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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
    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.

    Wednesday
    Aug302017

    Presidential Pardon Power in the Spotlight 

    What Happened?
    On August 25, President Trump pardoned former Maricopa County, Arizona Sheriff Joe Arpaio. Arpaio was convicted last month of criminal contempt for violating a federal judge’s order that he stop detaining people based solely on suspicion of their immigration status. Arpaio’s pardon—the first of Trump’s presidency—brings attention to the pardon procedure.

    The Rundown
    Article II, Section 2 of the Constitution gives the President the authority to “grant Reprieves and Pardons for Offenses against the United States.” The power only applies to federal crimes, as only governors can issue pardons for state offenses. The President has the sole, almost limitless power to determine who to pardon and why. The Constitution only excludes cases of impeachment from the President’s pardon authority. While there are rules governing petitions for executive clemency, they are only advisory. 

    A presidential pardon will remove legal disabilities imposed because of a criminal conviction, but will not remove the conviction from the pardoned individual’s criminal record. Criminal convictions can only be removed from an individual’s criminal record through expungement, a judicial remedy granted by the court of conviction.

    In most cases, the clemency process is lengthy and involves several levels of review within the Department of Justice before reaching the President. Typically, an individual seeking a pardon submits a detailed application form and character references to the Department of Justice’s Office of the Pardon Attorney (OPA). The applicant or any third party acting in support of the applicant may also submit any additional information he or she believes may have bearing on the application. The OPA reviews the applications and communicates with any agencies that may have been involved in the applicant’s case. After the application and all other relevant information has been reviewed, OPA submits a proposed recommendation to the Deputy Attorney General. In making its recommendation, the OPA considers the applicant’s post-conviction conduct, character and reputation; the seriousness and relative recentness of the offense; the applicant’s acceptance of responsibility, remorse, and atonement; and the applicant’s need for relief. The Deputy Attorney General makes a final recommendation on behalf of DOJ to the President. 

    For the Record
    President Trump did not consult with the Justice Department before announcing his decision to pardon Arpaio, though a DOJ spokesman acknowledged after the pardon was granted that “[t]he President exercised his lawful authority and we respect his decision.” 

    The Take Home
    For the typical applicant, the clemency process is long and the likelihood of success is unpredictable. The President is not bound by any rules regarding the applications he grants, or whether he even needs to consider applications at all.  

    Friday
    Aug112017

    For Martin Shkreli, Conviction is Just the Prologue

    What Happened?
    A jury empaneled in the U.S. District Court for the Eastern District of New York convicted pharmaceutical executive Martin Shkreli on two counts of securities fraud and one count of conspiracy to commit securities fraud, but acquitted him on five other counts, including conspiracy to commit wire fraud charges that would arguably have increased his exposure under the advisory U.S. Sentencing Guidelines.  

    The Rundown
    Both the government and Shkreli claimed victory after the verdict, but the real winner will be determined at sentencing. Shkreli was convicted of counts related to making material misstatements to investors about his hedge fund and conspiring to control the stock price of his drug company, Retrophin, Inc. But he was acquitted of wire fraud counts based on allegations that he looted assets from Retrophin to pay off hedge fund victims. Shkreli will undoubtedly argue that the government cannot prove a significant, or indeed any, pecuniary loss tied to his offenses of conviction. The government, in turn, is likely to contend that the Court consider any loss to Retrophin as relevant conduct. Because loss amount largely drives the sentencing range for financial crimes under the U.S. Sentencing Guidelines, the outcome of this dispute will be critical to Shkreli’s sentence. If the Court finds that there was no or little loss, Shkreli could plausibly argue for sanctions short of imprisonment.

    Importantly, though, Shkreli’s guidelines sentencing range will only be advisory – the Court may vary or depart from the range upward or downward. Under 18 U.S.C. § 3553(a), the Court must fashion an appropriate punishment based on its consideration of a number of factors, including Shkreli’s history and characteristics; the nature of the offense; the need for the sentence to provide just punishment, promote respect for the law, and to provide adequate deterrence (both to Shkreli and other would-be offenders) to criminal conduct. Shkreli has made numerous statements both during and after the trial – for example, referring to the prosecutors as “junior varsity” and the prosecution as a “witch hunt” – which may cause the Court to punish him more harshly than it otherwise would. On the other hand, Shkreli will have the opportunity to produce mitigating evidence that counsels in favor of a more lenient sentence.     

