Investigations Newsletter: Court Reinstates Life Insurance Company's Fraud Claims Over Defunct Laboratory

Arent Fox
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Arent Fox

Headlines that Matter for Companies and Executives in Regulated Industries.

Court Reinstates Life Insurance Company's Fraud Claims Over Defunct Laboratory

A New Jersey state appeals court reinstated Aetna Life Insurance Company’s (Aetna) fraud claims against the minority owners of the now defunct Biodiagnostic Laboratory Systems LLC (BLS) and determined that Aetna ultimately met the pleading requirements for their Insurance Fraud Prevention Act and Uniform Fraudulent Transfer Acts claims. Aetna claims that the BLS owners were allegedly privy to a $100 million criminal bribery and kickback scheme in which BLS officials paid doctors to refer patients for medically unnecessary tests. 
 
Although the BLS owners were not criminally charged for their participation in the fraud scheme like the BLS officials and physicians, Aetna asserted that BLS’ minority owners knew about, but failed to disclose, the wrongdoing that led to the convictions of the BLS officials and physicians. Aetna claims that the BLS owners invested nothing out-of-pocket for their receipt of $32 million in cash distributions from the company and possessed knowledge of the bribery, double-billing, and waiver of patient copays and deductibles.
 
Read the opinion here.

Hemp Company Charged with Defrauding Investors

The Securities and Exchange Commission (SEC) recently filed suit against a start-up hemp company, CanaFarma, and its two co-founders for alleged misrepresentations regarding how investor money would be used and the company’s business prospects. The SEC alleges that the company fraudulently raised approximately $15 million from over 60 investors and misappropriated a portion of the funds for personal use or purposes unrelated to the company’s business. CanaFarma also allegedly told investors that the company was fully integrated and processed hemp from its own farms when in reality, it allegedly used hemp oil for its products from third parties.

The complaint seeks a permanent injunction against the defendants, disgorgement of the ill-gotten gains with prejudgment interest, civil penalties, permanent prohibition on defendants from serving as officer or director of any company registered under the Securities and Exchange Act, and a permanent prohibitions on the co-founders from participating in any offering of a penny stock.

Read the SEC’s complaint here.

Former CEO of Brazilian Petrochemical Company Sentenced to Prison for FCPA Conspiracy Charges

A former chief executive officer (CEO) of Brazilian petrochemical company, Braskem S.A. (Braskem), was sentenced to 20 months’ imprisonment for conspiracy to violate the anti-bribery provisions and books and records provisions of the Foreign Corrupt Practices Act (FCPA). The former CEO’s fraud scheme involved the diversion of millions from Braskem into a secret slush fund, which is a reserve of money usually used for illicit purposes, and the payment of bribes to government officials and political parties in Brazil.  

As part of the scheme, the former CEO and his co-conspirators diverted approximately $250 million from Braskem to the slush fund, which was generated through fraudulent contracts and offshore companies secretly controlled by Braskem. Along with the prison sentence, the former CEO was also ordered to forfeit $2.2 million and pay a $1 million fine.

Read the DOJ’s press release here.

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