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Thursday
Dec072017

Supreme Court Heard Oral Argument in Case Determining Scope of Potentially Broad-Sweeping Tax Obstruction Statute

What Happened?
The Supreme Court heard oral argument yesterday in Marinello v. United States.  The case will determine whether a defendant can be convicted under Internal Revenue Code 7212(a) for the corrupt obstruction of the administration of the code in the absence of an ongoing IRS audit or proceeding of which the defendant was aware.

The Rundown
Petitioner Carlo Marinello pled guilty to misdemeanor charges of failing to file tax returns for his all-cash courier freight service business.  The government alleged that in addition to not filing tax returns or withholding payroll taxes, Marinello also shredded bank statements and other relevant financial records.  Marinello was charged and convicted under Section 7212(a) of the Internal Revenue Code, which makes anyone who “corruptly or by force…endeavors to obstruct or impede the due administration of this title” guilty of a felony.  After the verdict, Marinello argued in his motion for a judgment of acquittal or a new trial that the government had to prove that an IRS investigation was ongoing and that Marinello knew of the investigation at the time he destroyed his financial records and failed to provide tax information.  The district court denied his motion and the Second Circuit affirmed the conviction, finding that an obstruction charge under Section 7212(a) need not be tied to an IRS proceeding.

Marinello argued that criminal liability under the statute must be based on the obstruction of a specific proceeding or investigation.  Without that necessary tie, interpretation of the provision would be so broad as to encompass innocent actions like paying your gardener or snow shoveler in cash, because doing so would make it harder for the IRS to assess tax liability for both parties.  The cash payment would also meet the statute’s mens rea requirement if the payor knew about the statute and made the payment in cash anyways to assist the gardener in some way.  Three tax and defense lawyers’ associations as well as the Chamber of Commerce each filed an amicus brief on Marinello’s behalf.

The government admitted that the gardener/snow shoveler example may fall within the statute’s purview but argued that the “corruptly” mens rea requirement sufficiently limited the statute’s scope because that action would only have an obstructive effect if it is paired with efforts to mislead or deceive the IRS.  Therefore, simply paying someone in cash because it’s easier to do so in certain circumstances would not be obstruction because the law does not require “that the administration of the code has to be made maximally easy.”  On the other hand, paying in cash would violate the statute if it was done with knowledge that the payee preferred a cash payment because he would rather not report the income. 

For the Record
Justice Breyer noted in his questioning with respect to the gardener/shoveler example that under Marinello’s interpretation of the statute, the government would have “discretion to indict, I won’t say half the country – but…a very significant number of people.”

The Take Home
As DOJ policy mandates that prosecutors must prosecute cases to the maximum extent allowed by law, the Court’s ruling will dictate whether the government can tack on this felony obstruction charge to an otherwise relatively minor misdemeanor tax case (of which there are many).  The ruling also has implications for the interpretation of other types of obstruction statutes and whether the defendant’s conduct must be tied to an ongoing government action or proceeding.

Monday
Oct302017

DOJ Opioid Fraud Unit Gets First Indictment

What Happened?
The Department of Justice’s new opioid fraud unit unsealed its first indictment last week, targeting a Pittsburgh-area physician in a 14-count indictment alleging unlawful distribution of controlled substances and conspiracy.

The Rundown
In August, Attorney General Jeff Sessions announced the creation of the Opioid Fraud and Abuse Detection Unit chartered to target 12 federal districts hardest hit by the opioid epidemic. The unit uses data analytics to identify and investigate physicians and medical providers who are overprescribing opioids as well as pharmacists failing to properly distribute them.  The 12 districts on which the opioid unit is focused include the Western District of Pennsylvania, Southern District of West Virginia, and Southern District of Ohio.

The indictment filed last week was the product of the new opioid unit and alleges that a local physician, Andrzej Zielke, wrote prescriptions for oxycodone, hydrocodone, and methadone at least 13 times that were “not for medical purposes.” It was also alleged that Dr. Zielke charged patients $250 cash, many of whom traveled long distances for opioid prescriptions.

Federal regulations – specifically, 21 C.F.R. § 1306.04(a) – require prescriptions, including those for opioids, to be issued only for “a legitimate medical purpose by an individual practitioner acting in the usual course of his professional practice.”  Doctors disregarding this requirement have led federal agents and prosecutors to increasingly focus on alleged overprescribing, particularly those who exhibit “red flags“ like cash only medical practices, lack of physical exams, prescribing without using opioid monitoring databases, prescribing dangerous combinations of drugs, prescribing to known addicts, and directing patients to use pharmacies known for lax dispensing practices.