    For the Record
    “This was a witch hunt of epic proportions, and maybe they found one or two broomsticks, but at the end of the day, we’ve been acquitted of the most important charges in this case.”  -- Martin Shkreli

    The Take-Home
    The drama of the Shkreli case did not end with the jury verdict. Indeed, the real intrigue surrounds his sentencing.

    What Happens Next?
    Shkreli will be sentenced at a date to be determined by the Court.

    Thursday
    Aug032017

    Senators Demand Answers From DOJ about the Controversial Use of Stingray Surveillance Technology

    What Happened?
    A group of bipartisan senators petitioned the Department of Justice to disclose details about law enforcement’s use of cell-site simulator devices known as Stingrays.

    The Rundown
    A group of senators, including three Democrats and one Republican, jointly submitted a letter to Attorney General Jeff Sessions requesting information about the effects of Stingray devices on the general public.  Stingray devices work by masquerading as the cell tower antennas of wireless companies and sending out signals that force all cell phones in the area to transmit their locations and identifying information to the device.  While cell site location information gathered by actual cell towers can typically give a general location of a cell phone, cell-site simulators like Stingrays can pinpoint a phone’s precise location as long as the phone is turned on.  This is true even when the target is not actively using the phone at the time.  Additionally, when law enforcement uses a cell-site simulator on a particular device it prevents communication between that target phone and the network’s cell tower.  This renders the phone unable to make or receive calls during the time that—unbeknownst the phone’s user—it is connected to the simulator.

    Stingrays or similar devices have been used by state, local, and federal law enforcement around the country for more than 20 years, but according to critics, their use has been shrouded in secrecy.  This secrecy, the senators urge, raises concerns that judges who approve requests to deploy Stingray devices may not understand the full implications of their use.  For example, in addition to sending signals to the target device, a Stingray also sends signals into the homes of everyone in the surrounding area.  Critics are also troubled by the Stingray’s disruption to cell service.  According to the senators’ letter, Canadian law enforcement determined that Stingrays can block 911 calls and advised its officers to weigh the technology’s benefits against the potential harm to the general public in deciding whether to use the device. 

    The Take-Home
    The senators’ letter puts much-needed attention on Stingray devices and their effects on the rights of both criminal defendants and the general public.  Defense attorneys should be aware of the developments in this area and should determine at the outset of any criminal matter involving cell phones whether cell-site simulators were used to gather information about the defendant.  Attorneys should be prepared to challenge information gathered from the devices on Fourth Amendment grounds, particularly if it appears a Judge’s approval of their use was not fully informed.

    What Happens Next?
    The senators asked that DOJ respond to their letter by August 25.  They specifically asked the Attorney General to explain whether he disagrees with Canada’s finding that Stingray devices can block 911 calls, and to disclose whether the FBI has tested the cell-site simulators it uses to determine how much they interfere with nearby phones.

    Monday
    Jul312017

    Contractor Sentenced to 18 Months in Prison for Role in Scheme to Defraud the NWCDC

    What Happened?
    This week, Kevin Gleaton, 53, was sentenced to 18 months in prison after conspiring to commit wire fraud to defraud the Newark Watershed Conservation and Development Corporation (“NWCDC”) and misusing Social Security numbers in connection with a personal bankruptcy proceeding.  

    The Rundown
    Gleaton’s sentencing comes after a long investigation into the use of taxpayer funds intended for conserving and managing the City of Newark’s water assets.  Since the 1970s, the City has delegated the responsibility of operating the City’s water assets to the NWCDC, a non-profit entity.  As a result, the NWCDC received taxpayer funds from the City to manage the City’s watershed, reservoirs, and water-treatment plant.  What seemed like a good idea, paved way for a fraudulent scheme that took taxpayer money away from the conservation of water and instead placed it into the pockets of the NWCDC officials.  Between May 2011 and September 2012, it is alleged that Gleaton conspired with Donald Bernard, Sr., the manager of special projects for the NWCDC, and Linda Watkins Brashear, the executive director of the NWCDC, to defraud the organization of more than $110,000.  The plot unfolded by issuing fraudulent invoices to two of Gleaton’s companies (Synergy Group, a printing services company, and Mindshare Media, a digital marketing company) for work that was never actually performed.  In total, approximately $110,000 was paid to Gleaton’s companies.  After receiving payment, Gleaton then gave $97,000 to Bernard, who shared a portion with Brashear.

