Harvard University Professor and Two Chinese Nationals Charged in Three Separate China Related Cases

The Department of Justice announced today that the Chair of Harvard University’s Chemistry and Chemical Biology Department and two Chinese nationals have been charged in connection with aiding the People’s Republic of China.  

Dr. Charles Lieber, 60, Chair of the Department of Chemistry and Chemical Biology at Harvard University, was arrested this morning and charged by criminal complaint with one count of making a materially false, fictitious and fraudulent statement.  Lieber will appear this afternoon before Magistrate Judge Marianne B. Bowler in federal court in Boston, Massachusetts.

Yanqing Ye, 29, a Chinese national, was charged in an indictment today with one count each of visa fraud, making false statements, acting as an agent of a foreign government and conspiracy. Ye is currently in China. 

Zaosong Zheng, 30, a Chinese national, was arrested on Dec. 10, 2019, at Boston’s Logan International Airport and charged by criminal complaint with attempting to smuggle 21 vials of biological research to China.  On Jan. 21, 2020, Zheng was indicted on one count of smuggling goods from the United States and one count of making false, fictitious or fraudulent statements.  He has been detained since Dec. 30, 2019.

Dr. Charles Lieber

According to court documents, since 2008, Dr. Lieber who has served as the Principal Investigator of the Lieber Research Group at Harvard University, which specialized in the area of nanoscience, has received more than $15,000,000 in grant funding from the National Institutes of Health (NIH) and Department of Defense (DOD).  These grants require the disclosure of significant foreign financial conflicts of interest, including financial support from foreign governments or foreign entities. Unbeknownst to Harvard University beginning in 2011, Lieber became a “Strategic Scientist” at Wuhan University of Technology (WUT) in China and was a contractual participant in China’s Thousand Talents Plan from in or about 2012 to 2017.  China’s Thousand Talents Plan is one of the most prominent Chinese Talent recruit plans that are designed to attract, recruit, and cultivate high-level scientific talent in furtherance of China’s scientific development, economic prosperity and national security.  These talent programs seek to lure Chinese overseas talent and foreign experts to bring their knowledge and experience to China and reward individuals for stealing proprietary information.  Under the terms of Lieber’s three-year Thousand Talents contract, WUT paid Lieber $50,000 USD per month, living expenses of up to 1,000,000 Chinese Yuan (approximately $158,000 USD at the time) and awarded him more than $1.5 million to establish a research lab at WUT.  In return, Lieber was obligated to work for WUT “not less than nine months a year” by “declaring international cooperation projects, cultivating young teachers and Ph.D. students, organizing international conference[s], applying for patents and publishing articles in the name of” WUT.

The complaint alleges that in 2018 and 2019, Lieber lied about his involvement in the Thousand Talents Plan and affiliation with WUT.  On or about, April 24, 2018, during an interview with investigators, Lieber stated that he was never asked to participate in the Thousand Talents Program, but he “wasn’t sure” how China categorized him.  In November 2018, NIH inquired of Harvard whether Lieber had failed to disclose his then-suspected relationship with WUT and China’s Thousand Talents Plan.  Lieber caused Harvard to falsely tell NIH that Lieber “had no formal association with WUT” after 2012, that “WUT continued to falsely exaggerate” his involvement with WUT in subsequent years, and that Lieber “is not and has never been a participant in” China’s Thousand Talents Plan. 

Yanqing Ye

According to the indictment, Ye is a Lieutenant of the People’s Liberation Army (PLA), the armed forces of the People’s Republic of China and member of the Chinese Communist Party (CCP).  On her J-1 visa application, Ye falsely identified herself as a “student” and lied about her ongoing military service at the National University of Defense Technology (NUDT), a top military academy directed by the CCP.  It is further alleged that while studying at Boston University’s (BU) Department of Physics, Chemistry and Biomedical Engineering from October 2017 to April 2019, Ye continued to work as a PLA Lieutenant completing numerous assignments from PLA officers such as conducting research, assessing U.S. military websites and sending U.S. documents and information to China.

According to court documents, on April 20, 2019, federal officers interviewed Ye at Boston’s Logan International Airport. During the interview, it is alleged that Ye falsely claimed that she had minimal contact with two NUDT professors who were high-ranking PLA officers.  However, a search of Ye’s electronic devices demonstrated that at the direction of one NUDT professor, who was a PLA Colonel, Ye had accessed U.S. military websites, researched U.S. military projects and compiled information for the PLA on two U.S. scientists with expertise in robotics and computer science.  Furthermore, a review of a WeChat conversation revealed that Ye and the other PLA official from NUDT were collaborating on a research paper about a risk assessment model designed to decipher data for military applications.  During the interview, Ye admitted that she held the rank of Lieutenant in the PLA and admitted she was a member of the CCP.

Zaosong Zheng

In August 2018, Zheng entered the United States on a J-1 visa and conducted cancer-cell research at Beth Israel Deaconess Medical Center in Boston from Sept. 4, 2018, to Dec. 9, 2019. It is alleged that on Dec. 9, 2019, Zheng stole 21 vials of biological research and attempted to smuggle them out of the United States aboard a flight destined for China.  Federal officers at Logan Airport discovered the vials hidden in a sock inside one of Zheng’s bags, and not properly packaged.  It is alleged that initially, Zheng lied to officers about the contents of his luggage, but later admitted he had stolen the vials from a lab at Beth Israel.  Zheng stated that he intended to bring the vials to China to use them to conduct research in his own laboratory and publish the results under his own name.

The charge of making false, fictitious and fraudulent statements provides for a sentence of up to five years in prison, three years of supervised release and a fine of $250,000.  The charge of visa fraud provides for a sentence of up to 10 years in prison, three years of supervised release and a fine of $250,000.  The charge of acting as an agent of a foreign government provides for a sentence of up to 10 years in prison, three years of supervised release and a fine of $250,000. The charge of conspiracy provides for a sentence of up to five years in prison, three years of supervised release and a fine of $250,000.  The charge of smuggling goods from the United States provides for a sentence of up to 10 years in prison, three years of supervised release and a fine of $250,000.  Sentences are imposed by a federal district court judge based upon the U.S. Sentencing Guidelines and other statutory factors.

Assistant Attorney General for National Security John C. Demers, United States Attorney Andrew E. Lelling; Special Agent in Charge of the FBI Boston Field Division Joseph R. Bonavolonta; Michael Denning, Director of Field Operations, U.S. Customs and Border Protection, Boston Field Office; Leigh-Alistair Barzey, Special Agent in Charge of the Defense Criminal Investigative Service, Northeast Field Office; Philip Coyne, Special Agent in Charge of the U.S. Department of Health and Human Services, Office of Inspector General; and William Higgins, Special Agent in Charge of the U.S. Department of Commerce, Office of Export Enforcement, Boston Field Office made the announcement. Assistant U.S. Attorneys B. Stephanie Siegmann, Jason Casey and Benjamin Tolkoff of Lelling’s National Security Unit are prosecuting these cases with the assistance of trial attorneys William Mackie and David Aaron at the National Security Division’s Counterintelligence and Export Control Section.

