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A recent article in Law360 sparked a vigorous conversation among members of Pietragallo’s white collar practice group about the current state of the U.S. Department of Justice’s (DOJ) evolving emphasis on individual prosecution. Our consensus is that the Justice Department is currently stressing individual accountability as it seeks to assure the business community that timely self-disclosure and meaningful cooperation will be rewarded with some type of leniency, if not non-prosecution altogether. 

The article that caught our attention was a thoughtful analysis of United States vs. Valle Boza, the prosecution of HealthSun Health Plans Inc.’s former director of Medicare risk adjustment analytics for entering false, more serious diagnosis codes for Medical Advantage participants, resulting in higher monthly payments to HealthSun for the anticipated costs of their care.  HealthSun, according to the DOJ, undertook “timely and appropriate remediation, including terminating employees who were involved in the misconduct, reporting and correcting the false and fraudulent information submitted to [the U.S. Department of Health and Human Services’ Centers for Medicare and Medicaid Services], and substantially improving their compliance program and internal controls” and thus will not be prosecuted for the $53 million fraud scheme.

Recent DOJ Policy Shifts

Over the past twenty-five years, the DOJ occasionally has restated its Principles of Corporate Prosecution, formally expressed through memoranda issued by the Deputy Attorney General. These memos set forth the factors the DOJ will consider in giving companies consideration in prosecution decisions (or non-prosecution decisions) for cooperating with an investigation into corporate wrongdoing. 

Likely as a reaction to criticism the Department received over a paucity of individual prosecutions following the financial crisis of 2008, the DOJ under the Obama administration demanded that corporations seeking credit for cooperation turn over all relevant facts about all individuals involved in wrongdoing. 

The DOJ under the Trump administration t dialed that back a bit. In the “Rosenstein Memo,” the DOJ continued to emphasize individual accountability, but it no longer required corporations under investigation to disclose “all” information about “all” employees involved in order to receive any credit for cooperation.

The Current Enforcement Protocol

Under Attorney General Merrick Garland and Deputy Attorney General Lisa Monaco, the Department has returned to the more rigid demands of a complete turnover of information on all wrongdoing by all participants for corporations to receive any credit for cooperation, reflecting its emphasis on prosecuting individuals. For example, in September 2022, DAG Monaco wrote, “The Department’s first priority in corporate criminal matters is to hold accountable the individuals who commit and profit from corporate crime.”

In Valle Boza, the defendant and her co-conspirators allegedly obtained physicians’ login credentials and used them to enter false chronic conditions into the medical records of beneficiaries, as if entered by the physicians themselves. Their scheme allegedly caused HealthSun to submit to CMS tens of thousands of false and fraudulent diagnosis codes, which resulted in HealthSun being overpaid millions of dollars by the government.

The Valle Boza HealthSun case can be viewed as an example of the DOJ’s emphasis on the prosecution of individuals; a corporate employee is being prosecuted, while the entity fully cooperated to the government’s satisfaction, and will not be prosecuted. But one should not overread this as part of the renewed DOJ paradigm – the defendant and her co-conspirators’ alleged conduct was particularly egregious, and it is difficult to envision any company acting differently than HealthSun upon being made aware of such wrongdoing. If true, Valle Boza’s conduct would warrant individual prosecution under any regime.   

Still, the Justice Department’s current emphasis on individual prosecution is undeniable. Last June, for example, the DOJ bundled three unrelated schemes into one mega-announcement that it had charged 78 individual defendants with health care fraud. In one of the cases charged in this “coordinated . . . nationwide law enforcement action,” three executives of purported software and services companies allegedly conspired to generate and sell templated doctors’ orders for orthotic braces and pain creams in exchange for kickbacks and bribes. Their software allegedly facilitated a telemedicine scheme that yielded $2 billion in false claims. While these executives were charged, the companies with which they are associated were not. 

