Volume 19 | July 2021
NEWSLETTER
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DOJ Provides Statistics on Healthcare False Claims Act Enforcement

On June 29, 2021, during the American Health Law Association’s Annual Meeting, Deputy Assistant Attorney General for the Department of Justice’s (DOJ) Civil Division Michael Granston provided statistics concerning DOJ’s enforcement of False Claims Act violations in the healthcare industry. Granston stated that DOJ had “opened over 900 new matters in 2020, including 580 new health fraud matters.” So, 64% of all DOJ civil matters involve some sort of healthcare fraud. Granston added that 265 of the 366 False Claims Act cases DOJ settled in 2020 involved the healthcare industry. DOJ released its False Claims Act Statistics for Fiscal Year 2020 in January, disclosing that False Claims Act recoveries in cases involving healthcare fraud totaled more than $1.8 billion last year. Even assuming some of the recovery comes from cases that went to trial, the total recovery compared to the number of False Claims Act matters settled demonstrates the significant financial implications of False Claims Act investigations.

Granston went on to highlight various areas of focus for DOJ going forward. The first area of focus is fraud that impacts the current opioid crisis. The opioid crisis is one of the few issues that transcends party lines, and both parties have indicated that combating the crisis is a priority. Given the widespread support for these efforts, it is no surprise that fraud impacting the opioid crisis is an area of focus for DOJ. The second area of focus is fraud in connection with the various COVID relief funds. Shortly after COVID-19 relief funds began to accept applications, the government began to investigate allegations of fraud, and in the time since, DOJ has indicted numerous individuals – like in this case and this case previously reported by Chilivis Grubman attorneys. Given the volume of funds distributed via Paycheck Protection Program loans and COVID-19 Economic Injury Disaster Loans, it is expected that investigations and prosecutions will continue for the next few years. Granston added that senior citizen abuse, electronic health record misuse, and manipulation of the Medicare managed care program were other areas of focus.

Given the prevalence of healthcare fraud investigations and the wide range of healthcare issues upon which DOJ intends to focus its enforcement efforts, it is more important than ever that those operating in the healthcare industry implement effective compliance programs. If served with a DOJ subpoena or CID, those companies need to engage attorneys with experience in healthcare fraud investigations.
The Georgia Access to Medical Cannabis Commission Announces Its Intent to Award Licenses to Six Companies

On Saturday, July 24th, 2021, the Georgia Access to Medical Cannabis Commission (the “Commission”) released its notice of intent to award production licenses to six companies following a lengthy competitive application process. The application period closed in January 2021 and the Commission received nearly 70 applications for licenses. The Commission intends to award two Class 1 licenses and four Class 2 production licenses. The attorneys at Chilivis Grubman are proud to represent Trulieve GA Inc., the intended recipient of a Class 1 production license. 

The Commission operates under the authority of the Georgia’s Hope Act (O.C.G.A. §16-12-200 et seq.), which was signed into law in April 2019 and legalizes limited in-state production, manufacturing, and sale of low-THC (less than 5%) cannabis oil for medical use. The Georgia’s Hope Act authorizes the Commission to grant licenses to six private growers and two designated universities. Two Class 1 license recipients will be permitted to use up to 100,000 square feet for indoor cultivation and production and four Class 2 licensees may use up to 50,000 square feet of indoor space.  

Since 2015, registered patients in Georgia have been able to possess and ingest low-THC cannabis oil if they have at least one of seventeen listed ailments (listed here). However, access to low-THC cannabis oil in Georgia has been limited as the manufacture, production and distribution of low-THC cannabis oil has been prohibited. According the one report, there are about “about 15,000 patients who have been authorized [by the State] to use medical marijuana oil since 2015 but weren’t permitted to buy it.” The Commission’s announcement of its notice of intent to award licenses is seen as a promising step forward for registered patients’ access to low-THC cannabis oil in Georgia.