The details contained in the charging documents are allegations. The defendants are presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.

These case are part of the Department of Justice’s China Initiative, which reflects the strategic priority of countering Chinese national security threats and reinforces the President’s overall national security strategy. In addition to identifying and prosecuting those engaged in trade secret theft, hacking and economic espionage, the initiative will increase efforts to protect our critical infrastructure against external threats including foreign direct investment, supply chain threats and the foreign agents seeking to influence the American public and policymakers without proper registration.

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Author: January 28, 2020

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U.S. Supreme Court Justice Sotomayor Addresses Latin American Judges at Justice Department’s Judicial Studies Institute

Today at the Judicial Studies Institute (JSI) in San Juan, Puerto Rico, U.S. Supreme Court Justice Sonia Sotomayor addressed 24 judges from El Salvador, Mexico, and Panama as part of a Department of Justice (DOJ) training program for the judiciaries of the Western Hemisphere.  Justice Sotomayor stressed the importance of their contribution to rule of law in the hemisphere and lauded them for their role in the transformation of Latin American justice.   

With the support of Justice Sotomayor, and in partnership with the Department of State’s Bureau of International Narcotics and Law Enforcement Affairs, the Justice Department’s Office of Prosecutorial Development, Assistance and Training (OPDAT) launched JSI in 2012 as a response to the wave of justice sector reforms in Latin America that saw many countries transition from an inquisitorial to an adversarial system of justice.  Through Spanish instruction, practical exercises, and observations of courtroom proceedings, participating judges learned about evidentiary guidelines, the role of judges, and courtroom management in an adversarial justice system. 

This capacity building is critical to the region as there are significant differences between the two systems.  For example, in an inquisitorial system, judges investigate charges and determine guilt through written deliberations behind closed doors.  In an adversarial system, the judge acts as an impartial referee responsible for weighing evidence and guaranteeing the rights of both the victim and the accused in an open courtroom setting.

Since establishing JSI in 2012, OPDAT and its partners at the University of Puerto Rico and Inter-American University law schools have trained over 800 Latin American judges.

Please visit https://www.supremecourt.gov/ for more information about the U.S. Supreme Court and https://www.justice.gov/criminal-opdat for more information about OPDAT’s capacity building efforts around the world.

The year 2020 marks the 150th anniversary of the Department of Justice.  Learn more about the history of our agency at www.Justice.gov/Celebrating150Years.

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Author: January 27, 2020

Readout of U.S. Attorney General William P. Barr’s Meeting with Guatemala Attorney General Maria Consuelo Porras Argueta

Earlier today, U.S. Attorney General William P. Barr met with the Attorney General of Guatemala Maria Consuelo Porras Argueta in Washington, DC. They discussed ways to strengthen efforts to combat transnational organized crime and reduce illegal migration to the United States through increased cooperation and capacity building of law enforcement partners. They discussed their shared commitment to protecting the security and safety of the citizens of both the United States and Guatemala from transnational criminal organizations (TCOs) and gangs. Today’s meeting was a follow-up dialogue to the May 2019 Third Ministerial of the Northern Triangle Attorneys General in El Salvador.

They discussed the continued progress of the Justice Department’s Office of Overseas Prosecutorial Development, Assistance and Training (OPDAT) capacity-building efforts in the Guatemalan judicial sector and key role in bringing together the Attorneys General from Guatemala, Honduras, and El Salvador to form the Regional Shield operations targeting MS-13 and other gangs. Additionally, they discussed ongoing accomplishments in combating violence in the region from transnational gangs, particularly MS-13 and 18th Street gangs. Regional Shield anti-gang efforts led to the arrest of more than 1,000 gang members in the past year.  Also during that time, eleven smuggling/trafficking structures were dismantled in Guatemala.

Both Attorneys General agreed to continue working closely together through greater operational collaboration and intelligence sharing, including increased law enforcement coordination to fight corruption and impunity and strengthen the rule of law for the benefit of all Guatemalans and further criminal investigations in drug and human trafficking, emerging organized criminal groups, cyber and intellectual property crimes.

Attorney General Barr thanked the Government of Guatemala for extraditing fugitives to the United States and said that extradition sends a strong message to criminal organizations that our countries remain committed to the rule of law and are not safe havens for criminals. Additionally, Attorney General Barr applauded Guatemala’s efforts to fight corruption and criminal organizations engaged in human trafficking and its continual efforts to root out organizations involved in human smuggling.

The Attorneys General agreed that transnational crime affects both countries and that with continual cooperation we can dismantle these organizations, reduce violent crime, and generate stability and prosperity.  

Continued bilateral law enforcement collaboration and successful law enforcement programs between the United States and Guatemala remain a priority for the U.S. Government.

The year 2020 marks the 150th anniversary of the Department of Justice.  Learn more about the history of our agency at www.Justice.gov/Celebrating150Years.

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Author: January 27, 2020

West Virginian Business Owners Sentenced to Prison for Failing to Pay Employment and Individual Income Taxes

Two West Virginian business owners were sentenced to prison today for conspiring to defraud the United States of employment and income taxes, announced Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department’s Tax Division and U.S. Attorney Michael B. Stuart for the Southern District of West Virginia. Russell Rucker was sentenced to serve 18 months in prison, and his wife, Karen Rucker, was sentenced to six months in prison.  

According to court documents and statements made in court, the Ruckers operated Rucker, Billups and Fowler Inc. (RBF), an insurance agency located in Huntington, West Virginia. Russell Rucker was the president of RBF and since approximately late 2013, Karen Rucker served as a financial officer. Between September 2015 and September 2018, the Ruckers withheld approximately $143,226 in payroll taxes from the wages of RBF’s employees, which they did not pay over to the Internal Revenue Service (IRS). Instead, the Ruckers diverted portions of the withheld funds for their own personal benefit. For instance, from 2014 through 2016 the Ruckers continued to pay themselves over $500,000 in salary. In response to IRS collection efforts and in an attempt to conceal funds from the IRS, the Ruckers deposited money into the bank account of another individual. The Ruckers also attempted to evade IRS levies by using a series of bank accounts that they did not disclose to the IRS and by paying many of their bills in cash, including their mortgage.

In addition, the Ruckers sought to evade payment of Russell Rucker’s 2001, 2002, and 2005 individual income taxes by disguising paychecks issued to Russell Rucker as non-taxable “note proceeds,” and they failed to file their individual income tax returns and RBF’s corporate returns for 2014 through 2017. The intended tax loss caused to the IRS by their conduct is more than $250,000.

In addition to the term of imprisonment, U.S. District Robert Chamber ordered the Ruckers to each serve three years of supervised release and to pay approximately $258,137 in restitution to the United States.

Principal Deputy Assistant Attorney General Zuckerman and U.S. Attorney Stuart commended special agents of IRS-Criminal Investigation, who investigated the case, and Trial Attorneys Alexander Effendi and Lauren Archer of the Tax Division, who prosecuted the case.

Additional information about the Tax Division and its enforcement efforts may be found on the division’s website.

