Category: Criminal Law

Financial Crimes Enforcement Network (FinCEN) Proposes Anti-Money Laundering Rules

Vedder Price Law Firm

On July 23, 2014, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a Notice of Proposed Rulemaking that would amend existing Bank Secrecy Act regulations with respect to customer due diligence (CDD) requirements for certain covered financial institutions, including mutual funds, brokers or dealers in securities and futures commission merchants and introducing brokers in commodities. The proposed rules would formalize certain CDD requirements and also require that covered financial institutions “identify and verify the beneficial owners of legal entity customers.” FinCEN’s proposal includes a standard certification form that covered financial institutions would be required to use for documenting the beneficial ownership of their legal entity customers. An individual may qualify as a “beneficial owner” of a legal entity customer if the individual either (1) owns 25% or more of the equity interests of the entity, or (2) has significant management responsibilities within the entity. As proposed, covered financial institutions would be exempted from identifying the beneficial owners of an intermediary’s underlying clients if the covered financial institution has no customer identification program obligation with respect to those underlying clients.

Comments on the Notice of Proposed Rulemaking are due by October 3, 2014.

ARTICLE BY

Investment Services Group
OF
Vedder Price

Illinois Bans Employment Application Questions About Criminal Convictions

Vedder Price Law Firm

On July 21, 2014, Illinois Governor Pat Quinn signed into law the Job Opportunities for Qualified Applicants Act (HB 5701), which generally prohibits private-sector employers from inquiring about an applicant’s criminal history on a job application. When this law goes into effect on January 1, 2015, Illinois will join Hawaii, Massachusetts, Minnesota and Rhode Island as the fifth state to enact a “ban the box” law applicable to private-sector employers. A number of municipalities, including Philadelphia and San Francisco, have passed similar laws prohibiting the use of check-this-box questions on employment applications inquiring about an applicant’s criminal history.

The new Illinois law applies to private-sector employers with 15 or more employees and to employment agencies. The law prohibits covered employers from asking about an applicant’s criminal record or criminal history until after the employer has deemed the applicant qualified for the position and scheduled an interview. If hiring decisions are made without an interview, then the employer may not inquire about an applicant’s criminal record or history until it has made a conditional offer of employment to the applicant.

These restrictions do not apply to positions (a) for which federal or state law prohibits the employment of individuals who have been convicted of certain crimes or (b) for which individuals are licensed under the Emergency Medical Services Systems Act. In addition, a more limited exception applies to positions requiring a fidelity bond.

Employers with Illinois operations should plan to review the employment application forms they use and make necessary changes this fall in advance of the law’s effective date of January 1, 2015. For most covered employers, this will involve postponing until later in the hiring process the time at which questions are asked about prior criminal convictions.

Article By:

Brandon L. Dixon
Thomas G. Hancuch
Of:
Vedder Price

 

Supreme Court: Checking in on Bank Fraud

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In Loughrin v. United States, U.S. Supreme Court, No. 13-316, the Supremes approved the application of the federal bank fraud statute to a relatively unsophisticated check cashing scheme, leading to the collective hand-wringing by a host of internet commentators who decried the federalization of state crimes and runaway prices at Whole Foods. The defendant in the underlying case was a pillar of the community named Kevin Loughrin, who stole and altered checks so that he could buy merchandise at his local Target stores, leading to six federal bank fraud charges. According the case record, Loughrin intended to buy merchandise with the checks and return them for cash refunds. Let’s face it, this was not the world’s most enterprising criminal.

What was enterprising, however, was Loughrin’s argument that he intended to target Target and not a federally-insured financial institution. According to Loughrin, a conviction for bank fraud required that prosecutors prove intent to defraud the banks on which the checks were drawn. Otherwise, suggested Loughrin, the federal bank fraud statute would extend to ordinary, unsophisticated frauds that simply involve payment by check – an area that was typically left to prosecution by the states.

Setting aside the debate between the breadth and scope of federal criminal laws (sorry, breathless internet commentators!), I’d instead like to talk about how bank fraud may not be bank fraud even though it’s bank fraud. Make sense? No? Hmm. Let me try again.