For the Record
Acting U.S. Attorney Soo Song: “Western Pennsylvania is experiencing some of the highest rates of overdose deaths in the nation.  In response, we in law enforcement aggressively target drug traffickers – both those who distribute on the street, and those who traffic under the guise of physicians writing excessive prescriptions.”               

Attorney General Jeff Sessions: “This summer, I designated a dozen of our top federal prosecutors to focus solely on the problem of opioid-related health care fraud in places where the epidemic was at its worst – including Western Pennsylvania. …Today, as President Trump unveils his plan to fight the opioid epidemic, we have filed the first charges by these prosecutors.  We will file many more charges in the months to come – because the Department of Justice will be relentless in hunting down drug dealers and turning the tide of this epidemic.”

What Happens Next?
There are no pending court appearances for Dr. Zielke, whose case is assigned to District Court Judge Nora Barry Fischer. 
Friday
Oct272017

Insys Therapeutics Executive Charged in Connection with Company’s Sale of Fentanyl Spray 

What Happened?
John Kapoor, the founder and chairman of Insys Therapeutics Inc. was indicted Thursday for allegedly bribing doctors to prescribe a fentanyl-based painkiller called Subsys for off-label use and defrauding insurance companies into pre-approving payment for the drug. 

The Rundown
Kapoor and six other former Insys executives were charged with racketeering conspiracy, mail fraud conspiracy, wire fraud conspiracy, and conspiracy to violate the anti-kickback law for their alleged scheme to bribe physicians across the country to prescribe Subsys and to defraud insurance providers who were hesitant to pay for Subsys for patients without cancer.

According to the indictment, Kapoor, who is said to be worth $2.1 billion, was dissatisfied with Subsys’s sales after the drug launched in 2012.  From May 2012 through December 2015, the indictment claims, Kapoor devised a scheme to increase profits by using bribes and kickbacks to induce doctors to prescribe Subsys in higher volumes and for non-cancer patients.  The indictment alleges that these payments came in the form of speaker fees, honoraria for marketing events, food and entertainment, administrative support, and fees paid to pharmacies.  When Kapoor saw that private insurers were often unwilling to approve payment of the drug for non-cancer patients, he allegedly directed employees to defraud insurance providers by disguising the identity and location of their employer, misrepresenting patient diagnoses, the type of pain being treated, and the patient’s course of treatment with other medications.

The indictment also references multiple unidentified practitioner and pharmacy co-conspirators in various states who allegedly conspired with defendants in their criminal activity.   

For the Record
An official from the Office of Inspector General of the U.S. Department of Health and Human Services stated in a DOJ press release issued Thursday that the Insys executives charged “allegedly fueled the opioid epidemic by paying doctors to needlessly prescribe an extremely dangerous and addictive form of fentanyl,” and added that “[c]orporate executives intent on illegally driving up profits need to be aware they are now squarely in the sights of law enforcement.” 

Kapoor’s attorney asserted in a statement to the press that Kapoor has “done nothing wrong and expects to be fully exonerated at trial.” 

What Happens Next?
Kapoor is scheduled to appear in federal court in Boston, Massachusetts on November 16.  Insys is also the target of ongoing civil litigation brought by state attorneys general.

Friday
Oct202017

NJ Doctor Pleads Guilty to Health Care Fraud

What Happened
The healthcare fraud enforcement efforts of the U.S. Attorney’s Office for the District of New Jersey continue. Anthony J. Enrico, 60, of North Haledon, New Jersey pleaded guilty on October 17, 2017 to an information charging him with health care fraud. Enrico admittedly billed Medicare and other health insurance providers for physical therapy services that he had reported to have performed on his patients’ between January 2007 and May 2016.

The Rundown 
Enrico billed Medicare and private insurance companies for physical therapies he did not perform or were performed by individuals that were uncertified or unlicensed on more than 150,000 occasions. As a result, he managed to collect close to $3 million from the government and private insurance companies alike, which ultimately gained the attention of the Health Care and Government Fraud Unit, the department of Health and Human Services, and the FBI. Enrico faces a maximum penalty of 10 years in prison, a fine of up to twice the amount of the loss, as well as payment for restitution totaling $3 million. His sentencing will take place on January 25, 2018.

