Articles Posted in Whistleblower Cases

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The Securities and Exchange Commission (SEC) announced that a whistleblower has earned an award of more than $1 million for providing the SEC with new information and substantial corroborating documentation of a securities law violation by a registered entity that impacted retail customers.

Today’s award reflects the impact that whistleblower information can have in uncovering violations that harm the retail investor,” said Jane Norberg, Chief of the SEC’s Office of the Whistleblower. “We welcome high-quality information about potential securities-law violations from those in and outside a company.

More than $162 million has been awarded to 47 whistleblowers. By law, the SEC protects the confidentiality of whistleblowers and does not disclose information that might directly or indirectly reveal a whistleblower’s identity. Whistleblowers may be eligible for an award when they voluntarily provide the SEC with original, timely, and credible information that leads to a successful enforcement action.

Dr. Allan Spagnardi and Dr. Stacy Spagnardi have been arraigned on conspiracy and fraud charges for using their chiropractic clinic to submit false claims to private insurance providers.

“These two chiropractors are alleged to have reported fake patient visits in order to enrich themselves through fraudulent insurance claims,” said U.S. Attorney Byung J. “BJay” Pak. “Fraudulent healthcare billing threatens the integrity of our healthcare system and is ultimately paid for by the taxpayers.”

“Healthcare providers need to think twice before trying to illegally maximize their profits at the expense of honest citizens,” said David J. LeValley, Special Agent in Charge of the Atlanta FBI. “Bringing this case to federal court is an example of our determination to protect those citizens and root out waste, fraud and abuse of our healthcare system.”

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Pharmaceutical company Mylan will pay a total of $20.3 million to the Massachusetts Medicaid program (MassHealth) to resolve allegations that it knowingly underpaid rebates owed to the Medicaid program for EpiPens dispensed to MassHealth members, Attorney General Maura Healey announced today.

The payment is part of a global settlement with the United States, the District of Columbia, and all 49 other states settling allegations against Mylan Inc. and its wholly-owned subsidiary, Mylan Specialty L.P. (Mylan).

“Mylan knowingly misrepresented this drug to MassHealth in order to underpay on rebates and make a profit at the expense of our state,” said AG Healey. “This settlement brings critical funds back to our MassHealth program. Companies that receive payments from taxpayer-funded programs must be held accountable when they abuse this system.”

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Four Houston-area hospitals have agreed to pay $8.6 million to settle allegations they received kickbacks from various ambulance companies in exchange for rights to the hospitals’ more lucrative Medicare and Medicaid transport referrals. The hospitals are all affiliated with Hospital Corporation of America (HCA), which is based in Nashville, Tennessee, and include Bayshore Medical Center, Clear Lake Regional Medical Center, West Houston Medical Center and East Houston Regional Medical Center.

This is the second such announcement this office has made holding accountable medical institutions (hospitals and skilled nursing facilities) for these ambulance “swapping” arrangements. The first such settlement involved another defendant in this same investigation. Prior to these, virtually all cases focused on the actions of the ambulance companies, rather than the medical institutions they serve.

The Anti-Kickback Statute prohibits offering, paying, soliciting or receiving remuneration to induce referrals of items or services covered by federal health care programs, including Medicare and Medicaid. The settlement announced today resolves allegations that patients at the four hospitals received free or heavily discounted ambulance transports from various ambulance companies in exchange for the hospitals’ referral of other lucrative Medicare and Medicaid business to those same companies. If not for this kickback arrangement, the four hospitals would have been financially responsible for the patient transports at significantly higher rates.

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Attorney General Lisa Madigan today announced a $4.5 million settlement to resolve a lawsuit under the Illinois False Claims Act against 13 Chicago-area gas stations and two gas station owners for sales tax fraud.

Madigan’s lawsuit alleged that since 2002, defendants submitted false monthly sales tax returns to the Illinois Department of Revenue, resulting in millions of dollars of lost tax revenue to the state. The lawsuit alleged defendants operated the scheme by underreporting general merchandise sales and using inaccurate sales tax reporting rates. Ten of the gas stations are currently in operation and are owned by George Nediyakalayil, and Tito Kandarapallil co-owns one of the gas stations with Nediyakalayil.