    Gleaton, Bernard, and Brashear all pleaded guilty to the charges alleged.  As a result of partaking in the fraudulent scheme, Gleaton was sentenced to 18 months in prison, three years of supervised release, and $111,600 in restitution.  He also pleaded guilty to the use of false Social Security numbers in relation to personal bankruptcy proceedings in 2012 and 2013.  As for the other players, both Bernard and Brashear pleaded guilty to using interstate facilities to promote and facilitate bribery by accepting $956,948 in kickbacks from several contractors over several years.  They also pleaded guilty to filing false tax returns.  Bernard was sentenced to 8 years in prison and Brashear’s sentencing hearing is scheduled for September 11, 2017.  

    The Take-Home
    The NWCDC was dissolved in 2013 and the City of regained control over water distribution ever since.  When Gleaton pleaded guilty to the charges in 2016, he became the sixth person to plead guilty in connection to NWDCD’s mismanagement of Newark’s water assets.  This case is an example of how a lack in oversight in federal agencies can lead to the misuse of taxpayer dollar for personal gains of agency officials.

    Friday
    Jul282017

    Halliburton Settles FCPA Allegations for $29.2 Million

    What Happened?
    On July 27, 2017, the U.S. Securities and Exchange Commission charged Halliburton Company with violating the books and records, as well as the internal controls, provisions of the Foreign Corrupt Practices Act (“FCPA”).  The Commission alleged that, in order to obtain contracts in Angola resulting in profits of $14 million, Halliburton inappropriately directed subcontracts to a local Angolan company with ties to an official with the state-owned oil company.

    The Rundown
    Simply stated, the FCPA, enacted in 1977, prohibits American companies and its representatives from bribing foreign officials.  Criminal violations of this law are prosecuted by the U.S. Department of Justice.  Violations of the FCPA also carry with them potential civil penalties that are investigated and prosecuted by the Securities and Exchange Commission.   15 U.S.C. § 78m sets forth the “books and records” and “internal controls” provisions of the FCPA.  When a company makes inappropriate payments to foreign officials, the books and records of that company do not accurately reflect the financial status of the company and the transactions in which it engaged.  Hence, civil liability attaches.  Furthermore, companies issuing securities in the United States are required to enact internal controls to ensure compliance with legal mandates.  Inappropriate payments and/or bribes reflect a failure to implement effective internal controls.

    In this case, the SEC alleges that Halliburton’s Vice President, Jeannot Lorenz, spearheaded efforts to direct projects to a local business with connections to an official at Sonangol, Angola’s state-owned oil company.  Instead of determining services that Halliburton needed to outsource and put those projects out for bid to local Angolan-owned businesses, Lorenz was alleged to have worked backwards.  Lorenz first identified the companies to be hired and backed into the tasks that were required.  No competitive bidding process was implemented.  In all, Halliburton is alleged to have directed $13 million worth of work to a business connected to an Angolan official.  In return, Halliburton profited by $14 million from the contracts it received. 

    Without admitting or denying the allegations levied by the Commission, Halliburton has agreed to pay $14 million in disgorgement, $1.2 million in prejudgment interest, and $14 million in civil monetary penalties.  In addition, Lorenz has agreed to pay $75,000 in penalties for causing the company’s violations and circumventing the company’s internal controls.

    The Take-Home
    Violations of the FCPA have both civil and criminal ramifications.  When working abroad, companies must be ever vigilant of payments to local officials and/or individuals or entities related to them.  Transparency International, a global coalition against corruption, publishes an annual Corruption Perceptions Index of 176 countries.  Out of 176 countries, Angola was perceived last year to be more corrupt than 163 other countries.  Companies must be on high alert when working in companies perceived to be corrupt.  The government has Internet access just like everyone else and can easily target investigations in these locales.  Even if criminal charges are not pursued, civil allegations have teeth and can harm a company nearly as much as a criminal prosecution.   

    What Happens Next?
    As part of Halliburton’s settlement, the company must retain an independent compliance consultant for a period of 18 months to review and evaluate its anti-corruption policies and procedures.

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