The Take Home
The Health Care and Government Fraud Unit of the U.S. Attorney’s Office for the District of New Jersey has been working diligently since 2010 to crackdown on health care fraud throughout the state. Created by the U.S. Attorney’s Office for the District of New Jersey to handle both criminal and civil investigations and prosecutions of health care fraud offenses, they have recovered more than $1.36 billion in various health care and government fraud settlements, judgments, fines, restitution and forfeiture under the False Claims Act, the Food, Drug and Cosmetic Act, and other statutes. There are no signs of its aggressive enforcement efforts letting up.

Friday
Oct132017

Menendez, Government Argue Viability of “Stream of Benefits” Bribery Theory

What Happened?
In the trial of Senator Bob Menendez and Salomon Melgen, a Florida ophthalmologist, U.S. District Judge William H. Walls (D.N.J.) deferred ruling on whether a bribery conviction may rest on the “stream of benefits” theory until after the parties have had the opportunity to brief the issue.

The Rundown
After the prosecution rested its case, Menendez moved for judgment of acquittal, pursuant to Federal Rule of Criminal Procedure 29. In the course of the argument regarding that motion, Judge Walls questioned whether the “stream of benefits” theory is still valid in light of the U.S. Supreme Court’s ruling in McDonnell v. United States.

Under the “stream of benefits” theory, the government can establish the quid pro quo required for a bribery conviction by showing that bribes were made to retain an official’s services as-needed, without linking each bribe to a specific official act. Menendez, through counsel, argued that McDonnell requires a connection of the bribe to the act, or the quid to the quo.

The government contended that McDonnell’s holding merely curbed the definition of “official act” to a formal exercise of government power that is specific and focused. It noted that “stream of benefits” appears nowhere in the opinion and suggested that the Supreme Court would not overturn a longstanding means of proving bribery without doing so explicitly.

The Take-Home
The Court’s ruling could well determine the bribery charges advance to the jury. It is unclear that the government has another theory of culpability to support the charges – at least one that has an evidentiary basis. Menendez was also indicted for making false statements on his financial disclosure forms related to the alleged bribes he received.  Those counts will go forward in any event, the Court ruled.

What Happens Next?
The hearing on the Rule 29 motion will continue on Monday, October 16, 2017.

Thursday
Oct052017

Tenet Hospital CEO and Other Executives Indicted in $400 Million Alleged Bribery Scheme

What Happened?
Last week, Bill Moore, a former CEO of a Georgia-based health care provider, Tenet Healthcare Corporation, was indicted for his alleged role in a $400 million fraud and bribery scheme.  The indictment – actually a superseding indictment in a case that began in January 2017 – was filed on September 27 in federal court in the Northern District of Georgia.

The Rundown.
Besides Moore, the indictment also named two co-defendants:  Edmundo Cota, the president and CEO of Hispanic Medical Management, Inc., and John Holland, a former senior vice resident of Tenet’s Southern States Region.  Holland was the sole defendant in the case until Moore and Cota were named in the superseding indictment.

The indictment claims that Moore, Cota and Holland conspired to defraud Tenet patients, the United States, and the South Carolina and Georgia Medicaid programs through the payment of bribes by Holland and Moore in return for the referral of patients to Tenet hospitals in the Southern States Region.  It is also alleged that Holland and Moore took affirmative steps within Tenet to conceal the scheme through circumventing internal accounting controls, falsification of Tenet’s books and records, and false representations to the United States.  The alleged false representations included those made by Holland to HHS-OIG concerning Tenet’s 2006 Corporate Integrity Agreement, through which he certified that Tenet was compliant with participation requirements of Medicare and Medicaid.  The alleged bribes resulted in over $400 million claims for services by Tenet to Georgia and South Carolina for which Tenet received over $149 million from the resulting referrals.

What Happens Next?
The district court judge, the Hon. Amy Totenberg, will preside over the case, which can be found at No. 1:17-CR-00234.  There are no pending deadlines or events on the docket at present.

Friday
Sep292017

DOJ Asks Supreme Court to Allow Warrantless Access to Cell-Site Location Information

What Happened?
In a brief filed September 27, the Department of Justice urged the Supreme Court to allow law enforcement to access historical cellphone location information without a warrant. 