The Supremes cleared up that bank fraud applies to things like Loughren’s moronic basic check cashing scheme because of the use of checks, right? And this helps with the definition of what bank fraud actually is and what conduct bank fraud actually covers. But while the crime of bank fraud has become a little more clear, there is still absolutely no straightforward way of figuring out whether your local U.S. Attorney’s Office will actually prosecute the case or not.

“What?” you say indignantly. “But crime has been committed! Criminals must be punished! Heads must roll!” Oh, I agree. And you would be hard pressed to find people who do not agree (criminals have terrible lobbyists). But charging decisions are left entirely to the discretion of local U.S. Attorney’s offices, which must balance Department of Justice priorities with local priorities, office staff, and agency resources. So while a bank fraud of $30,000 in Billings, Montana may capture federal attention, the same fraud in Los Angeles, California, is likely going to be declined by federal prosecutors. The problem becomes more acute when the arbitrary lines bisect the same bustling metropolis, like what happens between the Northern and Eastern District of Texas or between the Southern and Eastern Districts of New York. It is entirely possible, for example, that federal prosecution in the Dallas area depends on where a criminal decides to exit Highway 75.

Does that sound arbitrary? If so, it’s because it is. But it’s the system that we have. And because of that system, bank fraud may not be bank fraud . . . even though it’s bank fraud.

Article By:

Shamoil T. Shipchandler
Of:
Bracewell & Giuliani LLP

Office of Inspector General Issues Special Fraud Alert Concerning Laboratory Payments to Referring Physicians

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On June 26th, the OIG issued a Special Fraud Alert concerning laboratory payments to referring physicians.  The OIG identified 2 different types of payment arrangements that may be viewed as problematic under the Anti-Kickback law: blood specimen collection, processing and packaging arrangements and registry payments.

The OIG described specimen processing arrangements as payments from laboratories to physicians for certain specified duties, which may include blood specimen collection and centrifuging, maintaining the specimens at a particular temperature, and packaging the specimens so that they are not damaged in transport. The OIG indicated that payments are typically made to referring physicians on a per-specimen or per-patient-encounter basis, and often are associated with expensive or specialized tests.  The concern raised by the OIG is that since Medicare (and other third party payors) allow nominal payments in certain circumstances for specimen collection and for processing and packaging specimens for transport to a laboratory, payment by the laboratory to the physician amounts to unlawful remuneration because the physician is effectively being paid twice for the same work.  The OIG also raised concerns that such payments may be made in amounts which exceed fair market value, although the OIG cautioned that such payments may be suspect if one purpose of the arrangement is to induce or reward referrals of Federal health care program business “regardless of whether the payment is fair market value for services rendered.”

The OIG identified the following characteristics specimen processing arrangements that may be suspect:

  • Payment exceeds fair market value for services actually rendered by the party receiving the payment.
  • The payment is for services for which payment is also made by a third party, such as Medicare.
  • Payment is made directly to the ordering physician rather than to the ordering physician’s group practice, which may bear the cost of collecting and processing the specimen.
  • Payment is made on a per-specimen basis for more than one specimen collected during a single patient encounter or on a per-test, per-patient, or other basis that takes into account the volume or value of referrals.
  • Payment is offered on the condition that the physician order either a specified volume or type of tests or test panel, especially if the panel includes duplicative tests (e.g., two or more tests performed using different methodologies that are intended to provide the same clinical information), or tests that otherwise are not reasonable and necessary or reimbursable.
  • Payment is made to the physician or the physician’s group practice, despite the fact that the specimen processing is actually being performed by a phlebotomist placed in the physician’s office by the laboratory or a third party.

The OIG also noted that payment arrangements can be problematic even if they are structured to carve out work performed on specimens from non-Federal health care program beneficiaries.

The OIG also raised concerns about payments for registry maintenance and observational outcomes databases.  Under these arrangements, which often involve patients presenting with specific disease profiles, laboratories pay a physician for certain specified duties, including submitting patient data to be incorporated into the registry, answering patient questions about the registry, and reviewing registry reports. While the OIG found that such payments may be appropriate in certain limited circumstances, such payments may induce physicians to order medically unnecessary or duplicative tests, including duplicative tests performed for the purpose of obtaining comparative data, and to order those tests from laboratories that offer registry arrangements in lieu of other, potentially clinically superior, laboratories.

