, will pay a $22.8 million criminal penalty for violations of the FCPA.

The criminal complaint against OCA, which OCA agrees is true, charges that OCA won new business and rewarded sales by giving doctors and hospitals kickbacks, including consulting payments, foreign travel, lavish meals, millions of dollars in grants and free endoscopes.  For example:

OCA gave a hospital a $5,000 grant to facilitate a $750,000 sale;

OCA held up a $50,000 research grant until a second hospital signed a deal to purchase Olympus equipment;

OCA paid for a trip for three doctors to travel to Japan in 2007 as a quid pro quo for their hospital’s decision to switch from a competitor to Olympus; and

a doctor with a major role in a New York medical center’s buying decisions received free use of $400,000 in equipment for his private practice.

These and other kickbacks helped OCA obtain more than $600 million in sales and realize gross profits of more than $230 million.

The criminal complaint alleges that the improper payments happened while Olympus lacked training and compliance programs.  Unlike other medical and surgical products companies, Olympus did not create the position of compliance officer until 2009 and did not hire an experienced compliance professional until August 2010.

The DPA requires OCA to adopt several compliance measures to remedy its problems:

OCA must enhance its compliance training and maintain an effective compliance program;

OCA must maintain a confidential hotline and website for OCA employees and customers to report wrongdoing;

OCA’s chief executive officer and board of directors must certify annually that the program is effective; and

OCA must adopt an executive financial recoupment program requiring executives who engage in misconduct or fail to promote compliance to forfeit up to three years of performance pay.

Larry Mackey, a former federal prosecutor best known for trying the Oklahoma City bombing cases, has been selected as an independent monitor to evaluate and oversee Olympus’ compliance with the DPA.  He was selected by U.S. Attorney Fishman under department guidelines and approved by the Deputy Attorney General.  The DPA and monitor will remain in place for three years and can be extended for another two years if Olympus violates the DPA.

In the civil settlement, Olympus agrees to pay $310.8 million to the federal government and the states to resolve claims that Olympus’s payment of kickbacks caused false claims to be submitted to federal health care programs Medicare, Medicaid and TRICARE, and thus violated not only the AKS but also the federal and various state False Claims Acts.  The federal share of the civil settlement is $267,288,323, and Olympus will pay $43,512,053 million to participating states that contributed to the falsely claimed Medicaid payments at issue.

The civil settlement resolves a lawsuit filed by John Slowik, the former chief compliance officer of OCA, in the District of New Jersey, under the federal and various state False Claims Acts.  The acts permit whistleblowers to file suit for false claims against the government entities and to share in any recovery.  Mr. Slowik will receive $44,102, 573 million from the federal share and $7 million from the state share of the civil settlement amount.

FCPA Violations

In a separate criminal complaint filed today in Newark federal court, OCA’s Miami-based subsidiary OLA was charged with FCPA violations in connection with improper payments to health officials in Central and South America, and OLA entered into a separate three-year DPA.  According to court documents, from 2006 until August 2011, OLA implemented a plan to increase medical equipment sales in Central and South America by providing payments to health care practitioners at government-owned health care facilities.  These payments included cash, money transfers, personal grants, personal travel and free or heavily discounted equipment.  The primary method to deliver these illicit benefits was through “training centers,” nominally set up to educate and train doctors, but which OLA used to provide benefits to pre-selected practitioners.  OLA and its conspirators paid nearly $3 million to practitioners to induce the purchase of Olympus products and recognized more than $7.5 million in profits as a result.

“Olympus Latin America admitted to bribing publicly employed health care providers and hospital officials across Central and South America so that it could illegally win business and sell its products,” said Principal Deputy Assistant Attorney General Bitkower.  “OLA’s illegal tactics in Central and South America mirrored Olympus’s conduct in the United States.  The FCPA resolution announced today demonstrates the department’s commitment to ensuring the integrity of the health-care equipment market, regardless whether the illegal bribes occur in the U.S. or abroad.”

OLA entered into the DPA with the Criminal Division’s Fraud Section and the U.S. Attorney’s Office of the District of New Jersey.  The agreement requires OLA to pay a criminal penalty of $22.8 million, retain the same compliance monitor as for OLA (Mr. Mackey) for a period of three years and implement a number of compliance measures.  The department reached this resolution based on a number of factors, including that OLA did not voluntarily disclose the misconduct in a timely manner, but OLA did receive credit of a 20 percent reduction on its penalty for its cooperation, including its extensive internal investigation, translation of numerous foreign language documents and collecting, analyzing and organizing voluminous evidence.

Corporate Integrity Agreement

In addition to the criminal and civil resolutions, Olympus executed a corporate integrity agreement (CIA) with the Department of Health and Human Services-Office of Inspector General (HHS-OIG).  The CIA details the compliance program OCA must maintain, which must include:

compliance responsibilities for OCA management and the board of directors;

a health care compliance code of conduct that includes certain standards;

training and education that includes specified standards;

requirements for consulting arrangements, grants and charitable contributions, management of field assets and review of travel expenses;

risk assessment and mitigation process; and

review procedures for testing the compliance program.