Chilivis Grubman News
FREE Webinars

Chilivis Grubman offers FREE on-demand webinars on various legal and compliance matters. Access the free webinars here.
Events & Presentations

On July 23, Chilivis Grubman partner Scott Grubman moderated a panel on healthcare fraud & abuse topics for the Georgia Academy of Healthcare Attorneys, for which he serves on the Board.
Doctor Arrested for Providing Fake COVID-19 Immunizations and Fraudulent Vaccine Cards

On July 14, the Department of Justice announced the arrest of a homeopathic doctor in Napa, California who had allegedly been providing fake COVID-19 immunizations and falsifying vaccine cards. Rather than provide one of the select FDA-authorized vaccines to patients seeking to ward off COVID-19, the doctor allegedly sold patients homeoprophylaxis immunization pellets, which are not approved by the FDA for treatment of COVID-19. The doctor allegedly told patients that the pellets contained the COVID-19 virus and would create an antibody response in the immune system. DOJ obtained written documents and recordings in which the doctor claimed that the pellets would provide immunity to COVID-19 for life. DOJ further alleges that the doctor provided patients with COVID-19 Vaccination Records indicating that the Moderna vaccine had been administered on the date that the pellets were orally ingested. The doctor allegedly provided customers with specific Moderna vaccine lot numbers to enter onto the cards. DOJ alleges that the doctor played on individuals’ fears by spreading misinformation concerning the FDA-authorized COVID-19 vaccines.

DOJ further alleges that the doctor would offer homeoprophylaxis immunizations for childhood illnesses, lying to parents by telling them that the immunizations met the requirements for California schools. The doctor would then provide fake immunization cards to provide to the school. Playing on that original scheme, the doctor allegedly provided the pellets to parents and informed them that the pellets could provide immunity to children and even babies. DOJ highlighted its perception of the egregiousness of the acts of the doctor – violating the trust the public places in healthcare professionals at a time when trust is so essential to combating the COVID-19 pandemic.

The doctor was charged with one count of wire fraud and one count of false statements related to health care matters. The case is being coordinated with the DOJ Health Care Fraud Unit’s COVID-19 Interagency Working Group, which organizes efforts to address illegal activity involving health care programs during the pandemic. The prosecution is also supported by the new COVID-19 Fraud Enforcement Task Force, which was established in May 2021.

Earlier this month, the Department of Health and Human Services (“HHS”) finally launched its Provider Relief Fund (“PRF”) Reporting Portal and simultaneously updated its PRF Frequently Asked Questions (“FAQs”). Just two weeks after launch of the Reporting Portal, HHS has released an additional round of PRF updates. 

Of particular note, HHS indicates that it will soon introduce a structured reconsiderations process to review and reconsider PRF payments. Chilivis Grubman attorneys have cautioned PRF payment recipients about acceptance of PRF payments and maintaining documentation to appropriately report on compliant use of such funds. As expected, HHS has indicated that certain determinations related to PRF reports will be based on supporting documentation submitted along with the reports.

On July 15, 2021, HHS added the following new FAQs:

How do I appeal or dispute a decision made?

HHS Response:
HHS recognizes that providers may have questions regarding the accuracy of their PRF payments. HHS is developing a structured reconsiderations process to review and reconsider payment accuracy based on submitted supporting documentation. Details regarding this process will be provided in coming weeks.


How can a provider return unused Provider Relief Fund payments that it has partially spent? 

HHS Response: 
Providers that have remaining Provider Relief Fund payments that they cannot expend on allowable expenses or lost revenues attributable to coronavirus by the relevant deadline to use funds are required to return this money to the federal government. To return any unused funds, use the Return Unused PRF Funds Portal. Read instructions for returning any unused funds. 

The Provider Relief Fund Terms and Conditions and applicable laws authorize HHS to audit Provider Relief Fund recipients now or in the future to ensure that program requirements are/were met. HHS is authorized to recoup any Provider Relief Fund payment amounts that were made in error, exceed lost revenue or expenses due to coronavirus, or in cases of noncompliance with the Terms and Conditions.