In another case announced at the same time, Steven Diamantstein, an owner and corporate officer of Scripts Wholesale, Inc., was charged after the company (which was not charged) allegedly purchased illegally diverted prescription HIV medication, and then marketed and resold the medication by falsely representing that the company acquired it through legitimate channels.

This omnibus announcement by the DOJ of “78 Individuals Charged for $2.5B in Health Care Fraud” in several unrelated cases clearly seemed calculated to underscore the Department’s prioritization of individual accountability. Attorney General Merrick Garland commented that “These enforcement actions . . . represent our intensified efforts to combat fraud and prosecute the individuals who profit from it,” and Assistant Attorney General Kenneth A. Polite, Jr., then-head of the DOJ’s Criminal Division, noted that “Today’s announcement . . . demonstrates the Department’s commitment to seeking justice for those at all levels of the healthcare industry who put profits above patient care, from professionals in doctors’ offices to executives in corporate boardrooms.”   

You’ve Uncovered Wrongdoing – What Now?

The Justice Department’s emphasis on prosecuting individuals can complicate companies’ investigations of alleged wrongdoing. Obviously, a company’s enhanced incentive to cooperate – which can be viewed as borderline coercive – by “turning in” its employees, creates potential formal and informal conflicts that can impede internal investigations. And in circumstances where the government’s theory of prosecution is more novel or nuanced than was the case with HealthSun, a company may not believe that its employees did anything wrong, which creates a dilemma in terms of government cooperation. After all, a company may be fully cooperative with the government’s investigation, but must it fire an employee it believes to be innocent of wrongdoing in order to receive leniency from the government in a prospective resolution of a disputed claim? 

When confronted with an instance of fraudulent conduct, defense counsel and corporate executives must carefully consider the seriousness of the misconduct they uncover and what a potential prosecution might look like in deciding whether and how much to disclose to the government, as well as the collateral consequences to their organization in subsequent civil litigation and business relationships. They also must evaluate the likelihood that the company ultimately will receive meaningful credit for its cooperation, an assessment which should include how the local U.S. Attorney’s Office typically handles cooperation credit, as each of the 93 United States Attorneys operate with a large degree of autonomy and discretion within their jurisdictions.

What the Future Might Look Like

One last note on our internal discussion here at Pietragallo about corporate and individual prosecutions, and where they might be headed, particularly in an election year where a change of the party in power is a distinct possibility. Over the past 15 years, the two Democratic administrations have taken a more formulaic approach while demanding more of corporations for cooperation credit, while the Trump Administration took a more holistic approach. 

One should be cautious to predict a less rigid insistence on individual accountability in these matters if the Republicans regain control of the federal government in 2025. First, the DOJ’s recent re-emphasis on individual accountability isn’t necessarily a reflection of partisan philosophy as much as a desire to demonstrate vigorous law enforcement in the midst of a notable decline in corporate prosecutions in recent years. The Department may believe that prosecuting individuals signals greater accountability than the corporate pleas or non-prosecution agreements the defense bar typically advocates strongly for in white collar cases. Moreover, individual accountability never goes out of fashion, and the Justice Department, no matter who leads it, will always proclaim an intention to hold individual wrongdoers accountable. 

That said, each new Administration should evaluate the effectiveness of the Department’s Principles of Corporate Prosecution and adjust them to ensure they are effective and meet their priorities. As a former Assistant United States Attorney and Associate White House Counsel who has experienced the modification of prosecution policies and priorities, I would expect that the next administration (whether in 2025 or in 2029) will consider whether the current stringent requirements for corporate cooperation credit – specifically for this discussion, the demand that “all”information about “all” individuals involved in wrongdoing be disclosed for the company to receive any credit – are yielding more or fewer voluntary disclosures. 

If such a review finds that corporations are not readily coming forward because of a belief that doing so ultimately may not get them the cooperation credit they seek or creates too many ancillary risks, we probably will see a new “DAG Memo,” with more flexibility for corporations, but with a sustained emphasis on individual accountability.