“This settlement is another warning to business owners considering ripping off Illinois residents and the state by failing to pay their taxes,” Madigan said. “Cheating the state out of millions of taxpayer dollars will not be tolerated.”

The 13 Chicago-area gas stations involved in the lawsuit are listed at the following locations:

  • 3216 W. North Ave., Stone Park
  • 4401 N. Harlem Ave., Norridge
  • 1551 W. North Ave., Chicago
  • 2474 Thatcher Ave., River Grove
  • 2401 Lincoln Hwy., Olympia Fields
  • 1768 W. Armitage Ave., Chicago
  • 2800 W. Fullerton Ave., Chicago
  • 4000 W. Peterson Ave., Chicago
  • 3200 N. Kimball Ave., Chicago
  • 1200 W. Belmont Ave., Chicago
  • 3968 W. Belmont Ave., Chicago
  • 800 W. Touhy Ave., Des Plaines
  • 7850 S. Martin Luther King Dr., Chicago

The settlement resolves allegations brought in a lawsuit filed under the whistleblower provisions of the Illinois False Claims Act, which permits private parties to file suit on behalf of the state for false claims and share in a portion of the state’s recovery.

The investigation, lawsuit and settlement were handled by Special Litigation Bureau Chief Jeanne Witherspoon and Assistant Attorneys General John Wolfsmith, Long Truong and Leigh Richie in conjunction with the Illinois Department of Revenue.

Sales tax evasion is now being targeted by many states of the union including companies who fail to pay sales taxes relating to internet transactions. Some states like New York and Illinois have whistleblower laws allowing citizens to reveal sales tax fraud and collect a percentage of what the states collect. Other states are considering passage of such laws as the amounts of fraud are significant.

Jeffrey Newman represents whistleblowers but not those in this case. If you are aware of companies that are not paying sales tax, contact Attorney Newman at 1-800-682-7157.

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Alden, New York-based contractors, Zoladz Construction Company Inc. (ZCCI), Arsenal Contracting LLC (Arsenal), and Alliance Contracting LLC (Alliance), along with two owners, John Zoladz of Darien, New York, and David Lyons of Grand Island, New York, have agreed to pay the United States more than $3 million to settle allegations that they violated the False Claims Act by improperly obtaining federal set-aside contracts designated for service-disabled veteran-owned (SDVO) small businesses, the Justice Department announced today.    

To qualify as a SDVO small business, a service-disabled veteran must own and control the company.  The United States alleged that Zoladz recruited a service-disabled veteran to serve as a figurehead for Arsenal, which purported to be a legitimate SDVO small business but which was, in fact, managed and controlled by Zoladz and Lyons, neither of whom is a service-disabled veteran.  The United States alleged that Arsenal was a sham company that had scant employees of its own and instead relied on Alliance and ZCCI employees to function.  After receiving numerous SDVO small business contracts, Arsenal is alleged to have subcontracted nearly all of the work under the contracts to Alliance, which was owned by Zoladz and Lyons, and ZCCI, which was owned by Zoladz.  Neither Alliance nor ZCCI were eligible to participate in SDVO small business contracting programs.  Zoladz and Lyons are alleged to have carried out their scheme by, among other things, making or causing false statements to be made to the U.S. Department of Veterans’ Affairs (VA) regarding Arsenal’s eligibility to participate in the SDVO small business contracting program and the company’s compliance with SDVO small business requirements.

“The contracting companies and principals allowed greed to corrupt a federal process intended to benefit service-disabled, veteran-owned small businesses,” said Special Agent in Charge Adam S. Cohen of FBI Buffalo Field Office. “The FBI and our partners will continue to identify and investigate companies and individuals who target these types of programs for personal gain.”

