Charging a defendant with making a false statement in a federal case under 18 USC Section 1001 is a significant tool for federal prosecutors. The statute makes it a federal crime, punishable by a term of imprisonment of up to five years, to "knowingly and willfully" make "any materially false, fictitious, or fraudulent statement or representation" in any federal matter. Sometimes a false statement alone--including one made in informal discussions with federal agents that are not under oath--is enough to result in charges, even if the government cannot prove the underlying crime that it was investigating when the false statement was made. But the Department of Justice has recently made such prosecutions tougher for prosecutors.
The Federal Rules of Evidence permit a trial judge to examine a witness at trial. Rule 614(b) states that the court "may examine a witness regardless of who calls the witness." Rule 614(c) allows any party to object to the court's examining a witness "either at that time or at the next opportunity when the jury is not present." But how far can a court go in its questioning, and what do you do when the judge's questioning of your witness crosses the line into advocacy for the government? This was the issue in a December 24, 2013, Third Circuit Court of Appeals opinion, in which the court held that the judge's questioning of the defendant crossed the line.
Last month's $13 billion settlement agreement between JPMorgan Chase and the U.S. Justice Department and state regulators over the bank's sale of mortgage-linked bonds, the largest settlement ever between the Justice Department and a corporation, has not been the end of JPMorgan's problems. On December 16, the press reported that the U.S. Treasury Department's Inspector General was investigating allegations that JPMorgan impeded the Office of the Comptroller of the Currency (OCC) in its oversight of the bank's provision of banking services to Bernie Madoff. Madoff's primary banker, JPMorgan is reportedly in the final stages of negotiating a $2 billion settlement of the Treasury investigation. Other similar investigations involving the country's largest bank preceded the November settlement with Justice.
Third Circuit Clarifies Application of Sentencing Guidelines Enhancement for "Sophisticated" Money Laundering
In a case of first impression, the Third Circuit Court of Appeals recently held that application of the two-level sentencing enhancement for "sophisticated money laundering" under Section 2S1.1(b)(3) of the federal Sentencing Guidelines does not require facts coming within the scenarios listed in the Application Note to the guideline.
During her campaign for Pennsylvania Attorney General, Kathleen Kane said that she would prosecute oil and gas companies that contaminated the environment. Kane delivered on that promise when the Pennsylvania Attorney General's office filed charges against XTO Energy, Inc. on September 10 with illegally dumping more than 50,000 gallons of waste water from a Marcellus Shale gas well site in Lycoming County. The criminal charges are interesting in light of XTO's recent civil settlement with the federal government in July. XTO, a unit of Exxon Mobil, has responded that it will fight the criminal charges.
This month the Securities and Exchange Commission is planning on finalizing regulations that will require registration and more exacting oversight of financial advisors to municipalities and cities involved in bond offerings.
In United States v. Stinson, decided on August 21, the Third Circuit became the first court in the country to decide whether a financial institution must be the source of $1 million in gross receipts for the two-level enhancement in U.S.S.G. § 2B1.1(b)(15)(A) to apply. That enhancement increases a defendant's offense level by two levels when "the defendant derived more than $1,000,000 in gross receipts from one or more financial institutions as a result of the offense." In a victory for criminal defendants, the court held that the enhancement applies only when the evidence shows that a financial institution, not an individual, was the source of the $1 million in gross receipts.
The Supreme Court ruled in June that a defendant's guilty plea need not always be thrown out when a judge participates in plea negotiations. This decision reversed a controversial 11th Circuit decision and was contrary to the urging of distinguished defense lawyers and academics.
District Courts continue to assert themselves into settlements proposed by the United States. In 2011, Jed Rakoff, United States District Judge for the Southern District of New York, rejected a proposed $285 million settlement between the SEC and Citigroup, claiming that he was incapable of determining whether the settlement was "fair, reasonable, adequate and in the public interest" because Citigroup had expressly denied having committed fraud. (Judge Rakoff's ruling is stayed pending appeal).
Third Circuit Holds That Ex Parte Communications Between Probation Officer And Court Are Not Improper Per Se At Violation Of Supervised Release Hearing
Under 18 USC § 3603, federal probation officers are responsible for investigating and supervising offenders whom the courts have conditionally released to the community on probation, parole or supervised release. When probation officers discover that an offender has violated the conditions of his supervised release, probation officers petition the court to revoke the offender's conditional release. Due process concerns require that the offender receive notice and a hearing before the offender's conditional release may be revoked.
On March 26, 2013, the Office of the Inspector General ("OIG") of the U.S. Department of Health and Human Services issued a Special Fraud Alert addressing physician-owned distributorships ("PODs"). The OIG describes these entities as "physician-owned entities that derive revenue from selling, or arranging for the sale of, implantable medical devices ordered by their physician-owners for use in procedures the physician-owners perform on their own patients at hospitals or ambulatory surgical centers (ASCs)." Given that it's been over three years since the OIG issued a Special Fraud Alert, the provider community and physicians, in particular, should pay close attention to this latest missive from the OIG.
This is the second installment of our four part series about notable recent decisions under the False Claims Act. This week's featured decision is United States ex rel. Glenda Martin v. Life Care Centers of America, Inc., 2012 WL 6084626 (E.D. Tenn., Nov. 15, 2012).
This case deals with the extent to which matters under the FCA should remain under seal, both during the pendency of the Government's pre-intervention investigation and thereafter. The specific issues presented were: whether the court should grant the Government's request to maintain several documents under seal after the Government intervened in an action; and whether a local newspaper should be entitled to intervene to oppose the requested seal. The District Court allowed the newspaper to intervene and denied the Government's request to maintain certain documents under seal. While the case involves narrow issues, the District Court's excoriation of the Government for what it believed to be its abuse of the sealing provisions of the FCA is priceless.