While the landscape for corporate prosecution may be layered with uncertainty, here are two time-tested approaches that no change in DOJ policy should affect. First, like so many business and legal decisions, the strategy to address a problem will depend on the particular facts of that situation, the applicable law, and the exercise of sound, clear-headed judgment as to the best interests of the organization. Second, regardless of whether a company chooses to cooperate or put the government to its proofs, it is incumbent upon its leadership to promptly put an end to any fraud or other wrongdoing of which it becomes aware, conduct a thorough internal investigation to determine the scope, mechanism, and cause of the misconduct, strengthen its compliance policies as needed, and refund any ill-gotten gains. 

The importance of adequately preparing a client to effectively cooperate with the government is illustrated by the recent fifty percent sentencing reduction granted to Dr. Michael Ligotti by Judge Ruiz in the Southern District of Florida. U.S. v. Michael Ligotti, 9:20-cr-80092. Ligotti had pled guilty to one count of conspiracy to commit healthcare and wire fraud in October 2022 for his role as the medical director for addiction treatment facilities that were paid kickbacks by testing labs performing hundreds of millions of dollars’ worth of unnecessary urinalysis. Ligotti cooperated extensively with the government in their prosecution of his co-conspirators, ultimately testifying at trial and helping the government to secure several convictions. As a result of his substantial cooperation Ligotti’s sentence was reduced from 240 months to 120 months. This is a very significant departure.

Given that over 98% of all federal cases end in plea bargains, and that most pleading Defendants seek to reduce their sentences through cooperation, prudent attorneys work closely with clients to prepare them for successful cooperation well in advance of their first meeting with the government. Indeed, such preparation should begin as soon as cooperation is explored.

Notably, at Ligotti’s Rule 35 motion hearing, AUSA James V. Hayes told the Sentencing Court that he was surprised at the level of remorse and commitment to cooperation Ligotti had shown. (Apparently a 20-year sentencing is motivating). However, the take-away is that remorse and candor go a long way with both prosecutors and the Court, as do convictions that result from a Defendant’s successful cooperation.

As most practitioners have experienced, Defendants are initially reluctant to be candid about their own culpability in criminal cases. For this reason, a Defendant who is not prepared to fully admit their own culpability can irreparably harm their ability to provide substantial cooperation. A Defendant who is not fully forthright about their own conduct from the start is not a good witness for the government against others. It is accordingly counsel’s responsibility to take their client through the process of confronting their own culpability before the client meets with the government. A client who plans to meet with the government to prove they are not guilty is 1) doomed to fail at that goal, 2) doomed to destroy any hope of successfully cooperating, and 3) doomed.

Remember, cooperating defendants generally get one chance to make a good impression and set the stage for successful cooperation. It is important to spend sufficient time refreshing a client’s memory of events prior to meeting with the government. The government will want to sense from the beginning that a client is a reliable source of information and will be effective and credible at trial. Most of the time, the events at issue occurred years before the government’s investigation so it is essential to spend time reviewing documents, emails, text messages, etc. to help a client to recall salient facts prior to the first meeting with the government. 

The best cooperators bring previously unknown information and documents to the government.  Counsel can and must help clients to gather and provide such information. To provide truly substantial cooperation, a witness should be able to do more than just confirm facts already known to the government.

It is also best practice to ask the government for a list of topics and individuals of particular interest in advance of each meeting. The government is often hesitant to share such documents and information, but it is important to remind the government that adequate preparation for the meeting is important to successful cooperation, which will only inure to the government’s benefit.  Sometimes this helps motivate the government to provide better guidance. At a minimum, the government should be willing to give an overview of salient talking points.

