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DOJ Enters $18 Million Settlement with Healthcare Providers Following False Claims Act Whistleblower Action
On April 27, the Department of Justice announced that two Indiana-based healthcare providers agreed to settle allegations that financial arrangements between the two entities violated the federal and state False Claims Act and the federal Anti-Kickback Statute. DOJ alleged that one of the providers made available to the other an interest-free line of credit consistently in excess of $10 million, the balance of which such other provider “was allegedly not expected to substantially repay” as a means of inducing referrals for obstetrics and gynecology patients to seek medical attention at a particular hospital. The Anti-Kickback Statute prohibits “the knowing and willful payment of any remuneration to induce the referral of services or items that are paid for by a federal health care program, such as Medicaid,” and claims that are submitted to federal health care programs in violation of the Anti-Kickback Statute can also constitute false claims under the False Claims Act. The settlement resolves a qui tam case filed by an individual under the whistleblower provisions of the False Claims Act. Under the terms of the settlement, the providers agreed to pay a total of $18 million, with each of them paying $5.1 million to the United States and $3.9 million to the State of Indiana.
Reports: American Multinational Retailing Corporation Nearing Resolution of Bribery Probe
Bloomberg reports that an American multinational retailing corporation is nearing a resolution of a five-year old joint inquiry by the DOJ and SEC. Citing an unnamed source familiar with the matter, Bloomberg reports that the company is preparing to pay $300 million to settle allegations that company employees paid bribes in Mexico, China, and India. The same source reported that the resolution will also include at least one guilty plea by a subsidiary of the company, a non-prosecution agreement for the parent company, and a monitorship.
In March of 2015, a federal district court in Arkansas dismissed with prejudice a consolidated shareholder derivative suit accusing the company's board of directors of concealing Mexican bribery claims from investors. The lawsuit was filed after a 2012 article by the New York Times reported that top officials at the company’s Mexican subsidiary oversaw millions of dollars in bribes in connection with the company’s expansion in Mexico. See previous Scorecard coverage here. The same article is believed to have touched off the DOJ’s and SEC’s inquiry. If true, a $300 million resolution would not be near the top end of FCPA resolutions.
AG Sessions Discusses Approach to Enforcement at Annual Ethics Conference
In prepared remarks delivered April 24 at the Ethics and Compliance Initiative Annual Conference, Attorney General Jeff Sessions discussed the DOJ’s anticipated approach to prosecuting corporate fraud and misconduct under his leadership. The Attorney General announced the Department of Justice’s (DOJ) commitment to “re-double” its efforts to combat violent crime, while continuing to investigate and prosecute “corporate fraud and misconduct.” Specifically, Mr. Sessions pledged that the DOJ will “continue to emphasize the importance of holding individuals accountable for corporate misconduct” and when making charging decisions, will account for “whether companies have good compliance programs; whether they cooperate and self-disclose their wrongdoing; and whether they take suitable steps to remediate problems.”
Notable among the many points made by Mr. Sessions during his speech, was his emphasis on the Foreign Corrupt Practices Act (“FCPA”). As explained by Mr. Sessions, “corruption harms free competition, distorts prices, and often leads to substandard products and services coming into this country” and, ultimately, “increases the cost of doing business, and hurts honest companies that don’t pay these bribes.” To this end, the Attorney General promised to “strongly enforce the FCPA and other anti-corruption laws.” As he put it, “[c]ompanies should succeed because they provide superior products and services, not because they have paid off the right people.” In closing, the Attorney General took a moment to remind the audience that “[o]ur economy, and indeed, our whole system of self-government, depends on people believing that those who choose to disregard the law will be caught and punished. This is ultimately the responsibility of the Justice Department.”