“Olympus Corp. of the Americas’ and its subsidiaries’ greed-fueled kickback scheme threatened the impartiality of medical decision-making and the financial integrity of Medicare and Medicaid,” said Special Agent in Charge Scott J. Lampert of the U.S. Department of Health and Human Services, Office of Inspector General (HHS-OIG).  “Working with our law enforcement partners, we remain vigilant and committed to protecting beneficiaries and taxpayers from those seeking to unlawfully enrich themselves.”

* * *

The U.S. Attorney’s Office of the District of New Jersey prosecuted the criminal case under the AKS against Olympus and, with the Civil Division’s Commercial Litigation Branch, reached the civil settlement.  The U.S. Attorney’s Office of the District of New Jersey and the Criminal Division’s Fraud Section prosecuted the criminal case under the FCPA against OLA.  The HHS Office of Counsel to the Inspector General, the FBI, HHS-OIG Office of Criminal Investigations and the National Association of Medicaid Fraud Control Units provided assistance.

The FBI’s Newark Field Office, HHS-OIG and the FBI Allentown, Pennsylvania, Field Office investigated the case.

Assistant U.S. Attorneys R. David Walk Jr. and Deborah J. Gannett of the District of New Jersey’s Health Care and Government Fraud Unit in Newark represented the government in the AKS criminal prosecution.  Assistant U.S. Attorney David E. Dauenheimer of the District of New Jersey and Senior Trial Counsel David T. Cohen of the Civil Division’s Commercial Litigation Branch represented the government in the prosecution of the civil case.  Mary Riordan and Nicole Caucci of the HHS-OIG negotiated the CIA.

Fraud Section Trial Attorney James P. McDonald and Assistant U.S. Attorneys Walk and Gannett prosecuted the FCPA case.  The Criminal Division’s Office of International Affairs provided significant assistance in this matter.

U.S. Attorney Fishman reorganized the health care fraud practice at the U.S. Attorney’s Office of the District of New Jersey, including creating a stand-alone Health Care and Government Fraud Unit, which handles both criminal and civil investigations and prosecutions of health care fraud offenses.  Since 2010, the office has recovered more than $1.29 billion in health care fraud and government fraud settlements, judgments, fines, restitution and forfeiture under the False Claims Act, the Food, Drug and Cosmetic Act and other statutes.

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 the Attorney General 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 $27.4 billion through False Claims Act cases, with more than $17.4 billion of that amount recovered in cases involving fraud against federal health care programs.

2 COMPANIES ENTER INTO $795 MILLION RESOLUTION TO RESOLVE GLOBAL BRIBERY CASE

FROM:  U.S. JUSTICE DEPARTMENT 

Thursday, February 18, 2016

VimpelCom Limited and Unitel LLC Enter into Global Foreign Bribery Resolution of More Than $795 Million; United States Seeks $850 Million Forfeiture in Corrupt Proceeds of Bribery Scheme

Companies Agree to Pay $230 Million U.S. Criminal Fine in Connection with Foreign Corrupt Practices Act Resolution; Largest Case Ever Brought under the Kleptocracy Asset Recovery Initiative

Amsterdam-based VimpelCom Limited, the world’s sixth-largest telecommunications company and an issuer of publicly traded securities in the United States, and its wholly owned Uzbek subsidiary, Unitel LLC, entered into resolutions with the Department of Justice today in which they admitted to a conspiracy to make more than $114 million in bribery payments to a government official in Uzbekistan between 2006 and 2012 to enable them to enter and continue operating in the Uzbek telecommunications market.

In a related action, the department also filed a civil complaint today seeking the forfeiture of more than $550 million held in Swiss bank accounts, which constitute bribe payments made by VimpelCom and two separate telecommunications companies, or funds involved in the laundering of those payments, to the Uzbek official.  The forfeiture complaint follows an earlier civil complaint filed on June 29, 2015, which seeks forfeiture of more than $300 million in bank and investment accounts held in Belgium, Luxembourg and Ireland that also constitute funds traceable to bribes, or funds involved in the laundering of the bribes, paid by VimpelCom and another telecommunications company to the same Uzbek official.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Preet Bharara of the Southern District of New York, Chief Richard Weber of Internal Revenue Service-Criminal Investigation (IRS-CI) and Special Agent in Charge Clark E. Settles of the U.S. Immigration and Customs Enforcement’s Homeland Security Investigations (ICE-HSI) Washington, D.C., Field Office.

