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White Collar + Fraud + Investigations + Compliance

Posts in Department of Justice (DOJ).

On July 26, 2023, the U.S. Department of Justice, National Security Division (“DOJ NSD”), the U.S. Department of Commerce’s Bureau of Industry and Security (“BIS”), and the U.S. Department of Treasury’s Office of Foreign Assets Control (“OFAC”) issued the second-ever Tri-Seal Compliance Note (the “Note”). This Note discusses Voluntary Self-Disclosure of Potential Violations and discusses each agency’s aligned expectations for companies that discover potential violations of any administrative or criminal violations of sanctions and export controls, including expectations for prompt disclosure and remediation of such violations. The agencies collectively stress the important role that private sector businesses play in identifying threats from malicious actors and foreign adversaries seeking to subvert the U.S. financial system or access sensitive U.S. technologies or goods.

This week, the U.S. Department of Justice (“DOJ”) announced the implementation of a Voluntary Self-Disclosure Policy (the “VSD Policy”).  The DOJ declared that U.S. Attorney’s Offices throughout the nation will offer benefits to companies that voluntarily and timely disclose misconduct.  Effective immediately, the VSD Policy details the parameters and criteria for voluntary self-disclosure of misconduct.  Under the VSD Policy, a company is considered to have made a voluntary self-disclosure if it is aware of misconduct prior to being publicly reported and timely discloses all relevant facts to a U.S. Attorney’s Office.  A company that meets this criteria and remediates the criminal conduct will experience significant benefits including the U.S. Attorney’s Office not seeking a guilty plea or imposing a criminal penalty. 

Today, the DOJ announced a settlement with Philips RS North America LLC, formerly known as Respironics Inc., related to allegations of that it paid illegal kickbacks to durable medical equipment (“DME”) suppliers. Notably, the DOJ alleges that Respironics Inc. (“Respironics”) gave DME suppliers data related to prescribing physicians to assist the suppliers in marketing to physicians. The federal Anti-Kickback Statute (“AKS”) prohibits a person or entity from knowingly and willfully offering, paying, soliciting or receiving remuneration to induce or reward the purchase of any item that may be reimbursed under the federal healthcare programs.  Here, DOJ alleges that Respironics caused certain DME suppliers to submit false claims for medical equipment that were false because of its inducements to the DME suppliers in the form of free data.

Another day, another kickback testing settlement: Last week, the DOJ announced a settlement between the United States and two clinical laboratories located in Mississippi and Texas (and their owners). Under the Settlement, the labs and their individual owners agreed to pay $5.7 Million to resolve kickback allegations. The DOJ alleges that the labs entered into sham agreements with marketers to provide various services at an hourly rate, when, in reality, the labs paid the marketers a percentage of revenue, including Medicare reimbursement, in return for the samples.  Most practitioners in this space know that kickbacks can show up in a number of different forms. But, often liability/exposure turns on the intended purpose of the underlying agreements. What is the spirit of the agreement in question? At times, companies want to rely on papered agreements, when, in fact, those sham agreements often serve as evidence of remuneration.

Last week, the DOJ announced a settlement between Aerojet Rocketdyne Inc. (“Aerojet”) and, relator, Brian Markus, related to allegations that Aerojet violated the False Claims Act (“FCA”) by misrepresenting its compliance with cybersecurity requirements in certain federal government contracts. There a few interesting things to note here. 

First, despite the Government’s clear interest in this area evidenced by the Department’s Civil Cyber-Fraud Initiative, the DOJ declined to intervene in the matter.  Second, the parties settled this matter only after the Court declined to dismiss this case at the Summary Judgment stage. Notably, it appears that Aerojet disclosed its noncompliance to the Government. The Court considered this fact, but also noted that “these disclosures hold less weight when they are incomplete.” Memorandum and Order Re: Cross-Motions For Summary Judgement, U.S. ex rel. Markus v. Aerojet Rocketdyne Holdings, Inc., No. 2:15-cv-02245 (E.D. Cal.), at 11. As such, the Court held that there was a “[a] genuine dispute of material fact . . . as to the sufficiency of the disclosures about the 2013 breaches and information gathered in audits done by outside firms.”  See id. at 14. 

Now that the dust has settled, it's unsurprising that these more complicated Paycheck Protection Program ("PPP") fraud schemes are beginning to surface. Here, the DOJ criminally charged eight defendants related to fraudulently obtained PPP loans, Economic Injury Disaster loans ("EIDL"), and Small Business Administration ("SBA") loans. These allegations would obviously implicate False Claims Act and FIRREA violations as well given the inherent overlap. And, I have no doubt that as DOJ continues to uncover and investigate pandemic-related loan schemes (and whistleblowers continue to come forward) we will see more civil penalties and resolutions involving this type of conduct.

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