DOJ Voices Continued Support for Robust FCPA Enforcement
On April 24, 2017, in a speech at the Ethics and Compliance Initiative Annual Conference in Washington, D.C., Attorney General Jeff Sessions appeared to commit to the continued aggressive enforcement of the FCPA. He noted that bribery "increases the cost of doing business and hurts honest companies that don’t pay these bribes,” and he explained that the Trump administration’s DOJ will enforce laws that protect honest businesses: “One area where this is critical is enforcement of the Foreign Corrupt Practices Act (FCPA). Congress enacted this law 40 years ago, when some companies considered it a routine expense to bribe foreign officials in order to gain business advantages abroad.” AG Sessions also emphasized that individuals, not just companies, may face increased FCPA focus.
These remarks come on the heels of comments from another senior DOJ official who recently noted that robust FCPA enforcement will continue. As previously reported, Trevor McFadden, the DOJ’s Criminal Division's Acting Principal Deputy Assistant Attorney General, noted that the DOJ remains "intent on creating an even playing field for honest businesses."
These remarks suggest that the DOJ will remain active in enforcing FCPA compliance issues, despite comments from then-candidate Trump that FCPA enforcement may be scaled back under his watch.
DOJ’s Trevor McFadden Addresses Anti-Corruption, Export Controls & Sanctions Compliance Summit
On April 18, Acting Principal Deputy Assistant Attorney General Trevor McFadden spoke at the 10th annual Anti-Corruption, Export Controls & Sanctions Compliance Summit in Washington, D.C. According to Mr. McFadden, the Justice Department “remains committed to enforcing the FCPA and to prosecuting fraud and corruption more generally.” He emphasized the importance of company cooperation, stating that that the department considers voluntary self-disclosures and remedial efforts when making charging decisions. Mr. McFadden also stated that the department is making a “concerted effort to move corporate investigations expeditiously,” adding that FCPA investigations should be “measured in months, not years.”
Mr. McFadden also discussed an increased prioritization of anti-corruption prosecutions around the world and stated that the DOJ will “seek to reach global resolutions that apportion penalties between the relevant jurisdictions so that companies that want to accept responsibility for misconduct are not unfairly penalized by multiple agencies.”
Additionally, the department is assessing its FCPA Pilot Program. Last year, as part of the Program, the department began publishing information on cases it declined to prosecute due to voluntary self-disclosure, full cooperation, and comprehensive remediation. Mr. McFadden stated that the Program is “one example of an effort to provide more transparency and consistency for our corporate resolutions” and “will continue in full force.”
California Joins 49 States and the District of Columbia in Settlement with Global Money Services Business
On April 12, California Attorney General Xavier Becerra announced that California has joined a multistate settlement between state attorneys general from 49 states and the District of Columbia and a global money services business to resolve allegations that scammers used the company’s wire transfer services to defraud consumers (see previous InfoBytes post). Under the terms of the settlement, California consumers who made a wire transfer during the period of January 1, 2004 through January 19, 2017, may be eligible for a share of more than $65 million in refunds. As previously covered in InfoBytes, on January 19 of this year, the global money services business entered into a Deferred Prosecution Agreement with the DOJ and FTC requiring, among other things, the business to pay $586 million in refunds to consumers to settle allegations that the company had failed to maintain an effective anti-money laundering program and aided and abetted wire fraud.
DOJ Reduces Brazilian Construction Company Penalty Based on Inability to Pay
On April 11, the DOJ filed a memorandum in its case against a Brazilian construction company, requesting that the Court approve a lower sentence than originally proposed based on the company's inability to pay. On December 21, the company and its petrochemical affiliate reached a $4.5 billion combined global settlement with U.S., Brazilian, and Swiss authorities to resolve FCPA allegations, in which both companies agreed to plead guilty in the U.S. to conspiracy to violate the FCPA. As part of that agreement, the U.S. and Brazilian authorities agreed to conduct an independent analysis to confirm the accuracy of the construction company's representation that it had an inability to pay a penalty in excess of $2.6 billion. The memorandum set forth the DOJ’s determination that the construction company lacks the ability to pay a criminal penalty in excess of $2.6 billion and included adjustments for the requested penalty to match that ability. In particular, the portion of the penalty paid to the United States would be lowered from approximately $117 million to approximately $93 million. The sentencing hearing is scheduled for April 17.
