Investigations Newsletter: DOJ Announces Charges Against 138 Defendants for Alleged Health Care Fraud Schemes Resulting in $1.4 Billion in Losses, with Focus on Telemedicine

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Friday Enforcement Wrap

DOJ Announces Charges Against 138 Defendants for Alleged Health Care Fraud Schemes Resulting in $1.4 Billion in Losses, with Focus on Telemedicine

On September 17, 2021, the Department of Justice (DOJ) announced criminal charges against 138 defendants, including 42 doctors, nurses, and other licensed medical professionals, in 31 federal district courts across the United States. The government alleges that the defendants participated in various health care fraud schemes resulting in roughly $1.4 billion in losses.

According to DOJ, the charges involved an alleged $1.1 billion in fraud losses related to schemes involving telemedicine, involving 43 criminal defendants in 11 federal district courts. Some of these cases allegedly involve situations in which telemedicine executives paid doctors and nurse practitioners to order unnecessary durable medical equipment (DME), genetic and diagnostic testing, and pain medications, either without patient interaction or with only brief phone calls with the patients. The DME companies, testing laboratories, and pharmacies allegedly purchased the orders in exchange for kickbacks and bribes and submitted over $1.1 billion in false and fraudulent claims to Medicare and other government health care programs. Of the $1.4 billion in overall alleged losses, DOJ reported an alleged $29 million in losses from COVID-19 fraud schemes, $133 million in losses involving substance abuse treatment facilities, and $160 million in losses related to other health care fraud and illegal opioid distribution schemes.

The DOJ press release can be found here.

SEC Announces Charges for First Time Against Crowdfunding Issuer

On September 20, 2021, the Securities and Exchange Commission (SEC) announced charges against three individuals and one issuer for allegedly conducting a fraudulent scheme to sell nearly $2 million of unregistered securities through two crowdfunding offerings. The SEC also charged the registered funding portal, TruCrowd Inc., which allegedly placed the offerings on the portal’s platform, and its CEO. According to the SEC, the three individuals conducted fraudulent and unregistered crowdfunding offerings through two cannabis and hemp companies. The defendants allegedly raised nearly $2 million from retail investors and then diverted investor funds for personal use rather than using them for the purposes disclosed to investors. The SEC alleges that TruCrowd Inc., the registered funding portal, and its CEO hosted the offerings on the platform but failed to address red flags in the crowdfund offerings and failed to reduce the risk of fraud to investors.

SEC Enforcement Division Director Gurbir S. Grewal stated: “Crowdfunding offerings enable issuers to cast a wide net for potential investors,” and “[a]s companies continue to raise funds through crowdfunding offerings, we will hold issuers, gatekeepers, and individuals accountable and enforce the protections in place for all investors.”

The SEC press release can be found here.

Former Pharma Global IT Manager Pleads Guilty to Insider Trading Charges

On September 17, 2021, DOJ announced that a former information technology executive at a major pharmaceutical company pleaded guilty to conspiracy to commit securities fraud and aiding in the preparation of a false tax return. The government alleges that, between 2017 and 2019, the defendant conspired with others to trade in the securities of his former employer, a publicly listed pharma company, based on material nonpublic information relating to upcoming corporate announcements involving drug approvals, financial earnings, and a merger. The defendant’s trading allegedly netted more than $8 million in unrealized profits and losses avoided, and he ultimately realized net profits and losses avoided of $4.2 million. The defendant also allegedly sent false information to his tax preparer, leading to a false corporate return in 2015. The defendant is scheduled to be sentenced in January 2022.

The same day that DOJ announced the guilty plea, the SEC announced civil insider trading charges against the defendant. The complaint charges the defendant with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The SEC reported that the defendant has consented to the entry of a judgment that, if approved by the court, would permanently enjoin him from violating the charged provisions and bar him from acting as the officer or director of a public company, with civil penalties to be decided by the court.

The DOJ press release can be found here, and the SEC release can be found here.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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