HEALTHCARE FRAUD DEFENSE JOURNAL
Amina Abbas, of Taylor, was charged by indictment Wednesday in the Eastern District of Michigan with embezzlement of government property.
The indictment includes the first criminal charges for the intentional misuse of funds intended to provide relief to health care providers and maintain the access to medical care during the pandemic, money set aside to help Americans get needed medical care in a global health and economic crisis.
The indictment alleges that Abbas previously owned 1 on 1 Home Health (1 on 1), which she had closed in early 2020 after Medicare issued an overpayment demand for $1,619,967.08. Medicare was demanding overpayment because 1 on 1 had submitted claims for patients who did not qualify for home health services. According to the indictment, 1 on 1, which was never operational during the pandemic, received approximately $37,656.95 designated for the medical treatment and care of COVID-19 patients. Abbas then allegedly misappropriated the funds by issuing checks to her family members for personal use.
News just broke that the Acting AG, Monty Wilkinson, has rescinded the infamous Sessions‘s charging policy, and reinstated AG Holder’s charging policy, which directs prosecutors to conduct an individualized assessment of relevant facts in making charging and sentencing decisions. The Wilkinson memo “supersedes any conflicting Justice Manual provisions.”
Today’s guidance ends Sessions’s mandate that prosecutors should, as a “core principle,” “charge and pursue the most serious, readily provable offense.” Although the 2010 Holder memo also directs prosecutors to “ordinarily charge” the most serious offense, it emphasizes that charging determinations should be made in the context of an “individualized assessment of the extent to which particular charges fit the specific circumstances of the case, are consistent with the purpose of the Federal criminal code, and maximize the impact of Federal resources on crime.”
For more information, click HERE
In a blow to prosecutors, Judge Middlebrooks has ruled that prosecutors cannot tactically use Rule 48 when faced with an expiring statute of limitations.
During the pandemic, I have heard of several instances where prosecutors facing the expiration of a statute of limitations period will file an Information, only to then seek dismissal of the Information without prejudice in order to “stop the clock” from running. The government is in essence playing a game in order to skirt a fundamental constitutional right.
In United States v. B.G.G., No. 20-80063-CR-Middlebrooks (D.E. 19) (S.D. Fla. Jan. 11, 2021), David Markus and Lauren Doyle decided they were not going to take this lying down and challenged the government.
In United States v. B.G.G., the government filed an Information on August 28, 2020. The statute of limitations for the charged offense expired on August 31, 2020. On September 2, 2020, the government emailed a proposed order to the Court, proposing dismissal of the Information pursuant to Rule 48 allowing voluntary dismissal without prejudice. The defense promptly responded, requesting that the Information be dismissed with prejudice. Upon review, the Court held that the government’s tactical use of Rule 48 was inappropriate.
While the briefing in the case is sealed, the Court’s Order is not. The Order confirms that the government affirmed that it sought to file the Information in order to “institute” the action within the meaning of 18 U.S.C. § 3282(a), the statute of limitations, believing that it could later file an indictment. Section 3282 provides: “Except as otherwise expressly provided by law, no person shall be prosecuted, tried, or punished for any offense, not capital, unless the indictment is found or the information is instituted within five years after such offense shall have been committed.” The limitations period may be tolled for six months after dismissal of the indictment or information, or six months from the date the first grand jury is reconvened if the “indictment or information charging a felony is dismissed for any reason after the period prescribed by the applicable statute of limitations has expired.”
The Court held that the filing of the Information did not “institute” the action within the meaning of Section 3282 because the Information was not a viable vehicle for prosecution. The Court reasoned that allowing the government to “tactically” use Rule 48 “would not serve the strong public interest of upholding statutory and constitutional protections.” The Court further stated that the government’s proposed action would also have “the effect of eroding the fundamental purpose of the statute of limitations – “to limit exposure to criminal prosecution to a certain fixed period of time following the occurrence of those acts the legislature has decided to punish by criminal sanctions.” The Court went on to say that a criminal statute of limitations could not serve its purpose if the prosecution could just extend the limitations period whenever it felt convenient by filing a charging instrument that was not viable for prosecution.Following the Order, the government quickly filed its notice of appeal. This is a case to monitor in 2021!