The OIG identified the following as being characteristics of potentially suspect registry arrangements:

  • The laboratory requires, encourages, or recommends that physicians who enter into registry arrangements to perform the tests with a stated frequency (e.g., four times per year) to be eligible to receive, or to not receive a reduction in, compensation.
  • The laboratory collects comparative data for the registry from, and bills for, multiple tests that may be duplicative (e.g., two or more tests performed using different methodologies that are intended to provide the same clinical information) or that otherwise are not reasonable and necessary.
  • Compensation paid to physicians pursuant to registry arrangements is on a per patient or other basis that takes into account the value or volume of referrals.
  • Compensation paid to physicians pursuant to registry arrangements is not fair market value for the physicians’ efforts in collecting and reporting patient data.
  • Compensation paid to physicians pursuant to registry arrangements is not supported by documentation, submitted by the physicians in a timely manner, memorializing the physicians’ efforts.
  • The laboratory offers registry arrangements only for tests (or disease states associated with tests) for which it has obtained patents or that it exclusively performs.
  • When a test is performed by multiple laboratories, the laboratory collects data only from the tests it performs.
  • The tests associated with the registry arrangement are presented on the offering laboratory’s requisition in a manner that makes it more difficult for the ordering physician to make an independent medical necessity decision with regard to each test for which the laboratory will bill (e.g., disease-related panels).

The OIG found that concerns also arise when a physician is selected to collect data for a registry on the basis of their prior or anticipated referrals, rather than their specialty, sub-specialty or other relevant attribute.  The OIG also noted that “Even legitimate actions taken to substantiate such claims, including, for example, retaining an independent Institutional Review Board to develop study protocols and participation guidelines, will not protect a registry arrangement if one purpose of the arrangement is to induce or reward referrals.”

The laboratory market is a very competitive one.  The issuance of the referenced Special Fraud Alert, as well as recent large scale investigations and criminal indictments involving laboratory and physician relationships (including the Biodiagnostic Laboratory Services LLC investigation here in New Jersey: https://tinyurl.com/cf5djfw) demonstrates that the OIG has turned an increased focus on relationships between laboratories and physicians.

Article By:

Beth Christian
Of:
Giordano, Halleran & Ciesla, P.C.

Supreme Court Unanimously Rules That Police Officers Cannot Search the Contents of Cell Phones Incident to Arrest Without Obtaining a Search Warrant View Edit Track

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In Riley v. California, the United States Supreme Court unanimously held that the Fourth Amendment prohibits police officers from searching through the data on an arrested suspect’s cell phone as an “incident to the arrest” and instead ruled that police officers must get a warrant first.

Riley involved the facts of two separate cases. In the first case, officers searched through the smartphone of a suspect arrested for expired registration and possession of illegal firearms and found photos and text messages showing that the arrestee was involved in a gang shooting a few weeks earlier. In the second case, officers arrested a suspect after observing him complete a drug deal, searched his traditional cell phone (not a smart phone) for the phone number associated with his home, traced the number to his house, and found a large amount of drugs and cash, along with a firearm and ammunition. In both cases, the evidence obtained through the warrantless cell phone searches was admitted at trial and both defendants were convicted.

The Court’s analysis focused on the reach of a warrantless search “incident to a lawful arrest.” Under this exception, police officers are permitted to search the person arrested and the area within their immediate control to remove any weapons that may be used to resist arrest or endanger the officers and to prevent the destruction of evidence. SeeChimel v. California, 395 U.S. 752 (1969). The Court took the time to appreciate the complexity of modern cellphones, describing them as “minicomputers that also happen to have the capacity to be used as a telephone” that are “a pervasive and insistent part of daily life.” The Court then analyzed the two justifications in Chimel for allowing a search incident to arrest: officer safety and destruction of evidence. With respect to officer safety, the Court concluded that data cannot harm officers and examples of cellphones indirectly contributing to unsafe arrest scenes were insufficient to dispose of the warrant requirement. With respect to the destruction of evidence, the Court found that examples of remote data-wiping of cellphones in police custody were rare and could be prevented by removing the battery or storing the phone in a bag designed to block wireless signals.