This case was filed in October 2008. The Government sought several extensions of the seal. On January 13, 2011, the Court granted the Government's request for an indefinite extension of time in which the Government could make its intervention determination, and it ordered that the case be administratively closed. In support of that request, the Government had filed a status report indicating that it was involved in a "nationwide investigation" of the defendant, that it "continues to devote significant time and resources to this investigation," that its investigation had already involved over 150 witnesses nationwide, that it intended to serve additional subpoenas, that it had made a "lengthy and detailed presentation" to the defendant, and that the defendant had requested time to consider the information presented.
In March 2012, the Government transferred a second qui tam case raising the same issues to the Eastern District of Tennessee and sought to consolidate the two cases. At a status conference held on consolidation request, the Government objected to a reporter's presence and asked that the courtroom be sealed. The Court then asked the parties to brief whether all pleadings in the case should remain sealed and whether the Court should close the courtroom for all future proceedings in the case.
A recent Northern District of Illinois case concerning fraud against investors alleges causes of actions against the financial institutions where the investors' funds were being held. This case poses an interesting question as to whether financial institutions should have a heightened duty to monitor bank accounts that are known to be customer segregated accounts.
In In re: Peregrine Financial Group Customer Litigation, 12-C-5546, the plaintiffs are a class of customers of the Peregrine Financial Group, a futures commissions merchant. Plaintiffs allege a twenty year scheme of fraud and concealment by Russell Wasendorf, Sr., the founder of Peregrine, whereby Wasendorf would take funds from Peregrine's customer accounts located at US Bank and use the funds for his own personal use and gain or to cover Peregrine's business expenses. Funds looted included multi-million dollar transfers from customer segregated accounts at JPMorgan to bank accounts at US Bank. Wasendorf's fraud scheme involved intercepting mail sent to US Bank by his auditors or the National Futures Association ("NFA") and then forging responses to fool his auditors or the NFA. Wasendorf would also forge US Bank statements and other documents that reflected the balances in his U.S. Bank accounts. Using the forgeries, Peregrine convinced the NFA that it had over $200 million dollars in its bank accounts when it in fact had only $5 million.
Each week for the next four weeks, we will provide a summary of a notable recent decision under the False Claims Act. The first in this series is United States v. Kernan Hospital, 2012 WL 5879133 (D.Md., Nov. 20, 2012). Read the decision here: United States v. Kernan Hospital Memorandum Opinion.pdf
This case involves a motion to set aside a civil investigative demand ("CID") issued by the United States Attorney's Office for the District of Maryland, seeking documents from Kernan Hospital. The Government had already filed a False Claims Act suit against Kernan Hospital but the District Court dismissed it without prejudice pursuant to F.R.C.P. 9(b). After dismissal, the Government issued its CID. The District Court set aside the CID, holding that the False Claims Act expressly limits the Government's use of CID's to the period "before commencing a civil proceeding."
The Government alleged that Kernan devised a scheme to increase its Medicare, Medicaid, and Tri-Care reimbursement by systematically "upcoding" secondary diagnoses concerning malnutrition. Before filing its complaint against Kernan, the Government investigated the matter for three years. Specifically, pre-complaint proceedings included the issuance of an Office of Inspector General subpoena, the production by Kernan of 100 specifically identified medical records (15,686 pages of materials), the production by Kernan of the coding summary sheets corresponding to the 100 medical records, Kernan's production of an additional 3,000 pages of documents, the issuance of a September 7, 2011 CID seeking deposition testimony from Kernan's Director of Health Information Management, followed by her testimony two weeks later. The Government filed its FCA complaint in October 2011. The District Court dismissed the complaint under Rule 9(b) and, on August 23, 2012, the Government issued yet another CID on Kernan seeking many of the same documents that it had already sought and obtained.
The Health Information Technology for Economic and Clinical Health (HITECH) Act requires the Department of Health and Human Services (HHS) to provide for periodic audits to ensure that covered entities and business associates are complying with the HIPAA privacy and security rules and the HITECH Act's breach notification standards. To implement this mandate, the HHS Office for Civil Rights (OCR) piloted a program to conduct 115 audits of covered entities to assess privacy and security compliance. Audits conducted under OCR's pilot program began in November 2011 and ended in December 2012.
As part of the audit pilot program, OCR established an audit protocol that contains the requirements assessed during OCR's performance audits. The entire audit protocol is organized around modules, representing separate elements of privacy, security, and breach notification. (The protocol is available for public review at: http://www.hhs.gov/ocr/privacy/hipaa/enforcement/audit/protocol.html.) For example, with respect to the HITECH Act's breach notification standards, auditors checked, among other things, whether:
- a process exists for notifying individuals within the required time period of a breach of unsecured protected health information (PHI);
- if any breaches occurred, that individuals were notified within 60 days;
- if there is a standard template or form letter for breach notification; and
- if any breaches occurred, the notification to the individuals included the required elements set forth at 45 C.F.R. § 164.404(c).
In other words, the protocol provides a useful checklist for providers to ensure that they are complying with the HIPAA privacy and security rules and the HITECH Act's breach notification standards.
OCR has previously stated that the results of the initial audits will inform how audits will be conducted moving forward from the pilot program. It remains unclear how the initial audits will affect the existing audit protocol and whether OCR will revise the protocol. Until OCR provides notice that it is revising the existing protocol standards, providers would be well-served by continuing to compare their existing policies and procedures against the protocol's standards.