When should Provider Relief Fund expenditures and/or lost revenue be reported on a non-federal entity’s Schedule of Expenditures of Federal Awards (SEFA)? 

HHS Response:
Non-federal entities will include Provider Relief Fund expenditures and/or lost revenues on their SEFAs for fiscal year ends (FYEs) ending on or after June 30, 2021. Please refer to the 2021 OMB Compliance Supplement for additional information.


How will a non-federal entity determine the amount of expenditures and/or lost revenues to report on its SEFA for FYEs ending on or after June 30, 2021? 

HHS Response:
A non-federal entity’s SEFA reporting is linked to its report submissions to the Provider Relief Fund Reporting Portal. Therefore, the timing of SEFA reporting of Provider Relief Fund payments will be as follows:

  • For a FYE of June 30, 2021, and through FYEs of December 30, 2021, recipients are to report on the SEFA, the total expenditures and/or lost revenues from the Period 1 report submission to the Provider Relief Fund Reporting Portal.

  • For a FYE of December 31, 2021, and through FYEs of June 29, 2022, recipients are to report on the SEFA, the total expenditures and/or lost revenues from both the Period 1 and Period 2 report submissions to the Provider Relief Fund Reporting Portal.

  • For FYEs on or after June 30, 2022, SEFA reporting guidance related to Period 3 and Period 4 will be provided at a later date.

When reporting on lost revenues, how should Reporting Entities treat “contractual adjustments from all third party payers” and “charity care adjustments” when determining what to exclude from patient care-related revenue sources?

HHS Response:
Reporting Entities should exclude the amount of contractual adjustments from all third party payers and charity care adjustments, as applicable, when determining patient care-related revenue sources.

Individuals and businesses doing business with the U.S. Government may face False Claims Act (“FCA”) culpability for several reasons – including retaining overpayments. 31 U.S.C. 3729(a)(1)(G). The retention of known overpayments is colloquially called “reverse false claims,” which Chilivis Grubman attorneys have discussed.  

Since 2009 and the enactment of the Fraud Enforcement and Recovery Act (“FERA”), an individual or business may be liable for violating the FCA under the reverse false claim theory if it “knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government.” 31 U.S.C. 3729(a)(1)(G). The offending party need not take an affirmative act to conceal, avoid, or decrease their obligation to pay. All that is required is that the offending party know that they received or have retained money to which they are not entitled (i.e., an overpayment).  

Knowledge of an overpayment, under certain circumstances, can result in an obligation to repay large sums of money. For example, knowledge of a single overpayment incident involving a defective system may impute knowledge of a potential overpayment to all transactions using that same defective system. This may cause a massive obligation to repay funds to the government, and if not repaid, a large reverse false claim (which may include liability for treble damages). While the reverse false claim theory may receive less publicity, the government equally enforces reverse false claims and often with other FCA theories. This was the case for California’s second-largest skilled nursing facility operator. 

On June 29, 2021, the U.S. Department of Justice (“DOJ”) announced that the corporate entities of McKinley Park Care Center (collectively, “McKinley”) have agreed to pay more than $451,439 to resolve FCA allegations. According to the press release, a McKinley employee allegedly created billing records for services not rendered and the government issued Medicare reimbursements that were higher than merited based upon these allegedly false records. The DOJ also alleges that McKinley is culpable under the reverse false claim theory. According to the press release, management at McKinley learned of the false billings to Medicare (i.e., knowledge of overpayments) but did not properly investigate the conduct nor submit a refund for the overpayments. The DOJ also contends that McKinley did not self-disclose the false billings, despite knowing about its employee’s improper acts. 