There is an unspoken rule that if a Defendant is likeable, it is more likely that the government will want their cooperation to be successful. A Judge will sense the relationship and reward it. A defiant client does not help themselves in this regard. Ensuring that a client is truly prepared to be candid, honest, and open with the government in advance of the first meeting is an important piece of fostering an amicable relationship. Becoming a member of Team USA should be every cooperating client’s goal. Certainly, this is what enabled Dr. Ligotti to receive the glowing accolades that led to the government’s generous recommendation and the Judge’s ultimately more generous sentence reduction.

Ultimately, it is not by accident that some cooperating Defendants are more successful than others. A skillful defense attorney is an integral part of creating the conditions necessary for successful cooperation and should always work closely with their clients to prepare them for success. It’s apparent that Dr. Ligotti was well prepared, and emotionally and factually ready to assist the government. The results he received speak for themselves.

New York’s intention to create a comprehensive regulatory scheme is clear with the May 10th proposal of Bill 7024 on the back of the CRPTO Act that was proposed by New York Attorney General Letitia James last week. New York’s progress in the cryptocurrency space is unsurprising considering how aggressive it has been in cryptocurrency enforcement actions like those against Celsius, KuCoin, CoinEx, and Nexo.

Bill 7024 would amend the Criminal Procedure Law to authorize fiat-collateralized stablecoins as a form of bail. Not only would accepting stablecoins for bail be the first to be allowed by statute, but so would the regulatory schemes and systems necessary to accept and process stablecoins for bail. Accordingly, the bill would also empower the Commissioner of Taxation and Finance, the Chief Justice of the Unified Court System, and Director of the Office of Information Technology to promulgate regulations and establish a system for accepting and processing stablecoins for bail.

Currently, Section 520.10 of the New York Criminal Procedure Law only allows for cash bail, insurance company bail bonds, secured surety bonds, secured appearance bonds, partially secured surety bonds, unsecured surety bonds, unsecured appearance bonds, and credit cards for bail. If the bill passes, stablecoins would be added to the list.

Stablecoins are cryptocurrencies backed by traditional fiat currencies (i.e. USD). While the bill does not specify which stablecoins will be accepted (e.g. Tether, USD Coin, Binance USD, etc.), the CRPTO Act proposed by Attorney General James on May 5, 2023 provides some, albeit very little, guidance. The Act prohibits any digital asset from being referred to as a “stablecoin” unless it maintains a ratio equal to 1.0 or greater as outlined by the Act. Even though stablecoins would be an acceptable means of posting bail directly, the bill makes clear that the statute would not “compel any person, firm or corporation” to accept the cryptocurrency for the posting of a bond.

Cryptocurrency is notoriously volatile and the bill seems to acknowledge that. The bill provides that where stablecoins are used for bail, if the value of the stablecoins drops by more than fifty percent since the date bail was posted, the court may request additional bail. This is not the case when the dollar loses value in an economic downturn. In a criminal justice system where, despite being innocent until proven guilty, the accused are faced with significant hardships, discretion to require additional bail due to market conditions raises the question of whether the law would make posting bail more accessible or cause further harm whereby a defendant would be unable to access or sell a failing asset while awaiting trial. It also raises a concern that where a defendant would rather liquidate large amounts of cryptocurrency and post cash bail, it could cause an already volatile crypto market to crash. For example, in 2018, Martin Marsich was ordered to pay his $750,000 bail in Bitcoin but was ultimately not allowed to sell off the cryptocurrency due to market concerns. Additionally, the government refused to effectuate any transfer of the cryptocurrency into a wallet because of liability and forfeiture concerns. If the bill passes, it will be interesting to see what regulatory schemes and processes will be implemented for obtaining, processing, and holding the cryptocurrency, but also for accessing, vetting, and protecting the digital assets.

Regulators have been slow walking the imposition of cryptocurrency regulation schemes despite multi-billion-dollar thefts and losses. This lack of regulation could be coming to an end…and fast, with the finance capital of the world at the forefront.