This week brought two new Paycheck Protection Program (“PPP”) fraud indictments.
The first indictment is out of the Southern District of Texas. The case is United States v. Amir Aqeel, et al., Case No, 4:20-cr-583 (S.D. Texas). In Aqeel, seven individuals were charged with filing over 80 fraudulent loan applications worth $16 million. The defendants were charged with conspiracy to commit wire fraud, wire fraud, and money laundering.
According to the Indictment, the defendants falsified their PPP loan applications by faking the number of employees and average monthly payroll. The defendants also used third parties to submit applications and paid kickbacks for that service. The loan proceeds were funneled to family members posing as employees. The defendants used the money to purchase luxury cars and other items.
Interestingly, all the companies the defendants used to perpetrate the fraud were in business prior to the pandemic. The defendants used different banks and kept the loan values relatively low to avoid detection.
Over in Los Angeles, four individuals were charged with PPP fraud in the case of United States v. Richard Ayvazyan, Case No. 20-mj-03857. The charges brought in Ayvazyan were slightly different than those in the Texas case. In Ayvazyan, the defendants were also charged with conspiracy to commit bank fraud and substantive bank fraud counts in addition to conspiracy to commit wire fraud and wire fraud.
In Ayvazyan, the Indictment alleges that the defendants submitted fraudulent information in order to get loans. The loan proceeds were used to purchase residential property, among other things.
It seems the government went to great lengths to investigate the Aqeel and Ayvazyan cases, including executing search warrants and collecting emails. The government is likely using data analytics to identify outliers as it does in health care cases to pick the low hanging fruit.
These prosecutions are just the beginning though. The Small Business Administration (“SBA”) announced in FAQ No. 39 that it will review all PPP loans in excess of $2 million. The SBA is also requiring companies that sought in excess of $2 million to complete a questionnaire with questions geared toward determining whether the loan applications’ certification of economic uncertainty was made in good faith. While not disclosed, the SBA will likely use these questionnaires to continue to identify outliers to investigate.
Last week, the U.S. House of Representatives passed H.R. 5546, the Effective Assistance of Counsel in the Digital Era Act.
The Legislation extends the attorney-client confidentiality to emails sent to and from federal prisons. The bill requires the Bureau of Prisons to exclude from monitoring the contents of any privileged electronic communications. The bill also requires the contents of electronic communication to be destroyed when an inmate is released. The protections would apply to all federal prisoners both pre-trial and post-conviction.
Currently, prisoner emails were regularly monitored by prosecutors and not considered privileged. This legislation will be a welcome relief for defense attorneys that already face obstacles in communicating with clients. The legislation is headed to the Senate now. The National Association of Criminal Defense Lawyers is in the process of seeking support in the Senate for the legislation.
A copy of the legislation can be found here.
On August 31, 2020, the White House quietly released a memorandum that could significantly change the way civil and administrative enforcement actions proceed. The memorandum can be found here.
The memorandum is directed to Deputy Secretaries of Executive Departments and Agencies. This means it applies to the Securities and Exchange Commission, the Federal Trade Commission, the Federal Reserve, and any other government agency with civil or administrative enforcement authority.
The memorandum directs agencies to provide much greater due process to individuals and companies being investigated. The memorandum specifically provides the following best practices to be followed by the agencies:
- The government bears the burden of proving an alleged violation of the law.
- The subject of enforcement should not bear the burden of proving compliance with the law.
- A cause of action must be based on actual misconduct and not on what should have been done.
- Regulatory ambiguities should be read in favor of subjects of enforcement.
- Agencies should seek approval from an Officer of the United States before entering into a tolling agreement to extend the statute of limitations.
- Investigations should end within a defined time period and/or end with formal declination. This will avoid subjects wondering for years whether there will be a knock on the door.