Like many FCA settlements, McKinley’s settlement resolves a qui tam lawsuit. Under the FCA’s qui tam provisions, whistleblowers – known as relators – are granted financial incentives and procedural mechanisms to bring FCA cases on behalf of the government. The financial incentive can be significant, as whistleblowers are entitled to 15% to 30% of the money the government recovers, based on several factors. The whistleblower that brought the McKinley action, a former employee, will receive over $90,000. The McKinley whistleblower may also receive additional compensation related to her claims for retaliation and attorneys’ fees, which are pending. 

Individuals and businesses doing business with the U.S. Government must ensure compliance with the FCA. Compliance programs should give equal weight to acts of employees and agents that may create culpability under any FCA theory. Where an individual or entity knows of an overpayment, the FCA requires affirmative action, and the government’s expectations of entities are clear. “Knowingly retaining Medicare funds obtained by fraud is itself a violation of the law, and this office is committed to pursuing enforcement actions to remedy this conduct,” as noted by Acting U.S. Attorney Phillip A. Talbert. Issuing a strong warning, Talbert also explained that failure to voluntarily disclose fraud may cause “significant consequences.”
QUOTE OF THE MONTH

"If we desire respect for the law, we must first make the law respectable."

Justice Louis D. Brandeis

Chilivis Grubman attorneys have written about complying with relief programs enacted to help tackle the financial strain of the COVID-19 pandemic. CG attorneys have also monitored and written about the government’s efforts to combat fraud against the CARES Act programs and other COVID-19 related relief programs. More than a year after many of these programs were enacted, the Department of Justice (“DOJ”) continues to investigate and arrest individuals perpetrating fraud.

On July 9, 2021, the DOJ announced the arrest of a California man who allegedly engaged in a scheme to defraud two COVID-19 related relief programs – the Paycheck Protection Program (“PPP”) and Economic Injury Disaster Loan (“EIDL”). The PPP provides forgivable loans to qualified businesses, while the EIDL is a Small Business Administration (“SBA”) program that provides low-interest financing to small businesses, renters, and homeowners in regions affected by declared disasters. The PPP has disbursed over $780.4 billion alone.

The arrested California man allegedly submitted over two-dozen PPP loan applications and at least seven EIDL loan applications. These applications contained false information and documents, according to the press release. The fraudulent applications included false employee information, false or exaggerated payroll information, and fake tax documents. The applications were also submitted on behalf of several individuals and businesses.

The perpetrators sought more than $8 million in PPP and EIDL funds as part of the scheme. Based on the false loan applications, the government disbursed $3.6 million in loan proceeds and the California man netted approximately $2 million from the scheme. The California man and others spent the illegally obtained proceeds on personal expenditures unrelated to the COVID-19 pandemic, which appears to be a recurring theme in COVID-19 relief program fraud. According to the press release, the California man and his counterparts used the proceeds at restaurants, retail stores, on personal investment accounts, and to purchase cryptocurrency. A $100,000 Tesla was also purchased with the proceeds.

The California man was charged with six counts of wire fraud. For each wire fraud count, he faces up to twenty years in prison. He was also charged with three counts of bank fraud and he faces up to thirty years in prison for each bank fraud count. The press release also details continued interagency collaboration, which CG attorneys have discussed. The FBI and the SBA Office of Inspector General continue to investigate this scheme.

The Federal Food, Drug, and Cosmetic Act of 1938 (“FDCA”) is one of the most far-reaching federal statutes in the United States. Among other things, the FDCA gives the U.S. Food and Drug Administration (”FDA”) the authority to oversee the safety of food, drugs, medical devices, and cosmetics on the market in the United States. When people think about the FDA, they often think about food purity standards, safety standards for drugs and medical devices, or standards for the contents of cosmetic products. However, one of the most significant tools the U.S. Government has to ensure the safety and efficacy of drugs and medical devices is the ability to bring enforcement actions against companies for misbranding their products. Misbranding is an offense all on its own, but it can also be paired with offenses under the False Claims Act to create multi-million-dollar penalties against corporations. This is especially concerning to corporate compliance professionals because the “label” of a drug or medical device is not limited to the label on the box for the product. Instead, any statements put out by the company can be considered part of the product’s label, and compliance programs go to great lengths to review and approve all written materials, especially marketing materials, that are put out by the company.