As further justification, the Court examined the privacy issues that arise from allowing warrantless searches of cellphones incident to arrest. Because modern cellphones carry the equivalent of “cameras, video players, rolodexes, calendars, tape recorders, libraries, diaries, albums, televisions, maps, or newspapers” in a person’s pocket, the Court found that searches incident to arrest were not “limited by physical realities” of what a person can carry. Thus, allowing warrantless searches incident to arrest could reveal “far more than the most exhaustive search of a house.” The Court also noted that the scope of data that can be reached by cellphones, such as information uploaded to cloud servers, necessitated a warrant requirement and the proposed solutions to allow but limit warrantless searches were unworkable. Finding that cellphones store “the privacies of life,” the Court held that police must do one simple thing before searching a cell phone seized incident to an arrest: “get a warrant.”

For a full copy of the opinion, click here.

Article By:

Kevin Heaphy
Of:
Ryley Carlock & Applewhite, A Professional Corporation

 

Best of the Worst in Insurance Fraud

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The second most costly white collar crime in America behind tax evasion, insurance fraud costs an estimated $80 billion annually. Questionable claims rose 26.7% across the United States between 2010 and 2012, according to Mercury Insurance Company, whose Special Investigation Unit (SIU) of 50 investigators nationwide examines questionable claims. The team completed 1,476 investigations in California alone, exposing more than $24 million in attempted fraud, the company said.

insurance fraud

“It’s amazing the things people will do to try and cheat the system, but they don’t know we’ve seen it all,” said Dan Bales, national director of special investigations for Mercury, which established one of the country’s first SIU’s in 1978. “Our SIU goal is to stay several steps ahead of these criminals and continue to uncover fraud, which can contribute to as much as 30% of customers’ premiums.”

Below are Mercury’s Top 3 “Best of the Worst Claims,” in 2013, highlighting some of the methods used to try and beat the system.

Claim #3: Bicycle Down

The claimant alleged he was struck as his bicycle passed behind a Mercury-insured vehicle that was backing up in a parking lot. He called the police, filed a report claiming injury and property damage, and was then transported by ambulance to a medical center to treat his alleged injuries.

The real story was quite different, however, as this criminal didn’t know the entire incident was caught on video. The video clearly showed the claimant intentionally slapping the back of the insured vehicle with his hand and then guiding his bicycle to the ground to make it look like he’d been struck by the car.

The claimant retained an attorney to pursue an injury claim, which was denied by Mercury following the police report that included the security camera video taken at the scene. The claimant was ultimately arrested, convicted and sentenced to three months in jail with three years’ probation, and also had to pay a fine, restitution and his medical bills.

Claim #2: Wrong Way Driver

The insured stopped at an intersection in front of a repair van. Suddenly, the two vehicles collided in what appeared to be a rear-end collision, which necessitated police being called to gather statements.

The insured driver and passenger claimed the van driver had rear-ended the insured’s vehicle and both were allegedly injured. However, the van driver’s adamant contention that he hadn’t caused the accident led the investigating officer to seek surveillance video, which he found at a nearby gas station. Sure enough, the footage revealed that instead of proceeding through the intersection as expected, the insured driver threw her vehicle into reverse, slamming into the front of the van.

The insured driver and her passenger were subsequently charged with insurance fraud and conspiracy, and the driver was also charged with assault with a deadly weapon … her car. And yes, the claim was denied.

Claim #1: A Not-So-Merry Christmas

Looking to make some quick Christmas cash, the insured and two cohorts staged an accident and filed medical payment claims through Mercury, which were identified as questionable and assigned to the SIU for investigation.

A detailed claims history was compiled for the three individuals, who were then interviewed by SIU investigators. What the investigators found was that each claimant’s story was different, so they began to look deeper. That’s when they uncovered some very compelling evidence that suggested this accident was staged.

The SIU team discovered the insured’s prior claim history showed a loss at the same location with the same facts provided. A confession quickly followed about his latest claim, as well as a description of all the fraud he’d committed on each of his previous claims. All three claimants were convicted and given probation, community service and ordered to pay more than $26,000 in restitution to Mercury Insurance.