On Friday, May 5, 2023, New York Attorney General Letitia James proposed the Crypto Regulation, Protection, Transparency, and Oversight (CRPTO) Act. If passed, the comprehensive CRPTO Act would set the foundation for state and federal regulation nationwide.

The purpose of the legislation is to protect digital asset customers and investors from fraud, eliminate conflicts of interest, and increase transparency. The law would amend the general business law pertaining to digital assets, the financial services law concerning oversight by the department of financial services to include digital asset brokers, advisors, issuers, and marketplaces, as well as the tax law and reporting requirements.

With great accountability comes great liability. The bill includes an extensive list of definitions and obligations that could effectively increase the number of potentially liable parties, including “digital asset influencers.” Digital asset influencers, like brokers, advisers, issuers, and marketplaces, will be required to disclose ownership interests, file detailed registration statements, and comply with securities and banking laws; Instagrammers and TikTok-ers beware.

The Federal Deposit Insurance Corporation (FDIC) and Securities Investor Protection Corporation (SIPC) have repeatedly stated that they do not cover crypto-exchanges or cryptocurrency; invest at your own risk. The New York CRPTO Act fills in the gap. Cryptocurrency platforms and marketplaces would now be responsible for reimbursing victims of fraud. The CRPTO Act also provides for hefty civil penalties including fines ranging from $10,000 to $100,000 per violation. Additionally, any violation would also be violative of the banking laws potentially further exposing individuals and platforms to more liability, and violators to harsher penalties.

The proposed CRPTO Act could be the model framework that states and the federal government have been waiting for.     

The United States continues its investigation into the now bankrupt FTX and its founder, Sam Bankman-Fried. Mr. Bankman-Fried was extradited from his luxurious Bahamas penthouse to the Southern District of New York. Now that he is back state-side, Mr. Bankman-Fried faces an 8-Count Indictment for FTX’s shortcomings, and his alleged mismanagement and overindulgence. Mr. Bankman-Fried, once at the top of the cryptocurrency world, is set to live with his parents on electronic home monitoring while out on bail, also paid for by his parents.

The Judge has set a tentative trial date of October 2, 2023. Mr. Bankman-Fried and his legal team will have to work quickly to defend against the charges, which are now being bolstered by the government’s cooperating witnesses.

Caroline Ellison, the on-again and off-again girlfriend of Mr. Bankman-Fried, and Gary Wang, the co-founder of FTX, will cooperate with the prosecution. Even though both Ms. Ellison and Mr. Wang lawyered up quickly, they both accepted plea deals pleading guilty to fraud last month. This move signals that Ms. Ellison and Mr. Wang provided the government with substantial assistance against Mr. Bankman-Fried.

Ms. Ellison’s cooperation is particularly critical for the government because she was not only Mr. Bankman-Fried’s sporadic love interest, but she was the CEO of the highly controversial Alameda Research, having just assumed the role in August of last year. Ms. Ellison and Mr. Wang have the unique perspective of the inner workings of FTX’s short lived empire. Both Ms. Ellison and Mr. Wang, along with other individuals connected with FTX, lived in the luxurious Bahamas penthouse with Mr. Bankman-Fried.

Nishad Singh, FTX’s chief engineer, is the most recent member of Mr. Bankman-Fried’s inner circle to meet with the government. Mr. Singh, who has not been named by the government in any indictment, met with the prosecution last week for a proffer session. Whether Mr. Singh joins Ms. Ellison and Mr. Wang to provide information against Mr. Bankman-Fried is yet to be seen, however, Mr. Bankman-Fried and his legal team have not seen the last cooperator. On December 21, 2022, shortly after negotiating plea deals with Ms. Ellison and Mr. Wang, US Attorney Damian Williams issued a caution to others connected to FTX, “If you participated in misconduct at FTX or Alameda, now is the time to get ahead of it, we are moving quickly, and our patience is not eternal.”

Stay tuned as this matter develops.

