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Pietragallo's White Collar Criminal Defense Group

In today's environment, the government has never more aggressively regulated, investigated, pursued and prosecuted white collar crime. If you or your company becomes embroiled in any type of federal or state government investigation, you need experienced trial lawyers who have gone toe-to-toe with prosecutors and government agents.

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    Thursday
    Feb012018

    When Is a Kickback Not a Kickback? Third Circuit Says It Must Be Linked to Specific False Claim

    What Happened?
    In affirming the district court’s entry of summary judgment in favor of Accredo Health Group, Inc., and its co-defendants, the U.S. Court of Appeals for the Third Circuit held that a plaintiff alleging a False Claims Act (“FCA”) violation based on an anti-kickback theory must show that (1) a particular patient was exposed to a kickback-tainted referral, and (2) a provider submitted a claim for reimbursement pertaining to that patient. 

    The Rundown
    In United States ex rel. Greenfield v. Medco Health Solutions, Inc., et al., the relator sued Accredo Health Group, a specialty pharmacy that provides home health care for hemophilia patients, and its affiliates (collectively, “Accredo”). Accredo made donations to numerous hemophilia-related charities, two of which, according to the relator’s allegations, recommended Accredo as a provider for hemophilia patients. Relator Greenfield moved for summary judgment before the district court, arguing that Accredo’s donations-for-referrals scheme violated the Anti-Kickback Statute (“AKS)), 42 U.S.C. § 1320a-7b(b), and that the scheme ran afoul of the FCA, 31 U.S.C. § 3729 et seq., because (1) some of the referrals were directed towards Medicare patients, and (2) when submitting Medicare claims for payment, Accredo falsely certified that it had complied with the AKS. Accredo cross-moved for summary judgment on the ground that the record lacked evidence that any Medicare patient had purchased prescriptions because of Accredo’s donations to specific charities.

    Without reaching the question whether Greenfield had established a kickback scheme, the district court granted Accredo’s motion for summary judgment, while denying the relator’s motion for the same relief.  It held that an FCA claim based on an anti-kickback theory requires the plaintiff to show that, as a result of the AKS violation, the defendant received payment from the federal government in violation of the FCA. Greenfield could not do that, in the Court’s view, because there was no evidence that any Medicare patient chose Accredo due to its charitable donations.

    Greenfield appealed, and the U.S. Court of Appeals for the Third Circuit affirmed the district court’s grant of summary judgment in favor of Accredo. But it rejected the district court’s imposition of a “but-for” causation requirement. The Court analyzed the language of the AKS, amended in 2010 to provide that “a claim that includes items or services resulting from a violation of [the statute] constitutes a false of fraudulent claim for the purposes of [the FCA].”  According to the Court, the “resulting from” language was too broad to require proof that the Medicare patient would not have chosen the provider but for the kickback. Were the district court’s interpretation correct, the both AKS drafters’ intention to strengthen the government’s ability to punish fraudulent activities, and its revisers’ intention to bolster whistleblower actions based on medical care kickbacks would have been thwarted.

    However, the Court held that a plaintiff must still provide evidence of the actual submission of a false claim to prevail at trial.  Demonstrating that a kickback scheme exists is not enough; a plaintiff must establish that the underlying medical care is connected to the breach of the AKS.  Because Greenfield could point to no “record evidence that shows a link between the alleged kickbacks and the medical care received by at least one of Accredo’s . . . federally insured patients,” the district court correctly entered summary judgment for Accredo.   

    The Take Away
    The Court rejected both (1) Greenfield’s position that that taint of a kickback scheme is enough to infect all referrals to Medicare patients, and (2) Accredo’s argument – adopted by the district court – that a plaintiff must prove that federal beneficiaries would not have used the relevant services absent the kickback scheme. Its middle-ground position, requiring evidence that shows a “link” between kickbacks and care, is sure to spawn future litigation regarding how strong and of what character that connection must be. 

    Tuesday
    Jan302018

    DOJ Launches New Darknet Enforcement Team

    What Happened?
    Yesterday Attorney General Jeff Sessions announced the creation of the Joint Criminal Opioid Darknet Enforcement (J-CODE) team, another new tool to fight against the opioid crisis.

    The Rundown
    The J-CODE team, which includes dozens of Special Agents, Intelligence Analysts, and professional staff, will focus on disrupting illicit online sales of opioids.  The team more than doubles the FBI’s investment in thwarting online opioid sales.