“These cases combine a landmark FCPA resolution for corporate bribery with one of the largest forfeiture actions we have ever brought to recover bribe proceeds from a corrupt government official,” said Assistant Attorney General Caldwell.  “The Criminal Division’s FCPA enforcement program and our Kleptocracy Initiative are two sides of the same anti-corruption coin.  The FCPA resolution in this case is also one of the most significant coordinated international and multi-agency resolutions in the history of the FCPA, and demonstrates our commitment both to pursuing justice and to bringing about corporate reform.”

“Today we mark the resolution of criminal charges and civil proceedings against corrupt corporate entities that made bribery a foundation of their business model,” said U.S. Attorney Bharara.  “As they have admitted in court filings, VimpelCom, the world’s sixth largest telecommunications company, with securities traded in New York, and its subsidiary, Unitel, built their business in Uzbekistan on over $114 million in bribes funneled to a government official.  Those payments, falsely recorded in the company’s books and records, were then laundered through bank accounts and assets around the world, including through accounts in New York.”

“Today’s admission of guilt by VimpelCom and Unitel to paying bribes to government officials is a victory for all who fight corruption at all levels,” said Chief Weber.  “It also demonstrates the skill and tenacity of IRS Criminal Investigation special agents when it comes to delving underneath layers of financial transactions designed to conceal illegal payments for gain.  The global economy demands a level playing field for all.  When certain VimpelCom and Unitel executives chose to use deception in order to continue this scheme and take advantage of insider knowledge, they also chose to become criminals.  IRS-CI pledges to continue our efforts on the international stage to stop corrupt financial schemes such as this one.”

“HSI special agents and our law enforcement partners will continue to investigate financial crimes committed by corrupt foreign officials,” said Special Agent in Charge Settles.  “We will not permit ill-gotten gains to be laundered through U.S. financial markets.”

The Criminal Resolution

In the criminal case, Unitel pleaded guilty and was sentenced to a one-count criminal information filed today in the Southern District of New York and assigned to U.S. District Judge Edgardo Ramos of the Southern District of New York, charging the company with a conspiracy to violate the anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA).

VimpelCom entered into a deferred prosecution agreement in connection with a criminal information charging the company with conspiracy to violate the anti-bribery and books and records provisions of the FCPA, and a separate count of violating the internal controls provisions of the FCPA.  Pursuant to its agreement with the department, VimpelCom agreed to pay a total criminal penalty of $230,163,199.20 to the United States, including $40 million in criminal forfeiture.  VimpelCom also agreed to implement rigorous internal controls, retain a compliance monitor for a term of three years and cooperate fully with the department’s ongoing investigation, including its investigation of individuals.

In related proceedings, VimpelCom settled with the U.S. Securities and Exchange Commission (SEC) and the Public Prosecution Service of the Netherlands (Openbaar Ministrie, or OM).  Under the terms of its resolution with the SEC, VimpelCom agreed to a total of $375 million in disgorgement of profits and prejudgment interest, to be divided between the SEC and OM.  VimpelCom agreed to pay the OM a criminal penalty of $230,163,199.20, for a total criminal penalty of $460,326,398.40, and a total resolution amount of more than $835 million.  The department agreed to credit the criminal penalty paid to the OM as part of its agreement with the company.  The SEC agreed to credit the forfeiture paid to the department as part of its agreement with the company.  Thus, the combined total amount of U.S. and Dutch criminal and regulatory penalties paid by VimpelCom will be $795,326,398.40, making it one of the largest global foreign bribery resolutions ever.

According to the companies’ admissions, VimpelCom and Unitel, through various executives and employees, paid bribes to an Uzbek government official, who was a close relative of a high-ranking government official and had influence over the Uzbek governmental body that regulated the telecom industry.  The companies structured and concealed the bribes through various payments to a shell company that certain VimpelCom and Unitel management knew was beneficially owned by the foreign official.  The bribes were paid on multiple occasions between approximately 2006 and 2012 so that VimpelCom could enter the Uzbek market and Unitel could gain valuable telecom assets and continue operating in Uzbekistan.  VimpelCom and Unitel contemplated additional bribes in 2013, but those bribes were not completed before VimpelCom opened an internal investigation.

In addition, VimpelCom admitted that it falsified its books and records and attempted to conceal and disguise the bribery scheme by classifying payments as equity transactions, consulting and repudiation agreements and reseller transactions.  VimpelCom also failed to implement and enforce adequate internal accounting controls, which allowed the bribe payments to occur without detection or remediation.  Moreover, when the board of directors sought an FCPA legal opinion assessing corruption risks involved in the transactions, certain VimpelCom management withheld crucial information from outside counsel performing the review that restricted the scope of FCPA opinions, rendering them worthless.  Rather than implement and enforce a strong anti-corruption ethic, certain VimpelCom executives sought ways to give the company plausible deniability of illegality while knowingly proceeding with corrupt business transactions.

