Contractors to Pay $125 Million in Hanford Nuclear Site Settlement

Bechtel National and AECOM have agreed to pay $125 million to settle whistleblower allegations that they overcharged the government for subpar materials and work in constructing a nuclear site in Washington State. The Hanford nuclear site settlement agreement also resolved allegations that Bechtel inappropriately used government funds to lobby Congress for the company’s work at the site.

The allegations against Bechtel and URS, which was later purchased by AECOM, were initially brought by three whistleblowers. Walter Tamosaitis, Gary Brunson and Donna Busche were all former managers on the Hanford nuclear treatment facility project who filed a sealed complaint in 2013.

Government Paid Bechtel and AECOM Billions to Build Hanford Nuclear Site 

Bechtel_logoAfter decades of government plutonium production at Hanford, construction on a nuclear waste treatment facility for the purposes of environmental cleanup began in 2002. Bechtel is designing and building the nuclear treatment facility, with AECOM serving as its primary subcontractor. The government has paid both companies billions to design and build the nuclear treatment facility.

The nuclear waste at Hanford is stored underground in aging tanks. Dozens of these tanks have leaked, potentially threatening the health of the environment, including the nearby Columbia River.

Once the multi-billion dollar Hanford nuclear facility is completed, it will turn the 56 million gallons of radioactive nuclear waste created by the government’s nuclear weapons program into a stable glass form that can be stored deep underground.

Between 2001 and 2013, Bechtel and URS knowingly charged the U.S. Department of Energy for materials and services that failed to meet federal standards required for nuclear facilities. Both companies “recklessly purchased deficient materials and services with taxpayer money,” said U.S. Attorney Michael Ormsby of the Eastern District of Washington. In a statement, Ormsby added that the allegations in the case are “deeply concerning given the obvious importance of nuclear safety.”

According to the whistleblowers involved in the Hanford nuclear site settlement, these deficient materials included accepting and using grout that could not withstand high radiation levels, as well as piping that wasn’t tough enough to withstand the force of a severe earthquake. The nuclear safety whistleblowers further claim other materials and equipment were accepted that failed to meet nuclear quality standards.

These failures led to repeated instances in which the welding of tanks, duct work and other equipment was accepted despite failing to meet nuclear standards.

Bechtel Used Taxpayer Money to Lobby Congress for its Own Benefit 

In addition to the allegations related to nuclear standards violations, the whistleblowers accused Bechtel of using taxpayer money for lobbying activities, a violation of the Byrd Amendment, which prohibits the use of federal money for lobbying.

According to the Justice Department, Bechtel used federal money to pay a lobbyist in 2009 and 2010 to meet the Hanford nuclear facility’s critics in Congress and downplay the safety concerns that had been raised by the Defense Nuclear Facilities Safety Board.

The company was again accused of using taxpayer money to lobby the government in 2011, this time in an effort to secure an extra $50 million in funding for the Hanford site. The extra funds were thought at the time to be in jeopardy due to the DNFSB’s safety concerns.

In light of the safety concerns over the Hanford site’s quality assurance program, the Department of Energy required Bechtel to review a significant amount of equipment that had been installed. Construction on the parts of the plant that will hold highly radioactive waste has been on hold since 2012 over technical concerns. The Department of Energy also withheld around $15 million in Bechtel’s incentive pay between 2013 and 2015.

Breakdown of Hanford Nuclear Site Settlement 

Today’s Hanford nuclear site settlement was reached after a Justice Department investigated the whistleblower allegations for more than three and a half years. The government decided to join the case this month on some of the allegations, including the nuclear standards violations and the illegal lobbying.

Bechtel agreed to pay $67.5 million as part of the Hanford nuclear site settlement, and AECOM agreed to pay $57.5 million. Neither company admitted to any wrongdoing. As part of the agreement, Bechtel and AECOM are both barred from any of the settlement money being charged to the government.

The government is expected to use some of the Hanford nuclear site settlement funds to pay for Department of Energy environmental cleanup work.

Whistleblowers Walter Tamosaitis, Gary Brunson and Donna Busche together will receive between 15 and 25 percent of the settlement, which could be as much as $31.25 million. As of this writing, the whistleblower reward for this case has not yet been decided.

Under the False Claims Act, private parties (whistleblowers) are permitted to sue on the government’s behalf if they believe another party has submitted false claims for government funds. If the case proves successful, the whistleblower or whistleblowers share in any funds recovered by the government.

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Defective Heart Devices Costing Medicare Billions

A report released last week by the Department of Health and Human Services (HHS) says Medicare has spent billions of dollars on defective heart devices implanted in thousands of Medicare beneficiaries.

U.S.-Department-of-Health-and-Human-ServicesThe HHS report is based on an ongoing audit looking into three companies that make seven heart devices. While investigators have yet to identify the three cardiac device manufacturers, the devices in question have either been recalled or have high rates of unexpected failures.

According to the report, 375,991 Medicare beneficiaries were implanted with the defective devices over an unspecified amount of time. HHS subpoenaed the three unidentified cardiac device manufacturers in order to obtain a list of beneficiaries that received the defective devices, and found that 72,721 beneficiaries had to have the defective heart devices replaced.

Replacing these defective heart devices resulted in 8.2 million Medicare claims, which cost the government a whopping $5.1 billion. In addition to the government money spent on procedures and services related to the defective devices, Medicare beneficiaries themselves were forced to spend $501 million out of their own pockets in coinsurance and deductible payments.

Using “complex audit procedures” to review individual claims, HHS was able to determine the total costs incurred due to recalls and device failures alone. According to the report, Medicare spent $1.5 billion and beneficiaries spent $140 million out of pocket on the defective heart devices. The remainder of the $5.1 billion cost went to necessary device upgrades and replacements resulting from infections.

Just over a week after HHS released its report, St. Jude Medical, one of the country’s largest heart device manufacturers, issued a warning to doctors and patients detailing a problem with one of its devices.

In a statement, the company said two deaths have been reported and 10 patients fainted after St. Jude devices stopped working due to a rare battery defect. According to St. Jude, the batteries in its Fortify, Quadra and Unify heart-shocking defibrillators need to be replaced immediately after patients receive a vibrating alert from the device. Under normal circumstances, patients have up to three months to replace the battery, but the company has indicated that some of its heart devices can fail within 24 hours after patients receive the vibrating alert.

According to a separate statement from the U.S. Food and Drug Administration (FDA), nearly 350,000 patients could be affected by the defective heart devices. The FDA is not recommending that patients have the devices removed, as the risks associated with surgically removing the devices generally outweigh the potential harm of the defect. Nonetheless, the issue outlined by St. Jude underscore just how prevalent heart device defects have become.

FDA: Recalls of Medical Devices Nearly Doubled Between 2003 and 2012 

Medical device recalls aren’t limited cardiac devices. According to data from the FDA, medical device recalls nearly doubled between 2003 and 2012. Studies have shown that defective medical devices of all types during these years cost Medicare billions of dollars to cover monitoring, hospital visits, surgeries, imaging, post-acute care, physician services, and a host of other related services.

Medicare beneficiaries are not just adversely affected by the health implications associated with defective devices; as evidenced by the HHS report, many are also forced to incur costs of meeting deductibles and paying coinsurance.

The magnitude of these costs to cover defective medical devices is a real cause for concern, and according to the HHS report, this concern didn’t happen overnight. The Centers for Medicare and Medicaid Services (CMS) started discussing the growing costs of defective medical devices back in 2007. Here we are 10 years later and things are just getting worse.

What Are We Doing to Stop the Fraud and Abuse Associated with Defective Heart Devices? 

Senator Charles Grassley (R-IA) and Senator Elizabeth Warren (D-MA), both whom backed the HHS audit, have endorsed a proposal that could put a stop government waste on defective devices.

The proposal would simply require hospitals and providers to include medical device tracking codes on Medicare claims forms, making it easier for CMS to easily identify poorly performing devices. This would improve patient care and lower costs to both the government and taxpayers. The proposal would also have the benefit of providing a way for CMS to identify unreported manufacturer credits from medical device companies, which can potentially signal Medicare fraud.

Cardiac devices that fail may be covered under the device manufacturer’s warranty. When hospitals receive a full or partial manufacturer credit for a medical device that is covered under warranty or replaced because of defects or recalls, Medicare generally requires a payment reduction. Hospitals and providers occasionally receive these credits from manufacturers, but fail to adjust beneficiary claims to reduce the cost, thus fraudulently overcharging the government for services related to the defective device.

“There’s a physical cost and a financial cost to patients when medical devices fail, and a big expense to taxpayers as well,” said Senator Grassley in a statement last week. “It makes sense to track medical devices on claims forms so flawed devices can be taken out of use and patients and taxpayers can be better protected.”

Hopefully, others agree and steps are taken to address the issue. It is unsustainable for the government to continue overpaying for medical devices that don’t work.

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Whistleblower Turns Down 8 Million Dollars to Do the Right Thing by Outing Deutsche Bank Fraud

In May of last year, Deutsche Bank reached an agreement with the Securities and Exchange Commission (SEC) to settle allegations of improper accounting during the financial crisis. Deutsche paid $55 million to settle the allegations, which were initially brought to the government’s attention by whistleblowers.

iStock_86819839_MEDIUMWhistleblowers accused Deutsche of concealing the market value of certain credit default swaps – financial contracts in which a seller agrees to compensate the buyer (usually the creditor of the reference loan) if the loan should happen to default. The buyer of the swap makes payments to the seller, and in exchange, receives a payoff if the loan defaults. In essence, a credit default swap thought of as insurance against loan default.

The allegations against Deutsche claim the bank hid mounting losses that were incurred as the market value for these credit default swap transactions sank in the midst of the financial collapse that began in 2008. According to the SEC, a number of people at Deutsche were concerned about inflating the value of these swaps, but those who objected to the alleged wrongdoing were either excluded from making decisions or outright ignored. In the end, Deutsche underestimated risks by between $1.5 billion and $3.3 billion, according to SEC claims.

One of the whistleblowers to come forward and expose Deutsche Bank’s alleged scheme was a man named Eric Ben-Artzi, who worked as a risk officer for the bank. Hired by the bank in 2010, Ben-Artzi said he knew right away that something wasn’t right with the bank’s CDS valuations. He reportedly called an internal Deutsche hotline to express his concerns, then met with the bank’s top compliance attorney, who told him that his concerns should be regarded as confidential. Ben-Artzi objected, and was subsequently fired from the bank. He then went to the SEC and provided details on the bank’s alleged wrongdoing.

Credit Default Swap Whistleblower says SEC should hold Deutsche Execs Accountable 

Mr. Ben-Artzi is not your typical SEC whistleblower. For one thing, he chose to make his identity public, which while not unprecedented, is exceedingly rare. Most SEC whistleblowers choose to shield their identity in order to avoid losing their careers in the financial industry. The fact that Ben-Artzi outed himself as a Deutsche Bank whistleblower in order to tell his story, all but ending his career on Wall Street, speaks to both his character and the seriousness of the points he raises.

But perhaps the most unique thing about the Deutsche Bank whistleblower is that he turned down his reward of over eight million dollars because he felt that the SEC did not come down hard enough on the people he claims were responsible for the alleged fraud: Deutsche executives. Instead, the Deutsche Bank whistleblower requested that his share of the whistleblower reward be given to bank stakeholders who he feels were wronged as a result of the bank’s alleged misrepresentations.

In a telling opinion piece published last month in the Financial Times, Mr. Ben-Artzi said the $55 million fine imposed on Deutsche let the bank executives off the hook scot-free, and instead punished the bank’s shareholders and employees, who are now “losing their jobs in droves.”

“Meanwhile, top executives retired with multimillion-dollar bonuses based on the misrepresentation of the bank’s balance sheet. It is therefore especially disappointing that in 2015, after a lengthy investigation helped by many whistleblowers, the SEC imposed a fine on Deutsche’s shareholders instead of the managers responsible,” Ben-Artzi wrote.

Mr. Ben-Artzi’s opinion piece hammers home a couple of critical issues  which are frequently not discussed: the revolving door between Wall Street and the agency policing it; and the SEC’s inclination to fine companies that commit fraud, but not the executives and high officials  who order the fraud or allow it so occur. Ben-Artzi wrote that one of the reasons Deutsche paid such a small fine in relation to the enormity of the allegations against it might have something to do with the bank’s top lawyers having a cozy relationship with the SEC.

Deutsche’s chief lawyer who headed the internal investigation at the bank in 2011 went on to become the SEC’s chief council in 2013. Robert Khuzami, Deutsche Bank’s top lawyer in North America, went on to head the SEC’s enforcement division in the wake of the financial crisis. Richard Walker, the bank’s longtime general council, was once the head of enforcement at the SEC (Walker only recently left the bank in 2016). The current head of the SEC, Mary Jo White, has known both Khuzami and Walker for as long as 20 years.

Of course, this incestuous relationship between Wall Street and the agency charged with policing it isn’t limited to Deutsche Bank. According to Business Insider, a former Fed employee admitted last year to leaking confidential government information to a banker from Goldman Sachs.

The Wall Street Journal published a story earlier this year analyzing 156 civil and criminal proceedings brought by the Justice Department and the SEC over the last seven years against the 10 largest Wall Street banks. Less than 19 percent of those cases identified or charged an individual for any wrongdoing.

This stand taken by Mr. Ben-Artzi is an important one—unless we punish the high level executives responsible for financial fraud, it will continue. A fine of $55 million for a large Wall Street bank might seem like a lot of money to us, but is at best a slap on the wrist for a company like Deutsche Bank.

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Monsanto Whistleblower Receives $22 Million Reward

A Monsanto whistleblower who accused his former employer of multiple years of accounting violations will receive a $22 million reward from the Securities and Exchange Commission (SEC). The award represents the second largest in the history of the SEC’s whistleblower program, created in 2011 as part of the Dodd-Frank legislation.

News of the substantial whistleblower reward comes several months after Monsanto reached an agreement with the federal government to settle accusations related to the company’s rebate program for Roundup weed killer, a widely-used glyphosate herbicide that has been linked to cancer.

Monsanto-LogoAccording to the SEC, Monsanto failed to properly account for tens of millions of dollars in rebates the company provided to retailers and distributors when tabulating sales of Roundup weed killer. The alleged accounting violations started in 2009 and continued through 2011.

At that time, the economy was challenged by recession and Roundup was losing market share to cheaper generic versions of the herbicide. Realizing that Roundup sales were lower than the company projected, Monsanto altered its accounting policies, according to the Monsanto whistleblower.

Rather than factor in the costs of the rebates into the fiscal year for 2009, Monsanto reported the costs of the rebates in the next fiscal year. As a result of the alleged accounting violations, the company was able to meet consensus earnings-per-share analyst estimates for fiscal year 2009. Meeting this benchmark was very important to the company. If the company reported earnings that failed to meet estimates, Monsanto’s share price likely would have taken a hit.

In 2010, Monsanto allegedly used the same accounting, moving the costs of rebates into fiscal year 2011. According to the Monsanto whistleblower, over the course of 2009 and 2010, Monsanto’s accounting violations inflated the company’s profit by a combined total of $31 million.

Not long after the SEC began investigating Monsanto in late 2011, the company announced it would restate its earnings for 2009 and 2010 to reflect the true timing of the rebate costs. The impact of the restated earnings only caused the company’s stock to go down a few pennies per share, according to the New York Times, but Monsanto was forced to pay the government $80 million in penalties. Monsanto did not admit to any wrongdoing, but the company agreed to retain a qualified independent ethics and compliance consultant, per the terms of the government settlement.

Monsanto Whistleblower: The Punishment Doesn’t Fit the Crime 

Despite the large penalty and whistleblower reward, the man who brought these allegations against Monsanto to the government’s attention believes that the punishment didn’t go far enough to address the issues that led to the alleged wrongdoing.

“The company got fined and some money changed hands, but that’s not the answer,” says the Monsanto whistleblower, who chose to remain anonymous, a choice that whistleblowers can make in filing a complaint with the SEC. The unidentified Monsanto whistleblower chose not to disclose his identity because he doesn’t want his involvement in this case to jeopardize any future job opportunities.

“Management not being held accountable, that still bothers me. I went into this to get that fixed, and that didn’t get fixed.”

He told the Times that it was difficult to know that the company was doing something wrong, but nobody seemed particularly bothered by it. “The Monsanto culture is very tightknit. Everybody has stock options and everyone is financially at risk. So they go with the flow.”

Only three mid-level Monsanto employees were named in the SEC’s enforcement action. Between all three, they paid a total of only $135,000 in penalties. One of the employees retired from Monsanto while the other two remain with the company as accountants.

This was particularly frustrating for the Monsanto whistleblower, who claims that others at the company knew about the alleged accounting violations, but the SEC took no action against them. It was also disappointing that the SEC chose not to pursue any action against Monsanto’s outside auditor, Deloitte, which allegedly enabled Monsanto to overstate earnings in 2009 and 2010. The SEC never provided any explanation as to why action against Deloitte was not pursued.

For its part, the SEC is beginning to pursue more cases against auditors. In 2013, the agency brought actions against 37 auditors. That number more than doubled in 2015.

SEC acting chief Jane Norberg commended the Monsanto whistleblower in a statement, saying his position within the company was the key to uncovering the alleged fraud, which she described as “deeply buried.” Without his participation, Norberg said it would have been extremely difficult for law enforcement to find out about the alleged wrongdoing.

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Beauty School Pays $11M to Settle For-Profit School Whistleblower Case

A national for-profit beauty school will pay the government and six whistleblowers $11 million to settle allegations that it used a series of fraud tactics to maximize financial aid funding from the government. Marinello Schools of Beauty—once one of the largest for-profit beauty schools in the U.S.—settled a whistleblower lawsuit filed by former employees in May, months after the school abruptly shut down all 56 of its campuses nationwide. The terms of the for-profit school whistleblower settlement were only recently made public this month.

M-marinello-logo-0-1In February, the U.S. Department of Education stated in a letter that it would no longer provide federal student aid money to 21 Marinello campuses in California and two in Nevada after discovering the school knowingly requested federal aid for students who didn’t have a high school diploma. In order to qualify for federal financial aid, students must have a valid high school diploma.

The Department of Education further stated that Marinello failed to properly award funds for some students and charged fees to students who were taking too long to finish their programs. According to the letter, Marinello also failed to provide proper training in cosmetology and barbering as outlined in its curriculum, which left a number of students who supposedly ‘graduated’ from the program unable to cut hair. These are just a few of the accusations outlined in the Department of Education’s investigation, which coincided with an ongoing whistleblower lawsuit that had been filed by six former Marinello employees.

The Marinello whistleblowers—who were once financial aid officers, career services managers, instructors and campus director—claimed that the school created false high school diplomas for at least 23 students in order to enroll them. The Department of Education and the whistleblower lawsuit both claimed that the school enrolled these students after steering them into a fake high school diploma program. The whistleblower lawsuit also claimed that the school didn’t verify or didn’t require students to prove that they had graduated from high school prior to enrollment.

The lawsuit further alleged that the school falsified attendance records by claiming that students who had missed 13 consecutive days were still attending class. If a student doesn’t show up to school for 14 consecutive days, the school is required to give back the federal student aid money allocated for that student.

Lastly, the Marinello for-profit school whistleblower lawsuit claimed the school encouraged students to falsify their income information on financial aid applications in order to receive more funding.

According to MarketWatch, the government’s share of the settlement is only a small fraction of the money beauty school received from the government over the years. Marinello reportedly collected more than $51 million in federal financial aid in the 2014 – 2015 school year alone.

Thousands of Former Students Left in Limbo 

Sarah Moore wasn’t surprised to hear that her former school would be shuttering its doors. The 21-year-old graduated last December from a 1,500-hour cosmetology program at a Marinello campus in Connecticut. “My campus had no director, no financial aid representative and no admissions instructor from November on, and they were anticipated to close in April,” she told the Los Angeles Times.

After graduating from her program, Moore said she received letters from the school saying she still owed $800, but gave no explanation as to why. She called the Marinello corporate offices and explained that her payments were satisfied with financial aid. Days later, she got another letter from the school, this time saying she owed $3,000.

These days, Moore says works as a waitress in Ohio because Marinello will not release her student transcript until she pays what the school says she owes. Her student records are necessary for her to get her cosmetology license and start her career.

For-Profit School Whistleblower 

Marinello is one of many for-profit colleges to come under government scrutiny in recent years. The Obama administration has been scrutinizing for-profit schools since 2009. In the wake of the Great Recession, for-profit schools marketed themselves heavily to unemployed workers seeking new professional skills.

As more students enrolled in these schools, federal and state regulators began to take notice. Graduation rates plummeted while student loan defaults increased dramatically. Many left school saddled with crippling debt and little in the way of new skills to help secure employment.

Despite federal and state regulators declaring that some of these for-profit schools use improper tactics (inflating graduation rates and job placement statistics among graduates, for example), rarely do these schools pay fines or receive serious reprimands.

Why is this the case? For one thing, for-profit schools often force students to sign agreements upon enrolling that basically prohibit them from participating in class action lawsuits against schools if wrongdoing is suspected. In the event of wrongdoing, students that took out loans have to petition the government to get their money back; in other words, any returned funds come from taxpayers, not the for-profit schools.

Whistleblowers are one of the most valuable weapons the government has in fighting fraud among for-profit schools. As a result of the for-profit school whistleblower lawsuit against Marinello, the school was forced to turn over $11 million, much of which will go back to the government. The Justice Department did not intervene in the case, so the whistleblowers will likely receive between 25 and 30 percent of the recovery.

 

State Street to Pay $530 Million Over Foreign Exchange Fraud

State Street Bank and Trust Company has agreed to pay at least $382.4 million to settle allegations that it skimmed profits from clients on foreign currency exchange (FX) transactions. The Boston, Massachusetts-based financial institution will pay at least $382.4 million in civil penalties and fines to settle the foreign exchange fraud allegations, as well as an additional $147.6 million to resolve private class action lawsuits alleging similar misconduct, bringing the total from all settlements to roughly $530 million.

AAEAAQAAAAAAAAXlAAAAJDg5NWY5OWY5LWQ2YzAtNGQ2Ny1hZGEzLWUxZmZjNzU4NmY4NgThe State Street settlements are an attempt to put an end to foreign exchange fraud investigations that the bank has faced since 2009, when Wall Street whistleblower Harry Markopolos initially filed a whistleblower lawsuit in California on behalf of one of the country’s largest pension funds. Mr. Markopolos later went on to file whistleblower lawsuits in Massachusetts and other states, making similar allegations of foreign exchange fraud. You may recognize Mr. Markopolos’ name, as he was the whistleblower that repeatedly tried to alert authorities about Bernie Madoff’s scheme.

According to the Justice Department, State Street has admitted that its State Street Global Markets division generally did not price foreign currency exchange (FX) transactions at prevailing interbank market rates, contrary to representations the bank made to its clients.

Instead, when the State Street Global Markets division executed foreign currency exchanges, it allegedly applied predetermined uniform markups and markdowns to prevailing interbank FX transaction rates. When a client was an FX buyer, the Justice Department claims, State Street applied a markup, and when the client was a seller, the bank applied a markdown.

State Street is also accused of falsely telling its clients that the bank was providing “best execution” on FX transactions, and that it guaranteed the most competitive available rate on FX transactions, when, in fact, the prices that clients paid on FX transactions included these hidden markups or markdowns boosted State Street’s profits at the expense of their own clients.

According to media reports, the alleged foreign exchange fraud scheme took place between 1998 and 2009. Many of the clients that were affected by the foreign exchange fraud allegations were public pension funds, financial institutions and non-profit organizations.

State Street agreed to pay $382.4 million, pursuant to proposed settlements and other agreements. Of that total, $155 million will be paid as a civil penalty to the U.S. government, pursuant to allegations made by the Justice Department that State Street violated the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA).

In a separate agreement with the Securities and Exchanges Commission (SEC), State Street will be required to pay the SEC a civil penalty of $75 million, as well as disgorge $75 million in ill-gotten gains and $17.4 million in prejudgment interest, which will be paid to registered investment company (RIC) clients.

In addition to the above agreements, State Street will resolve Department of Labor (DOL) claims under the Employee Retirement Income Security Act (ERISA) by paying at least $60 million to State Street ERISA plan clients who lost money as a result of the bank’s alleged foreign exchange fraud.

Finally, State Street has agreed to pay an additional $146.7 million to resolve private class action lawsuits filed on behalf of clients who also claim to have lost money as a result of the foreign exchange fraud.

All of the settlements laid out above have yet to be finalized.

Foreign Exchange Fraud Whistleblower

For his role in bringing the foreign exchange fraud allegations to the government’s attention, Mr. Markopolos will receive a whistleblower reward that has yet to be determined. The case against State Street one of a number of whistleblower lawsuits that Markopolos has filed against Wall Street banks.

Mr. Markopolos and a number of other whistleblowers were instrumental in a similar case that resolved last year involving Bank of New York Mellon, which agreed to pay $714 million to resolve claims that it cheated pension funds and other investors for over a decade.

In March of 2015, authorities resolved claims that accused Bank of New York Mellon of telling clients that they would receive the best possible rate on foreign currency trades when, in fact, the bank provided prices that were at or near the worst interbank rates. The suspected foreign exchange fraud scheme lasted from 2000 until 2011.

While the $714 million settlement might sound like a lot of money, it amounts to only a fraction of the allegedly ill-gotten gains that New York attorney general Eric Schneiderman was seeking. According to the New York Times, the victims of the Bank of New York Mellon scheme included New York City pension funds, with investors that include teachers and police officers.

The Bank of New York Mellon case actually had an interesting tie-in to the State Street case. When news of the State Street case was initially reported back in 2009, Bank of New York Mellon employees began to worry. In an email with the subject ‘Oh No’ sent to colleagues, a Bank of New York Mellon managing director shared the State Street news. Another email, sent by an employee who has since left the bank, wondered whether it was “time to retire after raping the custodial accounts.”

 

MD2U to Pay $21.5 Million to Settle Home Health Care Fraud Charges

Over the last few years, many Americans have decided against putting elderly family members in assisted living facilities or nursing homes, citing rising costs and a desire to allow their loved ones to live out their last years at home as the reasons. This shift has resulted in home care becoming one of the fastest-growing sectors in health care. Coincidentally, home health care fraud is fast becoming a common and serious issue that deserves attention.

MD2U Home Health Care Fraud ‘Extreme,’ According to DOJ 

This week, home health care firm MD2U added itself to the growing list of bad actors in the home health care industry. The Justice Department announced on Thursday that the Louisville, Kentucky-based company agreed to pay an estimated $21.5 million to resolve fraudulent billing practices that were so widespread, the government referred to MD2U as an “extreme outlier.”

MD2UAccording to government claims, MD2U violated the False Claims Act by knowingly submitting false bills for home health care to Medicare and other government health care agencies. Specifically, the government accused MD2U of altering records to support their fraudulent claims as well as providing services that were medically unnecessary.

The government complaint states that between July 1, 2007 and November 30, 2014, MD2U submitted fraudulent bills based on care for patients who were neither homebound not home-limited, billed government health care agencies for care considered to be medically unnecessary, manipulated medical records in order to justify patient visits, and billed for services using the highest possible payment codes when lower codes were more appropriate (this tactic is often referred to as ‘upcoding’).

Here’s just a few examples of how the MD2U home health care fraud scheme worked:

  • MD2U would require non-physician providers (known as NPPs) to document that certain patients were homebound or home-limited, as well as indicate in medical records that outpatient visits could jeopardize patient health, regardless of whether or not either claim was true.
  • MD2U management urged NPPs to visit patients more frequently than medically necessary in order to increase billings. The company also required NPPs to perform medically unnecessary visits in order to submit false billings.
  • A review of MD2U billings showed that between July 1, 2007 and November 30, 2014, roughly 98 percent of all Medicare claims were false.
  • NPP patient visits would for as little as 34 seconds (as demonstrated in at least one reviewed case). Often, these visits lasted less than 10 minutes. The visits were nonetheless billed as comprehensive medical visits billed at the highest possible code. Based on the code submitted, practitioners should have been spending about 60 minutes with each patient.
  • NPPs were trained to bill all encounters at the highest possible code.
  • MD2U used an electronic medical records system, which allowed NPPs to cut, copy and paste patient medical notes from prior visits. This ability to manipulate patient records created the illusion that NPPs were performing significant work on patients when, according the the Justice Department, they were not.
  • In the event that a patient’s medical documentation wasn’t sufficient enough for MD2U to bill at the highest possible code, NPPs were instructed to go back into the patient’s records and falsely claim that more work had been performed during a visit in order to justify billing at the highest code.

Details of MD2U Home Health Care Fraud Settlement 

The defendants have admitted to violating the False Claims Act by making or causing others to make false statements, and submitting or causing others to submit false claims to the U.S. government. These actions caused damages and MD2U is liable to the U.S. in the amount of $21,511,756.

Defendants J. Michael Benfield (CEO and President of MD2U), Greg Latta (CIO) and Karen Latta (COO), all owners, admit that, due in part to the actions of a former MD2U employee, they caused false claims to be submitted to the government. As such, the defendants will pay $3.3 million and a percentage of MD2U’s net income for a term of five years. Additionally, the defendants agreed to enter into a corporate integrity agreement with the Department of Health and Human Services’ Office of Inspector General for a period of five years.

Preventing Home Health Care Fraud 

The Bureau of Labor Statistics (BLS) projects that between 2012 and 2022, demand for home health care aides will increase by a whopping 48 percent. With this boom in the industry, it is all but inevitable that some companies will attempt to bilk money from the government via home health care fraud.

But home health care fraud is preventable if men and women in the industry report wrongdoing when they see it. If you have information concerning a home health care fraud scheme, consider reaching out to a whistleblower lawyer. An experienced whistleblower lawyer can help you better understand your rights and guide you through your options. For more information, contact the whistleblower law firm of Baum, Hedlund, Aristei & Goldman today.

 

Over 300 People Charged in Largest Ever Medicare Fraud Scheme

Federal authorities brought charges on Wednesday against over 300 people who were allegedly involved in a Medicare fraud scheme worth $900 million in false billings. The enforcement action is being lauded as the largest Medicare fraud takedown in the history of the country, exceeding the previous record set last year when 243 defendants faced charges for a combined $712 million in false billings.

Wednesday’s takedown was headed by the Medicare Fraud Strike Force, which conducted a nationwide sweep in 36 federal districts that resulted in civil and criminal charges against 301 individuals. Sixty-one doctors, nurses and other medical professionals were among those charged for participating in the widespread Medicare fraud scheme. Twenty-three Medicaid Fraud Control units also participated in the takedown.

Charges in the Largest Medicare Fraud Scheme in U.S. History

 Those implicated in the Medicare fraud scheme have been accused of a wide range of health care-related crimes, including aggravated identity theft, money laundering, conspiracy to commit health care fraud and violations of anti-kickback statutes. The charges stem from a number of different schemes involving various medical treatments and care, including home health care, physical and occupational therapy, psychotherapy, durable medical equipment and prescription drugs.

Court documents show that defendants submitted for Medicare and Medicaid reimbursement based on treatments that were either medically unnecessary or never provided. More than 60 of the individuals charged were arrested in connection with Medicare Part D fraud, the prescription drug program for Medicare.

In many of the cases, patient recruiters, Medicare beneficiaries and other conspirators were allegedly paid cash in exchange for patient information that health care providers could then use to submit false bills to Medicare and Medicaid. According to the Justice Department, the total amount of false bills submitted reached approximately $900 million.

Where Were the Accused Operating? 

Southern District of Florida – According to the DOJ, 100 defendants from the Southern District of Florida were charged in connection with fraud schemes worth an estimated $220 million. The schemes revolved around pharmacy fraud, home health care fraud and mental health services fraud. In one Medicare fraud scheme cited by the DOJ, nine individuals were allegedly responsible for submitting false bills to Medicare on behalf of six different Miami-area clinics providing home health care services. These bills were for services not considered medically necessary and allegedly based on kickbacks paid by the perpetrators. In total, Medicare paid out over $24 million as a result of the scheme.

Central District of California – A total of 22 defendants were charged for schemes to defraud Medicare of an estimated $162 million. In one example, a doctor allegedly submitted false claims to Medicare that resulted in the government paying nearly $12 million for medically unnecessary services.

Southern District of Texas – Authorities say 24 individuals submitted false claims worth over $146 million. One physician with the highest amount of patient referrals for home health care services in the district was charged with participating in schemes to bill Medicare for services that were often not provided.

Northern District of Texas – Eleven people were charged in cases worth over $47 million in alleged Medicare fraud. One area physician was allegedly involved in a Medicare fraud scheme where unlicensed individuals provided medical services that were billed as if the doctor had performed them himself.

Eastern District of Michigan – Authorities charged 19 people for their alleged roles in Medicare fraud schemes totaling an estimated $114 million. Defendants have been accused of fraud, paying kickbacks, drug distribution schemes and money laundering.

Eastern District of New York – Ten people were charged in six cases. Five of the defendants were allegedly involved in a health care fraud scheme worth over $86 million for false claims related to physical and occupational therapy paid by both Medicare and Medicaid.

Middle District of Florida – Authorities charged 15 people for their alleged involvement in Medicare fraud schemes that involved intravenous prescription drug fraud and pharmacy fraud. The schemes resulted in $17 million in false billing.

Northern District of Illinois – Six were charged in connection with Medicare fraud claims worth over $12 million.

Eastern District of Louisiana – Three people were charged for their roles in a Medicare fraud scheme and a wire fraud scheme involving a defunct home health care provider.

The enforcement action also involved cases brought by 26 U.S. Attorney’s General Offices in North Carolina, Georgia, Texas, West Virginia, Washington D.C., Alabama, Minnesota, and Louisiana.

Medicare Fraud Whistleblower 

Fraud accounts for an estimated 10 percent of all Medicare and Medicaid expenditures on an annual basis. Medicare fraud costs taxpayers billions and drives up the cost of health care for everyone.

As evidenced by today’s enforcement action, the government has the ability to catch criminals who seek to defraud Medicare. But resources dedicated to finding and prosecuting fraudsters are still quite limited. This is why whistleblowers are so vital in protecting the integrity of Medicare and Medicaid.

If you have knowledge of Medicare or Medicaid fraud and are wondering what your options are, consider speaking with an experienced whistleblower lawyer about your case.

How the Government is Cracking Down on Ambulance Fraud

Ambulance fraud is a serious problem that costs Medicare millions every year. In 2012, Medicare paid out over $5 billion to ambulance companies, which is more than was spent on cancer doctors. Both the Justice Department and the Centers for Medicare and Medicaid have singled out the ambulance industry as an area where Medicare fraud is rampant.

In 2011, Brotherly Love Ambulance Inc. was one of many companies shut down by the feds over allegations of ambulance fraud. When the company was forced to close its doors for good, the owner’s son, Bassem Kuran, opened another ambulance company called VIP Ambulance Inc.

The move from Brotherly Love to VIP Ambulance is not uncommon in the ambulance transportation industry. But moves like this have become a thorn in the side of regulators trying to weed out corrupt ambulance companies.  Officials liken this to playing a game of ‘wack-a-mole,’ where the feds successfully shut down a fraudulent ambulance company only to have another company—commonly started by a relative or friend of the owner/operator of the fraudulent company—open under a new name.

In the case of VIP Ambulance, Kuran picked up right where his mother left off with Brotherly Love.  But this month, he will be arraigned for making false statements in connection with a health care matter.

How has the government cracked down on perpetrators like Kuran? Officials decided to take a new approach, limiting the number of new ambulance companies in cities where ambulance fraud was running rampant, and forcing them to receive prior approval for repetitive nonemergency transport.

The New Approach to Combatting Ambulance Fraud 

Starting in 2013, federal officials decided that things had to change if they were going to stop, or even slow down ambulance fraud. With new ambulance companies like VIP Ambulance constantly popping up after investigations shut down their predecessors, the government decided to stop approving new ambulance companies in areas plagued by ambulance fraud. After the tactic was first tried in two metropolitan cities, it slowly spread to other parts of the country.

The impact of this new approach has been significant in areas like Southeastern Pennsylvania, where last year Medicare only spent $12.7 million on basic ambulance services, down from $55.4 million in 2010. In addition to restricting new ambulance companies from being paid by Medicare, officials also require all ambulance companies in Southeastern Pennsylvania to receive prior authorization on all repetitive nonemergency trips, like for dialysis treatment, for example.

According to the Pennsylvania Department of Health, 83 ambulance companies have been shut down since the beginning of 2014 – more than 25 percent of all ambulance companies operating in Southeastern Pennsylvania. The area has also seen 30 criminal convictions within the last five years, leading to restitution orders totaling $22 million and an aggregate of 82 years of jail time handed out to perpetrators.

The type of ambulance fraud that led to these criminal convictions centered on Medicare beneficiaries who needed transport for dialysis treatment three times per week. Ron Kerr, assistant special agent in charge of the HHS Office of Inspector General in Southeastern Pennsylvania, says a single patient requiring this type of transport could fetch an ambulance company $67,000 per year. These patients, according to Kerr, are viewed as assets by criminals.

Under Medicare rules, very few patients actually qualify for ambulance transport to and from dialysis treatment, as it has to be considered medically necessary (i.e. there is no other way to safely move the patient). Prior to the new tactics to combat ambulance fraud, ambulance companies would simply bill Medicare, pretending to have physicians certifying the medical necessity. Medicare contractors didn’t check to make sure these trips had proper certification until later. Some ambulance companies would go so far as to pay patients as much as $500 per month just so they could bill Medicare for transportation to dialysis treatment centers (Medicare pays up to $380 each round trip, including mileage). In reality many of the patients weren’t even transported in an ambulance – they were driven in a car or they drove themselves for treatment.

Are We Making Serious Progress Rooting Out Ambulance Fraud? 

According to the Philadelphia Inquirer, Medicare data suggests that we are making progress in slowing ambulance fraud. At present, there are three states that now require prior approval for repetitive nonemergency transport – Pennsylvania, New Jersey and South Carolina. All have seen dramatic reductions in their monthly costs for repetitive nonemergency ambulance transportation.

However, there are still a large number of ambulance companies that rely heavily on repeat Medicare business for nonemergency trips. Which begs the question: have these companies just changed their schemes enough to avoid detection? We will have to wait and see in the coming years whether the downward trend in ambulance fraud continues.

In the meantime, if you have knowledge of any ambulance companies fraudulently overbilling Medicare for transportation, it is in your best interest to speak with an experienced whistleblower attorney as soon as possible. By coming forward, you may not only be protecting the integrity of a vitally important government health care program, you may be entitled to a reward if your case is successful.

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Whistleblowers Win in Defend Trade Secrets Act

It’s not very often these days that a bill receives widespread bipartisan support in both the House and the Senate, particularly one that is favorable to whistleblowers. However, that’s what happened at the end of April when Congress passed the Defend Trade Secrets Act. The House passed the bill by a whopping 410-2 margin on April 27, and President Obama signed the bill into law today, repeating a common line he uses at bill signing ceremonies: “I’m always happy when we pass bills.”

iStock_000074771283_MediumWhistleblowers and those interested in preserving whistleblower protections also have reason to be pleased. Suing whistleblowers for allegedly “stealing” company trade secrets has become a common tactic used by employers to deter whistle blowing. Take the recent case involving J-M Manufacturing Co., Inc. and Formosa Plastics Corp. USA (J-M’s former owner) as an example:

J-M and Formosa Plastics supplied PVC pipes to the government for water and sewage systems. Former J-M employee John Hendrix filed a whistleblower lawsuit against his former employer back in 2005, claiming J-M and Formosa Plastics knew that the PVC pipes they manufactured and sold to the government did not meet the standards outlined in the contract. The companies allegedly lied about the quality of the pipes and failed to make improvements to them despite knowing that their products were below government standards. Hendrix further alleged that the defective PVC pipes were likely to rupture substantially earlier than expected due to the poor quality.

Eight years after the whistleblower lawsuit was filed, Formosa Plastics settled the suit for a reported $23 million. The same year, a California federal jury found that J-M knowingly misrepresented the quality of PVC pipes it built and sold the government.

Despite the settlement and the California jury holding J-M liable for failing to accurately represent the quality of its PVC pipes, J-M and Formosa Plastics sued Hendrix over misappropriating confidential company documents. According to the complaint against Hendrix, after he signed J-M’s Employee Secrecy Agreement, he was fully aware that his “acts of purloining J-M’s confidential and trade secret documents and information” for his case was “unlawful and in clear contravention of his ESA with J-M.”

Just a quick aside on the subject of stealing trade secrets: of course there need to be safeguards to protect businesses from individuals or other competitors trying to steal ideas for new technology, services and goods, among other things. According to the Commission on the Theft of American Intellectual Property, stolen trade secrets costs the U.S. economy more than $300 billion a year, which is comparable to our country’s annual exports to Asia.

That said, businesses shouldn’t be able to use the safeguarding of trade secrets as a means to intimidate would-be whistleblowers from coming forward if they have legitimate concerns about possible fraud. With the passing of the Defend Trade Secrets Act, the use of this tactic by J-M and many others to intimidate whistleblowers has been discouraged.

The Defend Trade Secrets Act—and specifically its whistleblower amendment—provides immunity to those who disclose trade secrets in confidence to their attorney or a government official pursuant to reporting or investigating potential fraud, provided the disclosure is made in a specific way.

According to the amendment, if a whistleblower discloses a “trade secret” in confidence to an attorney or a government official solely in the interest of reporting or investigating fraud allegations, the whistleblower can’t be held liable under any federal or state trade secret law.

Furthermore, if a whistleblower does reveal a trade secret in connection with a qui tam complaint filed under seal, the whistleblower can’t be held liable. Documents revealing trade secrets may also be used in anti-retaliation lawsuits, as long as they are filed under seal and remain undisclosed outside of the matter pursuant to court order. The Defend Trade Secrets Act also requires employers to inform their employees of the rights outlined in the whistleblower amendment.

The bill was offered by Senator Patrick Leahy (D-VT) and Senator Charles Grassley (R-IA). The National Whistleblower Center has long supported the Leahy-Grassley whistleblower amendment outlined in the Defend Trade Secrets Act. “After this bill is signed into law, corporations will not be able to hide behind the trade secrets privilege to cover-up their wrongdoing,” says Stephen M. Kohn, the executive director of the National Whistleblower Center.

“Whistleblowers who follow the clear and reasonable procedures set forth in the law will not need to fear retaliatory counter-lawsuits, which were becoming a favorite tool used by companies to silence whistleblowers.”

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