Suspicious activity can be reported to the National Insurance Crime Bureau.

SEC (Securities and Exchange Commission) Gives Insider Trader a $30,000 Slap On The Wrist

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On April 23, 2014, the SEC agreed to settle insider trading charges against Chris Choi, a former accounting manager at Nvidia Corporation who allegedly set into motion a trading scheme that reaped nearly $16.5 million in illicit profits and avoided losses. Given the amount of the purported loss, the fact that Choi was the original “tipper,” and the fact that nearly every other member of the scheme has been indicted, the Choi settlement seems like nothing more than a slap on the wrist: a $30,000 penalty without admitting to the insider trading allegations. The Choi settlement also represents a notable departure from the SEC’s recent insider trading fines and penalties against “tippers.”

According to the SEC’s complaint, on at least three occasions during 2009 and 2010, Choi tipped material nonpublic information about Nvidia’s quarterly earnings to his friend Hyung Lim. SEC v. Choi, No. 14-cv-2879 (S.D.N.Y. Apr. 23, 2014). Lim passed the information along to Danny Kuo, a hedge fund manager at Whittier Trust Company, who passed the information to his boss and to a group of managers at three other hedge funds.

Kuo and the other tippee-hedge fund managers used Choi’s information to trade in advance of Nvidia earnings announcements and reaped trading gains and/or avoided losses of approximately $16.5 million.

The SEC alleged that Choi was liable for this trading because he “indirectly caused trades in Nvidia securities that were executed” by the hedge funds and “did so with the expectation of receiving a benefit and/or to confer a financial benefit on Lim.” The SEC charged him with violations of Section 10(b) of the Exchange Act (and Rule 10b-5) and Section 17(a) of the Securities Act.

Choi, without admitting or denying the SEC’s allegations, agreed to settle the matter and to the entry of an order: (1) permanently enjoining him from violations of Section 10(b), Rule 10b-5, and Section 17(a); (2) barring him from serving as an officer or director of certain issuers of securities for five years; and (3) ordering him to pay a $30,000 penalty.

Not only is Choi’s settlement a significant departure from the resolutions obtained by his “downstream” tippees, a number of whom were convicted on criminal charges of insider trading, it is a departure from recent SEC “tipper” settlements. For example:

  • A former executive at a Silicon Valley technology company, who allegedly tipped convicted hedge fund manager Raj Rajaratnam with nonpublic information that allowed the Galleon hedge fund to make nearly $1 million profit, agreed to pay more than $1.75m to settle the SEC’s insider trading charges. See SEC Charges Silicon Valley Executive for Role in Galleon Insider Trading Scheme.
  • A physician who served as the chairman of the safety monitoring committee overseeing a clinical trial for an Alzheimer’s drug being jointly developed by two pharmaceutical companies, who allegedly tipped a hedge fund manager with safety data and eventually data about negative results in the trial approximately two weeks before they became public, which allowed the hedge fund to make nearly $276 million in gains, agreed to pay more than $234,000 in disgorgement and prejudgment interest to settle the SEC’s insider trading charges. The physician’s penalty may have been mitigated by the fact that he cooperated with and received a non-prosecution agreement from the U.S. Attorney’s Office in a parallel criminal action. See SEC Charges Hedge Fund Firm CR Intrinsic and Two Others in $276 Million Insider Trading Scheme Involving Alzheimer’s Drug.
  • A former executive director of business development at a pharmaceutical company located in New Jersey, who allegedly tipped a hedge fund manager (a friend and former business school classmate) with material nonpublic information regarding the company’s anticipated acquisition that allowed the manager to make nearly $14 million in gains, escaped criminal prosecution and agreed to pay a $50,000 penalty to settle the SEC’s insider trading charges. See SEC Charges Pharmaceutical Company Insider and Former Hedge Fund Manager for Insider Trading, Resulting in Approximately $14 Million in Profits.

There are a few reasons the SEC may have settled with Choi for such a small civil penalty. First, the SEC recently settled with Lim, the second chain in the insider trading scheme. Lim tentatively agreed to disgorgement or to pay a penalty once he has completed his cooperation with the U.S. Attorney’s Office for the Southern District of New York and has been sentenced in its pending, parallel criminal action¾ i.e., United States v. Lim, 12-cr-121 (S.D.N.Y.). It also could be Choi’s limited financial means. We likely will never know the reason for the SEC’s agreed-upon resolution, but the fact of the resolution may have some value to other defendants.