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Author: January 27, 2020

Electronic Health Records Vendor to Pay $145 Million to Resolve Criminal and Civil Investigations

Practice Fusion Inc. (Practice Fusion), a San Francisco-based health information technology developer, will pay $145 million to resolve criminal and civil investigations relating to its electronic health records (EHR) software, the Department of Justice announced today.

As part of the criminal resolution, Practice Fusion admits that it solicited and received kickbacks from a major opioid company in exchange for utilizing its EHR software to influence physician prescribing of opioid pain medications.  Practice Fusion has executed a deferred prosecution agreement and agreed to pay over $26 million in criminal fines and forfeiture.  In separate civil settlements, Practice Fusion has agreed to pay a total of approximately $118.6 million to the federal government and states to resolve allegations that it accepted kickbacks from the opioid company and other pharmaceutical companies and also caused its users to submit false claims for federal incentive payments by misrepresenting the capabilities of its EHR software.

“Across the country, physicians rely on electronic health records software to provide vital patient data and unbiased medical information during critical encounters with patients,” said Principal Deputy Assistant Attorney General Ethan Davis of the Department of Justice’s Civil Division.  “Kickbacks from drug companies to software vendors that are designed to improperly influence the physician-patient relationship are unacceptable.  When a software vendor claims to be providing unbiased medical information – especially information relating to the prescription of opioids – we expect honesty and candor to the physicians making treatment decisions based on that information.”

The resolution announced today addresses allegations that Practice Fusion extracted unlawful kickbacks from pharmaceutical companies in exchange for implementing clinical decision support (CDS) alerts in its EHR software designed to increase prescriptions for their drug products.  Specifically, in exchange for “sponsorship” payments from pharmaceutical companies, Practice Fusion allowed the companies to influence the development and implementation of the CDS alerts in ways aimed at increasing sales of the companies’ products.  Practice Fusion allegedly permitted pharmaceutical companies to participate in designing the CDS alert, including selecting the guidelines used to develop the alerts, setting the criteria that would determine when a healthcare provider received an alert, and in some cases, even drafting the language used in the alert itself.  The CDS alerts that Practice Fusion agreed to implement did not always reflect accepted medical standards.  In discussions with pharmaceutical companies, Practice Fusion touted the anticipated financial benefit to the pharmaceutical companies from increased sales of pharmaceutical products that would result from the CDS alerts.  Between 2014 and 2019, health care providers using Practice Fusion’s EHR software wrote numerous prescriptions after receiving CDS alerts that pharmaceutical companies participated in designing.

Practice Fusion executed a deferred prosecution agreement with the U.S. Attorney’s Office for the District of Vermont based on its solicitation and receipt of kickbacks from a major opioid company to arrange for an increase in prescriptions of extended release opioids by healthcare providers who used Practice Fusion’s EHR software.  As detailed in the criminal Information made public today, Practice Fusion solicited a payment of nearly $1 million from the opioid company to create a CDS alert that would cause doctors to prescribe more extended release opioids.  That payment was financed by the opioid company’s marketing department, and the CDS was designed with input from the marketing department.  Practice Fusion and the opioid company entered the CDS sponsorship because they believed that the CDS would influence doctors’ prescriptions of extended release opioids.  In marketing the “pain” CDS alert, Practice Fusion touted that it would result in a favorable return on investment for the opioid company based on doctors prescribing more opioids.

“Practice Fusion’s conduct is abhorrent.  During the height of the opioid crisis, the company took a million-dollar kickback to allow an opioid company to inject itself in the sacred doctor-patient relationship so that it could peddle even more of its highly addictive and dangerous opioids,” said Christina E. Nolan, U.S. Attorney for the District of Vermont.  “The companies illegally conspired to allow the drug company to have its thumb on the scale at precisely the moment a doctor was making incredibly intimate, personal, and important decisions about a patient’s medical care, including the need for pain medication and prescription amounts.  This recovery is commensurate to the nature of Practice Fusion’s misconduct, represents the largest criminal fine in the history of this District, and requires Practice Fusion to admit to its wrongs.  It is another example of pioneering healthcare fraud enforcement by the talented Assistant U.S. Attorneys and staff of this U.S. Attorney’s Office, working with their partners in law enforcement.  We cannot — and will not — tolerate technology companies influencing patient treatment merely because a pharmaceutical company provided a kickback.”   

The criminal Information charges Practice Fusion with two felony counts for violating the Anti-Kickback Statute (AKS), 42 U.S.C. § 1320a-7b(b)(1), and for conspiring with its opioid company client to violate the AKS, 18 U.S.C. § 371.  This case is the first ever criminal action against an EHR vendor and the unique Deferred Prosecution Agreement imposes stringent requirements on Practice Fusion to ensure acceptance of responsibility and transparency as to its underlying conduct, and to invest heavily in compliance overhauls and an independent oversight organization.  The Deferred Prosecution Agreement requires Practice Fusion to pay a criminal fine of $25,398,300 and forfeit criminal proceeds of nearly $1 million.  In addition, the company will cooperate in any ongoing investigations of the kickback arrangement and report any evidence of kickback violations by any other EHR vendors.  To ensure transparency and public awareness of the company’s activities while the nation continues to battle an epidemic of opioid addiction, the Deferred Prosecution Agreement requires Practice Fusion to make documents relating to its unlawful conduct available to the public through a website.  Additionally, the Deferred Prosecution Agreement mandates that Practice Fusion retain an independent oversight organization that is required to review and approve any sponsored CDS before Practice Fusion may implement the CDS, and create a comprehensive compliance program designed to ensure such abuses are not repeated.

The civil settlement with the United States resolves Practice Fusion’s civil liability arising from the submission of false claims to federal healthcare programs tainted by the kickback arrangement between Practice Fusion and the opioid company.  It also resolves allegations of kickbacks relating to thirteen other CDS arrangements where Practice Fusion agreed with pharmaceutical companies to implement CDS alerts intended to increase sales of their products.  The $118.6 million settlement amount includes approximately $113.4 million to the federal government and up to $5.2 million to states that opt to participate in separate state agreements.

“Prescription decisions should be based on accurate data regarding a patient’s medical needs, untainted by corrupt schemes and illegal kickbacks,” said U. S. Attorney David L. Anderson of the Northern District of California.  “In deciding what is best for patients, electronic health records software is an important tool for care providers.  It is critically important that technology companies do not cheat when certifying that software.” 

In addition to the kickback allegations, the civil settlement with the United States resolves allegations relating to two intersecting Department of Health and Human Services (HHS) programs, one at the Office of the National Coordinator for Health Information Technology (ONC) that regulates the voluntary health IT certification program, and one at the Centers for Medicare & Medicaid Services that oversees EHR incentive programs.  Specifically, the United States alleged that Practice Fusion falsely obtained ONC certification for several versions of its EHR software by concealing from its certifying entity, known as an ONC-Authorized Certification Body, that the EHR software did not comply with all of the applicable requirements for certification.  ONC’s certification criteria were designed to promote enhanced functionality, utility, and security of health information technology, and access to patient medical information across the care continuum.  HHS implemented the certification criteria for EHR software in multiple stages, known as editions.  To be certified under the 2014 Edition certification criteria, EHR software was required to allow users to electronically create a set of standardized export summaries for all patients.  When Practice Fusion sought certification of this 2014 Edition criteria, Practice Fusion falsely represented to the certifying body that its software met this data portability requirement, when several versions of its software did not.  The civil settlement resolves allegations that, at the time these versions of Practice Fusion’s software were certified, its software was unable to permit a user to create a set of standardized export summaries.  Additionally, after obtaining certification of the 2014 Edition criteria, Practice Fusion disabled access to this feature altogether.  Instead, Practice Fusion required users to contact it separately to request export of this critical patient data.

