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The Case of the Spoiled Spuds

by Diane Marger Moore on December 18, 2014

Last week, jurors in North Dakota found brothers, Aaron and Derek Johnson, guilty of defrauding the government of roughly $2 million. Their crime? Conspiring to receive illegal payments and making false claims in order to collect crop insurance money.

potato-texture-1399901-mProsecutors in the case say the Johnson brothers engaged in a scheme designed to compromise the government’s crop insurance program, which helps farmers financially recover from crop losses they incur due to issues like bad weather or the wet breakdown crops, much like potatoes go through after harvest. In this case, the Johnson brothers intentionally destroyed their potato crop in order to collect insurance money.

According to the Associated Press, the Johnsons allegedly threw frozen and spoiled potatoes in with their own crop and stored the potatoes in a warehouse they heated to 80 degrees in an attempt to deteriorate the crop. Prosecutors say they also used a chemical called Rid-X in order to speed up the deterioration process. Rid-X is used primarily for dissolving solid materials in septic systems.

This case was successful in large part due to the community of farmers who provided testimony on the condition of their potato crop at the time the Johnson brothers were receiving money from their fraudulent insurance claim. While this was a criminal matter, False Claims Act cases involving crop insurance fraud are more common than you might think.

Supreme Group B.V. and several subsidiaries pleaded guilty to major fraud charges on Monday in connection with a contract to provide food and water to U.S. military forces in Afghanistan. The defense contractor will pay $288.36 million in fines and penalties stemming from the criminal case, and will pay $101 million to resolve civil allegations made in a whistleblower lawsuit.

download (1)In 2005, Supreme Foodservice AG (now called Supreme Foodservice GmbH, a Supreme Group subsidiary) entered into a contract to provide troops in Afghanistan with food and water. According to the Justice Department, the company devised and executed a scheme that forced the U.S. to overcharge for the goods provided, specifically Local Market Ready goods (referred to as LMR). Supreme used a United Arab Emirates company called Jamal Ahli Foods Co. (“JAFCO”) that it controlled as a middleman to artificially mark up prices on locally-produced products sold to military forces.

Incriminating emails between Supreme executives show that the company was aware they were marking up prices on goods at margins of around 60 percent. One particular email from a Supreme executive says the company shouldn’t raise prices any more than they already have because they didn’t want to raise suspicions with their government customer.

In 2007, a Supreme entered into a “separation agreement” with a Supreme executive, who was paid 400,000 Euros to keep quiet on the fraud scheme. A former Supreme employee brought the scheme to a stop in 2009 by notifying the government about JAFCO and the inflated prices on goods in Afghanistan.

The civil case against Supreme was predicated on whistleblower claims made by a Supreme executive, who accused the company of violating the False Claims Act when it knowingly overcharged the government for goods. The whistleblower also claimed that Supreme received rebates from suppliers that it failed to pass on to the government.

Sanofi Named in Lawsuit Claiming Tens of Millions Spent on Kickbacks

December 8, 2014

A whistleblower lawsuit claims that the recently removed CEO of Sanofi and other high-level executives conspired in a scheme to funnel millions of dollars in company money to doctors, hospitals and pharmacy chains as kickbacks to get them to purchase and prescribe a Sanofi diabetes medication. The lawsuit was filed by Diane Ponte, a former [...]

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Is the Whistleblower Protection Act Strong Enough to Protect Federal Employees?

December 3, 2014

On November 4, the Supreme Court heard argument in Department of Homeland Security v. MacLean, a case that demonstrates the hurdles that federal employees must clear in order to receive whistleblower protection under the Whistleblower Protection Act. The WPA has often been criticized for not being able to do the one thing it’s supposed to [...]

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Maricopa County Community College District Settles Whistleblower Lawsuit for $4 Million

December 1, 2014

The Maricopa County Community College District (MCCCD) has agreed to pay $4.08 million to settle whistleblower allegations that it submitted false claims in connection with national and state AmeriCorps education grants. The settlement resolves claims initially filed by Christine Hunt, an MCCCD employee. Based in Phoenix, MCCCD operates community colleges in Maricopa County. According to [...]

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The Largest Health Care Fraud Settlements in 2014

November 26, 2014

Earlier this week, we profiled some of the Justice Department’s largest mortgage fraud settlements from 2014, including the largest civil settlement from a single entity (Bank of America agreed to pay a record $16.65 billion under a global resolution). In addition to recoveries in the financial sector, DOJ was able to successfully recover roughly $2.3 [...]

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Mortgage and Housing Fraud Recoveries Total Over $3 Billion for 2014

November 23, 2014

In fiscal year 2014, the Justice Department obtained roughly $3.1 billion in recoveries stemming from the housing and mortgage fraud claims, the most ever recovered in a fiscal year for that sector. The government has now recovered $4.65 billion over the last five years from financial institutions whose misconduct contributed to housing and mortgage crisis. [...]

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Sevenson Settles Bid-Rigging and Kickback Charges

November 17, 2014

Sevenson Environmental Services Inc. has agreed to pay $2.72 million to settle a lawsuit claiming that it violated the False Claims Act and the Anti-Kickback Statute by rigging contract bids, accepting kickbacks and inflating charges to the U.S. Environmental Protection Agency (EPA). The New York-based environmental remediation company was the primary contractor responsible for cleanup [...]

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Biotronik Agrees to Pay $4.9 Million to Resolve Whistleblower Lawsuit

November 10, 2014

The Justice Department announced late last week that an Oregon-based biotech company will pay nearly $5 million to settle whistleblower claims filed by a former employee. Biotronik allegedly made improper payments to doctors in an effort to entice them to use medical devices that the company manufactured and sold. The alleged improper payments caused hospitals [...]

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New York Nursing Service Agrees to Pay $35 Million to Settle Fraud Claims

November 9, 2014

A New York nursing service accused of sending improper reimbursement claims to the state’s Medicaid program will pay $35 million to settle civil fraud charges. Visiting Nursing Service of New York, VNS Choice and VNS Choice Community Care (collectively VNS) allegedly enrolled roughly 1,740 Medicaid members into a managed long-term care plan when the needs [...]

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