Investigations Newsletter: Supreme Court To Decide on DOJ Authority in FCA Suits

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Supreme Court To Decide on DOJ Authority in FCA Suits

On Tuesday, the US Supreme court agreed to hear a case examining whether the federal government has lost its authority to dismiss a whistleblowers False Claims Act suit by waiting too long to intervene. The Supreme court heard a petition for certiorari by Jesse Polansky, a former consultant for UnitedHealth after the Third Circuit affirmed the dismissal of his FCA suit, where he asked the high court to clarify whether the government could intervene in an FCA case that it had initially declined to intervene in and to clarify the standard that should apply when courts consider motions from the government to dismiss whistleblower cases.

Historically, the DOJ has had broad authority to dismiss whistleblower FCA cases where it believed such a case lacked merit or could create unfavorable case law. Polansky had initially filed suit in 2012, accusing a health care billing certification company, Executive Health Resources, Inc. (EHR) (now known as Optum), of helping hospitals overbill federal health care programs by certifying inpatient care for services that should have been performed as less expensive outpatient services. Polansky argued that the government gave up its right to dismiss his FCA case when it initially declined to intervene in the suit in 2014 and waited to seek dismissal of the suit until 2019, under its authority to dismiss whistleblower FCA cases.

Although circuit courts have been divided over whether and when the government can invoke its authority to dismiss qui tam cases in which it initially declined to intervene, the DOJ and EHR urged the high court in May to deny the petition because differences in circuit courts’ standards were “minor” or “modest” in that “[a]ll are extremely deferential to the government.” DOJ also argued that “[i]f declining to move for dismissal immediately were treated as a permanent waiver of [the government’s] statutory prerogative, then the government might often seek dismissal during the seal period in circumstances where it would otherwise allow relators a further opportunity to establish that their suits have merit.”

The case is US ex rel. Polansky v. Executive Health Resources Inc. et al., case number 21-1052, in the Supreme Court of the United States.

Elizabeth Holmes’ Boyfriend Argues He Was Not Partner in Crime in Theranos Fraud Trial

As the fraud trial for former Theranos executive, Ramesh “Sunny” Balwani, comes to a close, Balwani’s attorney made a final plea to the jury that Balwani’s romantic relationship with Theranos’ ex-CEO, Elizabeth Holmes, does not prove that he was a co-conspirator in a fraud. During the trial, Balwani’s attorney, Jeff Coopersmith, argued that the fact that Balwani and Holmes had a romantic relationship, as seen through their text message exchange, was insufficient to demonstrate that Balwani committed a crime. According to Coopersmith, none of the messages between the couple show that they were trying to dupe investors or patients, and Balwani had an “unwavering and sincere belief” in the Theranos technology, in which he invested $4.5 million of his own money.

US prosecutor, Jeff Schenk, alleged that Balwani knew the startup was running out of money, and instead of letting his “girlfriend’s business fail,” he worked with Holmes to defraud investors and patients. Schenk argued that under the alleged scheme, Balwani made false financial forecasts to investors and told them that Theranos would generate $1 billion in revenue while knowing that Theranos tests were problematic and that the company’s rollout in Walgreens was struggling.

Holmes’ trial ended on January 3rd, where she was convicted of conspiracy and wire fraud and cleared of charges alleging that she defrauded patients with blood testing technology she knew did not work. Balwani faced the same charges when his trial began in March.

The case is US v. Elizabeth Holmes et al., case number 5:18-cr-00258, in the US District Court for the Northern District of California.

Boston Celtics Player Testifies in $63 Million Fraud Trial

On Tuesday, Marcus Smart of the Boston Celtics took the witness stand in a $63 million insurance fraud case against Matthew James, former head of third-party billing company Leale Inc. In 2018, Smart punched a glass picture frame, missing the tendons in his hand by an eighth of an inch, and testified that James impersonated him regarding coverage for the 2018 injury that almost cost him his basketball career. James was later charged with health care fraud, health care fraud conspiracy, wire fraud, aggravated identity theft, and money laundering conspiracy, and was also accused of working with out-of-network doctors to make medical procedures appear more complicated and expensive than they actually were.

At trial, prosecutors alleged that James submitted improper billing codes to insurance companies in order to induce them to send $63 million worth of fraudulent reimbursements to physicians’ clients. If coverage was denied, James would allegedly pose as a patient and beg insurers to reprocess claims. During the trial, Smart testified that his medical report falsely stated he received a partial tendon laceration repair, even though he was informed no tendons were injured.

The case is US v. James, case number 2:19-cr-00382, in the US District Court for the Eastern District of New York.

Ex-Rite Aid Executive Settles With SEC for Insider Trading

Former vice president of internal assurance services for Rite Aid Corp., Steven J. Sheinfeld, is set to pay just over $300,000 to settle SEC allegations that he committed insider trading. The SEC claims Sheinfeld avoided $140,000 in losses by selling Rite Aid stock with the knowledge that the company’s proposed merger with Walgreens was not going to close by a January 2017 deadline.

The SEC alleged that, “failure to meet this closing deadline meant that Rite Aid and Walgreens had not obtained regulatory approval for the planned merger, and that the deal terms would need to be renegotiated…Sheinfeld knew, or recklessly avoided knowing, that when the market learned this information, Rite Aid’s stock price would fall.” The SEC also claimed that since Sheinfeld oversaw the company’s compliance with its code of ethics and conduct, he must have known he was barred from trading on material nonpublic information. Sheinfeld denied the allegations and claimed he had “no knowledge of the reason for the potential missed deadline,” and that the SEC failed to show how he had allegedly violated federal securities laws. Nonetheless, Sheinfeld settled with the SEC and will pay the six-figure civil penalty in three installments over nine months.

The case is Securities and Exchange Commission v. Sheinfeld, case number 1:20-cv-01692, in the US District Court for the Middle District of Pennsylvania.

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