In addition to failing to satisfy the data portability requirement, Practice Fusion’s software allegedly did not incorporate standardized vocabularies as required for certification.  The United States alleged that by fraudulently obtaining certification for its products, Practice Fusion knowingly caused eligible healthcare providers who used certain versions of its 2014 Edition EHR software to falsely attest to compliance with HHS requirements necessary to receive incentive payments from Medicare during the reporting periods for 2014 through 2016 and from Medicaid during the reporting periods for 2014 through 2017.

“As new technologies continue to develop and evolve, so too do new and innovative fraud schemes,” said Shimon R. Richmond, Assistant Inspector General for Investigations of the U.S. Department of Health and Human Services. “We will continue to be vigilant in detecting and investigating these schemes in order to protect the safety of patients in federal health programs and to ensure the appropriate use of electronic health records in providing their care.”

“Today’s announcement shows that Practice Fusion exploited technology to profit at the expense of a vulnerable population – patients seeking medical advice,” said Timothy M. Dunham, Special Agent in Charge of the FBI’s Washington Field Office, Criminal Division.  “The FBI is committed to working with our partners to bring to justice the perpetrators of healthcare fraud in all its forms, especially one that fans the flames of the already rampant opioid epidemic.”

The U.S. Attorney’s Office for the District of Vermont handled the criminal investigation and resolution.  The civil investigation was jointly handled by the Civil Division’s Commercial Litigation Branch and the U.S. Attorneys’ Offices for the District of Vermont and the Northern District of California.  The investigation was supported by the HHS Office of Inspector General and multiple HHS agencies and components.  The FBI’s field office in Washington, DC, also provided significant investigative support.

Except for the conduct admitted in connection with the criminal resolution, the civil claims resolved by the settlement are allegations only, and there has been no determination of liability as to such civil claims. 

The year 2020 marks the 150th anniversary of the Department of Justice.  Learn more about the history of our agency at www.Justice.gov/Celebrating150Years.

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Author: January 27, 2020

Deputy Associate Attorney General Stephen Cox Provides Keynote Remarks at the 2020 Advanced Forum on False Claims and Qui Tam Enforcement

Remarks as Prepared for Delivery

Thank you for that introduction, and thank you to the American Conference Institute and all of its sponsors for hosting me here today.  I enjoyed coming to this forum last year, and it’s great to be back.

I’ve been serving in the Department of Justice for almost three years, and it’s been a terrific experience.  Our office, the Office of the Associate Attorney General, oversees five litigating divisions and a number of non-litigating components.  What we may spend most of our time doing is managing high-priority defensive litigation, where the department is representing the administration in the numerous lawsuits challenging federal programs and government action. 

In addition to the defensive litigation, our office focuses a lot of attention on the intersection of corporate enforcement and regulatory reform, trying to promote the rule of law while avoiding potential overreach.  And the False Claims Act is front and center for us.  Let me first talk about the Act from an enforcement perspective, and then I’ll tie it into our regulatory reform agenda and describe some of our latest policies.

Enforcement and Recent Cases

The False Claims Act is one of the most important tools we have to fight healthcare fraud, grant fraud, financial fraud, government-contracting fraud, and many other types of fraud on the taxpayer.  Enforcing the False Claims Act is a top priority for the department. 

Our work here not only protects the public fisc, but serves other important goals.  Fraudulent conduct can drive up consumer costs, undermine competition, and in some cases, even put people’s lives at risk.  By effectively enforcing the False Claims Act, we protect the taxpayer, we deter bad actors, we protect victims, and we level the playing field in the marketplace.

As you know, the department brings its own enforcement actions under the False Claims Act, but a significant percentage of these cases come to our attention because of the statute’s qui tam provision, which allows whistleblowers to file lawsuits on behalf of the United States.

Since the 1986 amendments, which substantially strengthened the law, False Claims Act actions have returned over $62 billion to the U.S. Treasury — over $44 billion of which came through qui tam actions filed by whistleblowers.

In the past fiscal year, the department recovered over $3 billion.  Most of this money — $2.6 billion — came from suits involving the health care industry, including drug and medical device manufacturers, managed care providers, hospitals, pharmacies, hospice organizations, laboratories, and physicians.  This is the 10th consecutive year that the department’s civil health care fraud settlements and judgments have exceeded $2 billion.

We settled a number of large and important cases in the healthcare industry and other sectors this year.  Two of the largest recoveries came from opioid manufacturers.  Insys Therapeutics agreed to settle for $195 million allegations that it gave kickbacks to physicians and nurse practitioners to induce them to prescribe Subsys for their patients.  The allegations involved sham speaker events, jobs for the prescribers’ relatives and friends, lavish meals and entertainment, and false statements to insurers about patients’ diagnoses to obtain payment by federal healthcare programs. 

In another matter, Reckitt Benckiser Group plc paid $500 million to resolve civil allegations related to the marketing of the opioid addiction treatment drug Suboxone.  The allegations centered on promotion for uses that were unsafe, ineffective, and medically unnecessary and promotion that was false and misleading.

The department also continued to investigate efforts by drug manufacturers to inflate drug prices by funding the co-payments of Medicare patients.  Co-pay requirements in the Medicare program serve as an important check on health care costs, including the prices that pharmaceutical manufacturers can demand for their drugs, and this year, seven drug manufacturers paid a combined total of over $624 million to resolve claims that they illegally paid patient copays for their own drugs through conduits that were purported to be independent foundations.

The department also pursued a variety of procurement and grant-related fraud matters.  For example, five South Korea-based companies paid over $362 million to resolve allegations that they engaged in anticompetitive conduct targeting contracts to supply fuel to the U.S. military in South Korea and made false statements to the government in connection with their agreement not to compete. 

Additionally, Duke University settled a grant fraud case for $112.5 million.  The allegations were that applications and progress reports to the National Institutes of Health (NIH) and to the Environmental Protection Agency (EPA) contained falsified research on federal grants.  And North Greenville University paid $2.5 million to resolve allegations that it submitted false claims to the U.S. Department of Education by compensating a student recruiting company based on the number of students who enrolled in NGU’s programs, in violation of Title IV restrictions. 

Our pursuit of individuals continued because individual accountability remains a top priority for the department.  For example, Luke Hillier, the majority owner and former CEO of a Virginia-based defense contractor, paid $20 million to settle allegations that he fraudulently obtained federal set-aside contracts reserved for small businesses, which his company was ineligible to receive.  The government previously resolved related claims against the company and its former general counsel.

Hopefully these cases are illustrative of our commitment to False Claims Act enforcement.