Prior Scorecard coverage of the company's settlement can be found here.
Case Update: PHH Corp. v CFPB
March 31 marked the deadline for the CFPB to file its brief in response to PHH Corporation in the U.S. Court of Appeals for the District of Columbia Circuit’s en banc review of the CFPB’s enforcement action against PHH for alleged violations of the Real Estate Settlement Procedures Act (RESPA). As previously covered by InfoBytes, the PHH case began as a challenge to a 2015 penalty the CFPB levied against PHH, which was collected as part of what the CFPB deemed – a “captive reinsurance arrangement.” In fighting the penalty, PHH called into question the Bureau’s constitutionality and in October 2016, a panel of the D.C. Circuit concluded both that the CFPB misinterpreted RESPA, and also that its single-Director structure violated the constitutional separation of powers. On February 16 of this year, however, the D.C. Circuit granted the CFPB’s petition for rehearing en banc of the October 2015 panel decision. In granting en banc review, the court sought guidance from the parties on three specific questions:
- Is the Bureau’s structure unconstitutional because its Director may be removed only for cause, and if so, is the appropriate remedy to sever the for-cause removal provision from the Consumer Financial Protection Act?;
- May the Court avoid addressing the constitutionality of the Bureau’s structure if it adopts the panel’s holdings as to PHH’s liability under RESPA (and should it adopt those holdings)?; and
- What is the appropriate disposition of this case if this Court concludes that the SEC’s administrative law judges are “inferior officers” under Lucia v. SEC?
Oral argument is scheduled for May 24. This Court has allocated 30 minutes per side for the argument and, as discussed further below, the Department of Justice (DOJ) has filed an unopposed motion seeking ten minutes of argument time for the United States at the May 24 en banc hearing.
CFPB’s Brief. On March 31, the CFPB filed its brief for the en banc rehearing in PHH Corp. v CFPB urging the D.C. Circuit to uphold the constitutionality of the Bureau’s single-director, independent-agency structure. According to the CFPB, neither the Bureau’s current single-director arrangement, nor the “for-cause” restriction on the President’s removal powers prevents the Executive branch from ensuring that the nation’s laws are implemented. Specifically, the brief explains that “[t]he President has no less control over a single-director agency than he does over a multi-member commission.” The brief also sets forth the Bureau’s position that, even “[i]f this Court determines that the Bureau’s structure is unconstitutional,” the appropriate remedy is not to invalidate the agency in its entirety, but rather to “sever the for-cause removal provision” of the Dodd-Frank Act (the Act), thereby allowing the President to remove the Bureau’s director for any reason. In addition to addressing the constitutional question, the CFPB also reiterated its argument that its RESPA interpretation is correct, that PHH and its affiliates violated RESPA, and that the Act’s statute of limitations does not apply to the Bureau’s administrative enforcement authority. And, at the direction of the court, the brief also addressed the potential effect of a decision in Lucia v. SEC that a SEC administrative law judge (ALJ) was an inferior officer under the Constitution. The ALJ used by the CFPB in the PHH enforcement proceeding was, in fact, borrowed from the SEC. Notably, Lucia v. SEC is scheduled to be argued immediately before PHH Corp. v. CFPB, on May 24, 2017.