On July 8, the Department of Justice announced that it had reached an agreement with Avanos Medical Inc., a major medical device corporation, to pay more than $22 million to resolve a criminal charge of fraudulent misbranding of its MicroCool surgical gowns. Avanos was alleged to have falsely labeled the gowns concerning their level of protection from fluid and virus penetration. Avanos and the government agreed to a deferred prosecution agreement requiring Avanos to pay $22,228,000, including a victim compensation payment, a criminal monetary penalty, and a disgorgement payment. The deferred prosecution agreement also resolves allegations that the company obstructed a 2016 for-cause inspection conducted by the FDA.

The FDA recognizes a system of classification for the protection provided by surgical gowns. Under the standard, the highest protection level for surgical gowns — AAMI Level 4 — is reserved for gowns intended to be used in surgeries and other high-risk medical procedures on patients suspected of having infectious diseases. Under the deferred prosecution agreement, Avanos admitted that it had sold hundreds of thousands of surgical gowns labeled as AAMI Level 4 that did not meet the criteria to achieve that standard of protection. Avanos also admitted that it made misrepresentations to customers that it met industry standards. Avanos is alleged to have sold approximately $8,939,000 worth of misbranded gowns. Along with the monetary payments, Avanos has agreed to continued cooperation with DOJ by reporting any evidence of alleged violations of the FDCA or fraud laws committed by its employees. Avanos also agreed to strengthen its compliance program and submit yearly reports to the government concerning improvements to its compliance program. 

On Friday, July 9, 2021, President Biden signed a sweeping executive order covering a broad range of activities which may impact competition in the marketplace. The President’s directives in the executive order range across several different industries and involve multiple federal agencies, including the Department of Health and Human Services (HHS), the Federal Trade Commission (FTC), and the Securities and Exchange Commission (SEC).  President Biden’s instructions and comments on non-compete covenants may be of particular interest to businesses in the healthcare industry. 

As healthcare providers are well aware (and as attorneys at Chilivis Grubman previously discussed here), non-compete agreements are a contentious and key negotiation point in many healthcare transactions, and especially in physician employment agreements. The removal of non-compete covenants from the healthcare industry would have serious implications. 

In Section 5(g) of the executive order, President Biden speaks directly to the FTC:

  • To address agreements that may unduly limit workers’ ability to change jobs, the Chair of the FTC is encouraged to consider working with the rest of the Commission to exercise the FTC’s statutory rule making authority under the Federal Trade Commission Act to curtail the unfair use of non-compete clauses and other clauses or agreements that may unfairly limit worker mobility. 

Expect Roadblocks and Limitations

Despite the President’s executive order and campaign rhetoric on non-compete covenants, there’s no way to know how far the FTC can and will take this directive until the FTC releases a proposed rule. Additionally, the FTC can expect to face some significant legal challenges, including: (1) whether the FTC has authority under the Federal Trade Commission Act to establish criteria for determining permissible contractual restraints on employees, and (2) whether a federal agency can step into an area of law that has, to date, been governed by state law.

Key Take-Aways 

Considering the executive order, here are a few key points on non-competes to consider, for now:
  • The executive order does not invalidate current non-compete covenants. 
  • The rule making process for federal agencies is a lengthy process and with the anticipated legal challenges, it may be a long time before we see a final, enforceable rule. 
  • A final rule from the FTC may ultimately be limited to specific subsets of “non-essential” employees, or to employment in certain industries.  
  • The executive order’s language appears to apply to non-compete covenants between employees and employers specifically and is silent on non-compete covenants in other scenarios, such as a covenant tied to the sale of a business.