Article By:

William L. Carr
Kevin A. Wisniewski
Of:
Drinker Biddle & Reath LLP

 

Sixth Circuit Appeals Court Upholds $6.1 Million Fraud Judgment Against Blue Cross Blue Shield of Michigan

Varnum LLP

The U.S. Court of Appeals for the Sixth Circuit has affirmed a $6.1 million fraud judgment against Blue Cross Blue Shield of Michigan. The Appeals Court agreed that “BCBSM committed fraud by knowingly misrepresenting and omitting information about the Disputed Fees in contract documents.”  Its misleading information “helped sustain the illusion that BCBSM was more cost-competitive” than its competitors.

The ruling confirms last year’s judgment by a federal court in Detroit, which found that BCBSM collected millions of dollars in hidden fees over a 20-year period from Hi-Lex Controls, Inc. and Hi-Lex America, Inc., along with their self-insured employee health plan. Varnum attorneys representing Hi-Lex showed that BCBSM marked up employee hospital claims by as much as 22 percent and kept the markup. Reports provided to Hi-Lex did not disclose the hidden fees. Internal company e-mails showed that BCBSM’s managers knew customers were unaware of the markups, and that employees were trained to “downplay” the hidden fees if any customers discovered them.

“We are very happy that the judgment was affirmed,” said Varnum attorney Perrin Rynders, whose team has battled the issue for more than three years. “It’s been a long time coming, but we never doubted that this would be the ultimate outcome. We applaud our client who had the courage to stand up for what’s right and persevere through this lengthy legal process. Litigation was not our client’s preferred approach, but BCBSM refused at every turn to accept responsibility for its actions.”

The Hi-Lex matter was the first to reach judgment out of more than 35 similar ERISA cases that Varnum has filed against BCBSM on behalf of companies and their self-insured health plans.

Rynders noted that the ultimate result is a win for more than just those clients who have filed suit. BCBSM apparently discontinued its practice of rolling fees and surcharges into “hospital claims” for its self-insured clients in 2012, shortly after Varnum filed its first group of lawsuits.

“Employers work hard to manage their health care costs. It is upsetting that an organization trusted to help keep costs in line would violate that trust and take advantage of its customers,” Rynders said.  “The cases we are handling are good for companies and workers all across Michigan, because more money will be available for vital health care.”

The Sixth Circuit Court of Appeals issued its decision on May 14, 2014.

The original judgment was issued in May 2013 by U.S. District Court Judge Victoria A. Roberts. It concluded that BCBSM violated the Employee Retirement Income Security Act (ERISA) through its practice of collecting additional compensation without customers’ knowledge. The Court held that BCBSM engaged in illegal self-dealing and breached its fiduciary duties under ERISA.

Judge Roberts entered judgment in favor of Hi-Lex for $6.1 million, including a return of all hidden fees taken from Hi-Lex since 1994 plus interest.

Article By:

Stephen F. MacGuidwin
Perrin Rynders
Aaron M. Phelps
Of:
Varnum LLP

Employer Used As Means to Commit Crime not a Victim under Restitution Act, Fourth Circuit Court Rules

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The Mandatory Victims Restitution Act of 1996 (“MVRA”) provides that a victim of a federal crime may be entitled to an order of restitution for certain losses suffered as a direct result of the commission of the crime for which the defendant was convicted.  A question that courts sometimes face is whether a company can be considered a “victim” under the MVRA if an employee uses that company as an instrument to defraud the federal government.

Looking at this issue, the U.S. Court of Appeals for the Fourth Circuit on April 4, 2014, declined to allow a company’s bankruptcy estate to receive restitution for a large debt caused by an owner/employee’s fraud because that company was used as an instrument for that fraud.  In re Bankruptcy Estate of AGS, Inc., No. 12-cr-113 (4th Cir., April 4, 2014).