Amicus Curiae in Support of the CFPB. Also filed on March 31 were seven amicus curiae briefs, each of which offered arguments, both legal and non-legal, in favor of the CFPB’s continued existence as an independent regulator:
- Brief on Rehearing en banc of Amici Curiae State Attorneys General of the States of Connecticut, Delaware, Hawaii, Illinois, Iowa, Maine, Maryland, Massachusetts, Minnesota, Mississippi, New Mexico, New York, North Carolina, Oregon, Rhode Island, Vermont and Washington, and the District Of Columbia in Support of Respondent
- Brief on Rehearing en banc of Current and Former Members of Congress as Amici Curiae in Support of Respondent
- Brief on Rehearing en banc of Amici Curiae Public Citizen, Inc., Consumer Federation of America, Consumers Union, National Association of Consumer Advocates, National Consumer Law Center, and Tzedek DC in Support of Respondent
- Brief of Americans For Financial Reform, California Reinvestment Coalition, Center for Responsible Lending, Consumer Action, Demos, Housing and Equal Rights Advocates, Leadership Conference on Civil and Human Rights, National Community Reinvestment Coalition, National Council of La Raza, National Fair Housing Alliance, Self-Help Credit Union, United States Public Interest Research Group Education Fund, Inc., and Woodstock Institute, as Amici Curiae in Support of Respondent
- Brief on Rehearing en banc of Separation of Powers Scholar as Amici Curiae in Support of Respondent
- Brief on Rehearing en banc of Amici Curiae Financial Regulation Scholars as Amici Curiae in Support of Respondent
- Brief on Rehearing en banc of AARP and AARP Foundation as Amici Curiae in Support of Respondent
PHH’s Brief. Briefing for PHH and amicus curiae briefs in support of the mortgage lender were due on March 17. In its opening brief and addendum, PHH focused on the separation-of-powers and remedy issues, raising the RESPA interpretation issue principally in support of the claim that the CFPB’s unconstitutional structure rendered the Bureau dangerously unaccountable. The New Jersey mortgage lender noted, among other things, that Congress has no ability to cut the agency’s budget and the President cannot remove its director without cause. As a general matter, the mortgage lender has argued that the Bureau’s creation “placed massive, unchecked federal power in the hands of a single, unaccountable director” and that “[t]he director alone rules over large swaths of the field of consumer finance, subject to virtually no restraints from the representative branches.”
DOJ Brief. As previously covered by InfoBytes, the DOJ filed its own brief in the case on March 17, arguing in support of the D.C. Circuit panel’s initial ruling and proposed remedy. The DOJ brief stated, among other things, that, “[w]hile we do not agree with all of the reasoning in the panel’s opinion,” the DOJ agrees with the panel’s conclusion that “a removal restriction for the Director of the CFPB is an unwarranted limitation on the President’s executive power” and that “the panel correctly concluded … that the proposed remedy for the constitutional violation is to sever the provision limiting the President’s authority to remove the CFPB’s Director, not to declare the entire agency and its operations unconstitutional.” As covered recently on InfoBytes, the DOJ presented arguments that differed both from the CFPB and from the positions previously presented by the Obama Administration in briefing submitted on behalf of the United States back in December.
Also, as mentioned above, on April 3, the DOJ filed an unopposed motion seeking ten minutes of argument time for the United States at the May 24 en banc hearing.
Amicus Curiae in Support of PHH. The March 10 deadline in the en banc proceeding also brought about the filing of seven amicus curiae briefs in support of PHH’s claims and/or defenses. Six of these filings took the position that the Bureau’s current structure violates separation-of-powers principles:
- Brief on Rehearing en banc of the Chamber of Commerce of the United States of America as Amicus Curiae in Support of Petitioners
- Brief on Rehearing en banc of ACA International as Amicus Curiae in Support of Petitioners
- Brief on Rehearing en banc of the Cato Institute as Amicus Curiae in Support of Petitioners
- En Bank Brief of Amici Curiae RD Legal Partners, LP, RD Legal Funding, LLC, RD Legal Finance, LLC and Roni Dersovitz in Support of Petitioners
- State National Bank of Big Spring, 60 Plus Association, Inc.; and Competitive Enterprise Institute as Amici Curiae in Support of Petitioners
- Brief for the States of Missouri, Alabama, Arizona, Arkansas, Georgia, Idaho, Indiana, Kansas, Louisiana, Nevada, Oklahoma, South Dakota, Texas, West Virginia, and Wisconsin as Amici Curiae in Support of Petitioners
A seventh—filed by a combined group of 13 banking and residential real estate-related organizations—argued in support of the company’s interpretation of the RESPA. According to this brief, the CFPB incorrectly changed a long-standing RESPA interpretation that permitted the use of captive reinsurance companies under appropriate circumstances. The changed interpretation was contrary to the Act and to the CFPB’s own regulation. The brief also argued that the Bureau improperly changed the interpretation and applied the new interpretation in an enforcement action without proper notice.