On July 1, 2021, the Department of Health and Human Services (“HHS”) launched its Provider Relief Fund (“PRF”) Reporting Portal through the Health Resources and Services Administration (“HRSA”). On the same day, HHS once again updated its PRF Frequently Asked Questions (“FAQs”). 

The attorneys at Chilivis Grubman have tracked prior 2021 updates to the FAQs last June and in the end of March. Providers should be aware that the HHS’ Office of Inspector General’s current workplan includes audits of CARES Act Provider Relief Fund Payments, and the Department of Justice has been directed to establish an inter-agency COVID-19 Task Force, which is expected to focus on PRF compliance concerns, among other COVID-19 relief programs.

Reporting Portal Resources:

Just prior to opening the Reporting Portal, HHS and HRSA released multiple resources to guide providers through the reporting process, including a Reporting User Guide for registration and for reporting. HRSA will host a provider webcast on Thursday, July 8, 2021 at 3pm EST with an “Introduction to the PRF Reporting Portal,” which may be helpful to providers looking to complete their PRF reporting requirements.

FAQ Updates:

Here are a few highlights from this most recent round of changes to the PRF FAQs:

  • Don’t count on any deadline extensions. Providers may not request an extension to use PRF payments and may not request an extension on any report submissions during their required reporting periods.

  • If a provider’s lost revenue in a given Payment Received Period exceeds the PRF payments it received for the same period, the remaining lost revenue may be carried forward and applied against PRF payments received during a later Payment Received Period.

  • If a provider has not used all of its PRF payment before the applicable deadline, the provider has 30 calendar days after the end of the applicable Period of Reporting to return the funds.

For example, if a provider received a PRF payment between April 10, 2020 and June 30, 2020, then the provider’s deadline to use the funds is June 30, 2021, the applicable reporting period is July 1, 2021 to September 30, 2021, and the provider would have to return any funds not used prior to June 30, 2020, before October 30, 2021.

As a reminder, here’s the chart HHS released on June 11, 2021, for determining the deadline to use funds and the reporting period:

On June 2, 2021, the U.S. Department of Justice (“DOJ”) announced its second settlement for alleged False Claims Act (“FCA”) violations by a rehabilitation provider servicing skilled nursing facilities. The FCA prohibits any person from knowingly presenting or causing to be presented, a false or fraudulent claim for payment to the federal government. The FCA also prohibits any person from knowingly making, using, or causing to be made or used, a false record or statement that is material to a false or fraudulent claim. FCA violators are liable for civil penalties of over $23,000 per claim, plus treble damages. 31 U.S.C. § 3729(a)(1)(G). FCA penalties can be astronomical for healthcare providers due to the volume of claim submissions and have resulted in defendants arguing that the penalties levied are Eighth Amendment violations. CG attorneys have discussed the FCA extensively.  

The first announced settlement was for $11.2 million by SavaSeniorCare, which resolved allegations that its corporate-wide policies and practices levied pressure on facilities and staff resulting in “medically unreasonable, unnecessary or unskilled services” provided to Medicare patients. Less than two months later, the government announced a second settlement involving Select Medical Rehabilitation Services, Inc. (“SMRS”), a rehabilitation service provider, that also allegedly billed for medically unnecessary services.  

According to the press release, Select Medical Corporation and Encore GC Acquisition LLC agreed to pay $8.4 million to resolve allegations of FCA violations by SMRS. Select Medical Corporation was the prior parent company of SMRS, and Encore GC Acquisition LLC is the successor-in-interest to SMRS.

