Headlines that Matter for Companies and Executives in Regulated Industries
Court Unseals Charges Alleging Nearly $15 Million in Fraudulent PPP Loans
Earlier this week, federal prosecutors in the Southern District of New York announced the unsealing of a criminal complaint charging six defendants with conspiracy to commit wire fraud affecting a financial institution through their submissions of fake Paycheck Protection Program (PPP) loan applications between July 2020 and February 2022.
The defendants allegedly submitted over 100 fraudulent loan applications to a variety of financial institutions, often attaching fabricated bank documents and tax statements. The government has also alleged that defendants received kickbacks from individuals and businesses in exchange for filing the applications.
In total, the phony applications submitted by the conspirators allegedly amounted to $14.7 million in PPP loans and resulted in $4.6 million in actual disbursements from certain banks.
Each defendant faces up to 30 years in federal prison.
The case is United States v. Walker, Case No. 23-mj-04465.
Read the US Department of Justice’s (DOJ) press release here.
Pharmacist Receives Two-Year Sentence for Fraud Scheme
Ronald Beasley, II, a pharmacist from Portsmouth, Virginia, was sentenced this week to two years in federal prison for masterminding a scheme through which he and others defrauded Medicare for over $1 million.
According to federal prosecutors, Beasley and his co-conspirators all worked at NH Pharma, a pharmacy located on the outskirts of Orlando, Florida, and improperly billed the Medicare program for certain high-priced prescription drug creams. However, the defendants never actually purchased or dispensed the expensive creams to Medicare patients who used the pharmacy. Rather, Beasley and his accomplices provided cheap alternatives that Medicare would not have reimbursed.
Records introduced at trial showed that NH Pharma never bought the volume of the expensive cream equal to the amount of the fraudulent Medicare submissions. The exact amount of restitution owed by Beasley and his co-conspirators is yet to be determined.
The case is United States v. Beasley, Case No. 6:22-cr-00024-CEM.
Read DOJ’s press release here.
Two Iowa Residents Convicted of Defrauding IRS
A man and woman from a small Iowa town outside Des Moines were convicted of dozens of fraud and tax offenses resulting from a scheme to file false tax returns with the US Internal Revenue Service (IRS). One defendant pled guilty to 49 charges in late May 2023, and the other was convicted by a federal jury at the end of last week. According to evidence gathered against the defendants, they frequently targeted non-English speaking customers who were employed at factories in Iowa. Even though the customers were often immigrants or refugees, the defendants repeatedly listed improper deductions such as moving expense deductions reserved for members of the US military, as well as other inapplicable business expense deductions.
During a four-year period between 2018 and 2022, the defendants filed more than 1,600 false tax returns, involving more than $3.5 million in fraudulent residential energy credit deductions. The defendants collected over $200,000 in cash from their hapless customers, and even diverted portions of some fraudulent tax refunds to their own bank accounts. In addition, from October 2020 through March 2021, the defendants fraudulently obtained nearly $100,000 of their clients’ unemployment insurance benefits from Iowa Workforce Development, which they also diverted to their own accounts.
Sentencing is scheduled for late September 2023.
Read DOJ’s press release here.
Supreme Court Again Tightens FCA Intent, But Tricky Questions Linger
The US Supreme Court brushed aside novel assertions from two pharmacy retailers on June 1 and ruled unanimously that False Claims Act liability hinges on whether defendants subjectively believed their claims were “false.” In US ex rel. Schutte v. SuperValu, Inc. (consolidated with US ex rel. Proctor v. Safeway, Inc.), No. 21-1326, Justice Thomas delivered the Court’s opinion and rejected an argument that scienter can be negated if an alternative, objective interpretation of a law or regulation exists. Id. at 16. Notably, however, the Court did not bring much-needed clarity to the “reckless disregard” standard of liability under the FCA.
SuperValu and Safeway operate pharmacies nationwide that sell and dispense retail pharmaceutical drugs. Id. at 2. Whistleblowers brought forth allegations that both companies violated federal law by overcharging Medicare and Medicaid through their submissions for reimbursement. Id. at 5. More specifically, under federal law, the companies were limited to seeking reimbursement for drug sales to government beneficiaries at the “usual and customary charges” that they otherwise charged to the general public and beneficiaries of private health plans. See 42 C.F.R. §447.512(b)(2) (2021). But according to the whistleblowers, SuperValu and Safeway concealed and then intentionally misreported those standard charges (typically discount prices) when submitting their claims to the federal government.
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