A number of significant factors contributed to the department’s criminal resolution with the companies.  Among these, the companies received significant credit for their prompt acknowledgement of wrongdoing after being informed of the department’s investigation, for their willingness to promptly resolve their criminal liability on an expedited basis and for their extensive cooperation with the department’s investigation.  Specifically, the criminal penalty reflects a 45 percent reduction off of the bottom of the U.S. Sentencing Guidelines fine range.  However, the companies did not receive more significant mitigation credit, either in the penalty or the form of resolution, because the companies did not voluntarily self-disclose their misconduct to the department after an internal investigation uncovered wrongdoing.

The Forfeiture Complaints

The department has also filed two civil complaints seeking a total of $850 million in forfeiture.  A complaint filed today seeks forfeiture of approximately $550 million in proceeds of illegal bribes paid, or property involved in the laundering of those payments, to the Uzbek official by VimpelCom and two other telecommunications companies operating in Uzbekistan.  The $550 million is currently located in Swiss bank accounts.  The department also filed a prior complaint seeking forfeiture of an additional $300 million in proceeds of illegal bribes paid, or property involved in the laundering of those payments, to the same Uzbek official.  The assets sought to be forfeited in that complaint are restrained in Belgium, Luxembourg and Ireland.  In that case, on Jan. 11, 2016, the U.S. District Court for the Southern District of New York entered a partial default judgment against all potential claimants other than the Republic of Uzbekistan.

As alleged in the complaints and as is part of the criminal resolutions announced today, the telecom companies paid a total of more than $800 million in bribes so that the Uzbek official would assist VimpelCom and other telecommunications companies in obtaining and retaining business in Uzbekistan.  Thereafter, the official’s associates laundered the corruption proceeds through accounts held in Latvia, the United Kingdom, Hong Kong, Ireland, Belgium, Luxembourg and Switzerland.  The illicit funds were transmitted through financial institutions in the United States before they were deposited into accounts in these countries, thereby subjecting them to U.S. jurisdiction.

The department brought these forfeiture actions under the Kleptocracy Asset Recovery Initiative in the Criminal Division’s Asset Forfeiture and Money Laundering Section (AFMLS), working in partnership with federal law enforcement agencies to forfeit the proceeds of foreign official corruption and, where appropriate, to use those recovered assets to benefit the people harmed by corruption and abuse of office.

*          *          *

These cases represent the department’s commitment to both prosecute those who pay bribes and to ensure that the corrupt government officials who receive the bribes cannot use the U.S. financial system to launder their illicit gains.  The IRS-CI and ICE-HSI are investigating the cases, along with the IRS Global Illicit Financial Team in Washington, D.C.  Senior Litigation Counsel Nicola J. Mrazek and Trial Attorney Ephraim Wernick of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Edward Imperatore of the Southern District of New York are prosecuting the criminal case, with substantial assistance from AFMLS.  AFMLS Trial Attorney Marie M. Dalton is prosecuting the forfeiture case with substantial assistance from the Fraud Section.

Law enforcement colleagues within the OM, the Swedish Prosecution Authority, the Office of the Attorney General in Switzerland and the Corruption Prevention and Combating Bureau in Latvia provided significant cooperation and assistance in this matter.  Law enforcement colleagues in Belgium, France, Ireland, Luxembourg and the United Kingdom have also provided valuable assistance.  The Criminal Division’s Office of International Affairs provided significant assistance in this matter.  The SEC referred the matter to the department and provided extensive cooperation and assistance.

CA HOSPITAL TO PAY OVER $3.2 MILLION TO SETTLE ALLEGATIONS RELATED TO PHYSICIAN SELF-REFERRAL LAW VIOLATION

FROM:  U.S. JUSTICE DEPARTMENT 

Friday, January 15, 2016

California Hospital to Pay More Than $3.2 Million to Settle Allegations That It Violated the Physician Self-Referral Law

Tri-City Medical Center, a hospital located in Oceanside, California, has agreed to pay $3,278,464 to resolve allegations that it violated the Stark Law and the False Claims Act by maintaining financial arrangements with community-based physicians and physician groups that violated the Medicare program’s prohibition on financial relationships between hospitals and referring physicians, the Justice Department announced today.

The Stark Law generally forbids a hospital from billing Medicare for certain services referred by physicians who have a financial relationship with the hospital unless that relationship falls within an enumerated exception.  The exceptions generally require, among other things, that the financial arrangements do not exceed fair market value, do not take into account the volume or value of any referrals and are commercially reasonable.  In addition, arrangements with physicians who are not hospital employees must be set out in writing and satisfy a number of other requirements.

“The settlement of this matter reflects not only our commitment to protect the integrity of the healthcare system through enforcement of the Stark Law, but also our willingness to work with providers who disclose their own misconduct,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division.