    The team will build on DOJ’s already significant efforts against opioid sales on the darknet.  In July 2017 for example, DOJ announced its shutdown of AlphaBay, the largest darknet marketplace in history.  AlphaBay operated for over two years and was used to sell illegal drugs, fraudulent identification documents, counterfeit goods, malware and computer hacking tools, firearms, and toxic chemicals all over the world.  At the time of the takedown AlphaBay serviced over 200,000 users and 40,000 vendors, and had over 250,000 listings for illegal drugs and toxic chemicals.

    J-CODE is just one of multiple initiatives DOJ has announced recently to combat the opioid epidemic, including the Opioid Fraud and Abuse Detection Unit, a data analytics program focusing specifically on investigating health care fraud related to opioid prescriptions and abuse, and the assignment of a designated opioid coordinator in each of the 94 U.S. Attorney offices.

    For the Record
    In a press release yesterday, Attorney General Sessions remarked that “criminals think that they are safe on the dark net, but they are in for a rude awakening.”

     

    Wednesday
    Jan032018

    U.S. v. Byrd - Privacy Rights v. A Car Rental Agreement

    What (will) happen?
    Next week, the United States Supreme Court will hear argument in the matter of U.S. v. Byrd (No. 16-1371), which presents a showdown between privacy rights and a car rental agreement. More specifically, the Court will determine whether a driver has a reasonable expectation of privacy in a rental car when the driver has the renter’s permission to use the vehicle but is not listed as an authorized driver on the rental agreement. 

    The Rundown
    In the summer of 2014, Mr. Byrd was driving a rental car on the highway in Pennsylvania. His fiancée had rented the vehicle, and he was using it with her permission. Mr. Byrd, however, was not listed on the rental agreement as an authorized driver. A Pennsylvania State Trooper noticed Mr. Byrd and began to follow him.  Ultimately, Mr. Byrd was pulled over by the Trooper for failing to move into the right lane fast enough after passing a slow moving truck. During the course of the traffic stop, the Trooper learned that Mr. Byrd was not an authorized driver listed on the rental agreement. Because Mr. Byrd was not listed as an authorized driver, the Trooper advised him that he was free to search the vehicle without his consent. The search of the vehicle discovered body armor and 49 bricks of heroin in the trunk.  After the District Court refused to suppress the evidence, Mr. Byrd was convicted of federal drug charges and sentenced to ten years in prison. 

    Mr. Byrd appealed to the United States Court of Appeals for the Third Circuit. The Third Circuit upheld the District Court’s ruling. While acknowledging that a split of authority exists among the Circuit Courts as to whether the occupant of a rental vehicle has a Fourth Amendment expectation of privacy when the occupant is not named on the rental agreement, the Third Circuit found its position on the issue to be clear: No expectation of privacy exists for an occupant of a rental vehicle who is not named on the rental agreement. See U.S. v. Kennedy, 638 F.3d 159 (3d Cir. 2011). Accordingly, the Court held that Mr. Byrd had no expectation of privacy and, therefore, he had no standing to challenge the search of the vehicle. The Supreme Court granted certiorari on the issue on September 28, 2017.

    For the Record
    Mr. Byrd argued that “wide spread non-compliance with authorized-driver provision is an open secret” which is why rental agreements “often specify that the renter will carry a greater risk of loss when an unlisted driver operates the vehicle.” Attorneys for the United States argued that “It is common knowledge that car rental is a personal transaction that does not make the car available for general enjoyment, and straw man car rentals disserves society by frustrating law enforcement efforts to prevent smuggling and other crimes.”  In a brief supporting the federal government, 15 states argued that criminals often use cars rented by others to transport drugs, victims of human trafficking and unauthorized immigrants. The American Civil Liberties Union and National Association of Criminal Defense Lawyers filed a brief arguing that a decision is very likely to have a significant effect on the poor and people of color, as, according to the statistics, these groups are more likely to rent a car, be stopped by police, and to be searched during the stop.  

    What Happens Next?
    The oral argument before the United States Supreme Court is scheduled for January 9, 2018.

    Thursday
    Dec212017

    DOJ Announces New Tools to Fight the Opioid Epidemic and Opioid-Related Crimes

    What Happened?

    Attorney General Jeff Sessions recently announced additional efforts in DOJ’s fight against the opioid crisis.  Most notably, DOJ created a director-level position and is requiring all U.S. Attorney’s Offices to designate a coordinator to handle opioid-related investigations and prosecutions.