Regulatory Reform and the FCA

Now let me turn to a discussion of how False Claims Act enforcement relates to our regulatory reform agenda, and then I’ll discuss some important policies and reforms that we have developed in my time at the department.

The False Claims Act is of great significance to regulated industries.  As the Supreme Court said a few years ago in the Escobar case, the False Claims Act is not supposed to be “a vehicle for punishing garden-variety breaches of contract or regulatory violations.”  However, companies in highly-regulated industries can face significant False Claims Act exposure for regulatory violations anytime federal money is involved.

In that light, we have looked at False Claims Act enforcement and qui tam litigation through the prism of regulatory reform, as we look for ways to reduce unnecessary costs and burdens on regulated entities.

Qui Tam Dismissals

Let’s talk about qui tam litigation in particular. 

Qui tam filings have been on the rise for many years.  We might see 600 or 700 new qui tam lawsuits in a given year.  The department takes over — or “intervenes” in — about 20% of the cases that are filed.  The whistleblower is still involved (and will still get a cut), but the government is litigating the case.  What about the other 80% of cases?  Well, often the whistleblower will drop the case, but the statute allows the litigation to proceed if the relator elects to do so.  When the relator does proceed in a “declined” case, the department plays more of a passive role, but our role in these cases still consumes time and resources – not only in investigating the allegations initially, but also in terms of monitoring and participating in any ensuing discovery, litigation, or settlement.

In these declined cases, the relators essentially stand in the shoes of the attorney general.  Because these relators and their lawyers may not always have the same interests as the United States, we take very seriously our responsibility to monitor False Claims Act cases when we decline to intervene.  Indeed, the department serves an important role as a gatekeeper.  And the False Claims Act gives the department the authority to step in and dismiss or settle the case if that’s in the best interests of the United States.

In 2017, we began looking into what the department should do when qui tam cases are frivolous, abusive, or contrary to the interests of justice.  These cases impose unnecessary costs not just on the government, but on the corporate and individual defendants, third parties facing discovery, and of course the judiciary.  Plus, bad cases often result in bad law, which can inhibit our ability to enforce the False Claims Act in good and righteous cases.  And from a resource perspective, when the department’s resources and our client agencies’ resources are consumed by unnecessary litigation, we have less time to fulfill our priorities. 

In my view, if we see a qui tam action raising frivolous or non-meritorious allegations that the Department of Justice disagrees with or could not make in good faith, we should not let a plaintiff try the case on behalf of the United States. 

This is why, in the so-called “Granston Memo,” we have instructed our lawyers to consider filing motions to dismiss pursuant to 31 U.S.C. § 3730(c)(2)(A) in qui tam cases when they are not in our best interests.  We have also told our litigators to consider advising relators of this possibility because they may wish to voluntarily dismiss their case instead.  This “(c)(2)(A)” authority is an important tool to protect the integrity of the False Claims Act, the interests of the United States, and the interests of the corporate and individual defendants, the judiciary, and the public at large.

This authority to dismiss qui tam cases has been used sparingly.  Before we issued the Granston Memo, we identified about 45 cases that the department had dismissed in the previous thirty years since the 1986 amendments, and we looked to those cases to guide our exercise of this authority.  In the two years since the Granston Memo, we have moved to dismiss a similar number of about 45-50 cases under (c)(2)(A).  Courts have granted our motions in all but one of the roughly thirty decisions that have been rendered during that two-year period, and we are appealing the one denial.

Let me just point out a few examples.  Ten of the cases that we moved to dismiss were funded by a for-profit private investment group that filed meritless copycat complaints across the country against dozens of healthcare-related companies.  The affected agency expressed valid concern that allowing the cases to proceed could undermine patient care.  Two other cases were filed by a different relator whose employer alleged that he shorted the stock of the corporate defendants he was suing.  Nevetheless, in each of the cases we moved to dismiss, the department investigated the matter, evaluated the facts, the law, and the claims asserted, and carefully concluded that the various downsides outweighed any potential benefit of allowing the case to proceed.

Now, the uptick in dismissals that I am describing may seem significant in comparison to years past, but it’s important to recognize that there were over 1,100 qui tams filed in that period.  Our exercise of this authority will remain judicious, but we will use this tool more consistently to preserve our resources for cases that are in the United States’ interests and to rein in overreach in whistleblower litigation.

Subregulatory Guidance

Now I’d like to discuss another way in which False Claims Act enforcement touches on regulatory reform.  But first let me step back to talk about what we’ve been doing on regulatory reform at the department and in the administration at large.  As many of you know, we have been focused for the past three years on improving the regulatory process overall, with the goal of reducing unnecessary burdens, but also with a focus on adhering to the rule of law and the relevant process that Congress has prescribed.  At the Department of Justice, we have tried to be a model for other regulatory agencies by adopting best lawmaking practices and raising the bar for what we expect of other agencies, and I think we have been successful.

One of the first areas of reform we identified relates to a practice called “rulemaking by guidance.”  Under our Constitution, the Legislative Branch has the lawmaking power, and the Executive Branch takes care that those laws are faithfully executed.  But Congress often passes broad legislation and then delegates further lawmaking authority to executive agencies, which then promulgate regulations to implement or clarify the legislation or fill in any gaps.

Here is how regulation is supposed to work:  When an agency has the statutory authority to regulate and seeks to alter the public’s rights and obligations, the proper way to exercise that authority is through the rulemaking process governed by the Administrative Procedure Act, which usually requires notice and comment.

But rulemaking can be cumbersome and slow.  It can take many years.  And not surprisingly, we have seen agencies using shortcuts.  In particular, sometimes agencies have issued so-called “guidance documents” — in the form of “dear colleague letters,” online bulletins, agency newsletters, “frequently asked questions,” and other communications — with the purpose of expanding the law and changing the public’s behavior.  Agencies use this “guidance” to effectively make new rules, but they circumvent the appropriate process for rulemaking.

There’s a lot of guidance out there, too.  Several years ago, before he went on the Supreme Court, Judge Neil Gorsuch wrote an opinion discussing the overwhelming amount of guidance from one particular agency, the Centers for Medicaid and Medicare Services, whose website contained about 37,000 guidance documents — and even that wasn’t a complete inventory. 

It is hard to fathom how the public can keep up with these rules.  One scholar refers to agency guidance documents as the 10,000 Commandments.  Others have called it “subregulatory dark matter.”  The term “#fakelaws” has not yet gained traction.

As my friend and colleague, Principal Deputy Associate Attorney General Claire Murray has put it, “subregulatory guidance isn’t law — it’s just paper.  Nevertheless, there is sometimes an (understandable) sense within industry that deviation from a regulator’s guidance can carry the risk of enforcement and qui tam litigation.  When you add deference doctrines . . . into the mix, there’s a real risk that guidance can, practically speaking, end up having the same effect as regulation.”

That is why, in a pair of memos sometimes called the “Sessions Memo” and the “Brand Memo,” the department announced that we would no longer engage in the practice of rulemaking by guidance, and we would not use our enforcement authority to essentially convert other agencies’ sub-regulatory guidance into rules that have the force or effect of law.  For example, in a False Claims Act case, if a company does not comply with some agency’s guidance document that interprets some statute or regulation, our attorneys are not going to treat that as itself establishing a violation of law. 