The Rundown
In June, the Supreme Court granted certiorari in Carpenter v. U.S., 16-402, which challenges the Sixth Circuit’s classification of cell-site location information as business records not subject to the Fourth Amendment’s warrant requirement.  Carpenter, represented by the ACLU, argued in his opening brief that courts should require law enforcement to obtain a warrant in order to access cell-site location information because this information provides a detailed itinerary of where a person has been and the people he has been with.  According to Carpenter, “[t]racing a person’s geographical movements reveals highly sensitive personal information, and prior to the digital age, people reasonably expected that police in most investigations would not have followed a person and recorded her every movement for days or weeks on end.”  Carpenter argues that this same reasonable expectation of privacy analysis must also apply to cell-site location information.  

The government, on the other hand, contends that cellphone users “voluntarily reveal to their providers information about their proximity to cell towers so the providers can connect their calls” and therefore “[u]sers cannot reasonably expect that the providers will not reveal that business information to the government.”  In the absence of any legitimate expectation of privacy in this information, DOJ argued, the government can access this information without implicating the Fourth Amendment.  DOJ relied on Supreme Court cases from the 1970s holding that Fourth Amendment protections do not apply to third party records containing non-content information about an individual.  The government contrasted cell-site information with email (which the Fourth Amendment protects) explaining that “[e]mail is routed through a provider, and its contents, like those of a sealed letter in the mail, may remain private,” but “because cell tower information is sent to the provider and used in its own business; it falls within the traditional third party doctrine.” 

Multiple companies in the technology industry have also weighed in.  Apple, Facebook, Google, Twitter, Microsoft, Airbnb, Cisco Systems, and Verizon filed amicus briefs in August arguing that law enforcement needs a warrant to obtain historical cellphone location records.  These businesses claim that the third party doctrine’s application to today’s increasingly sophisticated tracking technology could “eliminate citizens’ privacy in the modern age.”  They argue that “[c]onsumers should not be forced to relinquish Fourth Amendment protections against government intrusion simply by choosing to use [modern cellphone] technologies,” and that “the court should forgo reliance on outmoded rules that make little sense when applied in the digital context.”

What Happens Next
This case will be heard in the Supreme Court’s upcoming term, which starts October 2.  A specific date for oral argument has not been set. 

Tuesday
Sep262017

Pharmacy Manager Pleads to Drug Diversion Scheme

What Happened?
Yesterday, a pharmacy manager from North Carolina pled guilty to a two-count information alleging conspiracy to commit wire fraud and money laundering in a scheme to divert prescription drugs – intended to fill patient prescriptions – which were resold at higher prices to unauthorized drug wholesalers.  The information, filed in federal court in the Western District of North Carolina, alleged that, between 2011 and 2014, Karen Turner used her pharmacy businesses to purchase prescription drugs purportedly for her pharmacies but that were instead sold at a markup through her wholesale businesses.

The Rundown
Turner used her relationship with Managed Health Care Associates, Inc. (MHCA), a group purchasing organization that negotiated discount prices for prescription drugs on behalf of MHCA’s members.  Ms. Turner purchased drugs from MHCA between 2011 and 2014 including “shortage drugs” that were in scarce supply.  Turner maintained her pharmacies’ memberships with MHCA so that she could buy prescription drugs at low contract prices available strictly for MHCA members.  To maintain her membership with MHCA, she falsely represented that the prescription drugs would be dispensed at the pharmacy.  However, in reality, Turner transferred the purchased drugs to her wholesale businesses, North, Inc. and Liberty Wholesale, LLC, to be distributed at higher prices.  The United States further alleged that the profits from the fraudulent scheme were laundered through a series of bank accounts controlled by Turner.

In her plea agreement, the United States and Ms. Turner stipulated that the loss under §2B1.1 of the Guidelines was more than $550,000 but less than $1.5 million.  The parties also stipulated to a 14 level increase based on the loss amount and a 1 level increase under §2S1.1(2)(A) for money laundering.  Ms. Turner also agreed to forfeit significant property associated with the scheme, including over $400,000 in various bank accounts, a note with a face value of $192,000, and real property.

What Happens Next?
Ms. Turner’s sentencing hearing has not yet been scheduled.

Thursday
Sep142017

Martin Shkreli Detained after “Solicit[ing] Assault” 

What Happened?
U.S. District Court Judge Kiyo Matsumoto (E.D.N.Y.) granted the United States’ motion to revoke the bond of Martin Shkreli, who was awaiting sentencing after a jury found him guilty on two counts of securities fraud and one count of conspiracy to commit securities fraud.