Business that are active in importing goods for sale in the United States are revealing their competitor’s fraud in cheating on customs tariffs and collecting upto 30% of what the government recovers from their claims.  Filing a claim under the False Claims Act  stops cheating competitor from fudging on tariffs and allows for a significant bounty  for reporting this fraud to the federal government. L Toyo Ink SC Holdings Co. Ltd. (“Toyo”), a l Japanese manufacturer of printing inks with affiliates in New Jersey and Illinois, agreed to pay $45 million to settle claims of tariff evasion brought under the False Claims Act. The suit alleged that Toyo was deliberating evading paying required duties on imports by knowingly misrepresenting the country of origin for a particular colorant product. While Toyo represented the country of origin for the colorant to be Japan and Mexico, the colorant was actually imported from China and India and undergoing a superficial finishing process in Japan and Mexico.

The Department of Justice is aware of an increase in customs fraud  including such  illegal conduct such as mislabeling products to conceal their true country of origin, removal of required labeling prior to delivery of products out of the country, undervaluing products to avoid paying import duties and other forms of tariff evasion.

The government settled a $6.3 million case under the False Claims Act brought by a former sales account manager for a Chinese-owned logistics and warehousing company, CMAI. CMAI imports automotive parts which are distributed to Ford, General Motors and Chrysler. CMAI paid $6.3 million to resolve charges that the company evaded customs duties on the imported automotive parts.

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The Visiting Nurse Service of New York,, which says it is the largest U.S. nonprofit home health care agency, will face  a whistleblower lawsuit accusing it of defrauding Medicare and Medicaid and failing to provide patients with care prescribed by doctors. U.S. District Judge Alison Nathan in Manhattan said the plaintiff whistleblower Edward Lacey properly  alleged that the nonprofit filed false payment claims based on several alleged fraudulent schemes, violating the federal and state False Claims Acts.

Lacey had been a Visiting Nurse Service vice president of operations improvement and integration and worked there for 16 years before leaving in January 2015.The company said it served 142,057 patients last year in New York City, Nassau, Suffolk and Westchester counties.

He says his former employer of fraudulently  billed and received hundreds of millions of dollars from Medicare and Medicaid through false and improper billings, including services that doctors ordered but which it never provided for tens of thousands of “elderly, disabled and impoverished” patients. Lacey detailed many instances of alleged improper care, including for 14 patients with such conditions as Alzheimer’s disease, coronary disease, diabetes and a kidney transplant who received only small fractions or none of the care they were prescribed.

The Securities and Exchange Commission today filed fraud charges against a Massachusetts-based biopharmaceutical company that exaggerated how many new patients actually filled prescriptions for an expensive drug that was its sole source of revenue.

Aegerion Pharmaceuticals, now a subsidiary of Novelion Therapeutics, has agreed to pay a $4.1 million penalty to settle the charges that it misled investors on multiple occasions in 2013.  The SEC’s complaint alleges that Aegerion told investors that the number of unfilled prescriptions for Juxtapid was not material and the “vast majority” of patients receiving prescriptions ultimately purchased the drug.  The SEC alleges that Aegerion’s records reflect that it was actually around 50 percent of prescriptions that resulted in actual drug purchases.

“By no one’s math is 50 percent a vast majority,” said Paul Levenson, Director of the SEC’s Boston Regional Office.  “When companies publicly discuss their financial data, they must be truthful.  Whether they supply hard numbers or give broader descriptions, they cannot mislead investors.”

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Swedish telecom giant Telia will pay nearly $1 billion in penalties  settle a United States Department of Justice probe on bribes paid in Uzbekistan. U.S. prosecutors described the Uzbek government official who received the bribes as “a close relative of a high-ranking government official and who exercised influence over Uzbek telecommunications industry regulators.” U.S. authorities charged that Telia, its Uzbek subsidiary,  had conspired to pay an Uzbek government official more than $330 million in bribes in exchange for help in expanding into Uzbekistan’s telecommunications market, one of the largest in Central Asia.

That official is widely known to be Gulnara Karimova, whose father ruled Uzbekistan for a quarter-century until his death in 2016.

In a similar Uzbekistan bribe case,  VimpelCom admitted in February 2016 to having paid more than $114 million in bribes to a high-ranking Uzbekistan official, and agreed to pay $795 million in penalties to resolve related U.S. and Dutch probes.