Federal Judge Sentences Ex-Mortgage Banker to 12.5 Years for $30 Million Scheme, Fined $22.5 Million in Forfeiture and Restitution
On March 24, the United States Attorney for the Eastern District of New York announced that District Judge Arthur Spatt levied a 12 ½ year prison sentence against the former head of a mortgage lending bank charged in connection with a conspiracy to commit bank fraud in a $30 million scheme to deceive lenders by lying about property values. The former CEO of a New York state licensed mortgage bank allegedly artificially inflated home prices through a series of same-day transactions, submitted loan applications and appraisals to “warehouse lenders” (financial institutions which fund loans for companies lacking the assets to fund the loans themselves) with values nearly double the true sales prices of the homes, and “inflated [his] own personal assets, used straw purchasers and sham trust entities, and concealed significant liabilities to get loan approval, typically obtaining proceeds for 80 to 100-percent more than the actual value of the homes.” The defendant, found guilty by a jury in January 2016, was also ordered to pay $22.5 million in forfeiture and restitution as part of his sentence.
Fourth Circuit Permits DOJ to Reject FCA Settlement After Government Declined to Intervene; Declines to Reach Issue of Statistical Sampling
In an opinion handed down on February 22, the Court of Appeals for the Fourth Circuit decided that the DOJ retains an unreviewable right to object to a proposed settlement agreement between a relator and a defendant even after the Government has declined to intervene in the case. See United States ex rel. Michaels v. Agape Senior Community, Inc., No. 15-2147 (4th Cir. Feb 14, 2017). The case concerned a qui tam relator who had alleged that Agape Senior Community and associated entities violated the FCA by submitting false claims to federal health care programs for nursing home related services that were not provided or provided to patients that were not eligible for them. After the Government declined to intervene in the case, the relator agreed to settle with defendants. However, the DOJ objected to the proposed settlement under 31 U.S.C. § 3730(b)(1)—which provides that an FCA lawsuit “may be dismissed only if the court and the Attorney General give written consent to the dismissal and their reasons for consenting”—arguing, among other things, that “the settlement amount was “appreciably less than . . . the Government’s estimate of total damages.”
The Fourth Circuit concluded that, while a relator has the right to pursue his or her FCA claim after the United States declines to intervene, “the Attorney General possesses an absolute veto power over voluntary settlements in FCA qui tam actions.” In reaching this conclusion, the appellate panel emphasized the fact that, in an FCA case, the United States Government is a real party in interest, and, as such, it suffered damages as a result of the fraudulent conduct at issue. The holding largely aligns with existing Fifth and Sixth Circuit precedent, establishing an absolute veto power for the United States over settlements in declined FCA cases. However, the ruling stands at odds with the Ninth Circuit standard set forth in U.S. ex rel. Killingsworth v. Northrop Corp., 25 F.3d 715 (9th Cir. 1994), which ruled that, once it has declined to intervene, the Government can object to a proposed settlement only for “good cause,” and a settlement agreement may be invalidated only following a hearing to determine if the settlement is fair and reasonable.
On the issue of statistical sampling, the district court had determined that the use of statistical sampling evidence would be improper when a case turns on the medical necessity for individual patients. Though the issue was certified for interlocutory review, the Appellate panel declined to decide this issue because, among other reasons, the use of statistical sampling is not a pure question of law and, as such, interlocutory review had been “improvidently granted.”
Additional information and materials covering the FCA, the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), and the Program Fraud Civil Remedies Act (PFCRA) can also be found in BuckleySandler’s False Claims Act and FIRREA Resource Center.