The Rundown
After he was found guilty, Shkreli remained out of custody, as the Court continued the conditions of release to which he had been subject since his initial appearance. However, not five weeks after the trial concluded, Shkreli offered, via his Facebook page, $5000 to anybody who could “grab a hair” of Hillary Clinton’s during her book tour. Based on this posting and prior social media musings in which he objectified journalist, Lauren Duca, and political pundit, Anna Kasperian, the government moved to revoke Shkreli’s bond. Shkreli’s response included a terse, personally signed letter in which he apologized to the Court and claimed that he “never intended to cause alarm or promote any act of violence whatsoever. . . . It never occurred to me that my awkward attempt at humor or satire would cause Mrs. Clinton or the Secret Service any distress.”

The Court rejected Shkreli’s explanation, noting that he could have unambiguously retracted the offer once the government flagged it. Instead, he commented: “$5,000 but the hair has to include a follicle. Do not assault anyone for any reason ever (LOLIBERALS).” The Court found that Shkreli’s statements amounted to “solicitation of assault in exchange for money,” a criminal act that warranted revocation of his bond under the Bail Reform Act.

The Take-Home 
Shkreli will remain in custody until his sentencing. What remains to be seen is how the bond revocation will affect the punishment he receives. Certainly, the bounty he offered for Mrs. Clinton’s hair and his prior incendiary statements towards women could support a prosecutorial argument that he is an unrepentant offender who poses a danger to the community and should be subject a harsher sentence than the Court would otherwise impose. 

However, the impending time in custody also presents an opportunity for Shkreli. Not only will he be locked up for the next few months, but he will be detained in an unaccommodating detention center and not the minimum security camp to which he will likely be designated, assuming he is sentenced to imprisonment. If he can use the time to positive effect and demonstrate to the Court that incarceration has humbled him, he could argue persuasively for a lesser sentence based on the revocation. 

What Happens Next?
Shkreli’s sentencing is presently set for January 16, 2018.

Thursday
Aug312017

DOJ’s new Opioid Fraud and Abuse Detection Unit to investigate physicians and pharmacists for opioid-related health care fraud

What happened?
Attorney General Jeff Sessions announced the formation of a DOJ pilot program to combat the opioid epidemic devastating communities across the country. The program, named the Opioid Fraud and Abuse Detection Unit, will prosecute opioid-related health care fraud using data analytics to identify and prosecute individuals allegedly contributing to the epidemic.

The Rundown
In remarks to the Columbus Police Academy in early-August, Attorney General Sessions announced that the newly formed Opioid Fraud and Abuse Detection Unit will analyze data like prescriptions and billing records to investigate and prosecute health care fraud related to prescription opioids.  As part of the program, DOJ is funding twelve AUSA’s for a three-year term to focus solely on opioid-related offenses like pill mill schemes and pharmacies that illegally dispense prescription opioids for illegitimate purposes. General Sessions said that in the crosshairs of the Detection Unit are “doctors, pharmacies, and medical providers who are furthering this epidemic to line their pockets.”

The pilot program will focus its efforts on the twelve communities hardest hit by the opioid epidemic, including local jurisdictions like the Western District of Pennsylvania, Southern District of Ohio, and Southern District of West Virginia.

For the Record
Attorney General Jeff Sessions: “I have created this unit to focus specifically on opioid-related health care fraud using data to identify and prosecute individuals that are contributing to this opioid epidemic. This sort of data analytics team can tell us important information about prescription opioids—like which physicians are writing opioid prescriptions at a rate that far exceeds their peers; how many of a doctor's patients died within 60 days of an opioid prescription; the average age of the patients receiving these prescriptions; pharmacies that are dispensing disproportionately large amounts of opioids; and regional hot spots for opioid issues.” 

“With this data in hand, I am also assigning 12 experienced prosecutors to focus solely on investigating and prosecuting opioid-related health care fraud cases in a dozen locations around the country where we know enforcement will make a difference in turning the tide on this epidemic. These prosecutors, working with FBI, DEA, HHS, as well as our state and local partners, will help us target and prosecute these doctors, pharmacies, and medical providers who are furthering this epidemic to line their pockets.”

The Take Home
Unlike DOJ’s typical prosecution of drug crimes, which largely focuses on street-level dealers and their suppliers, the Opioid Fraud and Abuse Detection Unit will target physicians, pharmacists, and providers for health care fraud related to prescription opioids.