The settlement announced today resolves allegations that Tri-City Medical Center maintained 97 financial arrangements with physicians and physician groups that did not comply with the Stark Law.  The hospital identified five arrangements with its former chief of staff from 2008 until 2011 that, in the aggregate, appeared not to be commercially reasonable or for fair market value.  The hospital also identified 92 financial arrangements with community-based physicians and practice groups that did not satisfy an exception to the Stark Law from 2009 until 2010 because, among other things, the written agreements were expired, missing signatures or could not be located.

“Patient referrals should be based on a physician’s medical judgment and a patient’s medical needs, not on a physician’s financial interests or a hospital’s business goals,” said U. S. Attorney Laura E. Duffy of the Southern District of California.  “This settlement reinforces that hospitals will face consequences when they enter into financial arrangements with physicians that do not comply with the law. We will continue to hold health care providers accountable when they shirk their legal responsibilities to the detriment of tax payer-funded health care programs.”

“Together with our law enforcement partners, our agency’s investigators and attorneys will continue to work with health care providers who use the self-disclosure protocol to resolve their billing misconduct,” said Special Agent in Charge Chris Schrank of the U.S. Department of Health and Human Services Office of Inspector General (HHS-OIG), Los Angeles region.”

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 the Attorney General 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 $27.1 billion through False Claims Act cases, with more than $17.1 billion of that amount recovered in cases involving fraud against federal health care programs.

This matter was handled by the U.S. Attorney’s Office of the Southern District of California, the Civil Division’s Commercial Litigation Branch and HHS-OIG.  The claims settled by this agreement are allegations only, and there has been no determination of liability.

SWISS BANK ADMITS HIDING BILLIONS IN OFFSHORE ACCOUNTS

FROM:  U.S. JUSTICE DEPARTMENT 

Thursday, February 4, 2016

Criminal Charges Filed Against Bank Julius Baer of Switzerland with Deferred Prosecution Agreement Requiring Payment of $547 Million, as Well as Guilty Pleas of Two Julius Baer Bankers

Bank Admits to Helping U.S. Taxpayer-Clients Hide Billions of Dollars in Offshore Accounts

Bankers Daniela Casadei and Fabio Frazzetto, Fugitives Since 2011, Surrender and Plead Guilty to Felony Tax Charges

Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division, U.S. Attorney Preet Bharara of the Southern District of New York, and Chief Richard Weber of the Internal Revenue Service – Criminal Investigation, (IRS-CI), announced the filing of criminal charges against Bank Julius Baer & Co. Ltd. (Julius Baer or the company), a financial institution headquartered in Zurich, Switzerland.   Julius Baer is charged with conspiring with many of its U.S. taxpayer-clients and others to help U.S. taxpayers hide billions of dollars in offshore accounts from the IRS and to evade U.S. taxes on the income earned in those accounts.

Acting Assistant Attorney General Ciraolo and U.S. Attorney Bharara also announced a deferred prosecution agreement with Julius Baer (the agreement) under which the company admits that it knowingly assisted many of its U.S. taxpayer-clients in evading their tax obligations under U.S. law.  The admissions are contained in a detailed Statement of Facts attached to the agreement.  The agreement requires Julius Baer to pay a total of $547 million by no later than Feb. 9, 2016, including through a parallel civil forfeiture action also filed today in the Southern District of New York.            

The criminal charge is contained in an Information (the information) alleging one count of conspiracy to (1) defraud the IRS, (2) to file false federal income tax returns and (3) to evade federal income taxes.  If Julius Baer abides by all of the terms of the agreement, the government will defer prosecution on the Information for three years and then seek to dismiss the charges.

In addition, two Julius Baer client advisers, Daniela Casadei and Fabio Frazzetto, pleaded guilty in Manhattan federal court today.   Casadei and Frazzetto were originally charged in 2011 and remained at large until Feb. 1, when they each made initial appearances before the Honorable Gabriel W. Gorenstein, U.S. Magistrate Judge for the Southern District of New York.

Casadei and Frazzetto each pleaded guilty to an Information (collectively, with the Julius Baer information, the informations) before U.S. District Judge Laura Taylor Swain charging them with conspiring with U.S. taxpayer-clients and others to help U.S. taxpayers hide their assets in offshore accounts and to evade U.S. taxes on the income earned in those accounts.

“Today’s resolution with Bank Julius Baer and the guilty pleas entered by two bank employees reflect the department’s continued commitment to hold accountable those financial institutions who conspired with U.S. taxpayers to conceal assets abroad and evade U.S. tax obligations, as well as those individuals responsible for such crimes,” said Acting Assistant Attorney General Caroline D. Ciraolo of the Justice Department’s Tax Division. “The deferred prosecution agreement filed today makes it clear that there is a heavy price to pay for this conduct, and that there is a significant benefit in fully cooperating with the department.”

