Louisiana Business Pleads Guilty to $48 Million Fraudulent Medical Reimbursement Scheme
Louisiana-based company The Total Financial Group, Inc. (“TTFG”) and its principles entered a guilty plea to a scheme involving a multiple employer welfare arrangement. The company pled guilty to conspiracy and making false statements in connection with a multiple employer welfare arrangement, and the company’s two principals pled guilty to conspiracy to commit money laundering and conspiracy to defraud the United States, respectively. The defendants admitted as part of their guilty pleas that they created and marketed a medical reimbursement account program called “Classic 105” from 2012 to 2017, which purported to be a multiple employer welfare arrangement that would offer supplemental benefits for employees to pay for co-pays and deductibles through a tax-exempt contribution from the employee and a loan from a financial institution to make up for the contribution. TTFG represented that participants would never have to pay out of pocket to repay the loan and that the arrangement would allow most participants to receive an increase in net take-home pay. The defendants admitted, however, that they never received a loan for the program and participants never made contributions; instead, TTFG facilitated “paper transactions” that improperly reduced the participants’ taxable wages and employers’ FICA payments without their knowledge, causing an underpayment of at least $23.3 million in federal FICA taxes and the participants’ underreporting of personal income and unemployment taxes. TTFG’s principals used the arrangement’s fees—the only money actually paid to TTFG—to pay for personal expenses such as a boat, recreational trailer, jet skis, and several cars and properties. As part of their guilty pleas, the defendants will forfeit assets amounting to $6.3 million and will repay $48 million in restitution for their victims. The defendants will be sentenced on September 5, 2019.
United States Intervenes in FCA Lawsuit Alleging Inflated Claims and Waiving Patient Copays
The United States filed a complaint in intervention against two Florida drug compounding pharmacies, Smart Pharmacy Inc. and SP2, LC, and their co-owner, alleging that the pharmacies improperly included an antipsychotic drug, aripiprazole, in compounded pain creams without adequate clinical basis, to increase reimbursement for the prescriptions from federal health care programs. The complaint also alleged that the company routinely waived their patients’ copayment obligations regardless of a patient’s ability to pay. The qui tam lawsuits were originally filed by two former employees of Smart Pharmacy.
Green Energy Company to Pay $7.7 Million to SEC for Securities Exchange Act Violations
Equal Earth Inc., a San Diego-based green energy company reached an agreement with the U.S. Securities and Exchange Commission (“SEC”) to disgorge $5.6 million, plus $1.3 million in interest, and pay an $855,000 penalty to resolve securities violations. The SEC’s complaint alleged that Equal Earth’s CEO and COO claimed the company acquired businesses it had not, and realized revenues of $79 million in acquisitions when the company only earned $684,000. Equal Earth allegedly misled investors about the company’s growth and financial position over the course of two years. The CEO and COO also told potential investors that the company had 10 megawatts of projects under contract, with over 300 megawatts more either in letters of intent or “in its pipeline.” The SEC alleged this claim was false “because the maximum generating power that Equal Earth actually owned was, at most, two megawatts.” In addition to the company’s settlement payments, the CEO agreed to disgorge $658,000 (from his earnings of selling his own stock in the company), and both the CEO and COO will pay a $167,500 penalty for their alleged Securities Exchange Act violations. The case is Securities & Exchange Comm’n v. Duggan, case number 3:19-cv-01138, in the U.S. District Court for the Southern District of California.
Third Circuit Tosses Medco Executive’s False Claims Act Suit
The Third Circuit refused to reinstate a False Claims Act lawsuit brought by a former vice president of Medco Health Solutions Inc., which alleged that the company engaged in a kickback scheme involving fraudulent drug discounts arrangements for AstraZeneca drugs Nexium and Toprol-XL. The Third Circuit affirmed the Delaware district court’s ruling that the executive was not the original source of the information, reasoning that he did not take part in negotiating the alleged illicit agreements and instead learned the information solely from other Medco employees and reviewing existing agreements. The court also found that news reports and other lawsuits concerning the alleged scheme were in the public sphere before the executive filed his complaint, thus precluding his suit under the public disclosure bar. The case is United States ex rel. Denis v. Medco Health Solutions Inc., case number 17-3562, in the U.S. Court of Appeals for the Third Circuit.