    The Rundown

    Since taking the helm in February 2017, General Sessions and his Department focused on various initiatives related to the opioid crisis.   On Wednesday, December 20, the Attorney General announced a new senior-level position at DOJ titled Director of Opioid Enforcement and Prevention Efforts.  The Director will assist DOJ and its leadership with developing and implementing opioid-related initiatives, policies, and programs, and coordinating these efforts with law enforcement.

    At the end of November, the Attorney General announced three new tools to combat the opioid epidemic and opioid-related crimes.  First is over $12 million in grants to state and local law enforcement agencies to get illegal drugs like heroin methamphetamines, cocaine, and other illicit drugs off the streets.  Second, the DEA will open a new field office in Louisville, Kentucky – the first new DEA office in almost 20 years.  The new office will cover West Virginia, Kentucky and Tennessee and have approximately 90 special agents and 130 task force officers.  Third, each U.S. Attorney’s Office – all 94 of them – will designate an opioid coordinator to “serve as a kind of quarterback of our anti-opioid efforts in their community.”  In his memo to the U.S. Attorneys, the Attorney General stated that the opioid coordinator will facilitate the “intake of cases involving prescription opioids, heroin, and fentanyl” and convene “a task force of federal, state, local, and tribal law enforcement to identify opioid cases for federal prosecution, facilitate interdiction efforts, and tailor [the] district’s response to the needs of the community it serves.”

    In August, General 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 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 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.  

    Prescriptions – like those for opioids – are governed by 21 C.F.R. § 1306.04(a), which requires that they be given only for “a legitimate medical purpose by an individual practitioner acting in the usual course of his professional practice.”  Doctors disregarding this regulation 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

    “With one American dying of a drug overdose every nine minutes, we need all hands on deck,” Attorney General Sessions said. “That’s why President Trump has made ending the drug epidemic a top priority.  This Department of Justice embraces that goal, and we have taken a number of steps this year to do our part.  We have indicted hundreds of defendants for drug related healthcare fraud, sent more prosecutors to where they’re needed most, and we’ve taken on the gangs and cartels.  Today we take the next step: creating a senior level official position at the Department to focus entirely on this issue. This Department will continue to follow the President’s lead, and I am confident that we can and will turn the tide of the drug crisis.”

    Friday
    Dec152017

    "Potentially Career-Ending Allegations" by Defense Rock Greebel Trial

    What Happened?
    In the fraud trial of Martin Shkreli co-defendant and former Katten Muchin Rosenman LLP attorney, Evan Greebel, the Court sent the jury home for the day after the defense made “potentially career-ending allegations” concerning an unnamed government official.

    The Rundown
    Greebel is charged for his role in Shkreli’s scheme of using sham consulting and settlement agreements for cash and shares of Retrophin, Inc., to pay off investors in one of Shkreli’s MSMB hedge funds. Trial commenced on October 20, 2017, and the defense began to present its case on December 6, 2017.

    On December 13, 2017, Steven Rosenfeld, an investor in Retrophin and one of Shkreli’s MSMB hedge funds, took the stand for the defense. He testified that, while he entered into a consulting agreement that provided him with $200,000 and stock in Retrophin, he actually performed consulting services for the company.

    But his testimony went off the rails when defense counsel inquired about his meetings with the government.  First, defense counsel asked about a 2015 encounter with the FBI, where agents came to his home. Rosenfeld began to testify that he had asked the agents if he could call his attorney, but the prosecution objected, and a sidebar ensued. Defense counsel then turned to Rosenfeld’s next meeting with the government. A question regarding whom Rosenfeld met with led to a second objection from the prosecution and another lengthy sidebar. After the sidebar, Judge Kiyo Matsumoto dismissed the jurors for the day. She ordered sealed briefing from the parties on what she described as “potentially career-ending allegations” made by the defense. The parties will brief the matter, addressing among other issues, whether any statements made by government officials outside the courtroom constitute party admissions.

    The Take-Home
    The Court will rule on the admissibility of the Rosenfeld’s testimony regarding his second meeting with government officials.  Whether the allegations raised at sidebar have a more significant impact on the trial, or on any officials’ careers, remains to be seen. 

    What Happens Next?
    The trial, which has lasted for more than two months, will proceed on December 14, 2017.   

    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.