- Agencies should confirm their civil adjudicatory evidence disclosure practices similar to those described in Brady v. Maryland, 373 U.S. 83, 87 (1963), Giglio v. United States, 405 U.S. 150, 154 (1972), and Kyles v. Whitley, 514 U.S. 419, 432-33 (1995). This means that agencies should turn over exculpatory evidence similar to the procedures laid out in the Justice Manual of the U.S. Department of Justice.
- All rules of evidence and procedure should be public, clear, and effective.
- Penalties should be proportionate and transparent.
- Liability should be imposed only for violations of statutes or duly issued regulations, after notice and an opportunity to respond. The element of surprise should be eliminated.
While the memorandum is tied to the coronavirus and the Trump administration’s attempt to have an economic recovery, the implementation could have lasting effects on the way these agencies operate. Particularly, the memorandum provides for transparency, accountability, and fairness in administrative and civil enforcement proceedings. This is a huge change from the current states of affairs and should provide companies that are in regulated entities a great deal of comfort.
On September 16, 2020, a Manhattan federal judge – Judge Alison J. Nathan – issued a scathing order critiquing prosecutors of misleading the court about the disclosure of potentially exculpatory evidence. The court further ordered two Southern District of New York unit chiefs and all the line prosecutors in the case to answer questions under penalty of perjury regarding their conduct in the case.
The case is United States v. Ali Sadr Hashemi Nejad, Case No. 18-cr-224(AJN) (S.D.N.Y. Sep. 16, 2020). Mr. Sadr was indicted in 2018 in connection with a purported scheme to evade U.S. sanctions against Iran and launder money. The indictment alleged that Sadr’s company contracted with a unit ofs Venezuelan state-owned oil company, Petroleos de Venezuela SA, to build an infrastructure project. It was further alleged that Sadr and others had Venezuela send U.S. dollars to the Swiss bank accounts of a trading house that Sadr had incorporated in Switzerland and a Turkish construction company, using lenders in New York as intermediaries. The government then claimed that Sadr transferred the money around the world, including to Iran. Sadr maintained his innocence and testified at trial that he never believed his connection to the construction project in Venezuela violated any laws and he further denied sending money to Iran. After a two-week trial, a jury found Mr. Sadr guilty on all counts except the money laundering conspiracy charge.
Following the trial, while Mr. Sadr’s motion for a new trial was pending, a U.S. Attorneys Office Criminal Discovery Coordinator and Office of Professional Responsibility Officer began looking into the disclosures made in the case. As a result of the inquiry, the government decided it was not in the “interest of justice” to further prosecute this case. The government was seeking to make the case go away, hoping it wouldn’t have to address its misconduct.
The government took the extraordinary step of asking the Court to enter an order of nolle prosequi against Mr. Sadr and his co-defendant. Mr. Sadr did not agree that the case be nolle prosequi and demanded that the verdict be vacated, a motion for new trial granted, and the indictment dismissed. The government agreed.
When the court received the request for dismissal, it announced that while the dismissal ended the criminal proceeding as to Mr. Sadr, the government’s failures and misconduct would need to be addressed separately. The court noted that the “dismissal of charges is not a basis for sweeping the government’s repeated failures under the rug.” The court directed the government to provide more information about its disclosure failures and misstatements.
Following are some of the more egregious behaviors disclosed in the government’s response:
- Federal investigators were mining electronic evidence without a valid warrant to find materials to aid FBI interviews. This was contrary to claims made during the pre-trial litigation.
- Prosecutors realized in the middle of trial that they had not turned over a document that was exculpatory to the defense. Instead of immediately turning over the document, the prosecutors strategized for over 20 hours how best to turn it over. The strategies included “burying” it in evidence of already disclosed documents, which after looping in more prosecutors, is exactly what they did.
- Prosecutors failed to identify the document as newly produced to the defense in order not to draw attention to it.
- The government misled the court by claiming it had identified the document as newly discovered to the defense.
- The government produced exculpatory documents after the trial in the case had ended.
- The government failed to produce FBI interview memoranda that may have contained exculpatory information.
