Investigations Newsletter: Judge Rules Against Seizure of $330 Million Allegedly Connected to 1MDB Fraud Scheme

Arent Fox

Headlines that Matter for Companies and Executives in Regulated Industries

Judge Rules Against Seizure of $330 Million Allegedly Connected to 1MDB Fraud Scheme

On March 9, California District Court Judge Dale S. Fischer ruled that the government could not seize about $330 million in assets connected to 1Malaysia Development Berhad (1MDB) funds. The funds are allegedly tied to the 1MDB scandal in which Malaysian public officials are alleged to have diverted billions of dollars from the 1MDB fund to, among other things, purchase real estate, artwork, and pay gambling expenses.

An arbitral tribunal previously found that the $330 million sought by the government was owed to PetroSaudi, a Saudi oil company, for drilling services it provided to Venezuela's state-owned oil company, Petróleos de Venezuela SA. The government argued that the $330 million was tied to a $1 billion joint venture between PetroSaudi and 1MDB, $700 million of which was diverted as part of the scheme. But Judge Fischer found that the government failed to allege specifically, beyond conclusory assertions, how the $330 million that was not diverted, but rather was used to invest in two drillships, was connected to the alleged fraud against the 1MDB fund, or that the funds were involved in a money laundering transaction. In fact, there was no allegation that PetroSaudi was involved in the scheme at all.

Judge Fischer has given the government until March 29 to file an amended complaint.

Judge Fischer’s order can be found here.

Financial Planner Sentenced to Over 8 Years Imprisonment

Gerald Allan Eaton, a former certified financial planner employed by Heritage Financial Group, was sentenced to 102 months imprisonment after pleading guilty in September 2020 to mail fraud, wire fraud, and aggravated identify theft. Eaton was charged with stealing over $3.7 million from over 20 clients over the course of two decades. Prosecutors alleged that Eaton forged his clients’ signatures on checks and other financial documents, and diverted proceeds from his client’s investment accounts to pay his own expenses, including credit card bills and his home equity line of credit. Eaton allegedly targeted elderly clients or clients in poor mental and physical health in an effort to avoid detection. In addition to the prison sentence, Eaton must repay $3.8 million in restitution to his victims, plus an additional $1.7 million in interest. The SEC has also entered an order barring Eaton from the securities industry.

During sentencing, Massachusetts District Court Judge Douglas P. Woodlock rejected arguments by Eaton’s attorney that Heritage Financial Group could have ensured that stronger compliance controls were in place to prevent fraud.

The DOJ's press release can be found here.

New York Pharmacy Owner Charged in Health Care Fraud and Kickback Scheme

Robert John Sabet, owner of two pharmacies in New York City, was charged with conspiracy to commit health care fraud and pay kickbacks for his alleged role in a scheme that resulted in more than $4 million in Medicare and Medicaid reimbursements.

Sabet is alleged to have conspired to bill Medicare and Medicaid for expensive prescription drugs that were not needed or had not been dispensed at all. According to the indictment, Sabet also paid customers kickbacks and bribes to induce them to fill their prescriptions at pharmacies that he owned and to allow him to bill Medicare and Medicaid on their behalf. Sabet is alleged to have used the proceeds of his scheme to purchase a luxury car worth over a quarter-million dollars.

If convicted, Sabet faces 10 years imprisonment for conspiracy to commit health care fraud and unlawful spending and 5 years imprisonment for conspiracy to pay kickbacks and bribes.

The DOJ’s press release can be found here.

Our Analysis

Beyond Robinhood: SEC Oversight in the FinTech Industry

With SEC claims on the rise and the recent Whistleblower amendments, FinTech businesses will be well-served by reviewing their compliance operations and consulting with counsel as needed to mitigate avoidable risk. 

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Mischievous Activity During the Pandemic Will Lead to More Healthcare Fraud Recoveries in 2021

Though there appears to be a dim light at the end of the pandemic tunnel, much remains uncertain – everything from the timing of school reopenings to the nature and business of the healthcare industry.

Part of that uncertainty revolves around fraud litigation: specifically, how much of it has taken place during the pandemic. The one thing that seems certain is that fraud prosecution will be a priority in the coming year.

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Arent Fox

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