Between January 2010 and March 2016, SMRS contracted with twelve skilled nursing facilities to provide rehabilitation therapy services. Similar to the allegations in the SavaSeniorCare settlement, the government alleged that “SMRS’ corporate policies and practices encouraged and resulted in the provision of medically unnecessary, unreasonable and unskilled therapy services.” Like the SavaSeniorCare settlement, the SMRS settlement resolves claims brought under the FCA’s qui tam provisions. The FCA’s qui tam provisions provide financial incentives and a procedural structure to whistleblowers – known as relators – so individuals may bring FCA cases on behalf of the government. In this case, the whistleblower was a former employee. If successful, whistleblowers are entitled to 15% to 30% of the money the government recovers based on several factors, such as government intervention.  

CG attorneys have also discussed the government’s willingness to engage in cross-agency collaborations in its enforcement efforts, as noted in the SavaSeniorCare settlement. Continuing its practice of government interagency collaboration, the SMRS settlement resulted from coordinated interagency efforts involving the U.S. Attorney’s Office Civil Division’s Commercial Litigation Branch, Fraud Section, the U.S. Attorney’s Office for the District of New Jersey, and U.S. Department of Health and Human Services Office of Inspector General (“HHS-OIG”).

Healthcare providers, especially rehabilitation therapy companies, should pay attention to the two settlements, which allege similar improper actions. The government’s position is clear regarding enforcement actions against those that submit claims for medically unnecessary services. According to Acting Assistant Attorney General Brian M. Boynton of the Justice Department’s Civil Division, “[c]ontract rehabilitation therapy companies, like other health care providers, will be held accountable if they knowingly provide patients with unnecessary services that waste taxpayer dollars.” Special Agent in Charge Scott J. Lampert of HHS-OIG similarly noted that “[s]ticking taxpayers with a hefty bill for unnecessary health care services will never be tolerated.”
SEC and DOJ Charge Trader for Front Running Trades Using Relatives' Investment Accounts

On July 2, the SEC and DOJ both announced charges against a Canadian trader for entering into trades based on the knowledge of upcoming trades by the trader’s employer, a large Canadian asset management firm. The trader is alleged to have made trades in tandem with upcoming trades of his employer which would impact the market price, leading to profits from the trades in accounts in the names of the trader’s relatives. The trader allegedly traded in the same direction as the management firm prior to the much larger trades by the firm in violation of insider trading and confidentiality policies in place at his employer. The trader also took advantage of his knowledge of the impending rise or fall in the stock prices. His alleged actions led to more than $3.6 million in profits, which the government alleges were obtained illegally.  

The trader is alleged to have made many of the trades in the relatives’ accounts himself rather than simply providing the information to his relatives. Additionally, the government alleges that, on occasion, the trader would conduct the trades on behalf of both the relatives’ accounts and his employer. In total, more than 700 trades were allegedly made as part of this scheme. The government further alleges that hundreds of thousands of dollars were transferred from the accounts of the relatives back to the trader and to relatives of the trader’s wife. These sorts of trades can be seen as both insider trading and market manipulation and can be subject to prosecution as securities fraud. The trader has been charged with both securities fraud and wire fraud.

These charges are significant for two reasons. First, many often labor under the misconception that insider trading cases are only premised on trading based on material non-public information in the company whose securities have been traded. However, that is not the case. Insider trading can be premised on trading based on knowledge of material non-public information concerning the trading strategies of other market actors. This conduct is considered fraud because front-running trades can alter the prices that will ultimately be paid when the larger trades are executed. In that case, the fraud is against the trader or firm executing the later, larger trades. Second, the charges are notable because the alleged illegal conduct was only detected because of sophisticated data analytics tools utilized by the SEC. More and more, these tools are being used to identify suspicious trading that would not otherwise be detected. In the past, trading in the accounts of relatives might have shielded a trader from the consequences of illegal trades, but with the growing use of data analytics, that sort of covert conduct is being discovered and prosecuted more and more.
Two Charged in Alleged $1 Million CARES Act Paycheck Protection Program Scheme

Since the CARES Act Paycheck Protection Program (“PPP”) was enacted, Chilivis Grubman attorneys have cautioned recipients of increased government scrutiny and enforcement efforts. In Sept 2020, we highlighted Acting Assistant Attorney General Brian Rabbitt’s comment that the U.S. Department of Justice (“DOJ”) has a “team dedicated to PPP fraud, began investigating immediately, and brought our first cases within months of the PPP being announced.”  Although communities are relaxing COVID-19 rules, enforcement efforts related to COVID-19 emergency aid programs, like the PPP, continue.  