Let me make a few points about how these principles might apply in False Claims Act cases.  As we have noted before, there are, of course, circumstances where it may be appropriate to cite agency guidance, including to show the defendant’s awareness of a valid legal requirement that is simply described in the guidance or to show the agency’s views on the materiality of that requirement. 

A guidance document may also be relevant to a False Claims Act case, if, for example, a party and the government expressly agree in a contract that compliance with some specified guidance document is required.  The party may even expressly certify compliance with the guidance document.  In those instances, noncompliance could be relevant to the falsity element of the False Claims Act. 

Of course, all of these examples need to line up with the general principle that we’re not going to use “violations” of nonbinding guidance documents to establish a violation of law.  Guidance is not law.  It’s not binding.  And it shouldn’t be given the force or effect of law.

As I mentioned earlier, we had hoped that the Department of Justice regulatory reform efforts could serve as a model for other agencies, and we’ve seen evidence of that in the context of subregulatory guidance.  In late 2017, Senator Grassley sent a letter to the President praising what we were doing and suggesting that other agencies be made to follow our commonsense principles.  In 2018 and 2019, we saw six of the banking regulators, the Department of Transportation, the Department of Treasury, and the IRS following our lead by announcing their own limits on the issuance and enforcement of sub-regulatory guidance.  But most notably, in a proud moment for the Department of Justice, last October the President signed two executive orders that set limitations for agencies across the Executive Branch with respect to rulemaking by guidance and relying on guidance in administrative enforcement and adjudication.

I’ll mention one other development at the Department of Health and Human Services that occurred the same month of the President’s executive orders, and it relates to the Supreme Court decision in Azar v. Allina Health Services, 139 S. Ct. 1804 (2019).  In that case, the Court held that, under the Social Security Act, Section 1871, any Medicare issuance that establishes or changes a “substantive legal standard” governing the scope of benefits, payment for services, and eligibility criteria, must go through notice-and-comment rulemaking.  In a memo that I’ll call the Cleary-Jenny Memo, HHS recognized meaningful limitations on the use of guidance documents in CMS’s administrative enforcement actions based on the Allina decision and pre-existing principles, as articulated in the Justice Department’s position on rulemaking by guidance.  It’s a very interesting memo, and I commend it to those of you who practice in the healthcare fraud area. 

Coordination with Agencies

We just discussed our policy on qui tam dismissals and our policies on subregulatory guidance and how those enforcement policies relate to our broader regulatory reform agenda.  It’s probably obvious by now that the regulatory agencies have a real stake in these policies.  In that light, we try very hard to coordinate with the relevant agencies to make sure our enforcement decisions are sound and carefully scrutinized.

One policy on coordination that I discussed last year discourages what we call “piling on.”  Just as there is no shortage of subregulatory dark matter, there is no shortage of valid laws that cover various kinds of misconduct.  As a result, often the same conduct can violate multiple statutes and regulations that are enforced by multiple authorities, federal, state, local, and foreign.  Over-regulation and over-enforcement can go hand in hand.

As we see it, we think it’s unnecessary and overreaching for multiple law enforcement and regulatory agencies to pile onto a single entity for the same or substantially similar conduct, by imposing unwarranted and disproportionate penalties for that conduct.  We see piling on as inconsistent with the concepts of fair play and the need for certainty and finality.

To avoid piling on, we have been promoting coordination within the department and with other agencies to apportion penalties and fines where appropriate.  

I’ll give you an example.  Imagine if companies are engaging in illegal bid-rigging to collusively win government contracts.  That kind of misconduct could implicate the Sherman Act and Clayton Act as well as the False Claims Act.  Now suppose the Antitrust Division settles its investigation of one of the companies for civil penalties and double damages under Section 4A of the Clayton Act.  Then suppose there is a qui tam action against the same company based on the theory that the company made false statements to the government in connection with the same bid-rigging agreement.  It would be unnecessarily duplicative for the Civil Division to independently pursue additional damages under the False Claims Act against the same company, without taking into account the fact that the government was also recovering an appropriate measure of damages under the Clayton Act.  Instead, our approach would be to have the Civil Division coordinate with the Antitrust Division to attain a global settlement that is equitable and proportionate to the company’s conduct. 

That was our approach last year when, as I mentioned earlier, we settled with the South Korea-based companies that engaged in bid rigging on the fuel contracts with the U.S. military.  These were global resolutions of criminal Sherman Act violations, civil claims under the Clayton Act, and civil claims under the False Claims Act, and the two Divisions coordinated closely with the goal of avoiding duplicative recoveries in mind. 

The piling on policy was originally announced in the summer of 2018, but let me turn to a more recent policy on agency coordination in False Claims Act cases:  the HUD memorandum of understanding (MOU).

As some of you know, HUD, through the Federal Housing Administration (FHA), insures mortgages to help creditworthy low-income and first-time homebuyers to obtain a mortgage and purchase a home.  The insurance program is supported by a fund (the Mutual Mortgage Insurance Fund) that pays claims when a borrower defaults.  Following the Housing Crisis, HUD and the Department of Justice began investigating whether the financial woes of the fund were due in part to misconduct on the part of FHA lenders.  Some in the industry called this the “Big Lender Initiative.”  The results included False Claims Act settlements with over 20 lenders for more than $4.75 billion. 

Following this Big Lender Initiative, there were concerns that uncertain False Claims Act liability for regulatory defects led many well-capitalized lenders, including many banks and credit unions statutorily required to help meet the credit needs of the communities in which they do business, to largely withdraw from FHA lending.  The banks made no secret of this dynamic.  One bank’s CEO told their shareholders that they moved away from FHA lending in part due to “aggressive use of the False Claims Act… and overly complex regulations.” 

HUD has taken several steps to address these concerns, but one in particular was an MOU that Attorney General Barr and Secretary Carson signed last October. 

The MOU makes clear that we expect FHA requirements to be enforced primarily through HUD’s administrative proceedings, but the MOU specifically addresses how HUD and the department will consult with each other regarding use of the False Claims Act in connection with defects on mortgage loans insured by FHA.  

The MOU prescribes new standards for when HUD may refer a matter for pursuit of False Claims Act actions, and also sets forth how the department and HUD will cooperate during the investigative, litigation, and settlement phases of FCA matters in qui tam cases. For example, the MOU states that the department will solicit HUD’s views on the litigation, including whether HUD supports or opposes the case.  The MOU also provides HUD the opportunity to recommend (c)(2)(A) dismissal of the case if HUD does not support the case.  For example, HUD might recommend dismissal if the matter would not meet the agency’s own standards for referring FCA matters, if the alleged regulatory defects are not material, or if the litigation threatens to interfere with HUD’s policies or the administration of its FHA lending program.

Ultimately, the decision to dismiss a qui tam case is for the department to make, but as the Granston Memo makes clear, it’s important to coordinate with and solicit the input from the relevant agencies in these decisions.

It’s worth noting that, in addition to the MOU, HUD simplified the certifications that lenders make in connection with the FHA program.  Through the years, the old certifications through a process of accretion had grown to include many provisions that were not required by statute or regulation.  Now those certifications better track statutory requirements and address materiality and culpability considerations.