“Bank Julius Baer not only turned a blind eye to tax avoiders, but actually conspired with them to break the law,” said U.S. Attorney Bharara. “Together with our partners at the IRS, we will continue to prosecute financial institutions and individuals who facilitate tax evasion.”

“In taking responsibility for their actions, Bank Julius Baer has agreed to cooperate and pay a substantial penalty for their role in circumventing offshore disclosure laws, said IRS-CI Chief Weber.  “The agreement – as well as the guilty pleas of client advisors Daniela Casadei and Fabio Frazzetto – sends a strong message to the international banking community as well as U.S. taxpayers who think they can outsmart the system by hiding their money in these international banks.  The consequences of not reporting your foreign accounts and paying the taxes you owe will be significant for those who do not heed the warnings that agreements like this yield.”

According to the informations, statements made during the proceedings today and other documents filed in Manhattan federal court, including the statement of facts to the agreement:

The Offense Conduct

From at least the 1990s through 2009, Julius Baer helped many of its U.S. taxpayer-clients evade their U.S. tax obligations, file false federal tax returns with the IRS and otherwise hide accounts held at Julius Baer from the IRS (hereinafter, undeclared accounts).  Julius Baer did so by opening and maintaining undeclared accounts for U.S. taxpayers and by allowing third-party asset managers to open undeclared accounts for U.S. taxpayers at Julius Baer.  Casadei and Frazzetto, bankers who worked as client advisers at Julius Baer, directly assisted various U.S. taxpayer-clients in maintaining undeclared accounts at Julius Baer in order to evade their obligations under U.S.  law.  At various times, Casadei, Frazzetto and others advised those U.S. taxpayer-clients that their accounts at Julius Baer would not be disclosed to the IRS because Julius Baer had a long tradition of bank secrecy and no longer had offices in the United States, making Julius Baer less vulnerable to pressure from U.S. law enforcement authorities than other Swiss banks with a presence in the United States.  

In furtherance of the scheme to help U.S. taxpayers hide assets from the IRS and evade taxes, Julius Baer undertook, among other actions, the following:

Entering into “code word agreements” with U.S. taxpayer-clients under which Julius Baer agreed not to identify the U.S. taxpayers by name within the bank or on bank documents, but rather to identify the U.S. taxpayers by code name or number, in order to reduce the risk that U.S. tax authorities would learn the identities of the U.S. taxpayers.

Opening and maintaining accounts for many U.S. taxpayer-clients held in the name of non-U.S. corporations, foundations, trusts, or other legal entities (collectively, structures) or non-U.S. relatives, thereby helping such U.S. taxpayers conceal their beneficial ownership of the accounts.
Julius Baer was aware that many U.S. taxpayer-clients were maintaining undeclared accounts at Julius Baer in order to evade their U.S. tax obligations, in violation of U.S. law.  In internal Julius Baer correspondence, undeclared accounts held by U.S. taxpayers were at times referred to as “black money,” “non W-9,” “tax neutral,” “unofficial,” or “sensitive” accounts.

Julius Baer also advised its bankers to take certain steps to avoid scrutiny from U.S. authorities when travelling to the United States, as well as steps to avoid U.S. law enforcement identifying Julius Baer clients.  In a memo entitled “U.S. Clients Do’s & Don’ts,” circulated internally in 2006, a Julius Baer employee provided client advisers with advice regarding travel to the United States, including:

“At Immigration . . . When asked by Officer what will you do while in the USA, say Business and of course some leisure, trying to take some time to enjoy your beautiful country. Proud government employees usually love this type of statement.One can throw in skydiving or another fun sport/activity.This tends to shift the questioning away from the business purpose to the ‘fun time’ part of the trip (carrying a tennis racket also puts the emphasis on “fun and games,” and not on business).”

In regard to communicating while in the U.S.:“Only use mobile phone[s] registered in and operating from Switzerland.Avoid phone calls from hotel to clients.It is recommended to purchase a telephone calling card from the post office, grocery stores, or electronic shops.This allows you to use practically any phone with no specific link left behind.The best is to pay for the calling card in cash.For ex: a 400 minutes local calling card costs less than $50, but the rates can vary.Most cards can also be used to call anywhere abroad.”

At its high-water mark in 2007, Julius Baer had approximately $4.7 billion in assets under management relating to approximately 2,589 undeclared accounts held by U.S. taxpayer-clients.  From 2001 through 2011, Julius Baer earned approximately $87 million in profit on approximately $219 million gross revenues from its undeclared U.S. taxpayer accounts, including accounts held through structures.

Julius Baer’s Blocked Effort to Self-Report, Acceptance of Responsibility, and Cooperation in the Government Investigation

Notwithstanding its lucrative criminal conduct, by at least 2008, Julius Baer began to implement institutional policy changes to cease providing assistance to U.S. taxpayers in violating their U.S. legal obligations.  For example, by November 2008, the company began an “exit” plan for U.S. client accounts that lacked evidence of U.S. tax compliance.  In that same month, Julius Baer imposed a prohibition on opening accounts for any U.S. clients without a Form W-9.