Pietragallo Gordon Alfano Bosick & Raspanti, LLP has a robust white-collar practice that includes involvement at all stages of a criminal or civil investigation. Our office and seasoned defense attorneys are well versed in compliance matters at the local, state, and federal level. If your company is under investigation, or you are a person of interest in an investigation, our attorneys can guide you through the process.

Real Housewives of Salt Lake City star Jen Shah was sentenced to 78 months in prison on January 6, 2023, in the Southern District of New York on charges of masterminding a wire fraud scam from 2012-2021, that targeted thousands of elderly citizens, while living a life of immense wealth and celebrity. Ms. Shah initially pled not guilty and was headed to trial proclaiming her innocence on social media and the show. However, Ms. Shah had a change of heart shortly before the trial was set to begin and pled guilty citing the government’s abundance of evidence against her. She further has stated that being confronted with their overwhelming evidence “finally woke her up.” Her defense attorney Priya Chaudhry stated to Judge Stein that “Ms. Shah was lost for months in an echo chamber of her own denial” but that “she found herself staring at her truth and the depth of her wrongs and she hurt them, and they were real and there was no more lying.”

Shah’s defense requested a sentence of 36 months incarceration while the Government argued in their sentencing memorandum for a sentence of 120 months incarceration. Government prosecutors indicated that Shah mocked the victims and suggested that any remorse was an extension of her acting. They supported their contentions by detailing the public offensive Ms. Shah went on after the indictment, including continually proclaiming her innocence on her television show as well as her attempts to profit off the charges by selling “Justice for Jen” merchandise.

There was a total of twenty-nine other individuals indicted as co-conspirators to Ms. Shah, including her longtime friend and assistant Stuart Smith. Mr. Smith along with other co-conspirators became cooperating witnesses for the government. Based upon this cooperation, the government was able to focus in and establish that Ms. Shah was the boss and mastermind behind the fraud. The following is a list of the defendants, grouped based upon an assessment of culpability by the Government, and sentence imposed:

Tier A

Jennifer Shah – sentenced to 78 months’ imprisonment

Carl Morris – sentenced to 78 months’ imprisonment

Cameron Brewster

Kevin Handren

Ryan Hult – sentenced to 60 months’ imprisonment

Stuart Smith

Tier 1

Arash Ketabchi – sentenced to 87 months’ imprisonment

Christopher Wilson – sentenced to 78 months’ imprisonment

Jason Sager* – sentenced to 12 months’ imprisonment

Joseph Minetto Chad Allen – sentenced to 48 months’ imprisonment

Shane Hanna

Anthony Cheedie

Joseph Ciaccio – sentenced to time served

Tier 2

Joseph McGowan – sentenced to 72 months’ imprisonment

William Sinclair* – sentenced to 15 months’ imprisonment

Peter DiQuarto* – sentenced to six months’ home confinement

Michael Finocchiaro* – sentenced to 15 months’ imprisonment

Raymond Quiles

Tier 3

Jack Kavner – sentenced to 51 months’ imprisonment

Daniel Quirk* – sentenced to 366 days’ imprisonment

Derrek Larkin – sentenced to 72 months’ imprisonment

Anthony Medeiros – sentenced to 66 months’ imprisonment

Brooke Marcus

Andrew Owimrin – sentenced to 52 months’ imprisonment

Joseph DePaola – sentenced to 30 months’ imprisonment

Tier 4

Shahram Ketabchi – sentenced to four months’ imprisonment

Thomas O’Reilly – sentenced to 366 days’ imprisonment

Mattie Cirilo – sentenced to 12 months’ home confinement

*These Defendants received the benefit of a motion pursuant to U.S.S.G. sec. 5k1.1

This is not the first Bravo franchise star to faceoff with the Government in the court room, Teresa Giudice (Real Housewives of New Jersey) and LuAnn de Lesseps (Real Housewives of New York) have also been convicted of criminal offenses.

Article authored and contributed to by Lee K. Goldfarb and Heidi J. Bondiskey.