The court noted its concern that the issues raised in this case were part of a larger pattern. The court intimated that similar issues may have gone undetected in countless other cases. The court suggested that the prosecutors involved should be the subject of a referral to the Department of Justice’s Office of Professional Responsibility. Additionally, the court ordered that the acting U.S. Attorney Audrey Strauss make all line prosecutors in the Southern District of New York read the opinion and provide certification to the court that they done so.
The court further suggested that the Department of Justice must implement policy and training procedures that instill in FBI agents the permissible limits of conducting electronic searches pursuant to warrants in a way that conforms to constitutional requirements. Judge Nathan also ordered that AUSAs must be trained to conduct proper due diligence before making misleading representations to the Court about their conduct.
To be fair, the court repeatedly commended the prosecutors for ultimately doing the right thing and dismissing the case. Far too often, when faced with misconduct allegations, prosecutors decide to dig in their heels in further. This Order shines a light on alarming misconduct. Hoepfully, this scruity will breathe life back into the public faith in criminal justice that has been slowly eroding across the nation as a result of government misconduct. Every single prosecutor and every single criminal defense attorney should read this opinion. It is a haunting reminder that prosecutors should be out to accomplish justice and not a victory at all cost.
The First Circuit Court of Appeals has upheld the conviction of Dr. Rita Luthra, a gynecologist in Springfiled, Massachusetts, for violating the Health Information Portability and Accountability Act (“HIPAA”) and for obstruction of a criminal health care investigation. U.S. v. Luthra, Case No. 18-1980 (1st Cir. Aug. 6, 2020). In 2018, she was charged with one count of receiving kickbacks in the form of food and speaker fees from Warner Chilcott, a pharmaceutical company, one count of violating HIPAA, and one count of obstruction of a criminal health care investigation. The kickbacks count was dismissed by the government before trial.
The Indictment alleged that Dr. Luthra was paid speaker fees in order to prescribe the expensive osteoporosis drugs Actonel and Atelvia. The Indictment alleged, however, that there were no speaking engagements or medical education events. Instead, Warner Chilcott was paying for one-on-one chats with the sales representative at Dr. Luthra’s office.
The Indictment further alleged that Dr. Luthra permitted the Warner Chilcott sales representative to access her patient files in order to identify potential recipients of Actonel and Atelvia. When agents questioned Dr. Luthra, she provided false information about her relationship with Warner Chilcott and the sales representative. The Government also alleged Dr. Luthra tried to get her medical assistant to lie to agents but was not charged with this conduct.
A jury convicted Dr. Luthra on both remaining counts – violation of HIPAA and obstruction of a criminal health care investigation.
At sentencing, the government asked for a 21-month sentence. The court imposed a probation sentence. Dr. Luthra appealed.
Dr. Luthra argued on appeal that even though the Warner Chilcott representative accessed patient information, the Government failed to prove she knew about it. The First Circuit did not buy this argument and affirmed the conviction. The panel commented that the lower court “went as far as he could in softening the sanction.”
This case is interesting because the Government rarely charges doctors with HIPAA violations, but this may pave the way for more of these types of prosecutions.
The Department of Justice has already started investigating and even filed charges against individuals who acquired Paycheck Protection Program (“PPP”) loan funds under false pretenses. In most of the cases charged so far, the individuals all claimed to have employees at various businesses when in fact there were allegedly no employees working for any of the businesses. These cases are just the tip of the iceberg. Once the dust settles, and Congress evaluates the amount of money loaned, more enforcement initiatives will surely follow.
As such, it is important that borrowers make sure that they are in compliance with all requirements of the PPP, including eligibility and the loan amount calculation. Although there are few certainties with the PPP, applicants can at least substantiate their processes for determining their eligibility and loan amount, thereby minimizing the risk that the Small Business Administration (“SBA”) denies loan forgiveness or imposes any penalties for false certifications.
