Investigations Newsletter: Third Circuit Upholds Convictions in $100 Million Referral Scheme

Arent Fox

Nissan and its Former CEO Settle Charges for Fraudulently Concealing More than $140 Million in Compensation and Retirement Benefits

This week, the Securities and Exchange Commission (SEC) announced a settlement with Japanese automaker Nissan, its former CEO Carlos Ghosn, and its former director Greg Kelly concerning alleged violations of the anti-fraud provisions of the Securities Exchange Act of 1934. According to the SEC, Ghosn and Kelly concealed over $90 million in compensation and more than $50 million in retirement benefits from public disclosure. The alleged scheme included secret contracts, backdated letters, and altered calculations of Ghosn’s pension allowance to create a structure whereby the payment of the undisclosed compensation would be made after his retirement. The SEC further claims Ghosn’s subordinates and Kelly misled Nissan’s CFO, and that the company subsequently issued a misleading disclosure concerning the increased pension allowance.

The settlement follows Ghosn’s arrest in Japan last November. Nissan, Ghosn, and Kelly settled the SEC’s charges without admitting or denying any claims. As part of the settlement, Nissan will pay a $15 million fine, Ghosn, will pay $1 million, and Kelly will pay $100,000. Ghosn did not receive any of the $140 million in undisclosed compensation and retirement benefits.

The SEC’s Complaint and Order can be read here.

Former Online Pet Pharmacy Marketing Director Settles Insider Trading Case

The former director of marketing for PetMed Express (PetMed), an online pet pharmacy, reached a deal with the US Securities and Exchange Commission (SEC) to resolve insider trading allegations, among others. According to the SEC, the former director, who was also a member of the management committee, earned over $225,000 and avoided losses on a half dozen trades of PetMed’s stock using insider information, often selling the stock shortly after earnings announcements. The SEC claimed the former director’s position at the company provided him with access to several sources of nonpublic information, including presentations to the CEO and CFO regarding PetMed’s financial well-being and performance. The SEC also alleged that the former director shared the inside information with a friend, who then purchased call options that resulted in a profit of nearly $25,000. The SEC noted that it was the friend’s first time trading in PetMed stock.

Additionally, because PetMed’s own insider trading policy explicitly prevented employees from trading its stock when in possession of inside information and during specified blackout periods, the SEC further alleged the former director breached PetMed’s policies and the fiduciary duties that he owed to the PetMed, in violation of the Securities Exchange Act. The SEC specifically mentioned that the former director acknowledged the policies by signing memoranda that the company regularly issued.

The case, filed in the Southern District of Florida, is 19-cv-81304.

Litigation Developments

Third Circuit Upholds Convictions in $100 Million Referral Scheme

On September 24, 2019, the Third Circuit upheld a doctor’s convictions for accepting bribes in exchange for referrals to a blood-testing lab. The doctor had allowed a company to operate a blood-drawing station in his New York-based medical office without a written agreement. The purported scheme resulted in more than $100 million in private insurance and Medicare payments for the business.

At the conclusion of an October 2017 trial, the doctor was found guilty of violations of the Anti-Kickback statute and the Travel Act and was sentenced to four years in prison. On appeal, the Third Circuit found that there was ample circumstantial evidence that the doctor intended to accept bribes. Although the doctor argued that he believed the payments he received from the blood-testing company each month were for rent because the business “consistently called the payments rent,” a company recruiter who cooperated with the government recorded a conversation in which the doctor “haggled over the payment scheme with a new potential lab” and noted the “good volume” he could send the lab.

On appeal, the doctor further claimed the bribery statute was “void for vagueness” because New York doctors were not provided “fair warning” that they could be held liable under the Travel Act. The Third Circuit was unpersuaded and concluded that Savino had fair notice. The Third Circuit panel also determined the facts were sufficient to sustain a jury verdict. Dozens of other individuals have been convicted as part of the same scheme.

The case is US v. Savino, case number 18-2223, in the US Court of Appeals for the Third Circuit.

Eleven More Doctors Charged in Opioid Sweep

This week, the Department of Justice (DOJ) charged eleven doctors with criminal charges related to oversupplying patients with opioid prescriptions. The doctors, all based in the Appalachian region, were caught in a second sweep conducted by the Appalachian Regional Prescription Opioid Strike Force, part of an ongoing effort to prevent unlawful prescription and distribution of opioids. The charges, which are part of the DOJ’s efforts to pursue those responsible for the opioid crisis, included multiple claims, including unlawful prescription of drugs without legitimate medical reasons. Among the allegations, the DOJ claimed one doctor met patients at a gas station or parking lot to write prescriptions. Another individual was charged for allegedly defrauding a Veterans Health Administration health care benefits program. Overall, the task force has charged sixty people.

More about the charges the task force’s efforts can be found here.

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Arent Fox

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