Based on the reception from the industry, we think the MOU and these other changes will give depository institutions the confidence to participate in the FHA program.

I should add one more point.  The MOU is specific to HUD, the FHA program, and the unique concerns that were raised when the most capitalized lenders were leaving the program.  And we don’t anticipate any need for additional MOUs.  However, we codified the core of the MOU — the requirements to solicit the views of the agency on qui tam litigation, materiality, dismissal, etc. — into the Justice Manual provisions on False Claims Act enforcement.  These principles now apply across the board — not just to HUD and FHA, but to every agency.

Cooperation Credit

The last policy I’ll discuss is the Cooperation policy that we announced last May.  The policy is the first of its kind in the False Claims Act space, but it builds on other department policies designed to incentivize corporate self-policing, cooperation, and compliance.  Under our new policy, corporate defendants can earn credit — and a reduction in penalties and damages — by voluntarily disclosing misconduct, cooperating with our investigations, and taking remedial measures such as improving corporate compliance programs.

It is good for everyone when companies police themselves, detect problems early, conduct internal investigations, take corrective measures, and cooperate with law enforcement, and we want to reward companies that do these things.  We have the prosecutorial discretion to do just that.  For companies that provide maximum cooperation, we can provide a substantial discount down to single damages, plus lost interest, costs of investigation, and, in a qui tam case, the share that must go to the whistleblower.  In addition, we may also notify the relevant regulatory agency about the company’s cooperation so that the agency can take that into consideration in connection with administrative proceedings.  And in some cases we are willing to publicly acknowledge the company’s cooperation or assist in resolving qui tam litigation with the relator.

I’ll make one additional point about the policy.  We are willing to take into account the nature and effectiveness of a company’s compliance system in making the determination of whether the False Claims Act is the appropriate remedy.  After all, a key element of the False Claims Act is scienter, and a robust compliance program executed in good faith could demonstrate the lack of scienter.  (On the other hand, a “paper tiger” compliance program could demonstrate just the opposite.) 

As a former compliance lawyer, I hope companies will recognize that this new reform is a significant incentive to invest in compliance, to come forward when they identify significant false claims, and do the right thing in connection with our investigations. 

In my view, this policy dovetails nicely with our regulatory reform and enforcement agenda because we recognize that good corporate citizens that effectively police themselves should not be subjected to unnecessary enforcement costs.  Indeed, this concept of incentivizing voluntary disclosure and cooperation is a key part of the President’s recent executive order on administrative enforcement and adjudication.  At the Department of Justice, we like to think that we are ahead of the curve on this front. 

Looking Ahead

I know one of the benefits of hearing from the department in these settings is to hear about what’s on the horizon, so I’ll just add a couple small previews here.  Obviously we expect to continue implementation of the policies that I’ve mentioned today.  Both regulatory reform and False Claims Act enforcement are top priorities for the department, so we intend to press ahead with these two interests in mind.  We will continue to pursue healthcare fraud, with particular emphasis in the opioids space, and all other serious fraud on the government, and we continue to be measured in our prosecutorial discretion, staying within the bounds of our enforcement and regulatory reform agenda.

I am sure that practitioners are particularly interested to see how the latest cooperation policy is being implemented, and I think you will see a good example in the near future.  I won’t get into specifics, but we are close to resolving a significant False Claims Act investigation where the company has merited the maximum credit available under the policy.  There has been voluntary disclosure, remedial action, and extensive assistance with the government’s investigation , and we expect to award the maximum discount and publicly acknowledge it.  So, stay tuned for news on this front.

Finally, let me point to one issue that we are evaluating at the moment: third-party litigation financing in qui tam actions.  Some of you may be aware that there are a couple proposals for disclosure of third-party litigation funding agreements in civil litigation — one is a proposal being considered within the Civil Rules Advisory Committee’s MDL Subcommittee and another is a bill sponsored by Senator Grassley and other Members of the Judiciary Committee in the Senate. 

Those proposals focus on third-party litigation finance disclosure in civil litigation at large, especially with respect to multi-district litigation and class action litigation, and my understanding is that the proponents believe disclosure is appropriate for a number of reasons including potential conflicts of interests, concerns about distortion in civil justice, fairness in litigation, and transparency and accountability. 

We are evaluating those proposals in the broader context, but we are particularly focused on the role that litigation funding plays in qui tam litigation.  As I mentioned earlier, we have dealt with some qui tam litigation where there were investors funding the relator entity, and with a relator accused by his employer of attempting to profit from qui tam litigation through short selling stock.  But aside from what the litigation finance industry says publicly, we have little insight into the extent to which they are backing the qui tam cases we are investigating, litigating, or monitoring. 

You may be aware that the issue of funding — and the effect it may or may not have on the relator’s standing — arose recently in a case before the Eleventh Circuit called United States ex rel. Ruckh v. Salus Rehabilitation.  We filed an amicus brief in that case, but did not weigh in on that particular issue.  Nevertheless, we are considering what, if any, interests the United States has with respect to third-party litigation financing in qui tam litigation and whether it is worth seeking some disclosure, at least to the department, of such arrangements. 

***

I’ll just close by saying that it has been a great privilege working at the Department of Justice on False Claims Act enforcement, and you should know that our lawyers are committed to exercising the department’s enforcement discretion consistent with the rule of law. 

I hope in particular that my remarks today have given you a better understanding of how False Claims Act enforcement lines up with our broader regulatory reform agenda.

Thank you. 

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Author: January 27, 2020

Statement from Deputy Attorney General Jeffrey A. Rosen Calling Upon the House of Representatives to Vote to Extend Scheduling of Fentanyl-Related Substances

Deputy Attorney General Jeffrey A. Rosen issued the following statement:

“Sadly, in 2017, more than 1,000 Americans died every two weeks from fentanyl and fentanyl-related substances.  In an effort to combat this deadly drug epidemic, DOJ’s Drug Enforcement Administration (DEA) in February 2018 issued a temporary emergency two-year order that made illegal all fentanyl-related substances.  Our country has seen a marked supply impact from DEA’s temporary scheduling of fentanyl-related substances during the past two years, with a 50 percent decrease in fentanyl-related substances encountered across the United States.  However, DEA’s emergency authority expires at midnight on February 6, 2020, unless Congress acts to extend it.

“On January 16, 2020, the Senate unanimously passed a commonsense, bipartisan 15-month extension of DEA’s temporary scheduling of fentanyl-related substances (S.3201).   It is essential that House leadership now schedule a vote to do the same. 

“If the House fails to act by midnight on February 6, traffickers of deadly opioids will again have the upper hand.   This cannot be allowed to happen.  The House of Representatives needs to act to help save Americans from more overdoses and deaths.”

See relevant op-eds on the fentanyl topic:

Attorney General William P. Barr op-ed.

U.S. Attorney Robert M. Duncan op-ed.

U.S. Attorney Justin Herdman op-ed.

U.S. Attorney John R. Lausch op-ed.

U.S. Attorneys for each New England District op-ed.