The CARES Act provides that to be eligible, the applicant must either be a qualifying “small business concern” or “business concern” as defined in the Act. An applicant also must have been in operation on February 15, 2020 and had employees for whom it paid salaries and payroll taxes or must have paid independent contractors. Sole proprietors, independent contractors, and self-employed individuals may also be eligible for PPP loans.
The basic size tests for eligibility are:
- A “small business concern” that satisfies the small business size standard for the industry in which the applicant is primarily engaged and, combined with its affiliates, satisfies the size standard designated for either the primary industry of the applicant alone or the primary industry of the applicant and its affiliates, whichever is higher;
- A “small business concern” that satisfies the SBA’s “alternative size standard”; or
- For all other applicants eligible under the CARES Act, a “business concern,” qualifying 501(c)(3) nonprofit organization, 501(c)(19) veteran organization, tribal business concerns, or other business concerns, that employ, when combined with their affiliates, not more than the greater of (i) 500 employees whose principal place of residence is in the United States; or (ii) the maximum number of employees permitted by the applicable SBA’s size standard for the primary industry in which the applicant is primarily engaged.
The SBA requires small business concerns to count every employee of the applicant and all domestic and foreign affiliates of the applicant, regardless of full-time or part-time status. The existing SBA regulations on 7(a) loans do not limit employees to only employees who reside in the United States.
On May 18, 2020, the SBA released an Interim Final Rule concerning the Treatment of Entities with Foreign Affiliates under the PPP. According to the new rule, all employees of affiliates are to be counted for purposes of determining if the SBA’s employee size standards are met for purposes of PPP eligibility. The principal place of residence of the employee is not relevant for purposes of this headcount. If an applicant, together with its domestic and foreign affiliates, does not meet the Existing SBA Size Tests or the CARES Act Size Test, it is not eligible for a PPP loan. Because there was confusion based on prior guidance, the SBA agreed that this rule would not apply to borrowers who applied for their PPP loan prior to May 5, 2020 and did not include non-U.S. employees in their headcount determinations.
Determining the Amount of the PPP Loan
Once an applicant has determined it is eligible for a PPP loan, it must then calculate the maximum amount of the loan for which it is eligible. The amount of the loan is limited to the lesser of (i) $10,000,000 or (ii) 2.5 times an applicant’s eligible “payroll costs” plus the amount of any Economic Injury Disaster Loan (“EIDL”) originated on or after January 31, 2020 being refinanced with PPP proceeds (less the amount of any advance received under an EIDL). An applicant must only consider its own payroll costs and not those of its affiliates, even though it had to consider its affiliates’ employees when determining eligibility. “Payroll costs” are defined as:
- Salary, wage, commission, or similar compensation;
- Payment of cash tips or equivalent;
- Payment for vacation and parental, family, medical, or sick leave;
- Allowance for dismissal or separation (e.g. severance pay);
- Health insurance premiums and other payments for provision of healthcare benefits;
- Retirement benefits; and
- State/local taxes on employee compensation.
The required exclusions include:
- Any compensation for each individual employee in excess of an annual salary of $100,000 as prorated for the Covered Period (between February 15, 2020 and June 30, 2020);
- Federal taxes for payroll, railroad retirement, and income;
- Compensation of each employee with a principal residence outside United States;
- Qualified sick and family leave wages where credit is allowed under Families First Coronavirus Response Act.
Permissible Uses of PPP loan funds
Borrowers are permitted to use PPP loan funds for payroll costs, interest on mortgage, and other debt, rent, and utilities (provided the mortgage, other debt, rent, and utilities are in place or in service before February 15, 2020). Proceeds that are used for permissible uses between February 15, 2020 and June 30, 2020 that are not forgiven will become a loan.
It is still unknown what will happen if borrowers use loan proceeds other than for the permitted uses identified by the CARES Act. The first Interim Final Rule states that “[i]f you use PPP funds for unauthorized purposes, SBA will direct you to repay those amounts. If you knowingly use the funds for unauthorized purposes, you will be subject to additional liability such as charges for fraud.”