On June 11, 2021, the DOJ announced that a New York man and Oklahoma woman were charged as co-conspirators for allegedly obtaining and laundering nearly $1 million in PPP funds. According to the press release, from May 2020 through October 2020, the pair conspired to obtain nearly $1 million in PPP emergency relief funds. Under the alleged scheme, the pair submitted a PPP loan application for ADA Auto Group, LLC, which is a defunct business owned by the New York man. The PPP loan application allegedly contained materially false information and false certifications about ADA Auto Group, including how the money would be used. Based on the false information and certifications, the PPP loan was approved, and funds were disbursed. The pair allegedly used the loan proceeds to purchase two cars and to cover personal expenses.  

Based on the allegations, the New York man and Oklahoma woman were each charged with conspiracy to commit bank fraud, conspiracy to engage in monetary transactions with criminally derived proceeds, bank fraud, and engaging in monetary transactions with criminally derived proceeds. If found guilty, “each face[s] a maximum penalty of 30 years in prison for each conspiracy and substantive count of bank fraud, and a maximum of 10 years in prison for each conspiracy and substantive count of engaging in monetary transactions with criminally derived proceeds,” according to the press release. 
 
The press release also highlighted certain enforcement activities and statistics of the DOJ’s Fraud Section, which leads the DOJ’s prosecution of CARES Act fraud schemes. In the approximate 15 months since the CARES Act and emergency aid programs were enacted, the government has prosecuted over 100 defendants in over 70 criminal cases. Several real-estate properties and luxury items have been seized. The DOJ’s Fraud Section also seized more than $65 million in cash proceeds from PPP fraud. The Fraud Section maintains a site with information on specific enforcement cases, including unsealed pleadings.

President Joe Biden stated in his inaugural address, “We can make America, once again, the leading force for good in the world.” Fighting corruption, both domestically and internationally, has been a focus of the Biden administration in its first year in office. The federal government has many tools in its shed to combat corruption around the world. Those tools include prosecution of honest services fraud in the United States under the mail and wire fraud statutes. The federal government can also use the securities fraud statutes to combat corruption in connection with public bond offerings. The False Claims Act can also be a major tool in combating bribery on the part of government contractors. However, those tools are largely limited to domestic corruption. The United States’ most effective tool in combating corruption around the world is the Foreign Corrupt Practices Act (“FCPA”). During the four years of the Trump administration, FCPA investigations initiated dropped by nearly 80%, and it has been widely expected that FCPA investigations would see a sharp uptick under the Biden administration. We are likely seeing the beginning of that trend.

On June 25, the Securities and Exchange Commission (“SEC”) announced that it had charged Amec Foster Wheeler Limited (“Foster Wheeler”) with violations of the FCPA stemming from a bribery scheme in Brazil. The SEC alleged that Foster Wheeler sought to obtain an oil and gas engineering and design contract from Petroleo Brasileiro S.A., a Brazilian state-owned oil company. Foster Wheeler’s UK subsidiary allegedly made illegal payments to Brazilian officials in an attempt to obtain the contract. The SEC identified failures in Foster Wheeler’s due diligence process for vetting third party agents because one of the third-party agents alleged to have paid bribes to Brazilian officials had failed the company’s due diligence process. The SEC alleged that Foster Wheeler paid approximately $1.1 million in bribes to Brazilian officials as part of this scheme. Following the investigation, Foster Wheeler agreed to pay more than $43 million to the U.S., U.K., and Brazilian governments, with $10.1 million being paid to the SEC.
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