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Author: January 27, 2020

Three Louisiana Residents Charged for Conspiring to File False Tax Returns

A federal grand jury in New Orleans, Louisiana, returned an indictment today charging three Louisiana residents with one count of conspiracy to defraud the United States, 14 counts of aiding and assisting in the preparation of a fraudulent tax return, three counts of wire fraud, and three counts of aggravated identity theft, announced Principal Deputy Assistant Attorney General Richard E. Zuckerman of the Justice Department’s Tax Division and the U.S. Attorney’s Office, Eastern District of Louisiana.

According to the indictment, throughout 2015, Morgan Antoine, Jennifer Austin, and Brittany Patterson conspired to file false tax returns for clients of Pelican Income Tax and Payroll Service, a tax preparation business located in Kenner and Westwego, Louisiana.   The coconspirators allegedly prepared client returns reporting false income, false withholdings, and false dependents, in order to cause the Internal Revenue Service (IRS) to pay inflated refunds.  The indictment further alleges that the coconspirators charged fees as high as $1,100 for preparing tax returns, which they often deducted from the clients’ refunds.

The indictment also charges that to conceal their involvement in the fraud, the coconspirators filed returns in the name of a third party whose personal identifying information was stolen.  Finally, the indictment alleges that Antoine and Patterson each falsified their own personal returns claiming false dependents.

If convicted, Antoine, Austin, and Patterson each face a statutory maximum sentence of five years in prison for the conspiracy charge and three years for each count of aiding and assisting in the preparation of a fraudulent tax return. Antoine and Patterson face an additional twenty years in prison for each count of wire fraud and a two-year mandatory minimum for each count of aggravated identity theft. They also face a period of supervised release, restitution, and monetary penalties.

Principal Deputy Assistant Attorney General Zuckerman and the U.S. Attorney’s Office, Eastern District of Louisiana thanked special agents of IRS-Criminal Investigation, who conducted the investigation, and Assistant U.S. Attorney Carter Guice and Trial Attorneys Lauren Castaldi and Jessica Kraft of the Tax Division, who are prosecuting this case.

Additional information about the Tax Division and its enforcement efforts may be found on the Division’s website.

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Author: January 24, 2020

California Real Estate Developer Sentenced to 15 Months for Making Conduit Contributions in Two U.S. Congressional Campaigns

Oakland-area real estate developer James Tong was sentenced to 15 months today for funneling tens of thousands of dollars of his own money through straw donors into two consecutive congressional campaigns for a member of the U.S. House of Representatives.

Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, United States Attorney David L. Anderson for the Northern District of California, and Special Agent in Charge John F. Bennett of the FBI’s San Francisco Field Office made the announcement. 

Tong, 74, of Fremont, California, was sentenced by U.S. District Judge Jon S. Tigar of the Northern District of California.

A federal jury convicted Tong on Oct. 8, 2019, of two counts of making contributions to a federal campaign in the names of other individuals.  According to the evidence presented at trial, in 2012 and 2013 Tong made $38,000 in conduit contributions to the initial and reelection campaigns of a candidate who was running for the U.S. House of Representatives.  Tong provided envelopes of cash to his bank manager and another business associate and directed them to give the cash to individuals in the community, who then used Tong’s cash to write checks in their own names to the campaign for the U.S. congressional candidate Tong was supporting.  Tong leveraged financial obligations and the implied loss of business opportunities to induce his bank manager and business associate to distribute cash in the community to be donated.  The network of straw donors included dozens of conduits, including at least one foreign national who was not eligible to make donations to federal elections.  Tong also directed his middlemen to conceal the scheme by instructing the straw donors not to deposit the cash; and he later directed one of the middlemen to withhold information from the FBI after he was interviewed. 

On Aug. 31, 2017, a federal grand jury indicted Tong charging him with two counts of making and causing campaign contributions in the name of another, in violation of 52 U.S.C. §§ 30122 and 30109(d)(1)(D).  The jury found Tong guilty of both counts.

As part of the sentence, Judge Tigar found that Tong obstructed justice when he told his middlemen to not deposit cash given to them. Judge Tigar also sentenced the defendant to a one-year period of supervised release and a $380,000 fine. 

The FBI conducted the investigation.  Trial Attorneys Amanda R. Vaughn and Rebecca G. Ross of the Criminal Division’s Public Integrity Section and Assistant U.S. Attorney S. Waqar Hasib of the Northern District of California prosecuted the case.

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Author: January 24, 2020

Columbus Pain Clinic and Owner Agree to Pay $650,000 to Resolve Allegations of Unnecessary Procedures

Comprehensive Pain Management Institute and its owner, Leon Margolin, M.D., have agreed to pay the United States $650,000 to resolve False Claims Act allegations that they knowingly billed Medicare for nerve conduction studies and alcohol/substance abuse assessments and interventions (SBIRT) that were medically unnecessary or not provided as billed, the Justice Department announced today.  Margolin is a pain management physician in Columbus, Ohio. 

“Billing Medicare for unnecessary services undermines the integrity of this important federal healthcare program and squanders taxpayer funds,” said Assistant Attorney General Jody Hunt of the Department of Justice’s Civil Division.  “The Department will continue to work with its law enforcement partners to protect Medicare and its beneficiaries.”

Nerve conduction studies are used to measure how fast an electrical impulse moves through a person’s nerve.  Electromyography is the study and recording of electrical activity in a person’s muscles.  This testing is invasive in that it requires needle electrode insertion and adjustment at multiple sites.  Performed together, the tests identify the presence and location of diseases that damage nerves and muscles.  When a nerve conduction study is performed alone, the results can often be misleading, and it is considered medically unnecessary, except in limited circumstances not present here.  SBIRT is an early intervention targeting those with substance abuse to provide effective strategies prior to the need for more extensive treatment.  The government alleged that Margolin and his clinic billed Medicare for nerve conduction studies for patients who did not need them and without performing electromyography and for alcohol and/or substance assessments that were not necessary because the patients had no history of drug or alcohol abuse or where the services were not provided as billed.   

“Attempting to make a profit by knowingly submitting false claims to Medicare will cost you in the end,” said U.S. Attorney David M. DeVillers of the Southern Disitrict of Ohio. “The U.S. Attorney’s Office remains committed to pursuing improper billing practices by doctors and other medical providers, and will hold them to their obligation to treat Medicare beneficiaries in an ethical manner, and request reimbursement from Medicare in accordance with all applicable rules and regulations.”

The allegations resolved by today’s settlement were identified by a government investigation that arose out of a critical analysis of Medicare claims data.  The government’s settlement in this matter illustrates its emphasis on combating health care fraud.  One of the most powerful tools in this effort is the False Claims Act.  Tips and complaints from all sources about potential fraud, waste, abuse, and mismanagement, can be reported to the Department of Health and Human Services, at 800-HHS-TIPS (800-447-8477).

The matter was investigated by the Civil Division’s Commercial Litigation Branch, the U.S. Attorney’s Office for the Southern District of Ohio, and the Department of Health and Human Services Office of Inspector General. 

The claims asserted against this defendant are allegations only, and there has been no determination of liability.

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Author: January 24, 2020