Risks of Accepting a PPP Loan
- Audits and interviews by government regulators and/or CARES task force
- Subpoenas from Office of Inspector General
- Criminal prosecution
- Disgruntled employee could bring a qui tam (whistleblower) action
Practical Tips to Ensure Compliance
- Application. Make sure you understand the questions on the application and that your answers are accurate. Make sure to record your rationale for your responses. Particularly, record your rationale and analysis of how you calculated the loan amount.
- Record keeping: Organize and keep all records related to the application, use of the loan proceeds, steps taken to secure funds, and any advice received in obtaining the funds. Keep those records for a minimum of two years.
- Use of Funds: Deposit loan proceeds in a separate bank account. Use the account for permissible expenses and document all expenses.
Consult a Professional: If you are contacted by a law enforcement agency regarding your PPP application or use of funds, hire a lawyer before responding to the inquiry.
The Department of Justice Criminal Division Fraud Section has quietly created a new privilege team. This is a departure from the traditional practice of using so-called “taint teams” – assigned agents and prosecutors not involved in the investigation — to review materials that may have been subject to a privilege. While it is unknown why the privilege team was formed, it is likely a consequence of a series of judicial opinions wherein the DOJ has been criticized for its handling of privileged materials, including in United States v. Philip Esformes, where the Court found that the government’s taint protocol had serious deficiencies. A designated privilege review team may have benefits for the defense. It certainly will benefit the Government and potentially help it to avoid further criticism from the courts as to its handling of privileged materials.
Traditionally, the DOJ used taint teams to review potentially privileged materials. These taint teams were made up of agents and prosecutors not working on the underlying investigation. The taint teams were usually assigned to review materials seized or obtained that likely contained privileged materials, such as materials from corporations, law offices, and/or email servers. The prosecutors handling the underlying matter were tasked with instructing the taint teams, who in turn were supposed to isolate the privileged material for discussions with counsel representing the privilege holder and potential litigation related to the privilege. The remaining materials were then turned over to the Government.
Defense attorneys have always been opposed to the use of taint teams. Because the relationship between prosecutors handling the underlying case and taint team is so closely connected, it provides good cause to believe the sanctity of the privilege would not be respected. Moreover, the close relationship between the prosecutors and taint teams often led the teams to make very narrow privilege decisions.
In recent years, the DOJ Fraud Section has come under increasing scrutiny in high profile cases for its handling of privileged materials. Particularly, in United States v. Esformes, agents seized materials from a lawyer’s office during the execution of a search warrant. U.S. v. Esformes, Case No. 16-20549-CR, 2018 WL 5919517 (S.D. Fla. Nov. 13, 2018). Despite being warned that agents were searching a lawyer’s office, agents proceeded in the search without the use of a taint team. Case agents – not taint agents – placed some privileged materials in taint boxes. However, hundreds of documents marked privileged and confidential were turned over to the prosecution team. The Court declined to dismiss the case, but ruled that the prosecution team’s “execution of their duties was often sloppy, careless, clumsy, ineffective, and clouded by their stubborn refusal to be sufficiently sensitive to issues impacting the attorney client privilege.”
United States v. Esformes is not the only case wherein the Government’s handling of privileged materials has been criticized. When the Government raided the law offices of Michael Cohen – President Trump’s longtime personal attorney and “fixer” – pursuant to the investigation of Russian interference in the 2016 election, the Parties litigated whether a taint team could review the seized records and devices. In the end, the Government agreed to appoint a special master to review the materials seized for privilege.
Now, the use of a dedicated privilege review team will possibly create more experience in spotting privileged materials that may have been missed in the past by taint teams. Additionally, a dedicated team might not be as worried about deadlines on other cases and can focus on a thorough review. However, the dedicated team works still for the Government and will likely have close relationships with prosecutors handling underlying cases. As such, defense attorneys should remain vigilant. If you believe the Government has seized privileged materials, notify the Government immediately and object. This notice should be memorialized in writing. Defense counsel should also identify what materials are privileged, assert the privilege, and demand to review the documents before any single document is turned over to case agents or prosecutors. If prosecutors do not respond, seek relief from the court.