Additionally, in November 2009, before Julius Baer became aware of any U.S. investigation into its conduct, Julius Baer decided proactively to approach U.S. law enforcement authorities regarding its conduct relating to U.S. taxpayers.  Prior to self-reporting to the Department of Justice, Julius Baer notified its regulator in Switzerland of its intention to contact U.S. law enforcement authorities.  This Swiss regulator requested that Julius Baer not contact U.S. authorities in order not to prejudice the Swiss government in any bilateral negotiations with the United States on tax-related matters.  Accordingly, Julius Baer did not, at that time, self-report to U.S. law enforcement authorities.

After ultimately engaging with U.S. authorities, Julius Baer has taken exemplary actions to demonstrate acceptance and acknowledgement of responsibility for its conduct.  Julius Baer conducted a swift and robust internal investigation, and furnished the U.S. government with a continuous flow of unvarnished facts gathered during the course of that internal investigation.  As part of its cooperation, Julius Baer also, among other things, (1) successfully advocated in favor of a decision provided by the Swiss Federal Council in April 2012 to allow banks under investigation by the U.S. Department of Justice to legally produce employee and third-party information to the department, and subsequently produced such information immediately upon issuance of that decision; and (2) encouraged certain employees, including specifically Frazzetto and Casadei, to accept responsibility for their participation in the conduct at issue and cooperate with the ongoing investigation.    

*                *                *

Casadei, 52, a Swiss citizen, and Frazzetto, 42, an Italian and Swiss citizen, each pleaded guilty to one count of conspiracy to defraud the IRS, to evade federal income taxes and to file false federal income tax returns.  Casadei and Frazzetto each face a statutory maximum sentence of five years in prison.  The statutory maximum sentence is prescribed by Congress and is provided here for informational purposes only, as any sentences imposed on the defendants will be determined by the judge.

Casadei and Frazzetto are each scheduled to be sentenced before Judge Swain on Aug. 12, 2016.

Acting Assistant Attorney General Ciraolo and U.S. Attorney Bharara praised the outstanding investigative work of IRS-CI and the Department’s Tax Division for their significant assistance in the investigation.  Acting Assistant Attorney General Ciraolo and U.S. Attorney Bharara also thanked the U.S. Department of Homeland Security for their assistance with the case.

This case is being handled by the U.S. Attorney’s Office of the Southern District of New York Complex Frauds and Cybercrime Unit.  Assistant U.S. Attorneys Jason H. Cowley and Sarah E. Paul are in charge of the prosecution.

NURSING HOME THERAPY PROVIDER AGREES TO PAY $125 MILLION TO RESOLVE ALLEGATIONS OF FALSE CLAIMS ACT VIOLATIONS

FROM:  U.S. JUSTICE DEPARTMENT 

Tuesday, January 12, 2016

Nation’s Largest Nursing Home Therapy Provider, Kindred/Rehabcare, to Pay $125 Million to Resolve False Claims Act Allegations

Four Nursing Homes Using Kindred/RehabCare to Pay an Additional $8.225 Million

Contract therapy providers RehabCare Group Inc., RehabCare Group East Inc. and their parent, Kindred Healthcare Inc., have agreed to pay $125 million to resolve a government lawsuit alleging that they violated the False Claims Act by knowingly causing skilled nursing facilities (SNFs) to submit false claims to Medicare for rehabilitation therapy services that were not reasonable, necessary and skilled, or that never occurred, the Department of Justice announced today.

RehabCare Group Inc. and RehabCare Group East Inc. were purchased by the Louisville, Kentucky-based Kindred Healthcare Inc. in 2011 and they now operate under the name RehabCare as a division of Kindred.  RehabCare is the largest provider of therapy in the nation, contracting with more than 1,000 SNFs in 44 states to provide rehabilitation therapy to their patients.

“Medicare beneficiaries are entitled to receive care that is dictated by their clinical needs rather than the fiscal interests of healthcare providers,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, head of the Justice Department’s Civil Division.  “All providers, whether contractors or direct billers of taxpayer-funded federal healthcare programs, will be held accountable when their actions cause false claims for unnecessary services.”