Dr. Allen G. Saoud was convicted after a June 2013 jury trial of five counts of health care fraud.  Dr. Saoud, who is a dermatologist, in 2005 was excluded from participating in Medicare and Medicaid for 10 years.  He then plotted to maintain ownership and control of his dermatology practice, AGS, Inc. in violation of the exclusion.  He founded a new dermatology practice and transferred all of his patients to this new practice.  After selling  his new practice to Dr. Fred Scott for $1.8 million,  Dr. Saoud then sold AGS, which had lost its value, for $1 million to nurse practitioner Georgia Daniel.  Despite  these sales, he continued to control and profit from both entities, partly by collecting Medicare and Medicaid reimbursement funds.

After Dr. Saoud was convicted, the estate of AGS, Inc., which had filed for bankruptcy, sought a $1 million restitution award to cover bankruptcy creditor claims that stemmed partly from the underlying fraud.   The district court declined.  The Estate of AGS, Inc. then filed a writ of mandamus with the Fourth Circuit.

The Fourth Circuit also refused  to award restitution to the Estate.  The Court held that Dr. Saoud used AGS, Inc. as an instrument in his scheme to illegally obtained Medicare and Medicaid funds, and as such, the Court declined to “also hold that AGS was one of the scheme’s victims.”

AGS, Inc. should be a source of concern to companies that have sustained losses as a result of employee fraud.  If an employee, director, officer or owner uses a company to defraud the government and that company incurs tax or other debt liability as a result of that fraud, that company may not be able to receive restitution under the MVRA.  Jackson Lewis attorneys are available to advise companies on the scope of the Mandatory Victims Restitution Act and their rights in collecting amounts lost to criminal acts.

Article By:

Ramsay C. McCullough
Of: 
Jackson Lewis P.C.

Illinois Whistleblower Awarded $3 Million Following Jury Trial

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In what appears to be an alarming trend for employers, the Chicago Tribune recently reported that a former Chicago State University employee was awarded $3 million after a Cook County, Illinois jury found that the University retaliated against him for reporting alleged misconduct by top university officials in violation of the Illinois State Official and Employees Ethics Act (5 ILCS 430/15-5, et seq.) and the Illinois Whistleblower Act.  Crowley v. Chicago State University, No. 2010-L-012657.

Background

Plaintiff James Crowley (Crowley) was the Senior Legal Counsel for Chicago State University (University).  His responsibilities included reviewing contracts and processing Freedom of Information (FOIA) requests.  During his employment, the University hired a new President, Wayne Watson (Watson).  Watson did not commence his employment immediately due to a retirement benefits regulation; however, Watson allegedly made official University decisions and moved into the Presidential residence during the interim period.  Crowley received several FOIA requests inquiring about whether Watson was working unofficially in contravention of the benefits regulation.

Crowley alleged that Watson urged him to withhold certain documents from the FOIA requests, and threatened him by saying “If you read this my way, you are my friend. If you read it the other way, you are my enemy.”  Crowley refused Watson’s request, and released all documents relevant to the FOIA inquiry.  Crowley reported his concerns about the FOIA requests, as well as concerns about the University’s contracting practices, to the Illinois Attorney General’s Office.  The University subsequently terminated Crowley’s employment.  Crowley filed suit alleging that he was terminated for refusing to withhold documents from the FOIA requests and reporting the University’s alleged misconduct in violation of the Illinois State Official and Employees Ethics Act and the Illinois Whistleblower Act.

Jury Verdict

The jury found in favor of Crowley, and awarded him $480,000 in back pay and an additional $2 million in punitive damages.  The jury also concluded that Crowley should be reinstated to his prior position.  After receiving the jury’s verdict, the presiding judge doubled the jury’s back pay award, as permitted under state law, and also granted Crowley $60,000 in interest.

Implications

Multi-million dollar judgments in state court whistleblower retaliation cases are trending at an alarming rate.  We recently reported on a $6 million whistleblower verdict in California and other large verdicts in Minnesota and New Jersey.   This trend highlights the serious risks employers face under state and federal whistleblower laws, and servers as a wake-up call for employers to carefully review and refine their whistleblower policies and related practices.

© 2014 Proskauer Rose LLP.

Article By:
Steven J Pearlman
Allison Lynn Martin

Of: