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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Why the Universal Health Services Whistleblower Case is Such a Big Deal

This week, the U.S. Supreme Court heard oral arguments in the Universal Health Services whistleblower case, which has generated a fair amount of media attention. The implications of Universal Health Services vs. U.S. ex rel. Escobar cannot be understated, as the outcome could limit the number of cases that can be filed under the False Claims Act.

Background on Universal Health Services vs. U.S. ex rel. Escobar 

The Escobar family filed suit against United Health Services after their daughter had a seizure and died while in a counseling center owned by UHS. The teenage girl, a recipient of Massachusetts state medical benefits, was treated by mental health counselors who were not licensed in the state to provide mental health therapy, according to the United Health Services whistleblower lawsuit.

The complaint states that the UHS-owned counseling center submitted invoices for Medicaid reimbursement based on claims that the mental health councilors who were providing services were licensed to do so when, according to the lawsuit, they were not. The Universal Health Services whistleblower lawsuit further claims that the counseling center made similar fraudulent misrepresentations regarding other clinical staff members and nurse practitioners, and that the facility invoiced Medicaid for reimbursement despite its noncompliance with state staffing and supervision requirements.

The complaint was initially dismissed in district court, which found that the state regulations at issue imposed only “conditions of participation,” not “preconditions to payment” sufficient to give rise to False Claims Act liability.

The U.S. Court of Appeals for the First Circuit ended up reversing the district court decision and remanded the United Health Services whistleblower case for further proceedings. On June 30th of last year, UHS filed a petition for certiorari with the Supreme Court.

SCOTUS Hears Arguments in Universal Health Services Whistleblower Lawsuit 

In arguments heard earlier this week, attorneys for UHS asked the Supreme Court to consider that it isn’t fraud when a hospital bills Medicaid or other government health care agencies for doctor services when it knows that doctors didn’t perform the services; and that hospitals operating as government contractors should be permitted “to pick and choose which regulations they comply with.”

The UHS legal team further contended that while the company may have breached the terms of the government contract, it isn’t serious enough to be considered fraud. This question of what should be considered fraud is at the heart of this case.

After hearing their argument, Justice Sonya Sotomayor began to question UHS on why the company’s actions shouldn’t be considered fraud.

Justice Sotomayor asked if it would be a breach of contract to provide the Army with a gun that doesn’t shoot. A UHS attorney answered by saying it would depend on the facts of the case.

“What – what more facts do you need?” said Justice Sotomayor. “Government contracted for guns. All of sudden you deliver guns that don’t shoot. That – those are the facts that led to this Act.”

At another point in the transcript, Justice Sotomayor asked Mr. Englert if anybody, except himself, would ever think that it wasn’t fraud to provide guns that didn’t shoot, if that’s what the government contracted to purchase.

Justice Elena Kagan was also incredulous of UHS’s argument. When asked if UHS had satisfied the terms of their government contract, a UHS attorney said “not every jot and tittle.” Justice Kagan continued that she wasn’t concerned with every jot and tittle, only the material portions of the contract. “That – you know, that the guns shoot, that the boots can be worn, that the food can be eaten – … and a doctor’s care is a doctor’s care,” she said.

It seems clear that if a health care provider submits a claim for reimbursement to Medicare or Medicaid implying that it was in compliance with regulations and all material terms of a contract, when it knows that it wasn’t, that is fraud. As for UHS’s other argument – that government contractors should be allowed to “pick and choose which regulations they comply with” because “there’s so many and confusing” regulations to contend with – that is quite simply absurd. What would be the point of having any regulations at all if contractors could decide for themselves which they can ignore?

What Happens Next? 

Based on the transcripts from the oral argument, it seems unlikely that the Justices will strike down the FCA’s implied certification theory of legal falsity. Nonetheless, the Justices appear to be looking for a rule that would define when an implied certification claim of legal falsity can be made. What this rule would look like, or even whether a majority can reach an agreement on the rule, remains to be seen.

At any rate, the outcome of the Universal Health Services whistleblower case may very well decide how specific government contracts need to be in order to hold fraudsters accountable. It could even define what is considered a false or fraudulent claim under the False Claims Act. This case is definitely one to watch.

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SEC: Vanguard Whistleblower Deserves Protection

The Securities and Exchange Commission (SEC) has filed a brief in support of Vanguard whistleblower David Danon, who claims he was wrongfully fired after opposing the financial firm’s tax practices. The SEC filed its “friend of the court” brief on Monday, claiming Danon should qualify for whistleblower protection.

Mr. Danon worked as a tax lawyer for Vanguard Group, the largest mutual fund company in the United States. He was fired in 2013 for “not doing his job,” according to the Malvern, Pennsylvania-based financial firm.

Vanguard GroupThe Vanguard whistleblower disagrees, and claims, he was fired because he complained internally about the company underpaying federal and state income taxes. He filed a wrongful termination lawsuit in U.S. District Court for the Eastern District of Pennsylvania near the end of last year. Mr. Danon claims that Vanguard owes roughly $35 billion in federal and state taxes, interest and penalties dating back to 2007.

In response, Vanguard filed a motion to get Mr. Danon’s case tossed, arguing that whistleblower protection laws are only for individuals that come directly to the SEC with potential securities law violations before they are fired. In other words, Vanguard says Mr. Danon isn’t eligible for whistleblower protections because he voiced concerns internally to Vanguard before he ultimately brought allegations to the SEC.

The SEC’s brief to Judge C. Darnell Jones—the federal judge overseeing the Vanguard whistleblower lawsuit—maintains that the Dodd-Frank Wall Street Reform and Consumer Protection Act authorizes the agency to offer rewards to individuals who voluntarily provide the SEC with information that leads to a successful enforcement action, and prohibits employers from retaliating against whistleblowers. Dodd-Frank whistleblower rules are in place to protect individuals who report violations internally, the SEC says. If the Vanguard whistleblower lawsuit were to be dismissed, the SEC believes it would “substantially weaken” the agency’s ability to use whistleblowers as the foundation for building cases against corporations accused of wrongdoing.

The irony with this Vanguard whistleblower case is that companies have long battled with the SEC over the question of whistleblower status. When Dodd-Frank was being crafted, some companies were adamant that employees should be encouraged to report any wrongdoing internally before bringing allegations directly to the SEC. How ironic that these same companies are fighting a rule they were supporting a few years ago.

How do the courts view this question of whistleblower status when allegations are made internally before being brought to the SEC? Thus far, they haven’t been consistent. According to the Wall Street Journal, a federal appeals court ruled last September that employees who report internally before bringing allegations to the SEC’s attention are protected, but another court has ruled that they don’t enjoy whistleblower protection.

The SEC has said it is not taking a position on the specifics of Mr. Danon’s Vanguard whistleblower allegations, only on the requirements necessary for claiming whistleblower protection. The agency has issued a regulation on the question of whistleblower protection, and Monday’s brief is in defense of that regulation.

The Vanguard Whistleblower is Helping Beyond the SEC 

It is worth noting that last year, Mr. Danon received an informer’s fee of $117,000 for helping the state of Texas collect back taxes owed by Vanguard. Texas audited Vanguard on four separate occasions in 2015, finding that the company owed taxes in each audit.

Mr. Danon has made accusations to the Internal Revenue Service, California, New York and other states, claiming the firm illegally avoided paying taxes. In the California case, the state’s Franchise Tax Board recently told Mr. Danon that the claims against his former employer warranted a criminal investigation. Vanguard could be liable for up hundreds of millions of dollars in that case alone.

In addition to these Vanguard whistleblower claims, Mr. Danon has also alleged to the SEC that Vanguard underpaid its own management affiliate in an effort to minimize its income-tax obligations while the firm hid illegal cash reserves from tax authorities and the company’s investors.

For their part, Vanguard has said the company’s financial arrangements are legal.

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