The government’s complaint alleged that RehabCare’s policies and practices, including setting unrealistic financial goals and scheduling therapy to achieve the highest reimbursement level regardless of the clinical needs of its patients, resulted in Rehabcare providing unreasonable and unnecessary services to Medicare patients and led its SNF customers to submit artificially and improperly inflated bills to Medicare that included those services.  Specifically, the government’s complaint alleged that RehabCare’s schemes included the following:

Presumptively placing patients in the highest therapy reimbursement level, rather than relying on individualized evaluations to determine the level of care most suitable for each patient’s clinical needs;
During the period prior to Oct. 1, 2011, boosting the amount of reported therapy during “assessment reference periods,” thereby causing and enabling SNFs to bill for the care of their Medicare patients at the highest therapy reimbursement level, while providing materially less therapy to those same patients outside the assessment reference periods, when the SNFs were not required to report to Medicare the amount of therapy RehabCare was providing to their patients (a practice known as “ramping”);
Scheduling and reporting the provision of therapy to patients even after the patients’ treating therapists had recommended that they be discharged from therapy;
Arbitrarily shifting the number of minutes of planned therapy among different therapy disciplines (i.e., physical, occupational and speech therapy) to ensure targeted therapy reimbursement levels were achieved, regardless of the clinical need for the therapy;
Especially after Oct. 1, 2011 and continuing through Sept. 30, 2013, providing significantly higher amounts of therapy at the very end of a therapy measurement period not due to medical necessity but rather to reach the minimum time threshold for the highest therapy reimbursement level, to enable SNFs to bill for the care of their Medicare patients accordingly, even though the patients were receiving materially less therapy on preceding days;
Inflating initial reimbursement levels by reporting time spent on initial evaluations as therapy time rather than evaluation time;
Reporting that skilled therapy had been provided to patients when in fact the patients were asleep or otherwise unable to undergo or benefit from skilled therapy (e.g., when a patient had been transitioned to palliative end-of-life care); and
Reporting estimated or rounded minutes instead of reporting the actual minutes of therapy provided.
“This False Claim Act settlement addresses allegations that RehabCare and its nursing facility customers engaged in a systematic and broad-ranging scheme to increase profits by delivering, or purporting to deliver, therapy in a manner that was focused on increasing Medicare reimbursement rather than on the clinical needs of patients,” said U.S. Attorney Carmen M. Ortiz for the District of Massachusetts.  “The complaint outlines the extent and sophistication of this fraud, and the government’s continuing work to ensure that the provision of care in skilled nursing facilities is based on patients’ clinical needs.”

“Health providers seeking to increase Medicare profits, rather than providing suitable, high-quality care, will be investigated and prosecuted,” said Inspector General Daniel R. Levinson for the U.S. Department of Health and Human Services (HHS).  “Under our robust compliance agreement, an outside review organization will scrutinize a random sample of medical records annually to assess the medical necessity and reasonableness of therapy services provided by RehabCare.”

In addition to RehabCare, the Department of Justice also announced settlements today with four SNFs for their role in submitting claims to Medicare that were false because they were based in part on therapy provided by RehabCare that was not reasonable, necessary and skilled, or that did not occur.  These settlements include:  A $3.9 million settlement with Wingate Healthcare Inc. and 16 of its facilities in Massachusetts and New York; A $2.2 million settlement with THI of Pennsylvania at Broomall LLC and THI of Texas at Fort Worth LLC; A $1.375 million settlement with Essex Group Management and two of its Massachusetts facilities, Brandon Woods of Dartmouth and Blaire House of Milford and a $750,000 settlement with Frederick County, Maryland, which formerly operated the Citizens Care skilled nursing facility.  The department had previously reached settlements with a number of other SNFs for similar conduct.  See http://www.justice.gov/opa/pr/two-companies-pay-375-million-allegedly-causing-submission-claims-unreasonable-or-unnecessary; http://www.justice.gov/opa/pr/episcopal-ministries-aging-inc-pay-13-million-allegedly-causing-submission-claims; http://www.justice.gov/usao-ma/pr/new-york-catholic-nursing-chain-pay-35-million-resolve-allegations-concerning-claims; http://www.justice.gov/usao-ma/pr/maine-nursing-home-pay-12-million-resolve-allegations-concerning-rehabilitation-therapy.

The settlement with RehabCare resolves allegations originally brought in a lawsuit filed under the qui tam, or whistleblower, provisions of the False Claims Act by Janet Halpin, a physical therapist and former rehabilitation manager for RehabCare and Shawn Fahey, an occupational therapist who worked for RehabCare.  The act permits private parties to sue on behalf of the government for false claims for government funds and to receive a share of any recovery.  The government may intervene and file its own complaint in such a lawsuit, as it has done in this case.  The whistleblowers will receive nearly $24 million as their share of the recovery from RehabCare.

The settlements announced today illustrate 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 the Attorney General 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 $27.1 billion through False Claims Act cases, with more than $17.1 billion of that amount recovered in cases involving fraud against federal health care programs.  Tips and complaints from all sources about potential fraud, waste, abuse, and mismanagement, including the conduct described in the United States’ complaint, can be reported to the Department of Health and Human Services, at 800-HHS-TIPS (800-447-8477).

This matter was handled by the Civil Division’s Commercial Litigation Branch; the U.S. Attorney’s Office for the District of Massachusetts; HHS Office of Inspector General and the FBI.